TOPIC #6
FERC Homes in on Transmission
FERC Issues Three Significant Orders Addressing Interconnection, Weather Preparedness, and Cybersecurity
- FERC initiated several dockets in 2021 and 2022 to address recurring challenges in the bulk power system.
- In June 2021, in the wake of Winter Storm Uri—which caused significant adverse effects on the grid in Texas and the surrounding region—FERC held a technical conference to “discuss climate change, extreme weather, and electric system reliability.” This was followed in June 2022 with a notice of proposed rulemaking citing seven extreme heat and cold events since 2011 and proposing long-term planning for similar potential events in the future.
- In April 2022, FERC opened a docket captioned “Building for the Future Through Electric Regional Transmission Planning and Cost Allocation and Generator Interconnection” to address halting progress in transmission development and generator interconnection.
- Finally, the Infrastructure Investment and Jobs Act of 2021 called out the need for advanced cybersecurity protections for the U.S. power system.
In 2023, the commission has issued four rules related to these inquiries.
KEY TAKEAWAYS
FERC, as promised, has focused on transmission reform to facilitate modernization of the U.S. grid and enable lower emissions resources to be deployed.
FERC issued three significant rules addressing emerging reliability and resource concerns of generation interconnection backlogs, grid planning for extreme heat and cold, and cybersecurity.
Transmission providers will be busy over the next year working on compliance (or confirming compliance in the case of interconnection) as new rules take effect and planning standards are formed.
A theme across the rules is a focus on state-of-the art technology, whether for grid modeling, transmission technologies, or advanced cybersecurity capabilities.
FERC, as promised, has focused on transmission reform to facilitate modernization of the U.S. grid and enable lower emissions resources to be deployed.
FERC issued three significant rules addressing emerging reliability and resource concerns of generation interconnection backlogs, grid planning for extreme heat and cold, and cybersecurity.
Transmission providers will be busy over the next year working on compliance (or confirming compliance in the case of interconnection) as new rules take effect and planning standards are formed.
A theme across the rules
is a focus on state-of-theart
technology, whether for
grid modeling, transmission
technologies, or advanced
cybersecurity capabilities.
Order 2023: Queueing Up
- In late July 2023, FERC issued Order 2023, which reforms the FERC’s standard generator interconnection procedures and agreements. The reforms are intended to “address interconnection queue backlogs, improve cost and timing certainty, and prevent undue discrimination for new technologies.”
- Motivating the rule was the finding by FERC that interconnection queues were unacceptably long, and the cost and timing of interconnection are increasingly uncertain, especially as some projects under the existing serial first-come, first-served process drop out, requiring restudy.
- FERC Chair Phillips characterized the 1,481-page rule as “a watershed moment for our nation’s transmission grid.” The key terms of the new rule are summarized in Figures 6.1A-B.
Figure 6.1A: Key Terms of Order 2023
Sources: Order 2023; Troutman Pepper; Foley & Lardner; Bracewell; Midcontinent ISO
Figure 6.1B: Key Terms of Order 2023
Sources: Order 2023; Troutman Pepper; Foley & Lardner; Bracewell; Midcontinent ISO
Figure 6.2: Projects Proposed for Transmission Interconnection (2000-2017) and Their Disposition (as % of Total) of Year-End 2022
Only 21% of all projects proposed from 2000-2017 had reached commercial operations by the end of 2022—72% had withdrawn from queues.
Note: Limited to data from 7 ISO/RTOs and 26 utilities
Source: Lawrence Berkeley National Laboratory
Figure 6.3: U.S. Installed Capacity vs. Capacity in Active Interconnection Queues (Year-End 2010 vs. 2022) (GW)
- Active capacity in queues (~2,040 GW) exceeds installed capacity of entire U.S. power plant fleet (~1,250 GW).
- Variable resources solar and wind contribute a smaller percentage of their nameplate capacity to resource adequacy compared to dispatchable generation like natural gas.
- Decarbonization will thus require higher levels (GW) of solar and wind to achieve same resource adequacy. One can expect that queues will continue to swell with such projects.
Note: (a) Hybrid storage in queues is estimated for some projects. (b) Total installed capacity from EIA-860, December 2022. (c) RTO installed capacity from FERC Annual State of the Markets Report (https://www.ferc.gov/media/report-2021-state-markets).
Source: Lawrence Berkeley National Laboratory
Order 2023: Comments and Issues
- Cluster studies and some other features of Order 2023 are already being employed in regions such as PJM and the Midcontinent ISO. However, some provisions such as the time marks for study completion will be new and require implementation.
- Some industry players have argued that the elimination of the “reasonable efforts” standard and imposition of penalties for failure to meet deadlines was not supported by the record. Other objections include:
- The multiprong withdrawal penalty structure for generators is overly complicated.
- ISOs and RTOs do not have shareholders, so penalties would be passed through to market participants, which would make them indifferent to the penalties.
- Other industries, however, are pleased with the rule. The Solar Energy Industries Association applauded the exclusion of a requirement of having an offtake agreement in place before entering the interconnection queue, which it termed “an impossible standard to meet.”
- All transmission utilities must look at their generator interconnection processes considering the new rule and update them as needed and consider a transition approach for existing interconnection requests based upon their position in the study process.
Figure 6.4: U.S. Interconnection Queue Capacity by Proposed Online Year (GW)
Notes: As of June 28, 2023. *Selected renewable energy types: battery storage, biofuels, geothermal, solar, wind. Excludes non-specified hybrid. Active queues only. Online years before 2022 may reflect delays sometimes accompanied by adjusted online dates.
Source: S&P Global Market Intelligence (from public company reports)
Preparing the Grid for Extreme Weather: New Standards Mandated
- At the June 2021 extreme weather technical conference mentioned earlier, FERC found that extreme weather events have occurred with greater frequency in recent years (see Figure 6.5) and are projected to occur with even greater frequency in the future. Reliability coordinators have cited extreme weather events as an increasing risk (see Figure 6.6).
- FERC also found that planners cannot simply project historical weather patterns forward to effectively forecast the future, since climate change has made those patterns no longer representative of future conditions, and that “transmission planners and planning coordinators must account for this new reality in their planning processes.”
- Seeking to improve grid reliability, FERC issued Order 896, which directs NERC to develop a new or modified reliability standard that requires transmission system planning for extreme heat and cold weather conditions over wide geographic areas, including studying impact of concurrent transmission and generation failures. The order also requires corrective action plans when the standard is not met. A summary of key elements of the order is at Figure 6.7.
- This rule builds upon FERC-mandated “Cold Weather Reliability Standards,” which require generators to implement cold weather preparedness and freeze protection measures.
- Pursuant to the order, NERC has launched a project to update its current reliability standard, TPL-001-5.1 (transmission system planning performance requirements), which currently does not consider extreme hot/cold weather. Among key activities for drafting a standard will be developing “benchmark events” and planning cases in terms of:
- Frequency (1-in-50-year event) and probability distribution (95th percentile event)
- Aligned assumptions between neighboring planning regions
- Order 896 became effective in September 2023, and NERC’s compliance filing is due in late December 2024. The updated standard becomes mandatory no more than a year after FERC approves it, although NERC may authorize a phased-in implementation.
Figure 6.5: Selected Events That Motivated Order 896 Planning Standard Mandate
Source: FERC Order 896 Notice of Proposed Rulemaking
Figure 6.6: Extreme Natural Events Rise in Perceived Reliability Risk
Source: NERC
Figure 6.7: FERC Requirements for NERC in Developing an Extreme Weather Planning Standard Under Order 896
Benchmark Planning Cases
- Planning entities must develop extreme heat and cold (EHC) weather “benchmark events” and “benchmark planning cases” based on identified benchmark events and/or meteorological projections.
- Benchmark events include defined prior EHC weather events.
- NERC can consider other criteria for defining a benchmark event, including use of projected frequency or probability distribution.
- Planning regions likely to be impacted by the same EHC events should use consistent benchmark events.
- Benchmark events should reflect regional differences in climate and weather patterns.
Wide-Area Effects
- Transmission planning studies must consider wide-area impacts of EHC events, and NERC will define a set of contingencies to be considered.
- Criteria for EHC events should include a consideration of wide-area conditions affecting neighboring regions and their impact on a planning area’s ability to rely on the resources of another region during the weather event.
- NERC must describe the process that an entity must use to define the wide-area boundaries, which could be a geographical approach and/or electrical approach.
Responsible Entities and Information Sharing
- Reliability coordinators should not be responsible for developing benchmark planning cases or conducting wide-area studies, as their focus is on real-time operations.
- Designated “responsible entities” for planning should have the planning tools, expertise, processes, and procedures to develop benchmark planning cases and analyze EHC events in the long-term planning horizon.
- NERC may designate an existing functional entity or group of entities or may establish a new entity to conduct these tasks.
- Functional entities will be required to share system information with planning entities, and study results must be shared with affected transmission operators, transmission owners, generator owners, and other functional entities with a reliability need for the studies.
System Planning Studies
- Concurrent/correlated generator and transmission outages and derates during EHC events must be studied.
- Responsible entities perform both steady state and transient stability (dynamic) analyses in the EHC weather planning studies.
- Steady state analysis: Models system components as either inservice or out-of-service and the result is a single point-in-time snapshot of the system in a state of operating equilibrium
- Transient stability (dynamic) analysis: Examines the system from the start to the end of a disturbance to determine if the system regains a state of operating equilibrium
- NERC will determine whether and how impacts of demand response are modeled.
- Sensitivity analyses will be required to demonstrate the impact of changes to benchmark planning case assumptions.
- Probabilistic analyses will be required, expanding beyond current deterministic approaches.
Corrective Action Plans
- The planning standard will require development of corrective action plans that mitigate specified instances where performance requirements during EHC weather events are not met, as well as processes to facilitate coordination with regulatory authorities or governing bodies responsible for retail electric service.
Sources: Order 896; Akin Gump Strauss Hauer & Feld; ScottMadden analysis
Understanding Current Approaches to Extreme Weather Vulnerability Assessment
- A tandem rule—Order 897—was promulgated, requiring transmission providers to provide onetime reports on how they currently assess the impacts of extreme weather on their transmission assets and operations, if at all. The report is to assist NERC in standards development and provide shared information on best practices. It will also reveal differences between planning approaches and “extreme weather” considerations among regions.
- FERC does not define “extreme weather” for this report but requires transmission providers to explain how they define that concept as they use it for planning. Providers are required to report how they:
- Establish a scope
- Develop inputs
- Identify vulnerabilities and exposure to extreme weather hazards
- Estimate the costs of impacts
- Use the results of vulnerability assessments to develop risk mitigation measure
- The information reports were due October 25, 2023. Figure 6.8 lists 21 specific areas for transmission companies to address in their reports.
- In their concurrence, Commissioners Phillips and Clements encouraged transmission providers to specifically report on how they engage with disadvantaged and vulnerable communities and how they estimate costs of extreme weather as well as mitigation measures for those communities.
Order 893: A "Carrot" Approach to Advanced Cybersecurity
- The electric industry remains concerned about cyberattacks that threaten the grid. NERC has noted that rapid changes from grid transformation as well as a “changing threat landscape and the convergence of information technology and operational technology, business practices, communication networks, and system resources are increasing the grid’s attack surface,” resulting in increased cyber and physical security risks.
- The Infrastructure Investment and Jobs Act of 2021 (IIJA) cited the need for advanced cybersecurity, providing both funding ($1 billion) through DOE’s cybersecurity office and amending the Federal Power Act to direct FERC to provide a framework for incentive-based rate treatments for utilities' investments in advanced cybersecurity technologies and participation in cybersecurity threat information-sharing programs.
- In April 2023, as directed by the IIJA, FERC released Order 893, which provides a “carrot” in the form of incentives for proactive investment in Advanced Cybersecurity Technology (as defined in the order). This order augments FERC’s traditional “stick” approach, which focuses on compliance with NERC’s Critical Infrastructure Protection (or CIP) standards. The order, which took effect 60 days after its issuance, is summarized at Figure 6.9.
- Commissioner Danly dissented in the rulemaking, contending it did not do enough to promote cybersecurity investment, pointing to the following:
- The rule limits incentives to entities with cost-based tariffs only and not utilities that sell power at market-based rates.
- The rule requires that investments “materially improve” cybersecurity which the IIJA has no such requirement.
- The final rule eliminates a more generous 200-basis-point ROE adder proposed in the original notice of proposed rulemaking.
- The rule does not address performance-based ratemaking treatments that Commissioner Danly contends are required by the IIJA mandate.
- FERC’s case-by-case consideration of applicable investments and incentive awards will be watched by utilities for signals of preferred investments.
IMPLICATIONS
For some RTOs and utilities, the impacts of Order 2023 may confirm existing practices such as cluster studies. However, the broad approach to timelines and penalties proposed by FERC will require greater specificity and clarity as they are converted to processes and policies.
For extreme hot and cold weather planning, developing scenarios, moving from deterministic to probabilistic approaches, and identifying effects on and from adjacent regions and infrastructure (e.g., gas, water) could require significant changes in analytical approaches and existing models.
Finally, successful system planners, information and operational technology cybersecurity groups, and regulatory departments will need to collaborate to identify advanced cyber technology opportunities and whether identified technologies will benefit from FERC’s incentives under Order 893.
FERC is not done yet. It is considering longstanding issues of long-term (20 years) transmission planning and cost allocation (Docket No. RM21-17), which portends additional significant transmission policy changes ahead. After physical attacks on grid infrastructure in NC, WA, and OR, FERC is also considering updating physical security requirements established in Order 802 (issued circa 2014).
The elephant in the room remains permitting reform for infrastructure siting, and Congress has several bills under consideration. But movement on those proposals is halting.
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