FERC Finalizes Rule to Facilitate the Integration of Renewable Generation Resources Into the Electric Grid, Which May Have Broader Benefits

by Davis Wright Tremaine LLP
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[author: Brian R. Gish]

The Federal Energy Regulatory Commission (FERC), on June 22, 2012, issued Order No. 764 that adopts provisions to facilitate the integration of Variable Energy Resources (VERs) into the U.S. electric system. The existing electric grid is governed by rules and procedures that assumed that the output from electric generation resources would be relatively constant and controllable. VERs, which include wind, solar, and other renewable generation resources, have output that is dependent on weather conditions, and thus is variable and not controllable. FERC’s Order 764 is an attempt to remove barriers so that VERs can be efficiently incorporated into grid operations. The more flexible transmission scheduling adopted under the new rule will also be available to all transmission customers, not just VERs, so all such customers may benefit from more accurate scheduling.

Background

Before the relatively recent surge in wind and solar generation, electricity in the U.S. was almost exclusively generated by power plants whose output could be held relatively constant over a period of time, and to differing degrees, be ramped up and down to follow load. Now, renewable generation with variable output is claiming an increasing percentage of the generation mix, due to state renewable portfolio standards and improving economics. This has presented challenges to both the operators of renewable generation who must try to abide by grid rules established for a different type of generation resource, and for grid operators who must incorporate generation whose output generally cannot be predicted reliably.

Intra-Hour Scheduling

Order 764 implements two major changes to pro forma tariffs and agreements, which all transmission providers within FERC’s jurisdiction must adopt. First, transmission providers must provide all transmission customers the option of scheduling power transfers at 15-minute intervals. Currently, most transmission providers require customers to schedule in hourly intervals, which means that the customer must commit in advance that it will put onto the system a specified quantity of energy for each hour. If the customer’s actual delivery of energy onto the system during that hour is more or less than scheduled, the customer could be subject to imbalance penalties for incorrect scheduling.

Although Order 764 allows any transmission customer to avail itself of scheduling in 15-minute intervals, this change is particularly significant for VERs who will be better able to match their schedules with predicted output over shorter intervals. FERC found that VERs that had to schedule on an hourly basis incurred unjust and unreasonable generator imbalance charges under Schedule 9 of the pro forma tariff. Additionally, FERC found that enabling transmission customers to more effectively align schedules with generation output could reduce the need for transmission providers to carry expensive operating reserves for balancing the system. FERC acknowledged that some utilities had already moved to some sort of intra-hour scheduling intervals, and stated that they could try to show in compliance filings that such intervals provided equivalent or greater opportunities to mitigate Schedule 9 imbalance charges and lower reserve-related costs as compared to 15-minute intervals.

FERC acknowledged that intra-hour scheduling could increase the operating costs of the transmission provider as compared to hourly scheduling, but decided that the extra cost was justified by the benefits, and transmission providers could collect any extra costs from all transmission customers. FERC also acknowledged that intra-hour scheduling could result in a shift of responsibility for carrying reserves away from the source balancing authority. However, purchasers in a sink balancing authority may no longer receive a constant delivery of energy across an hour, and thus may be required to rely on energy from the market to manage more frequent schedules. FERC concluded that this was an appropriate division of responsibility compared to requiring the source balancing authority to manage all variations in generation across an hour.

Meteorological and Outage Data

The second major change that Order 764 mandates is that VERs that wish to interconnect with a transmission provider’s system must agree to provide site-specific meteorological and forced outage data to the extent necessary for the transmission provider’s development of power production forecasts for that class of VER. FERC recognizes that transmission providers whose systems have a significant percentage of VER generation may find it necessary to make their own power production forecasts of energy to be placed on the system by VERs. Thus, FERC is amending the pro forma interconnection agreement (LGIA) to include new Article 8.4 that requires a VER to provide data to the transmission provider as a term of the LGIA. The exact data that must be produced, including the frequency and timing of data submission, will be negotiated by the parties and be stated in Appendix C to the pro forma LGIA.

FERC said that it will allow transmission providers to charge rates to cover the cost of developing power production forecasts on a case by case basis. FERC recognized that data submitted by a VER could be commercially sensitive and thus would be subject to the confidentiality provisions of the LGIA. FERC will not act on a generic basis to modify existing LGIA’s to include the data provision requirement, meaning that it will apply prospectively to new LGIAs. FERC noted that if parties to existing LGIA’s could not mutually agree to add such requirements, the transmission provider could make a filing at FERC seeking to add the requirement to the existing LGIA.

On a third major issue, FERC declined to adopt an item in the proposed rulemaking that would establish a standard rate schedule to allow transmission providers to recover the capacity costs for providing regulation reserves to back-up VERs. FERC concluded that such a rate raised many issues that would be best resolved by individual rate proposals by transmission providers.

Compliance

Order 764 gives transmission providers 12 months from the effective date of the rule (60 days after publication in the Federal Register) to make compliance filings that would modify their transmission tariffs to offer 15-minute scheduling intervals, and to amend their standard LGIA to add the new data submission article. Those compliance filings could seek to show that alternative provisions would be consistent with or superior to the provisions specified in the order. In addition, transmission providers that are not public utilities subject to FERC’s jurisdiction must also revise their transmission tariffs if they wish to maintain reciprocity tariffs that give them equal transmission access on public utilities’ systems. Order 764 can be subject to rehearing requests.

 

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