Variable Energy Resources

The Federal Energy Regulatory Commission (“FERC” or the “Commission”) released a Notice of Proposed Rulemaking (“NOPR”) on Integrating Variable Energy Resources (“VERs”) into the electric grid (the “Proposed Rule”).This Proposed Rule is the result of extensive industry comments following the Commission’s January 21, 2010 Notice of Inquiry (the “NOI”) regarding Integrating VERs.

In the Proposed Rule, the Commission introduced three reforms, while recognizing these reforms are not exhaustive and do not displace regional efforts currently underway to address the Integration of VERs. The Commission proposed to: (1) amend the pro forma OATT to require intra-hourly transmission scheduling; (2) amend the pro forma Large Generator Interconnection Agreement (“LGIA”) to require that interconnection customers with generating facilities that are VERs provide meteorological and operational data to aid power production forecasting; and (3) amend the pro forma OATT to include a generic ancillary service covering generator regulation.

1. Intra-Hour Scheduling

The current scheduling process under the pro forma OATT provides for hourly transmission scheduling. The Commission preliminarily found that hourly transmission scheduling protocols are no longer just and reasonable and may be unduly discriminatory. Specifically, the Commission preliminarily found that existing hourly transmission scheduling protocols expose transmission customers to excessive or unduly discriminatory generator imbalance changes and are insufficient to provide system operators with the flexibility to manage their systems effectively and efficiently. In its Proposed Rule, the Commission proposed to amend the pro forma OATT to allow for greater scheduling flexibility and to help balancing authorities match their scheduled production with actual output. This change would also reduce the amount of regulation reserves or ancillary services public utility transmission providers (“transmission providers”) must obtain. The amended pro forma OATT would allow for a 15-minute scheduling interval, however, this does not prevent transmission providers from providing scheduling intervals that are less than 15 minutes.

2. Power Production Forecasting

Another significant issue in the integration of VERs to the transmission system is power production forecasting. In order to account for difficulties in power production forecasts which lead to over-procurement of reserves, the Commission proposed to revise the pro forma LGIA to require interconnection customers with generating facilities that are VERs to provide meteorological and operational data to the transmission providers with whom they are interconnected. Additionally, the Commission proposed to require in the pro forma LGIA the same interconnection customers to report forced outages which reduce the generating capability by 1 megawatt or more for 15 minutes or more. This proposal is similar to a recent proposal the Commission accepted from the California Independent System Operator.

3. Generator Regulation Service

The Commission recognized in its Proposed Rule that its previous case-by-case approach to recovery of costs for regulation reserves for generator imbalance service needed review based on the number of proposals filed with the Commission. The Commission in its Proposed Rule attempted to provide consistency with regard to a transmission providers’ obligation to offer generator regulation service and address related cost recovery. The Proposed Rule incorporated “Schedule 10- Generator Regulation and Frequency Response Service” into the pro forma OATT. This would require transmission providers to file Schedule 10, which acknowledges the obligation to provide generator regulation service and include the rate at which it is provided. Under the proposed reform, the transmission providers must provide generator regulation service “to the extent it is physically feasible to do so from its resources or from resources available to it, to transmission customers using transmission service to deliver energy from a generator located within the transmission provider’s balancing authority.” The proposed rate schedule will allow transmission providers to recover reserve service costs related to managing supply-side variability. Similarly, in order to provide consistency, the Commission also proposed a new rate schedule that works alongside the generator imbalance service in Schedule 9 of the pro forma OATT.

Through its NOI and review of subsequent comments, the Commission found that the “evolving” energy industry and the growth of VERs prompted a need for a revision of the operational procedures, including the pro forma Open Access Tariff (“OATT”). The Commission stated in its Proposed Rule that reforms are necessary to prevent undue discrimination and unjust and unreasonable rates for transmission service. In its Proposed Rule, the Commission highlighted reforms that would eliminate “operational procedures which have the de facto effect of imposing an undue burden on VERs.” The Commissioners unanimously approved the Proposed Rule at the Commission’s public meeting on November 18, 2010. Chairman Jon Wellinghoff stated the Proposed Rule is a “fair and balanced way to recognize the characteristics of different energy resources and the associated impacts on system operations.”