Grid Reliability and Resilience Pricing

Background

The Department of Energy proposed to have the Federal Energy Regulatory Commission (FERC) adopt rules aimed at providing additional revenue to generation units for some generators in the wholesale markets that are not subject to cost recovery. The generation must have at least 90 days of fuel on hand. The proposal’s stated purpose is to “maintain the reliability and resiliency of our nation’s grid.” According to the proposal, fuel-secure generation resources are essential to the reliable delivery of electricity, particularly in times of supply stress such as recent natural disasters. The proposed rule appears to not apply to the Midcontinent Independent System Operator (MISO) and only applies to merchant generators within organized capacity and energy markets.

How it affects Great River Energy

Great River Energy owns a diverse mix of generating resources whose fuel supply is inherently resilient and secure.

Great River Energy’s position

Great River Energy welcomes and supports the national dialogue on grid reliability. Great River Energy agrees with the proposed rule’s premise that the centralized wholesale markets in independent system operators (ISOs) and regional transmission organizations (RTOs) may not be fully compensating generating resources for the grid resilience and reliability services they are providing. Great River Energy submitted the following proposed clarifications and modifications to the proposed rule.

 “Eligible grid reliability and resiliency resources” should include all generating resources with the technical ability to provide the reliability and resiliency services.

Great River Energy believes that market pricing for grid reliability and resilience services should be based on a generating resource’s technical ability to provide the services, not on its state or local regulatory status.

The proposed rule defines “eligible grid reliability and resiliency resources” to include only resources “not subject to cost of service rate regulation by any state or local regulatory authority.” It does not define “state or local regulatory authority.”

If Great River Energy is denied full compensation for its generating resources, its members’ end use consumers will effectively pay twice for the same reliability services, first through investment in Great River Energy’s owned generating resources and again in the market for the generating resources of others.

The proposed rule should recognize all generating resources with long-term onsite or readily available fuel as eligible resources.

Great River Energy requests that the eligibility requirements take into consideration all forms of readily available supply. The reliability and resilience attributes of generating resources with access to readily available fuel should be recognized since fuel transportation risk is similarly eliminated when the generating resource is located near the fuel source.

As an example, Great River Energy’s 1150-megawatt coal-fired Coal Creek Station in North Dakota receives all of its fuel from a mine which is only a few miles from the generating facility. In most cases, the lignite coal is mined, transported by conveyor belt, crushed and dried using waste heat from the generator, and sent directly into the generator.

While this may not technically represent 90 days of onsite fuel supply, this arrangement makes Coal Creek Station very fuel-secure. Utilizing fuel directly from the fuel source as compared to transporting the fuel via rail has clear advantages for fuel security and reliability.

Great River Energy also owns several dual fuel peaking generating resources that are able to run on pipeline natural gas or onsite stored fuel oil.

Great River Energy’s fuel-secure resources operated reliably during the 2014 Polar Vortex, which presented some of the harshest conditions for generating resources and load.

The proposed rule should recognize that eligible resources provide grid reliability and resiliency by supplying both capacity and energy.

The proposed rule states that an eligible grid reliability and resiliency resource is “able to provide essential energy and ancillary reliability services, including but not limited to voltage support, frequency services, operating reserves, and reactive power.”

Great River Energy believes that grid reliability and resiliency is not limited to energy products, but is supplied by both capacity and energy. Capacity reflects a generating resource’s ability to stand ready to serve when needed and can provide grid reliability benefits beyond the production of energy. If only energy is compensated for providing grid reliability, and not capacity, the grid stabilizing benefits of frequency and voltage support that come from large rotating masses being on the system would not be recognized or compensated.

MISO should be within the scope of applicability of the proposed rule.

The proposed rule states that the rule will apply to “Commission-approved independent system operators or regional transmission organizations with energy and capacity markets and a tariff that contains a day-ahead and real-time market or the functional equivalent.”

Great River Energy believes that MISO’s capacity and energy markets are sufficiently structured and mature to facilitate the proposed rule. If MISO is an applicable RTO under the proposed rule, Great River Energy proposes a discussion with MISO stakeholders on a new grid reliability service product as a proposed market mechanism for compensating all fuel-secure resources.


Oct. 25, 2017

Download a PDF of Great River Energy’s Grid Reliability and Resilience Pricing Position Statement