What to watch in the wake of the DOE grid study
Power sector experts say there are several ways the long-awaited study could impact wholesale power markets, FERC and electric policy
The Department of Energy's grid reliability study has been described in many ways since it dropped last week, including schizophrenic, and an effort "to bail out aging coal and nuclear plants."
But overall, the reaction has been more moderate and cautiously complimentary. There was much fear in clean energy and environmental circles that a pro-coal, anti-renewables slant was virtually preordained by the study's scope, and the Trump Administration's promise to support fossil fuels. Secretary of Energy Rick Perry's memo launching the process appeared to praise "baseload" power plants and hint that their difficulties have been linked to renewable subsidies.
Instead, the consensus seems to be that the study fairly accurately identifies how the nation's bulk power system reached this point: struggling with a changing generation mix and market structure that does not always align with policy goals. Environmental groups have been harsh judges of the document, but others say it is, all in all, fairly unremarkable in political terms.
"It's a good compendium of information, but it's nothing new," said Ari Peskoe, senior fellow in electricity law at Harvard Law School.
"It reads like a DOE report," is how former FERC Commissioner Tony Clark described it. "It is very much what DOE tends to do.. ... The agency tends to be using its role as a thought leader to use its significant data to highlight different issues — it's rare DOE would say 'here is what we think is the answer.' It's more about setting priorities."
The report's recommendations span just a page and a half, and are broad. They focus on urging federal agencies to enable accelerated reviews, improving price formation in wholesale markets and ensuring essential reliability services (ERS) are available. For the Federal Energy Regulatory Commission (FERC), much of this is already happening.
The report calls for FERC to "expedite its efforts with states, RTO/ISOs, and other stakeholders to improve energy price formation in centrally-organized wholesale electricity markets," and points to PJM Interconnection's proposal as a possible way forward.
And it directs the agency to study and make recommendations "regarding efforts to require valuation of new and existing [essential reliability services] by creating fuel-neutral markets and/or regulatory mechanisms" that compensate grid participants for essential services.
"The two recommendations about FERC are things FERC already knows about and has been working on for several years," said Peskoe. "So I don't think this document tells FERC staff anything it didn't know, and frankly, it didn't tell market operators anything new either."
Study author Travis Fisher says that's largely the point.
"I'm not sure the policy recs would have changed if we would have written them a few years ago," he said. "And that points to the fact that this type of study is overdue.... and if we're doing anything in the policy space it's more to add urgency to issues that folks are already aware of."
But there are ways the report could set new policy into motion — some more subtle than others. Peskoe said under the 1977 law that reorganized the Department of Energy, the agency is allowed to make rules at FERC.
"Maybe someone takes it to FERC and thinks it gives them momentum for faster action. ... DOE could take the report and propose some new rules," he said. However, "that would be a pretty bold move."
More broadly, there are issues that may see "more of a push," said Clark.
FERC has a few open proceedings where it has asked ISOs and RTO, through their own stakeholder processes, to come up with new ways of dealing with issues like state around-market subsidies. "You'll probably see some things coming back from those efforts. It probably does bump up the priority of price formation," Clark said.
There are also some specific issues that can be pulled out of the DOE report, including whether something should be done in relation to mitigating negative price offers for a resource taking advantage of a tax credit. "If it's something like that, I could see some discrete efforts on behalf of the commission," Clark said.
Devin Hartman, electricity policy manager and senior fellow with the free-market think tank R Street Institute, said overall he was impressed with the study. "In the big picture the study was quite consistent with the empirical support in the field .. there are certainly areas where I had my nitpicks — I think everyone does — but I'm trying to encourage folks that had a predetermined stance that this would be a 'nonsense study,' to kind of take a refreshed look."
"Frankly, a lot of the stuff on the FERC side, are things you would have seen had this study been done under last administration," Hartman added. "Improving price formation was initiated by FERC under last administration, and it has huge industry buy-in. It's not controversial at all."
Asked to expand on the report's fuel-neutral recommendation, DOE's Fisher said it "really has to do with identifying essential reliability services, and guaranteeing either through market means or by standards, that those are adequate … abstracting away from a given fuel type and talking about grid characteristics that you need for reliable and resilient grid, that's what is important."
This could come to FERC in a number of ways, Peskoe said.
An RTO could file a proposal, or the commission could issue a proposed rule directing grid operators to create new products. FERC could also require RTOs to submit data on the issue, for further study, or DOE itself could initiative a rulemaking.
Finally, "market participants could file a complaint claiming that RTO tariffs are unjust and unreasonable because they fail to reflect baseload’s values," he said.
The study "gives mild support to baseload resources," said Peskoe. "It says baseload resources can add value, but they aren't the only mechanism. ...I don't read the report saying baseload resources are necessary."
Hartman said he believes the industry will see a "refreshed take on price formation." FERC has issued a pair of final rules, but two pending Notice of Proposed Rulemaking (NOPR) have been "very controversial" within the industry, he said. For instance, there is broad agreement that it is proper to to allocate uplift costs by cost causation, but not everyone agrees with how to do it. There is also controversy on fast-start pricing, which has divided experts.
"It's possible we'll see a shift in some of those pending NOPRs," Hartman said. Issues around scarcity values are also something FERC could dive into.
"The scarcity constructs of every RTO, except for ERCOT, which of course is not FERC jurisdictional, do not even come close to accurately representing the scarcity value of resources, so I think that's an area where you may see a renewed sense of FERC interest," Hartman added.
Reliable and resilient
The DOE report notes that grid operators have for some time now been focused on reliability concerns as renewable energy penetration has deepened on the grid. However, the study also stresses the need to focus on resiliency, especially in light of severe weather events.
"Ultimately the continued closure of traditional baseload power plants calls for a comprehensive strategy for long-term reliability and resilience," the study concludes.
"You can have an incredibly reliable grid that is not resilient," Fisher said. He pointed to a PJM Interconnection study earlier this year which reviewed the system in terms of reliability and the changing resource mix. Examining almost 100 hypothetical resources mix that were desirable and reliable, only one-third were also resilient against an extreme Polar Vortex-type weather event.
“You can have a grid that is reliable but not resilient, and that's the work PJM is already doing," said Fisher. "We are encouraging RTOs to go down that path to also take on that kind of study."
Officials at PJM acknowledge the work is ongoing, and said they support an expedited track for market issues. In September, in Baltimore, the grid operator will host a symposium to discuss advancing resilience with stakeholders.
"For the past nine months, PJM has been discussing the need to focus on system resilience," PJM officials said in an email. "We do believe there is work to be done in planning, operations and markets and have engaged in discussions with various constituencies."
The road ahead
While the study's scope was limited to the bulk power system and by Perry's initial memo, there is some concern that it does not sufficiently take into account just how rapidly grid changes are impacting utilities.
"Certainly, more forward looking thought would be useful," said Scott Olson, Black & Veatch principal consultant of distribution modernization and customer experience. "It's clear that markets are changing."
One issue the report didn't go into is the opportunity for coordination between resources, said Forrest Small, Black & Veatch's senior managing director for distribution modernization.
"Certainly we're seeing new thinking around the way bulk systems plan and the way smaller systems plan, specifically the way a utility, state or region might do a traditional [integrated resource plan] and the way a utility might do a distributed systems plan," said Small. "That's an interesting area the DOE probably couldn't get into in this report, but I think there are implications when you think of the role of non-wires alternatives."
Utilities are closely examining disruptive technologies and their impacts on the distribution system, including customer-sited solar, electric vehicles and storage.
"When we do analysis for utilities for long term resource planning over the next 20 years, the type of analysis they've done historically is not going to cut it anymore because of all the changes happening in industry," Olson said.
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