FERC 101 for Environmental Lawyers

Linda L. WalshHunton & Williams LLPFebruary 11, 2015

What is FERC

• FERC is an independent agency within the Dept. of Energy (DOE)

• Current Commission:

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Electricity Regulation

• Federal Power Act– FERC must ensure that rates for transmission and wholesale 

sales of electricity in interstate commerce are “just and reasonable”

– “. . . such Federal regulation, however, to extend only to those matters which are not subject to regulation by the States.   16 U.S.C. § 824.  States regulate:

• Generator and transmission siting, construction• Distribution of electricity• Retail sales of electricity

• Energy Policy Act of 2005– FERC must protect the reliability of the bulk electric system by 

enforcing mandatory reliability standards• Wholesale rates and reliability ‐‐Both of these key functions are 

affected by the EPA’s Clean Power Plan

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Electricity BasicsDriving the turbines----

Most of the electricity produced in the U.S. comes from thermal generation—using heat to drive the turbines that produce electricity.

Thermal Generation

Fuel Sources that heat the steam to drive the turbines• Coal• Natural gas• Nuclear • Concentrated solar (uses solar

and reflective materials to generate thermal energy)

• Biomass

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Electricity BasicsNon-thermal ways to drive the turbines:

• Wind(variable resource,often located far from load centers)

• Hydro

Other ways to generate electricity:

Photovoltaics directly convert light to electricity  (variable resource)

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*Includes generation by agricultural waste, landfill gas recovery, municipal solid waste, wood, geothermal, non-wood waste, wind, and solar.

** Includes generation by tires, batteries, chemicals, hydrogen, pitch, purchased steam, sulfur, and miscellaneous technologies.

Sum of components may not add to 100% due to independent rounding.

Source: U.S. Department of Energy, Energy Information Administration, Power Plant Operations Report (EIA-923); 2012 final generation data.

February 2014

© 2014 by the Edison Electric Institute. All rights reserved.

Different parts of the U.S. Use Different Fuel Mixes to Generate Electricity

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How The Grid Works 1. Electricity is generated and

leaves the power plant

2. Its voltage is increased at a “step-up” substation

3. The energy travels along a transmission line to the area where the power is needed (765, 500, 345, 230 and 138 kV)

4. Once there, the voltage is decreased or “stepped-down” at another substation

5. A distribution power line carries the electricity

6. Electricity reaches yourhome or business (69, 26, 13, 4 kV, 120 V, 240 V). Demand for power is called “Load”

TransmissionA transmission grid is a network of generating stations, transmission lines, and substations.

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TransmissionImportant Characteristics:• Electricity is not typically

stored, so supply (generation) must be produced exactly when needed to meet customer demand (load) to avoid system failure (power outage)

Three types of power outages:• A transient fault is a momentary loss of power

typically caused by a temporary fault on a power line. Power is automatically restored once the fault is cleared.

• A brownout is a drop in voltage in an electrical power supply (e.g., the dimming experienced by lighting when the voltage sags). Brownouts can cause poor performance of equipment or even incorrect operation.

• A blackout is the total loss of power to an area and is the most severe form of power outage that can occur. Blackouts which result from or result in generators tripping are particularly difficult to recover from quickly. Outages may last from a few minutes to a few weeks.

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•Electricity travels at the speed of light

•Laws of physics dictate that power flows along path of least resistance; Limited ability to direct power along specific route

•Utilities must have enough generation capacity to serve their forecasted load plus some extra -- a reserve margin.

•Different kinds of reserves- some designed to come on line over a period of time, some designed to come on immediately (spinning – or “load following”).

•Different kinds of generators for different purposes –baseload vs. peaking units

•Fuel security or “Fuel Assurance” – issue FERC is investigating

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Transmission

Transmission Operations• Pre-1990, all utilities were “vertically integrated”

– A single company generated electricity, transmitted it from the plant to load and distributed it to final consumers in a particular “service territory”

– There was little or no wholesale competition (independent generators not able to interconnect unless they were a PURPA QF)

– FERC regulated wholesale sales of power to customers and between companies at cost-based rates

• Post 1990--FERC took action to promote competition in generation and transmission

– FERC required transmission owners to allow non-affiliated generators to interconnect generators to the grid

– FERC-regulated utilities required to provide “Open Access” transmission service (Order No. 888)

– Wholesale power sellers increasingly using market based rates

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RTOs and ISOsIndependent System Operators (ISOs) and Regional Transmission Organizations (RTOs) were created in the late 1990s (FERC Order 2000). RTO/ISO functions include:

– Manage the operation of a multi-company grid for a single state (ISO) or for a region (RTO)

– Manage reliability of the transmission grid

– Operate wholesale power markets (and some other markets)• Generators bid power into wholesale markets at market-based rates

• Least cost generators get “dispatched” first

• All generators dispatched get market clearing price – bid of last generator dispatched

– FERC has oversight of these markets

– Joining an ISO or RTO is voluntary for utilities but it can help with attaining FERC approvals for mergers and market-based rate requests because joining mitigates some market power issues and can increase the relevant geographic market for market power analysis

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RTOs and ISOs(Regional Transmission Organizations and Independent System Operators)

U.S.:   Canada:New England ISO (ISO‐NE) Electricity System Operator (IESO)New York ISO (NYISO) Alberta Electric System OperatorPJM Interconnection L.L.C. (PJM)MidContintent Independent System Operator, Inc. (MISO)Southwest Power Pool (SPP) For more info:  Regional Transmission Organizations,California Independent System Operator, Inc. (CAISO)  Order No. 2000,  89 FERC ¶ 61,285 (1999)Electric Reliability Council of Texas (ERCOT) 13

Electric Reliability

FERC has a statutory obligation to ensure the reliable operation of the bulk power system (stems from the aftermath of the 2003 blackout)• Energy Policy Act of 2005 (added § 215 of the Federal Power Act) – requires the 

creation of a self‐regulatory electric reliability organization (ERO) that spans North America, subject to FERC oversight in the United States. 

• The North American Electric Reliability Corporation (NERC) is the entity certified as the ERO for the U.S., Canada and the northern portion of Baja California, Mexico. 

• Legislation required the development and enforcement of mandatory reliability standards for the bulk electric system

• For the past decade, the North American Electric Reliability Corporation (NERC) has been working with industry and government to implement the reliability provisions of the Act. 

• Prior to EPAct 2005, reliability standards were voluntary, not standardized 

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Electric ReliabilityAbout NERC: 

• Not‐for‐profit regulatory authority whose mission is to meet the statutory obligation to ensure the reliability of the bulk power system in North America:

• Jurisdiction includes users, owners, and operators of the bulk power system – 100 kV and higher (e.g., generators, transmission companies, RTOs/ISOs, etc); 

• Develops and enforces the Reliability Standards; imposes penalties for non‐compliance, subject to FERC approval;

• Ensures reliability by addressing events and identifiable risks;• Annually assesses seasonal and long‐term reliability and provides assurance to the public, industry, and government for the reliable performance of the bulk power system;  (See, e.g., “Potential Reliability Impacts of EPA’s Proposed Clean Power Plan, 11/5/2014, http://www.nerc.com/pa/RAPA/ra/Pages/default.aspx)

• Monitors the bulk power system through system awareness; • Educates, trains, and certifies industry personnel; • Promotes learning and continuous improvement of operations and adapts to lessons learned for improved bulk power system reliability;

• Risk‐based Approach – to focus attention, resources, and actions on issues most important to bulk power system reliability.

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Adequacy:  The ability of the electricity system to supply the aggregate electrical demand and energy requirements of the end‐use customers at all times, taking into account scheduled and reasonably expected unscheduled outages of system elements. 

Operating Reliability:  The ability of the Bulk‐Power System to withstand sudden disturbances, such as electric short circuits or the unanticipated loss of system elements from credible contingencies, while avoiding uncontrolled cascading blackouts or damage to equipment

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NERC defines reliability in terms of two functional aspects:  

Electric Reliability

• FRCC: Florida Reliability Coordinating Council

• MRO: Midwest Reliability Organization

• NPCC: Northeast Power Coordinating Council

• RFC: ReliabilityFirstCorporation

• SERC: SERC Reliability Corporation

• SPP: Southwest Power Pool, RE

• TRE: Texas Reliability Entity

• WECC: Western Electricity Coordinating Council

NERC Regional Entities

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Reliability• Reliability Standards cover broad areas:

– Transmission operations– Vegetation management (tree trimming, ROW clearing)– Cyber and physical security– Communications– Emergency preparedness– Transmission planning, modeling, data analysis– Resource and demand balancing– System protection mechanisms– Interchange scheduling and coordination– Reliability operations 

• Non‐compliance with the standards could subject a company to significant civil penalties of $1 million/day per violation.   Since 2008, NERC has found nearly 6,000 standard violations and imposed millions of dollars in civil penalties for non‐compliance  

• Standards applicable to all users, owners and operators of the bulk  power system (facilities operating at  or above 100 kV)

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FERC and EPA

FERC Technical Conference ‐‐ Issues Raised by the CPP:• Electric reliability issues

• Retirement of coal plants - Transmission system reliability may be affected by the absence of generators in key locations (e.g., frequency control and voltage support). “Reliability Must Run” units have been designated in the past (also referred to as “back-stop” or “safety valve” options).

• Changing resource mix will result in less fuel diversity• Challenges for transmission operations with integration of large amounts

of Variable Energy Resources (VERs): • 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 owner or operator, e.g., wind, solar thermal and photovoltaic, and hydrokinetic generators. See Integration of Variable Energy Resources Notice of Proposed Rulemaking, 139 FERC ¶ 61,246 (2012) Order No. 764

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FERC Technical Conference ‐‐ Issues Raised by the CPP … continued :

• New infrastructure needed to support changing resource mix • Switch to natural gas requires new gas pipeline infrastructure

– Long lead time for siting, permitting and construction– Will increase rates

• Increase in certain renewables will require new transmission infrastructure

– Long lead time for siting, permitting and construction– Will increase rates

• Implications for FERC-administered wholesale electric power markets –e.g., moving from a least-cost dispatch model to an emissions-based dispatch model

– Will require new RTO market rules – Also likely to increase rates

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FERC and EPA