On December 15, 2016, the Federal Energy Regulatory Commission (“FERC”) issued two Notices of Proposed Rulemakings (“NOPRs”) to: (1) reform the large generator interconnection processes established by Order No. 2003; and (2) improve pricing for fast-start resources. Both proposals, if implemented, could have significant implications for competition and price formation in wholesale power markets. The proposals are designed to remove barriers to the development of new resources and improve price formation by enabling fast-start resources to receive payments that better reflect their contributions to organized energy markets.

REFORMS OF LARGE GENERATOR INTERCONNECTION PROCEDURES AND AGREEMENTS

FERC has outlined a series of proposed reforms to the Commission’s pro forma Large Generator Interconnection Procedures (“LGIP”), the pro forma Large Generator Interconnection Agreement (“LGIA”), the pro forma Open Access Transmission Tariff (“OATT”), and related regulations. The modifications aim to resolve concerns raised by interconnection customers and transmission providers, while better conforming FERC’s documents and procedures to the needs of changing generation resources, new technologies, and new state and federal policies. The NOPR is the latest outgrowth of a Petition for Rulemaking filed by the American Wind Energy Association in 2015.

In the NOPR, the Commission proposes fourteen reforms in three separate categories:

  • Improve certainty by increasing predictability for interconnection customers through: (1) adopting revisions to the pro forma LGIP to require that transmission providers that conduct cluster studies move toward a scheduled and periodic restudy process; (2) revising the pro forma LGIA to permit interconnection customers to build a transmission provider’s interconnection facilities and network upgrades under a broader range of circumstances; (3) modifying the pro forma LGIA to require mutual agreement with the transmission customer in order for the transmission owner to elect to initially self-fund costs of network upgrade construction; and (4) requiring that Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”) establish processes to resolve interconnection disputes.
  • Improve transparency by requiring that transmission providers: (1) develop a method for determining contingent facilities in their LGIPs and LGIAs (pursuant to guidance provided in the NOPR); (2) make available the processes and assumptions underlying their system models; (3) post congestion and curtailment information on their Open Access Same-time Information System sites; and (4) comply with a new system of reporting requirements in order to gauge overall interconnection study performance. The NOPR also proposes to revise the definition of the term “Generating Facility” in the pro forma LGIP and LGIA to include electric storage resources.
  • Enhance interconnection processes by (1) allowing customers to request a level of interconnection service below a generating facility’s capacity; (2) allowing for provisional agreements so that customers can begin operations on a limited basis before the completion of the full interconnection process; (3) developing a process for interconnection customers to utilize surplus capacity at existing interconnection points; (4) establishing a separate procedure for transmission providers to assess the effect of changes in a customer’s technology without affecting the customer’s position in the interconnection queue; and (5) requiring transmission providers to evaluate their existing methods for modeling storage resources in interconnection studies and report to the Commission on the sufficiency of those models.

The Commission also seeks input regarding: (1) the extent to which a cap on customer-borne network upgrade costs can “mitigate the potential for serial restudies” while avoiding an inappropriate shifting of cost responsibility; and (2) any “proposals or additional steps” the Commission could take to better resolve transmission-system issues that arise from proposed interconnections.

A copy of the NOPR is available here. Comments are due 60 days after the NOPR is published in the Federal Register.

PROPOSED RULEMAKING REGARDING FAST-START RESOURCE PRICING IN ORGANIZED MARKETS

FERC proposed revisions to its regulations that would reform currently disparate approaches to fast-start resources and improve pricing to better reflect marginal costs for those resources. Each RTO and ISO currently employs its own unique method for pricing fast-start resources, some of which, the Commission states, may lead to unjust and unreasonable results.

In the NOPR, FERC proposes that each RTO and ISO: (1) apply fast-start pricing to any committed resource that is able to start within 10 minutes, has a minimum runtime of one hour or less, and “that submits economic energy offers to the market” (i.e. that is not self-scheduling energy); (2) incorporate commitment costs (including start-up and no-load costs) of fast-start resources in both energy and operating-reserve prices; (3) treat fast-start resources as dispatchable from zero to their economic maximum operating limits when calculating prices (in order to remedy shortcomings in some markets that render fast-start units effectively unable to set prices); (4) ensure that only “feasible and economic” offline fast-start resources are permitted to set prices for addressing certain system needs; and (5) incorporate fast-start pricing in both day-ahead and real-time markets.

The Commission also proposes a new uniform definition of fast-start resources intended to allow both dispatchable and block-loaded resources—as well as both generation and demand-response resources—to qualify for fast-start treatment.

In addition to soliciting comments on the proposed reforms to the pricing of fast-start resources, FERC seeks input on: (1) whether allowing fast-start resources to set prices could allow entities to exercise market power; (2) the time and effort necessary to update or modify software and models or otherwise implement the proposal; and (3) any other relevant considerations necessary to address the implementation of the proposed rulemaking.

A copy of the NOPR is available here. Comments are due 60 days after the NOPR is published in the Federal Register.