FERC Lacks Jurisdiction to Set Resource Adequacy Reliability Standard, PUCO Says

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December 28, 2010

FERC's proposal to adopt an electric reliability standard requiring planning coordinators within ReliabilityFirst Corporation to analyze, assess, and document resource adequacy annually using a "one day in ten year" loss of load criterion exceeds FERC's authority under the Federal Power Act and usurps states' jurisdiction with respect to economic decisions regarding resource adequacy, the Public Utilities Commission of Ohio said in comments at FERC (RM10-10).

In an October NOIR, FERC proposed accepting ReliabilityFirst's reliability standard which requires planning coordinators within the RFC geographical footprint to analyze, assess, and document resource adequacy for load in the RFC footprint annually, to utilize a "one day in ten year" loss of load criterion, and to document and post load and resource capability in each area or transmission-constrained sub-area identified.

"The Proposed Standard improperly infringes on the authority of the States to remain the ultimate arbiter of decisions regarding how to balance capacity investments against the risk of curtailments," PUCO said.  NARUC submitted comments in support of PUCO's jurisdictional argument.

"Section 215 of the Federal Power Act carefully defines FERC's authority to adopt reliability standards.  It does not grant the Commission authority to mandate the use of a uniform resource adequacy planning criterion.  Selecting the appropriate balance between planning for additional resources and the risk of shortages is an economic and policy judgment, not a Section 215 reliability issue," PUCO added.

PUCO noted that FERC's authority is limited to adopting reliability standards which support the "reliable operation" of the bulk power system.  The term "reliable operation" means, under the Federal Power Act, "operating the elements of the bulk-power system within equipment and electric system thermal, voltage, and stability limits so that instability, uncontrolled separation, or cascading failures of such system will not occur as a result of a sudden disturbance, including a cybersecurity incident, or unanticipated failure of system elements."

"Any lack of adequate resources to serve all 'firm' load at current prices does not lead to 'instability, uncontrolled separation, or cascading failures' in the bulk power system.  It does not produce a 'sudden disturbance' or 'unanticipated failure.'  It leads to planned, mandatory shedding or curtailment of "firm" load.  Section 215 does not provide FERC jurisdiction to adopt a reliability standard to avoid the shedding or curtailment of 'firm' load based on a failure to plan to a specific resource adequacy objective," PUCO noted.

Furthermore, the definition of "reliability standard" includes, "requirements for the operation of existing bulk-power system facilities, including cybersecurity protection, and the design of planned additions or modifications to such facilities to the extent necessary to provide for reliable operation of the bulk-power system, but the term does not include any requirement to enlarge such facilities or to construct new transmission capacity or generation capacity."

"Given that Congress expressly distinguished 'reliable operation' from building transmission and generation capacity, the definition of 'reliable operation' cannot be enlarged and manipulated to include planning to build such capacity.  In this instance, Congress' intent to distinguish 'reliable operation' of the bulk-power system and resource adequacy is unmistakable," PUCO said.

"The Proposed Standard seeks to address the foundational issue of how to balance costs and risks and select a resource adequacy planning objective.  Making that selection is not within FERC's Section 215 authority, but is a core competency of state utility regulatory commissions," PUCO added.

"Including a planning objective in the reliability rules compromises the authority of state Commissions to remain the ultimate arbiter of economic decisions regarding how to balance capacity investments against the risk of curtailments," PUCO stressed.

Notwithstanding FERC's lack of jurisdiction, PUCO further argued that the use of the "one in ten year" objective was unsupported, given the significant change in the electric industry in the past decade.  The "one in ten year" standard came into widespread use, "when the industry was racing to build larger and larger power plants to meet rapidly growing demand," PUCO said.

"In that era, excess capacity in one year could be easily absorbed by demand growth in the next.  Today we are seeking to accurately match smaller demand and supply resource additions with unique characteristics to modest demand growth.  We have more sophisticated markets. And, modern planners have better data and modeling capabilities with which to improve on sixty year old practices," PUCO noted.

Economist James F. Wilson similarly said that the "one day in ten years" reliability criterion also appears excessively stringent from the customers' perspective, and, "could potentially serve as an impediment to the transition from resource adequacy based on administrative capacity mechanisms to market-driven resource adequacy based on pricing and market and contractual revenues."

The Ohio Consumers' Counsel also opposed the "overly conservative" one day in ten years standard as ignoring: 1) demand response; 2) advanced energy standards and distributed generation; 3) energy efficiency standards; 4) smart grid, advanced metering, and dynamic pricing; and 5) the development of electric vehicles.

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