The Nickel Report

On April 19, 2018, the Federal Energy Regulatory Commission (Commission) held its April open meeting. Among other things, the Commission issued major orders concerning the interconnection of large generating (and storage) facilities to the electric transmission grid and price formation in wholesale power markets. It also issued a notice of inquiry (NOI) exploring potential changes to the Commission’s policies governing the certification of new interstate natural gas facilities, addressed in a separate post. The Commission also took action on various other matters.

Generator Interconnection Reform: Order No. 845 (Docket No. RM17-8-000)

The Commission voted 5-0 to approve Order No. 845 to amend the pro forma Large Generator Interconnection Procedures (LGIP) and the pro forma Large Generator Interconnection Agreement (LGIA) to implement ten reforms. These reforms are intended to improve certainty for interconnection customers, promote more informed interconnection decisions, and enhance the interconnection process. The order followed a Notice of Proposed Rulemaking (NOPR) issued by the Commission on December 15, 2016.

The pro forma LGIP and pro forma LGIA concern the interconnection requirements for generating facilities having a capacity of more than 20 megawatts. Order No. 845 makes the most significant generic changes to the provisions of the LGIP and LGIA in more than a decade. In Order No. 845, the Commission revised the pro forma LGIP and pro forma LGIA as follows.

To improve certainty for interconnection customers, Order No. 845:

• “removes the limitation that interconnection customers may only exercise the option to build a transmission provider’s interconnection facilities and stand alone network upgrades in instances when the transmission provider cannot meet the dates proposed by the interconnection customer;” and
• “requires that transmission providers establish interconnection dispute resolution procedures that allow a disputing party to unilaterally seek non-binding dispute resolution.”

To promote more informed interconnection decisions, Order No. 845:

• “requires transmission providers to outline and make public a method for determining contingent facilities;”
• “requires transmission providers to list the specific study processes and assumptions for forming the network models used for interconnection studies;”
• “revises the definition of ‘Generating Facility’ to explicitly include electric storage resources;” and
• “establishes reporting requirements for aggregate interconnection study performance.”

To enhance the interconnection process, Order No. 845:

• “allows interconnection customers to request a level of interconnection service that is lower than their generating facility capacity;”
• “requires transmission providers to allow for provisional interconnection agreements that provide for limited operation of a generating facility prior to completion of the full interconnection process;”
• “requires transmission providers to create a process for interconnection customers to use surplus interconnection service at existing points of interconnection;” and
• “requires transmission providers to set forth a procedure to allow transmission providers to assess and, if necessary, study an interconnection customer’s technology changes without affecting the interconnection customer’s queued position.”

The Commission decided not to approve four proposals from its NOPR concerning scheduled periodic restudies, self-funding by the transmission owner, congestion and curtailment information, and modeling electric storage resources. The Commission also declined to institute a cap on the cost of network upgrades required for interconnection, but did not bar a transmission provider from proposing to establish cost caps. Finally, the Commission declined to take further action in this rulemaking proceeding on issues related to the coordination of affected systems. The Commission held a technical conference on April 3 and 4, 2018, on this issue and is considering next steps in Docket No. AD18-8-000.

Order No. 845 will become effective 75 days after the order’s publication in the Federal Register. Public utility transmission providers must submit the tariff changes required to implement the requirements of Order No. 845 within 90 days of the order’s publication. Public utility transmission providers may seek variations to the requirements in Order No. 845 in the same manner as allowed under Order No. 2003, including variations in response to established reliability requirements, consistent with or superior variations, or, for ISO/RTOs, an independent entity variation.

Commissioner LaFleur noted that “this is our first attempt since Order No. 2003 . . . to really take a broad look at generator interconnection processes.” Commissioner Powelson noted that the new rules would “promote commercially viable projects to move forward and create . . . that regulatory certainty we’ve been looking for in our interconnection rules.” Commissioner Chatterjee noted that he was a strong supporter of energy storage and particularly pleased by the surplus interconnection requirements to help facilitate the co-location of battery storage and existing generators. Similarly, Commissioner Glick noted that he was “particularly pleased that the rule provides flexibility for how we utilize existing interconnection capacity, such as provisional and surplus interconnection agreements.”

Order No. 844 (Docket No. RM17-2-000)

The Commission voted 5-0 to approve Order No. 844 to improve the transparency requirements of regional transmission organizations (RTOs) and independent system operators (ISOs) concerning uplift payments, operator-initiated commitments, and transmission constraint penalty factors.

This order derives from the Commission proceeding began in June 2014 to evaluate issues concerning price formation in ISO/RTO energy and ancillary services markets. In November 2015, the Commission directed each ISO/RTO to report on five price formation topics (i.e., fast-start pricing, managing multiple contingencies, look-ahead modeling, uplift allocation and transparency). The Commission addressed two of these price formation topics, uplift cost allocation and transparency, in a Notice of Proposed Rulemaking (NOPR) on January 19, 2017.

In Order No. 844, the Commission adopts the transparency-related proposals from the NOPR with certain modifications. Specifically, the Commission directs each RTO/ISO to establish in its tariff the following requirements:

• “requirements to report, on a monthly basis, total uplift payments for each transmission zone, broken out by day and uplift category (Zonal Uplift Report);”
• “requirements to report, on a monthly basis, total uplift payments for each resource (Resource-Specific Uplift Report);”
• “requirements to report, on a monthly basis, for each operator-initiated commitment, the size of the commitment, transmission zone, commitment reason, and commitment start time (Operator-Initiated Commitment Report);” and
• “the transmission constraint penalty factors used in its market software, as well as the circumstances under which those factors can set locational marginal prices (LMP), and any process by which they can be changed (Transmission Constraint Penalty Factor Requirements).”

Chairperson McIntyre noted that Order No. 844 “addresses the last of the generic price formation proceedings introduced by the Commission since 2014.” Commission LaFleur noted the while “uplift isn’t the sexiest topic . . . commitment actions that lead to uplift are often important to keeping the lights on, to keeping the system resilient.” She noted that the order would “[shed] light on those actions and the associated costs to provide additional information to the marketplace so the marketplace can solve the problems that they reveal . . . this information will guide the people planning market rules as well as the people making resource commitments to do them in a way that benefits customers.” Similarly, Commissioner Chatterjee stated that the order “is a win for all stakeholders participating in these markets as they will benefit from the added transparency it will bring to each RTO’s commitment, dispatch, and settlement processes.”

The Commission withdrew the uplift cost allocation proposal included in the NOPR. Chairperson McIntyre indicated that uplift allocation remained an important issue and the Commission “will continue to look for opportunities to address the matter in more targeted fashion elsewhere.” Commissioner LaFleur stated that she was persuaded not to adopt the uplift allocation rules based on comments indicating “the difficulty of identifying the causes of uplift with enough precision to then allocate the costs.” Commissioner Chatterjee noted his strong support for the Commission’s decision to withdraw the uplift allocation proposal.

Order No. 844 will become effective 75 days after publication in the Federal Register. Each ISO/RTO must submit the tariff changes required to implement the requirements of Order No. 844 within 60 days of the order’s effective date. The changes must become effective no more than 120 days after the compliance filings are due.

Other Highlights

• In his opening remarks Chairperson McIntyre highlighted two proceedings to demonstrate lesser known actions the Commission is taking to address resiliency. First, the Commission issued an order on April 3, 2018, in Docket No. EC18-32 pre-authorizing under Section 203 of the Federal Power Act the disposition and acquisition of jurisdictional transmission facilities among 28 utilities participating in the Regional Equipment Sharing for Transmission Outage Restoration (“RESTORE”) Agreement. The pre-authorization enables the participating utilities to provide mutual assistance to one other following an emergency of natural disaster quickly and efficiently. Second, the Commission will be holding, on June 26-28, its 9^th annual technical conference on increasing market and planning efficiency through improved software. Chairperson McIntyre also pointed to the questions raised in the pipeline certification NOI as another example of the Commission’s focus on changes that could improve the resilience of the electric transmission grid.
• Commission staff presented a summary of the 2017 State of the Markets report, which is staff’s assessment of natural gas, electric, and other energy markets’ developments during the past year. Among other things, the report indicated that natural gas and day-ahead power prices remain comparatively low, despite an increase in prices relative to 2016. Commissioner Chatterjee asserted that a theme developed in the report was fuel security, particularly in ISO-New England and Southern California, and noted that “I look back on 2017 as a year of close calls that underscore the importance of examining fuel security issues.” Commissioner Powelson expressed related concerns, highlighting the importance of gas/electric coordination efforts. Finally, Commissioner Glick highlighted the benefits to the resiliency of the grid resulting from the diversity of new renewables and energy storage.