Energy & Utilities Alert
December 1, 2010
Authors:
Blowing Down Barriers to Entry:
Donald A. Kaplan
don.kaplan@klgates.com
+1.202.661.6266
Andrew B. Young
andrew.young@klgates.com
+1.202.778.9125
William M. Keyser
william.keyser@klgates.com
+1.202.661.3863
Molly Suda
molly.suda@klgates.com
+1.202.778.9452
K&L Gates includes lawyers practicing out
of 36 offices located in North America,
Europe, Asia and the Middle East, and
represents numerous GLOBAL 500,
FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies, entrepreneurs,
capital market participants and public
sector entities. For more information,
visit www.klgates.com.
FERC Proposes New Rules to Encourage Integration of
Renewable Generation Resources
Concerned that transmission system operators’ current operational protocols are
inhibiting the integration of renewable generation facilities that depend on
intermittent energy sources, such as wind and solar generation facilities, the Federal
Energy Regulatory Commission (“FERC”) issued a Notice of Proposed Rulemaking
on the Integration of Variable Energy Resources (“NOPR”) on November 18, 2010.1
Building from the Notice of Inquiry on the Integration of Variable Energy Resources
(“NOI”) issued earlier this year,2 FERC recognized that the increasing role of
variable energy resources could necessitate reforms to operational protocols that
were developed at a time when virtually all generation could be scheduled and only
load exhibited significant degrees of variability. Choosing to focus on reforms that
would have near-term effects instead of addressing all the topics covered by the NOI,
FERC identifies three complementary reforms to existing operational protocols that
it hopes will encourage the interconnection of renewable generation facilities.
The first proposed reform would require transmission system operators to offer all
transmission customers the option to schedule their generation resources in 15minute segments or “intervals,” rather than the hourly intervals that are common.3
The second proposed reform would amend the standard Large Generator
Interconnection Agreement—used by all new generation 20 MW or greater
interconnecting to the transmission grid—to require interconnecting variable energy
resource generators to provide meteorological and operational data to transmission
system operators to improve power production forecasting capabilities.4 Finally,
FERC proposes to add a new required ancillary service that transmission system
operators must offer and that their transmission customers must purchase or selfsupply. This ancillary service will consist of the generator capacity necessary to
balance generation output variability of transmission customers delivering energy
from generators located within the transmission system operator’s control area.5
FERC intends for these three proposed reforms to reduce transmission system
operators’ reliance on expensive capacity reserves to manage the variability of
variable energy resources and, thus, reduce barriers to the integration of such
Integration of Variable Energy Resources, 133 FERC ¶ 61,149 (2010). FERC’s
proposed definition of a variable energy resource is “a device for the production of
electricity that is characterized by an energy source that: (1) is renewable; (2) cannot
be stored by the facility owner or operator; and (3) has variability that is beyond the
control of the facility.” FERC seeks comments on the proposed definition for
variable energy resources.
2
Integration of Variable Energy Resources, 130 FERC ¶ 61,053 (2010).
3
NOPR at PP 37-44.
4
Id. at PP 55-64.
5
Id. at PP 84-100.
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Energy & Utilities Alert
generation resources. Comments on FERC’s
proposed reforms are due January 31, 2011.
Assuming the proposed reforms are adopted “as is”
following the comment period, transmission system
operators will need to review their operational
protocols, study the effects of variable energy
resources on their system, and submit compliance
filings to FERC before variable energy resource
generators can expect to see the intended benefits of
the proposed reforms.
Intra-hour Scheduling
Outside of Regional Transmission Organizations or
Independent System Operators, under current
transmission service scheduling practices,
transmission customers typically provide advance
notice in hour-long intervals to the transmission
system operator of when the customers expect their
owned or purchased generation will run and what
the output will be. Changes in generator output
normally may not be made within an hourly interval
unless emergency conditions threaten the reliability
of the system. Although this type of hourly
scheduling is suitable for fossil-fuel resources that
are able to forecast their output with relative
precision, the output of variable energy resources
cannot be forecasted as precisely or accurately on an
hourly interval; therefore, variable energy resources
are more likely to deviate from the schedule
submitted to the transmission system operator. As a
result, transmission system operators currently rely
on expensive regulation reserve generation to
smooth out or “balance” the variation in output from
variable energy resources. To establish more
efficient methods of dispatching generation,
minimize deviations from advance schedules, and
reduce reliance on reserves, FERC proposes to
amend its pro forma Open Access Transmission
Tariff (“Tariff”) to require transmission system
operators to offer all transmission customers the
option of scheduling transmission service on an
“intra-hour” basis (i.e., at 15-minute, rather than
hourly, intervals).
FERC seeks comments on the best approach for
implementing the proposed intra-hour scheduling
reforms. In particular, FERC is interested in
comments on how the implementation of intra-hour
scheduling can support industry efforts and respect
regional differences, while also ensuring a level of
uniformity in scheduling practices across
transmission systems so that energy can be
delivered more seamlessly across the transmission
grid. Additionally, FERC seeks detailed comments
on specific hardware, software, and personnel
changes necessary to implement intra-hour
scheduling, as well as the potential impact on small
transmission system operators. Finally, FERC
seeks further comments on whether the intra-hour
scheduling reforms are consistent with North
American Energy Reliability Corporation
(“NERC”) standards that govern the reliable
operation of the nation’s transmission system.
Meteorological and Operational Data
In addition to the schedules submitted by
transmission customers, transmission system
operators also forecast power production on their
systems to predict the need for generation resources
to balance load in the future. FERC found that
improved power production forecasting tools for
variable energy resources would provide
transmission system operators with more accurate
and advanced knowledge of system conditions,
enabling them to better manage the impact of
variable energy resources without relying on
reserves. In order to implement such enhanced
power production forecasting for variable energy
resources, FERC recognized that transmission
system operators would need certain site-specific
meteorological and operational data for
interconnected variable energy resources. Although
noting that the NERC Reliability Standards provide
transmission system operators with some authority
to request operational data from generators, FERC
proposes to revise its standard Large Generator
Interconnection Agreement so that variable energy
resource generators that interconnect to a
transmission system will be required to provide the
necessary site-specific meteorological and
operational data.
FERC proposes to require transmission system
operators to make the proposed revisions to their
standard Large Generator Interconnection
Agreement when they develop power production
forecasting for variable energy resources. However,
because variable energy resources are not evenly
distributed across all regions, FERC is not
proposing to require that all transmission system
operators implement enhanced power production
forecasting for variable energy resources. Instead,
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Energy & Utilities Alert
FERC would require transmission system operators
to implement power production forecasting for
variable energy resources only before imposing
regulation reserve purchasing obligations on variable
energy resource power under the new ancillary
service requirements described below.
The type of meteorological data a variable energy
resource generator must provide under these
proposed Large Generator Interconnection
Agreement provisions would depend upon the type
of variable energy resource that the generator owns
or operates. Wind-based variable energy resources
would be required to provide transmission system
operators with site-specific data including, but not
limited to, temperature, wind speed, wind direction,
and atmospheric pressure. Solar-based variable
energy resources would be required to provide sitespecific data such as temperature, atmospheric
pressure, and cloud cover. FERC also proposes to
require variable energy resource generators to report
to the transmission system operator any forced
outages that reduce generating capacity of the
resource by 1 MW or more for 15 minutes or more.
The new data reporting requirements are intended to
allow transmission system operators to distinguish
variability caused by meteorological changes from
that caused by other capacity outages and to develop
more accurate power production forecasts.
However, FERC seeks comments on whether
additional meteorological and operational data
would be required to achieve more accurate power
production forecasting for variable energy resources
and whether and with whom transmission system
operators should be able to share the data received.
Although at this time FERC does not plan to require
retroactive changes to currently effective Large
Generator Interconnection Agreements or to require
similar changes to the standard Small Generator
Interconnection Agreement that applies to generators
smaller than 20 MW, FERC seeks comments on
both of these proposed approaches. FERC also
seeks comments on how transmission system
operators may recover the costs incurred to develop
and deploy enhanced power production forecasting
tools.
Generator Regulation and Frequency
Response Service
Under the Tariff, transmission system operators
provide capacity (Regulation Service) and energy
(Energy Imbalance Service) for transmission service
within and into the transmission system operator’s
control area to balance load variability. However,
transmission system operators provide Energy
Imbalance Service only to balance generation
variability. FERC has considered transmission
system operators’ proposals related to generator
regulation service only on a case-by-case basis.
FERC proposes to bring consistency and
transparency to the manner in which transmission
system operators offer generator regulation service
by adding to the Tariff a new Schedule 10 –
Generator Regulation and Frequency Response
Service. Schedule 10 is modeled on the current
Schedule 3 for Regulation and Frequency Response
Service that addresses load variability and will
allow transmission system operators to recover the
cost of providing generator regulation reserves for
transmission service within and outside of the
transmission system operators’ control area.
Transmission system operators would be required to
offer generator regulation service to transmission
customers delivering energy from all generators in
the transmission system operators’ control areas
(not just variable energy resources); however,
transmission customers may also obtain generator
regulation service through self-supply or from
another control area through dynamic scheduling.
As proposed, Schedule 10 would include the same
rate as Regulation Service under Schedule 3, unless
the transmission system operator demonstrates that
cost of regulation reserve capacity to address
generator variability is different from the cost to
address load variability. After submitting a
compliance filing to adopt Schedule 10,
transmission system operators would be required to
designate in a filing under Section 205 of the
Federal Power Act a regulation reserve purchasing
obligation for energy delivered from generators.
Transmission system operators may request a
different regulation reserve purchasing obligation
under Schedule 10 for energy delivered from
variable energy resources if they can demonstrate
based on actual data collected over a one year
period that the impact of such energy on the
December 1, 2010
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Energy & Utilities Alert
transmission system requires a different regulation
reserve purchasing obligation. Before requesting a
differing generator regulation reserve purchasing
obligation for variable energy resources’ energy,
transmission system operators must first implement
intra-hour scheduling and enhanced power
production forecasting so that the data used to
support the request reflects the effects of the reforms
to integrate variable energy resources.
If a transmission system operator proposes to use the
same regulation reserve purchasing obligation for all
generators, it will only need to demonstrate that the
volume of regulation reserves required of
transmission customers delivering energy from
generators located within its control area is
commensurate with their effect on net system
variability. The transmission system operator must
have instituted the intra-hour scheduling reforms
discussed above and must also account for the
diversity benefits that result from offsetting schedule
deviations. FERC seeks comments on what would
need to be shown in Section 205 filings to support a
finding by FERC that the proposed Schedule 10
charge is just and reasonable. Ultimately, the
standards under which FERC will review
transmission system operators’ proposals for
regulation reserve purchasing obligations will have
far-reaching implications for transmission system
operators’ cost recovery for generator regulation
service as well as variable energy resource
generators’ operation costs.
Conclusion
FERC focuses on three complementary reforms to
transmission system operators’ operational
protocols that are intended to reduce reliance on
reserves to manage variability of intermittent
generators, thus reducing barriers to entry for
variable energy resources in the near-term. FERC
described the proposed reforms as “a reasonable
foundation upon which [transmission system
operators] will be well-positioned to manage system
variability,”6 indicating that FERC has only just
begun its reform efforts to integrate variable energy
resources. Although stating that more studies are
required at this time, FERC indicated that there are
a number of areas in which additional reforms may
be warranted. FERC also noted that certain issues,
such as forward and capacity market reforms
addressed in comments on the NOI, would require
more time and coordination among transmission
system operators to address, but that FERC would
continue to monitor stakeholder discussions and
potential ancillary services reforms in the individual
regions.
6 NOPR at P 12.
December 1, 2010
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Energy & Utilities Alert
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December 1, 2010
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