The Federal Energy Regulatory Commission ("FERC") issued a Notice of Inquiry on January 21, 2010, initiating a proceeding in which FERC welcomes public comment on whether existing rules, regulations, tariffs, and industry practices within FERC's jurisdiction may be creating barriers against reliably and efficiently integrating variable energy resources ("VERs") into the transmission grid. In this proceeding, FERC aims to reform regulatory, market, and operational practices that discriminate against VERs or result in unjust and unreasonable rates or terms of service. In addition, FERC will consider how North American Electric Reliability Corporation Reliability Standards should be modified or created in conjunction with other considered reforms. The proceeding will focus on, but will not be limited to, the following issues:

Data and Forecasting Requirements. Because scheduling and operational practices depend so greatly on a transmission system operator's ability to predict the output of generation resources, FERC is asking whether enhanced forecasting tools and procedures can assist with predicting the output from VERs with greater accuracy. Specifically, FERC seeks comment on whether greater forecasting abilities, data sharing, and metering tools will allow transmission system operators to anticipate ramping events and use reserve services more efficiently in response.

Scheduling Flexibility and Scheduling Incentives. Recognizing that its reserve policies were developed with dispatchable resources in mind, FERC now seeks comments on whether greater scheduling flexibility, such as intra-hour scheduling, may help to reduce generation imbalances and anticipate variability. In addition, FERC wishes to revisit the generator imbalance reforms that were implemented with Order No. 890, in which FERC decided that intermittent resources should be exempt from the third tier (the most costly) of generator imbalance penalties. FERC desires to learn how this exemption has worked in practice to affect overall transmission rates, and whether going forward new or modified penalties should be applied to VERs.

Day-Ahead Market Participation and Reliability Commitments; Capacity Markets. The Regional Transmission Organizations and Independent System Operators operate day-ahead energy and capacity markets that require market participants to enter day-ahead offers. Because the offers are financially binding, many VERs forgo the risks of the day-ahead market and instead sell their services into real-time markets. FERC seeks comments on whether day-ahead market structures discriminate against VER participation. Similarly, FERC wants to learn if the reliability commitment process—the day-ahead exercise that transmission system operators use to ensure that generation is available to meet estimated demand—could improve reliability commitment decisions by adopting intra-day intervals. An inefficient commitment process causes unnecessary costs for achieving transmission system reliability.

Balancing Authority Coordination. FERC asserted that small balancing authority areas may be less equipped to integrate increasing amounts of VERs on their systems, and accordingly, FERC seeks comments on whether smaller balancing authorities' limited abilities result in rates that are unjust and unreasonable. FERC proposes to increase coordination among balancing authorities through the use of pseudo-ties, dynamic scheduling, and other tools and agreements. In addition, FERC seeks to determine if it should encourage the consolidation of balancing authorities, and whether creating a VER-only virtual balancing authority would serve to reduce VER integration costs.

Reserve Products and Ancillary Services. Transmission system operators use three reserve products to balance generation and demand: frequency response, regulation services, and following services. FERC proposes to address whether increased VER capacity will cause an over-reliance on pricey reserve products, and whether reserve products are used efficiently such that rates are just, reasonable, and not unduly discriminatory. FERC also seeks to explore whether new or modified reserve products can efficiently respond to VER characteristics.

Real-Time Adjustments. FERC is interested in whether curtailment and redispatch practices and protocols are transparent and efficient, and whether such practices and protocols result in unnecessary costs or rates that are unjust and unreasonable. In addition, FERC seeks to determine if VERs are curtailed too frequently in response to transmission congestion, minimum generation, and ramping events due to a lack of transparency in curtailment protocols.

The deadline for filing comments in this proceeding is 60 days after the Notice of Inquiry is published in the Federal Register. FERC will accept comments on related topics that are not specifically called out in the Notice of Inquiry, but FERC will not accept comments related to cost allocation or transmission planning—those issues are being addressed in separate dockets. If you have any questions about the Notice of Inquiry or would like assistance in formulating or submitting comments to FERC in this proceeding, please contact the following:The Federal Energy Regulatory Commission ("FERC") issued a Notice of Inquiry yesterday, initiating a proceeding in which FERC welcomes public comment on whether existing rules, regulations, tariffs, and industry practices within FERC's jurisdiction may be creating barriers against reliably and efficiently integrating variable energy resources ("VERs") into the transmission grid. In this proceeding, FERC aims to reform regulatory, market, and operational practices that discriminate against VERs or result in unjust and unreasonable rates or terms of service. In addition, FERC will consider how North American Electric Reliability Corporation Reliability Standards should be modified or created in conjunction with other considered reforms. The proceeding will focus on, but will not be limited to, the following issues:

Data and Forecasting Requirements. Because scheduling and operational practices depend so greatly on a transmission system operator's ability to predict the output of generation resources, FERC is asking whether enhanced forecasting tools and procedures can assist with predicting the output from VERs with greater accuracy. Specifically, FERC seeks comment on whether greater forecasting abilities, data sharing, and metering tools will allow transmission system operators to anticipate ramping events and use reserve services more efficiently in response.

Scheduling Flexibility and Scheduling Incentives. Recognizing that its reserve policies were developed with dispatchable resources in mind, FERC now seeks comments on whether greater scheduling flexibility, such as intra-hour scheduling, may help to reduce generation imbalances and anticipate variability. In addition, FERC wishes to revisit the generator imbalance reforms that were implemented with Order No. 890, in which FERC decided that intermittent resources should be exempt from the third tier (the most costly) of generator imbalance penalties. FERC desires to learn how this exemption has worked in practice to affect overall transmission rates, and whether going forward new or modified penalties should be applied to VERs.

Day-Ahead Market Participation and Reliability Commitments; Capacity Markets. The Regional Transmission Organizations and Independent System Operators operate day-ahead energy and capacity markets that require market participants to enter day-ahead offers. Because the offers are financially binding, many VERs forgo the risks of the day-ahead market and instead sell their services into real-time markets. FERC seeks comments on whether day-ahead market structures discriminate against VER participation. Similarly, FERC wants to learn if the reliability commitment process—the day-ahead exercise that transmission system operators use to ensure that generation is available to meet estimated demand—could improve reliability commitment decisions by adopting intra-day intervals. An inefficient commitment process causes unnecessary costs for achieving transmission system reliability.

Balancing Authority Coordination. FERC asserted that small balancing authority areas may be less equipped to integrate increasing amounts of VERs on their systems, and accordingly, FERC seeks comments on whether smaller balancing authorities' limited abilities result in rates that are unjust and unreasonable. FERC proposes to increase coordination among balancing authorities through the use of pseudo-ties, dynamic scheduling, and other tools and agreements. In addition, FERC seeks to determine if it should encourage the consolidation of balancing authorities, and whether creating a VER-only virtual balancing authority would serve to reduce VER integration costs.

Reserve Products and Ancillary Services. Transmission system operators use three reserve products to balance generation and demand: frequency response, regulation services, and following services. FERC proposes to address whether increased VER capacity will cause an over-reliance on pricey reserve products, and whether reserve products are used efficiently such that rates are just, reasonable, and not unduly discriminatory. FERC also seeks to explore whether new or modified reserve products can efficiently respond to VER characteristics.

Real-Time Adjustments. FERC is interested in whether curtailment and redispatch practices and protocols are transparent and efficient, and whether such practices and protocols result in unnecessary costs or rates that are unjust and unreasonable. In addition, FERC seeks to determine if VERs are curtailed too frequently in response to transmission congestion, minimum generation, and ramping events due to a lack of transparency in curtailment protocols.

The deadline for filing comments in this proceeding is 60 days after the Notice of Inquiry is published in the Federal Register. FERC will accept comments on related topics that are not specifically called out in the Notice of Inquiry, but FERC will not accept comments related to cost allocation or transmission planning—those issues are being addressed in separate dockets.