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FERC Mandates Use of Conservative Resource Adequacy Standard Which Will Raise Retail Rates
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March 18, 2011
In another order which will eventually raise retail electric rates, FERC mandated the use of a using a "one day in ten year" loss of load criterion in resource adequacy studies in the ReliabilityFirst region (RM10-10).
Several state regulators, including the Public Utilities Commission of Ohio, said that FERC lacked jurisdiction to address a resource adequacy planning criterion. State regulators and other parties also objected to the use of the "one day in ten year" standard given rapid changes in the electric industry.
Indeed, given the potential for price responsive demand, plug-in electric vehicles, and distributed generation, the "one day in ten year" standard, which despite FERC protestations to the contrary will find its way into FERC-mandated capacity purchase obligations, will lead to the "gold-plating" of the electric system that competitive markets were supposedly meant to eliminate, by using an overly conservative planning assumption leading to over-procurement of resource adequacy.
In comments to FERC, economist James F. Wilson said that the "one day in ten years" reliability criterion 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.
FERC asserted that the approved reliability standard, BAL-502-RFC-02, which mandates the use of a "one day in ten year" criterion for resource adequacy planning, "does not touch the establishment of specific resource adequacy requirements, and thus does not intrude on the state's decisional authority with respect to building or acquisition of assets or capacity to meet resource adequacy needs.
While FERC may be correct that the four corners of the reliability standard do not direct any measures to address any reliability violations (e.g. insufficient resource adequacy) found under the standard, the standard will now be used to study resource adequacy and measure whether such additional procurements are necessary. Given FERC's strident belief that insufficient resource adequacy somehow falls into its jurisdiction by supposedly impacting "just and reasonable" wholesale prices, it is a fait accompli that all resource adequacy decisions in ReliabilityFirst must now answer to a "one day in ten year" standard. In other words, although the reliability standard does not order specific procurements, any decisions by state regulators or load using a different reliability standard in planning that justifies a procurement outcome different from FERC will be in conflict with the reliability standard, which will be used to justify any FERC pre-emption.
PUCO correctly noted that FERC's jurisdiction in adopting reliability standards is limited to those which provide for "reliable operation" of the bulk-power system, which by statute means, "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."
Clearly, a lack of adequate resources to serve firm load does not lead to, "instability, uncontrolled separation or cascading failures," as several measures, such as controlled load shedding, may be taken.
FERC dismissed this argument, torturing the statutory limitation by finding that, "[i]f resources cannot meet load, or are insufficient to provide a reserve margin above expected load, then instability, uncontrolled separation or cascading failures can result from the unanticipated loss of a system element. If this situation occurs, reliable operation is not achieved due to resource inadequacy," [emphasis added]. In other words, FERC has asserted that the mere potential for instability, uncontrolled separation or cascading failures justifies its actions, even where such supply-demand imbalances may be cured by firm load shedding.
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