United States of America Before the Federal Energy Regulatory Commission
Grid Resilience in Regional Transmission Organizations and Independent System Operators | Docket No. AD18-7-000
Reply Comments of the New England States Committee on Electricity
The New England States Committee on Electricity (“NESCOE”) files these reply comments pursuant to the Federal Energy Regulatory Commission’s (“FERC” or “Commission”) January 8, 2018 order in the above-referenced proceeding (“Resilience Order”) and the Commission’s March 20, 2018 Order Extending Time for Comments (“March 20 Order”). The Resilience Order required each independent system operator (“ISO”) and regional transmission organization (“RTO”) to file responses with the Commission focusing on how they evaluate and address resilience risks in their respective regions. NESCOE appreciates the opportunity to provide these comments.
- DESCRIPTION OF COMMENTER
NESCOE is the Regional State Committee for New England. It is governed by a board of managers appointed by the Governors of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont and is funded through a regional tariff that ISO New England Inc. (“ISO-NE”) administers. NESCOE’s mission is to represent the interests of the citizens of the New England region by advancing policies that will provide electricity at the lowest possible price over the long term, consistent with maintaining reliable service and environmental quality. These comments represent the collective view of the six New England states.
- The Resilience Order
The Resilience Order established a proceeding “to enable [the Commission] to examine holistically the resilience of the bulk power system.” Through the proceeding, the Commission seeks: “(1) to develop a common understanding among the Commission, industry, and others of what resilience of the bulk power system means and requires; (2) to understand how each RTO and ISO assesses resilience in its geographic footprint; and (3) to use this information to evaluate whether additional Commission action regarding resilience is appropriate at this time.”
The ISO/RTO Responses must address specific issues and questions regarding resilience that are set forth in the Resilience Order. Interested parties have an opportunity to submit reply comments to the ISO/RTO Responses. The March 20 Order stated that the Commission’s consideration of resilience issues “will benefit from a robust record and as much relevant information and thoughtful input as possible” and that, while the Resilience Order “characterized the comments from interested entities as ‘reply’ comments, we appreciate that interested entities may not only want to respond directly to the express content of the RTOs/ISOs’ submissions, but also to provide their own independent perspectives and recommendations with regard to grid resilience.”
- ISO-NE’s Response
On March 9, 2018, ISO-NE provided its response to the Resilience Order (the “ISO-NE Response”). ISO-NE identified “fuel security” as the primary challenge to the resilience of New England’s power system. ISO-NE described fuel security as “the assurance that power plants will have or be able to obtain the fuel they need to run, particularly in winter” or during periods of stressed conditions.
The ISO-NE Response characterized fuel security as a risk relating to electric power generation and not the transmission system. ISO-NE also discussed how this risk is heightened by the region’s significant shift toward natural-gas fired generation, noting that “[s]imilar concerns exist when there is heavy dependence on other resources.”
The ISO-NE Response included as an attachment ISO-NE’s January 17, 2018 Operational Fuel-Security Analysis (the “Fuel Security Analysis”). ISO-NE sponsored this analysis “to quantify the fuel-security risk, and to frame regional discussions on addressing it.” The Fuel Security Analysis examined 23 “hypothetical power system combinations”—scenarios with different resources and fuels on the system and assumed outages of “key energy facilities”—and produced a deterministic analysis to be “viewed as proxies for possible market and policy responses in a fuel constrained system.” ISO-NE stated that the Fuel Security Analysis results “suggest that New England’s limited fuel-delivery infrastructure will eventually cause severe reliability issues if fuel security is not addressed” and that the analysis illustrated “that the impacts of the current industry trends affecting the New England power system are moving in a negative direction, leading to a greater fuel security risk.”
What the Fuel Security Analysis is not is also important: it is not an investment decisional framework upon which to base consumer investments in certain resources. The underlying model is new and untested. ISO-NE constructed it without input by states or market participants, and ISO-NE did not initially express an intent to use the analysis to establish criteria for, or to base decisions regarding, specific resource retention or to identify cost-effective solutions to future reliability challenges. It should therefore be viewed for what it is—a high-level, directional, and not predictive look at hypothetical futures based on a set of assumptions that ISO-NE identified internally.
The ISO-NE Response recognized that the region’s “fuel-security challenges do not lend themselves to easy solutions.” ISO-NE discussed how stakeholders are already engaged in discussing the Fuel Security Analysis and the risks ISO-NE has identified, and ISO-NE provided the Commission with an anticipated timetable, beginning this year, for regional discussions of potential long-term solutions. ISO-NE stated that “[s]ome mitigation solutions may be outside the scope of ISO-NE’s jurisdiction and may need to be addressed by other appropriate entities.” With respect to these solutions, ISO-NE stated that “it will be up to Market Participants and state officials to take actions to secure forward fuel arrangements and bolster supply- or demand-side infrastructure to resolve the fundamental causes of fuel-delivery constraints.” More specifically, ISO-NE identified as potential investments “enhancements to natural gas infrastructure or the supply chains for LNG and oil; relaxation of rules to facilitate permitting and operation of dual-fuel resources; investments in even more renewables and the transmission needed to deliver it; or further measures to significantly reduce demand on the power system or the gas system.” ISO-NE also assured the Commission that it would take more immediate steps to address fuel security challenges if necessary.
The ISO-NE Response underscored the unique resilience challenges that each region experiences and the need for individual ISOs/RTOs “to determine what, if any, assessments are needed in light of the type of resilience threats faced there.” ISO-NE asked that, if the Commission issues further directives on resilience, “that ISO-NE be afforded time to continue working with stakeholders, and be extended flexibility to permit the development of solutions that meet the unique fuel-security challenges facing the region, and are consistent with New England markets.”
- Other ISO/RTO Responses
The ISO/RTO Responses from regions outside New England identified some risks to resilience that appear to be broadly experienced across ISOs/RTOs (e.g., weather) and others that are related to specific conditions and challenges unique to their power systems and markets. PJM noted that the “degree of risk” associated with events and threats to resilience varies among regions.
None of the other ISO/RTO Responses appear to characterize resilience as an acute or imminent risk in their regions at the present time. Like ISO-NE, a number of ISOs/RTOs underscored the need for regional flexibility in developing any solutions to resilience challenges. PJM asked the Commission to initiate a series of additional processes and take other actions in connection with resilience issues, with some requests specific to the PJM region and others that implicate all ISO/RTO regions.
The ISO/RTO Responses focused the Commission’s attention on the relationship between addressing resilience risks and associated costs. For example, the ERCOT Response stated that “the ultimate goal of policymakers should be to ensure that all foreseeable threats to the reliability of the bulk-power system are identified and addressed in the most cost-effective way.” The PJM Response noted the objective of meeting needs at the lowest cost: “Assuming that resilience requirements can be clearly articulated, meeting them through market-based solutions that allow resources to compete to meet those requirements is the preferred way to ensure that these objectives are met at the lowest cost to consumers.” PJM further stated that “[a]n important consideration to keep in mind when establishing criteria [for mitigating resilience threats] is that it is not economically efficient to protect the [Bulk Electric System] from every conceivable risk.” The CAISO Response stated that “nowhere does the proposed definition of resilience contemplate the undertaking of any type of cost-benefit analysis, prudence assessment, or the ability of entities to finance any extensive resilience efforts.” It added that “[c]onsidering the potentially substantial costs that could be associated with mitigations to improve resilience, these are necessary considerations in determining how much and what type of resilience is appropriate.”
The Resilience Order seeks to facilitate a shared understanding among the Commission, ISOs/RTOs, states, and stakeholders of the potential magnitude of power system risks—and, critically, unique challenges—in each ISO/RTO region. The Resilience Order also reflects a deliberate approach to assessing resilience issues. While requiring ISOs/RTOs to provide detailed information, the Commission does not prejudge the need for more prescriptive action. This approach is key, providing the platform for individual regions to define fully the nature and likelihood of any resilience risks and to explore, as necessary and appropriate, cost-effective solutions tailored to address a region’s specific challenges.
NESCOE shares ISO-NE’s perspective that fuel security presents the primary challenge to the resilience of New England’s power system at this time and emphasizes that New England is already actively considering issues related to understanding and crafting appropriate responses to this challenge. Building on the ISO-NE Response, NESCOE offers below information on the stakeholder discussions underway in New England on fuel security. This information includes a recommendation regarding the need for additional analysis about the range and likelihood of potential risks that ISO-NE has identified and principles to help guide the process for defining risks and considering any proposed solutions that emerge. NESCOE also cautions against prescriptive actions or further processes at this time that could unintentionally impede active regional efforts already underway or state actions that could help to mitigate any fuel security challenges. NESCOE additionally provides its perspective on the Commission’s proposed description of “resilience,” underscoring the need to incorporate cost-effectiveness considerations in any proposed actions to address resilience risks.
- New England’s Active Discussions on Fuel Security—and Any Actions Promoting System Resilience—Should Ensure that Risks are Fully Defined and Solutions are Guided by Consumer Interests
- Active Stakeholder Engagement on Fuel Security Analysis Is Already Underway
ISO-NE initiated work on its Fuel Security Analysis in 2016, well before the DOE Proposed Rule or the Resilience Order. In January 2018, ISO-NE began discussions with states and stakeholders on the results of the Fuel Security Analysis and, working with states and stakeholders, ISO-NE intends “to develop a problem statement and identify a long-term solution to address the [fuel security] risk.” While ISO-NE is currently working with stakeholders on defining the risk, it has also initiated a process for developing potential solutions, with that work expected to continue into 2019. NESCOE has been, and will continue to be, an active participant in regional discussions on fuel security.
- Additional Analysis to Define Fuel Security Risk
In response to ISO-NE’s invitation, in February 2018, states and stakeholders provided feedback on the study assumptions ISO-NE selected for its Fuel Security Analysis and submitted requests for ISO-NE to use its model to conduct additional scenario analysis reflecting other possible future system conditions. Prior to initiating the Fuel Security Analysis, ISO-NE had not solicited state or stakeholder feedback about its model, its assumptions regarding system conditions, or about compliance with state laws or policy outcomes.
NESCOE’s feedback focused on ISO-NE’s assumption in the Fuel Security Analysis, across the majority of scenarios, that the New England states would not meet their statutory renewable and clean energy requirements. While NESCOE appreciates ISO-NE’s efforts to examine the region’s fuel security risks, NESCOE voiced its concern that “[w]ithout the future energy contributions from the resources state laws require, the [Fuel Security] Analysis likely overstates the region’s future fuel-security risk.” Accordingly, NESCOE requested that ISO-NE modify the Fuel Security Analysis to align the reference case with the level of renewable and clean energy resources required to meet current laws in the New England states and requested that all scenarios should assume this level of renewable and clean energy resources at a minimum.
ISO-NE met with stakeholders in late March 2018 to discuss the results of additional modeling runs it performed. The results reflected the broad range of requests ISO-NE received, with some scenarios showing a moderated or non-existent risk while others showed a heightened risk compared with the original results. NESCOE’s requested scenarios, which included renewable and imported resources at levels commensurate with state law requirements, showed a significantly lower fuel security risk. At this meeting, ISO-NE reiterated that its study was neither a forecast nor a prediction for future conditions or events but, rather, was conducted to provide directional guidance through a “deterministic” analysis. NESCOE appreciates ISO-NE’s explicit recognition that the analysis conducted to date is directional and not predictive.
- Incorporating Probabilistic and Other Analysis
ISO-NE’s deterministic analysis has served the objective ISO-NE identified: to commence a regional discussion about fuel security. NESCOE and some stakeholders have cautioned that ISO-NE’s deterministic analysis of fuel security is not, however, an accurate indicator of the nature, level, or likelihood of risk in the region.
In general, a deterministic analysis assumes that a set of system conditions will occur without regard to the likelihood of that occurrence. In contrast, a probabilistic analysis “considers the likelihood of various events occurring[.]” The scenarios examined in the deterministic Fuel Security Analysis do not account for the likelihood of events reflected in a scenario or a comparison of risks among scenarios. For example, the analysis does not provide a sense of the respective probabilities of outages of “key energy facilities,” which could inform how to weigh certain proposed solutions over others. Similarly, without specific modeling of market responses and the extent to which such responses might mitigate fuel security risks, potential solutions could be developed in a vacuum—that is, without recognition of the extent to which existing mechanisms and market rules would otherwise address the challenges ISO-NE has identified. While the study informs decision-makers of what might happen if certain assumptions occur, New England does not yet have information about how likely those assumptions are, the extent to which existing market mechanisms could address fuel security risks (including the effects of ISO-NE’s Pay for Performance program, which is scheduled to be phased in starting June 1 of this year), and how much remedial action is warranted.
Building on stakeholder discussions, in April 2018, NESCOE provided ISO-NE with information regarding potential approaches to enable better risk-informed judgments about the region’s challenges and range of potential solutions (the “NESCOE Letter”). At a high level, these approaches involve the use of probabilistic models to evaluate the likelihood of possible outcomes. The NESCOE Letter, included as an attachment to these comments, also recommended a set of guiding principles for evaluating risks and solutions. These principles, which the Commission could consider adopting as part of this proceeding, are discussed in further detail below.
Viewed in its entirely, the NESCOE Letter is intended to encourage further dialogue with ISO-NE about the type of additional information needed to help ISO-NE, states, and stakeholders make judgments about power system risks and identify solutions with a reasonable relationship to those risks. NESCOE looks forward to further discussion with ISO-NE and stakeholders about the form of additional analysis that would better enable policymakers to thoughtfully respond to the questions ISO-NE has presented about the level of risk the region believes is reasonable to accept. To the extent ISO-NE concludes that it is not in a position to provide additional analysis to this end, NESCOE may seek to otherwise supplement the analytical basis upon which to rest its assessment of fuel-security risk.
- Principles for Evaluating Risks and Solutions
NESCOE agrees with ISO-NE that the assessment of fuel security risks, and potential development of solutions, is “a complex undertaking.” To help guide this complex process, NESCOE provided ISO-NE with a list of proposed principles, set out below. These principles are intended to facilitate a shared understanding of how the region should define the identified risk and evaluate proposed solutions. NESCOE does not intend for this to be an exhaustive list of principles ISO-NE could employ as part of the ongoing process and welcomes discussion with ISO-NE and stakeholders on this list.
Principles for Identifying Risks and Evaluating Solutions
- The problem is fully and fairly analyzed and precisely defined;
- A broad range of potential solutions are considered;
- Consumer interests are the guiding factor in evaluating potential solutions; and
- All potential solutions are illuminated by a cost-effectiveness analysis to enable assessment of whether the costs of proposed solutions have a reasonable relationship to asserted risks.
The Commission could consider adopting these principles to provide guidance to ISOs/RTOs in their current and future assessments of resilience challenges. The Commission’s guidance in this area could help focus regional discussions and serve as an important reference to ISOs/RTOs as they consider numerous and diverse perspectives on resilience issues.
- The Commission Should Continue to Provide Regions with Flexibility to Develop Appropriate Processes and Solutions to Defined Power System Risks
- Prescriptive Actions Could Impede Targeted Efforts Already Underway
NESCOE strongly agrees with the majority of ISOs/RTOs that regional flexibility is key to developing solutions to address unique resilience challenges. As NESCOE stated in its comments on the DOE Proposed Rule, individual regions are best positioned to explore whether there are needed attributes not currently valued in their power markets and, as appropriate, to consider market rule changes tailored to the region’s specific challenges and market design. The ISO/RTO Responses illustrate that each region has distinct power system conditions, challenges, and market designs. Moreover, as PJM noted, even for common risks like weather events, the “degree of risk” associated with those events “differs by region.”
In the Resilience Order, the Commission recognized that “the RTOs/ISOs are well-suited to understand the needs of their respective regions and initially assess how to address resilience given their individual geographic needs.” ISO-NE has reinforced the uniqueness of each region’s challenges along with the need for individual ISOs/RTOs to determine the nature of any threats to resilience. As discussed, New England has more work to do in this respect. NESCOE respectfully asks the Commission to allow this regional-specific work to continue. New England already has a defined schedule for next steps in its assessment of fuel security risks and the development of potential solutions addressing both near and longer-term challenges. The Commission should encourage these existing processes.
The Commission should not grant PJM’s request for a series of additional Commission actions implicating all of the ISOs/RTOs. NESCOE takes no position on PJM’s identified resilience challenges or its request for actions specific to PJM. However, where New England is concerned, a defined process has already been initiated to assess and act on fuel security challenges in the region, and the ISO-NE Response did not identify the need for Commission action on resilience in our region. To the contrary, ISO-NE asked the Commission to allow the region to continue its ongoing process. NESCOE agrees.
Furthermore, the Commission’s adoption of PJM’s proposed approach or institution of other prescriptive actions could impede the targeted efforts in New England to assess fuel security risks. For example, prior to the DOE Proposed Rule, ISO-NE had planned to release its Fuel Security Analysis in October 2017 and begin stakeholder discussions shortly thereafter. ISO-NE paused those activities in light of the DOE Proposed Rule, stating that it would wait until “FERC has provided direction to the industry on how to interpret the [DOE Proposed Rule] in the context of competitive wholesale markets.” The Fuel Security Analysis was released months later, in January 2018, following the clarity the Commission provided in the Resilience Order. New England now has an established process underway, with associated timelines, to consider and evaluate fuel security risks and potential solutions. Granting PJM’s request, or imposing other requirements in connection with resilience at this time, could unintentionally distract ISO-NE and stakeholders from the ongoing work tailored to New England’s unique circumstances. For these reasons, NESCOE respectfully asks the Commission to treat PJM’s request as relating solely to the PJM region and to withhold other prescriptive action.
- Regional Flexibility Promotes Cooperative Paths Forward Between the Commission and States
Empowering regions to assess their specific resilience challenges and fashion appropriate solutions, as necessary, helps to foster constructive partnerships between the Commission and states. Both the Commission and the states have a shared interest in power system reliability, with respective authorities to address risks to reliable service in different ways. As the ISO-NE Response noted, some strategies for mitigating fuel security challenges are state jurisdictional. Questions about power system “resilience” implicate state authorities over, inter alia, integrated resource planning, resource adequacy, and utility procurement. In addition, as the Commission noted, “the concept of resilience necessarily involves issues, topics, and questions that extend beyond the Commission’s jurisdiction, such as distribution system reliability and modernization.”
A regional approach to resilience helps to ensure that any proposed solution, whether market design changes or solutions outside of ISO-NE’s jurisdiction, respects the authorities of both the Commission and the states. This flexibility also allows states to interact with the Commission and its ISO/RTO at an early stage to avoid unnecessary jurisdictional conflicts. Indeed, any proposed solution to a resilience challenge should strive to be cognizant of the requirements of New England states’ laws and, of course, implemented in such a way as not to shift the costs of individual state laws to other states. In appropriate circumstances, given respective state and federal authorities concerning resilience, the Commission and state entities could also convene a joint technical conference to explore specific regional challenges to resilience, as the Commission and states have done on other issues. The flexibility to define the problem in a way that accurately reflects a region’s facts and circumstances, and to develop regional responses to emerging challenges to system reliability, promotes cooperation between the Commission and states on an issue of shared interest and responsibility.
- Additional Information Is Needed Before Formalizing Any Definition of Resilience, Which Should Incorporate Cost-Effectiveness
NESCOE disagrees with PJM that the Commission should finalize a definition of resilience as part of this proceeding. The Resilience Order is not clear how a “finalized” definition would be applied, or even that the Commission intended to formally define resilience in this or another proceeding. Instead, like other sections of the Resilience Order, the Commission’s chief interest appears to be in collecting information. NESCOE believes that New England is today squarely in a place of requiring more detailed information about the region’s specific system risks in order to discuss potential solutions in an informed way and appreciates the Commission’s efforts in this respect. Without a more developed record and guidance, there could be confusion regarding the effect of the Commission’s formal adoption of resilience as a defined, nationally-applied term. Some could, for example, liberally interpret such adoption as requiring the development of new mandatory reliability standards to address resilience issues, a directive that would raise critical legal, implementation, and consumer cost questions that warrant a full discussion and hearing before those rules are put in place. NESCOE appreciates the Commission’s efforts to facilitate a dialogue about resilience and hopes that, before any formal action is taken, there will be additional opportunities to consider the meaning and proposed use of resilience as a defined term. If the Commission does decide to adopt a definition of resilience, NESCOE suggests that any definition be accompanied by quantifiable metrics in order to provide clarity regarding performance and compliance.
The ISO/RTO Responses illustrated a diversity of perspectives on the meaning of resilience. Building on responses regarding the relationship between resilience and costs, the Commission should consider revising its proposed description to incorporate explicitly the principle of cost-effectiveness. The Federal Power Act’s “primary aim . . . is the protection of consumers from excessive rates and charges.” Xcel Energy Servs. Inc. v. FERC, 815 F.3d 947, 952 (D.C. Cir. 2016) (citation omitted); see also FERC v. Elec. Power Supply Ass’n, 136 S. Ct. 760, 781 (2016) (stating that the Federal Power Act “aims to protect against excessive prices”) (citation omitted). Given the Commission’s statutory duty to protect consumers from unnecessary costs, cost-effectiveness should be an integral component of resilience and, more specifically, the description of potential responses to resilience risks. Options for addressing resilience risks should be accompanied by a consideration of both increased consumer costs and measurable consumer benefits.
A number of ISO/RTO Responses addressed the need to consider costs in responding to resilience challenges. For example, as discussed above, the PJM Response noted that “[a]n important consideration to keep in mind when establishing criteria [for mitigating resilience threats] is that it is not economically efficient to protect the [bulk electric system] from every conceivable risk.” PJM also stated that to the extent “resilience requirements can be clearly articulated, meeting them through market-based solutions that allow resources to compete to meet those requirements is the preferred way to ensure that these objectives are met at the lowest cost to consumers.” Similarly, the ERCOT Response stated that “the ultimate goal of policymakers should be to ensure that all foreseeable threats to the reliability of the bulk-power system are identified and addressed in the most cost-effective way.” The SPP Response noted that “[r]esilience has an associated cost, and it is important that state regulators be included in the discussion of how that cost is to be allocated and ultimately paid.” Thus, there appears to be a common understanding among many ISOs/RTOs that actions to address resilience challenges must include a consideration of cost implications and must strive to mitigate risks cost-effectively.
The Resilience Order stated that: “At the most basic level, ensuring resilience requires that we both (1) determine which risks to the grid we are going to protect against, and (2) identify the steps, if any, needed to ensure those risks are addressed.” NESCOE respectfully suggests that, at a similar foundational level, the identification of steps to address resilience risks should be guided by cost-effectiveness to ensure that proposed solutions and their costs have a reasonable relationship to asserted risks.
NESCOE appreciates the time and opportunity to further analyze risks to the New England power system, their likelihood, and potential cost-effective solutions tailored to them and looks forward to continued collaboration with the Commission on these critically important challenges. For the reasons stated herein, NESCOE respectfully requests that the Commission consider its comments in this proceeding.
/s/ Jason Marshall
New England States Committee on Electricity
655 Longmeadow Street
Longmeadow, MA 01106
Tel: (617) 913-0342
Date: May 9, 2018
NESCOE’S APRIL 13, 2018 LETTER TO ISO NEW ENGLAND
[See PDF for official version]