The issue of grid resilience has been a hot topic in the electric sector over the past year, as a wide range of policymakers and stakeholders have grappled with how to ensure that the nation’s electric grid can withstand a variety of challenges at a cost that is fair to consumers. The latest chapter in this discussion relates to “fuel security”, as recent actions at two of the nation’s leading RTOs/ISOs have raised this concept’s profile.
First, on April 30, 2018, PJM announced that it will be undertaking an initiative to examine how to define and possibly compensate generation units that provide “fuel security.” PJM noted that in March 2017, PJM published an analysis of the reliability attributes associated with various potential future resource mixes, which concluded that PJM’s bulk electric system could be operated reliably under an array of future supply portfolios. However, the scope of the analysis did not include the resilience of the system with various potential portfolios, nor the risks associated with significant disruptive events.
As discussed by PJM, “fuel security is the ability of the system’s supply portfolio, given its fuel supply dependencies, to continue serving electricity demand through credible disturbance events, such as coordinated physical or cyber-attacks or extreme weather that could lead to disruptions in fuel delivery systems, which would impact the availability of generation over extended periods of time.” In order to define potential fuel-security criteria, PJM will undertake an initial analysis “to identify potential system vulnerabilities and to determine attributes such as requirements for amounts of on-site fuel and dual-fuel capability, among others, to ensure that peak demands can be met during realistic but extreme contingency scenarios in various supply portfolios.” After this analysis is concluded, PJM will engage stakeholders on how to develop rules to model and eventually compensate the “fuel security” attribute- which could include higher capacity market payments. While PJM’s analysis is forthcoming, PJM’s suggestion of raising compensation for generation units with on-site fuel or dual-fuel capability has raised concerns that PJM’s fuel security initiative may simply be seeking to provide extra compensation to coal and nuclear resources – similar to the Department of Energy’s failed October 2017 proposed rule on grid resilience.
Further, on May 2, 2018, ISO-NE requested that FERC allow it to waive several of its market rules so that it could provide cost-based recovery to two natural gas units, totaling approximately 1,700 MW of generation, because the units' retirement would likely mean the closure of an adjacent liquefied natural gas (LNG) import facility. ISO-NE filed the waiver in part because it claimed that the LNG import facility is essential for "fuel security”, but its current rules do not allow cost recovery for such risks. ISO-NE supported its waiver with an analysis stating that without the LNG import facility, there would be rolling blackouts on its bulk power grid in 19 of 23 scenarios analyzed. However, critics say that the grid operator’s analysis was overly conservative, and that granting the waiver request could set a bad precedent whereby uneconomic generation resources at risk of retiring could seek cost-based recovery from grid operators in the name of “fuel security”- even though such term is not yet clearly defined and it is not definitively known whether and to what extent “fuel security” truly threatens the reliability of the nation’s bulk power system.
The outcomes of both PJM’s and ISO-NE’s fuel security-related proceedings are expected to be closely watched, as they are likely to impact future compensation structures in RTOs/ISOs across the country.