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Reliability Wars

Power System Planning: Who gets paid (and how much) for backing up the system?

Fortnightly Magazine - June 2005

to delegate reliability authority to the state PUC if no market solution could be found to solve a problem with grid operations (congestion, constraints, load pockets, etc.), calling it “unlawful.” Even the PJM RTO had said it was concerned that the state PUC’s expansive role in the planning process could jeopardize the independence of the ISO.

Yet, in its order approving the plan, FERC itself agreed to take a backseat, and saw the plan as an opportunity to “dovetail our regulation” in order to work closely with state officials.

As FERC explained, the footprint of the New York ISO is contiguous with the state of New York, and so the state PUC was “singularly suited” to resolving disputes concerning the ISO’s regional needs assessment and final determinations in the CRP process. ( See Docket No. ER04-1144, 109 FERC ¶61,372, Dec. 28, 2004; rehearing granted Feb. 25, 2005 ).

Moreover, it appears that FERC does not enjoy as much authority over reliability as some might think. Thus, to fall back on the work of the state PUC might actually make sense.

Nearly two years ago, testifying before a U.S. Senate Subcommittee, FERC Chairman Pat Wood III stated: “The explicit authorities granted to the commission in the area of reliability are very limited.”

In fact, according to the New York ISO, a key facet of responsibility for reliability of the bulk power system should reside, and has always resided, with state regulators. FERC, says the ISO, can claim explicit statutory authority over reliability only to: (1) order interstate service upon complaint by a state PUC; (2) ascertain whether certain interstate interconnections are physically reliable; or (3) request reports or studies by reliability councils or other appropriate agencies. ( FERC Docket No. ER04-1144, answer filed Sept. 28, 2004. )

Thus it is not everywhere that FERC and the RTOs hold sway. In California, for instance, the ISO (Cal-ISO) has not adopted a market-based ICAP program, nor does it intend to. Instead, it has imposed a must-offer obligation (MOO) requirement to force owners of electric generating capacity to make it available for sale in real time, and has decided on a strategic basis to rely heavily on state PUC programs to achieve regional reliability.

By turning away from an ICAP regime and embracing a planned solution managed by the PUC, the California ISO would return the reliability process back to the state. Once there, regulators would fix reserve requirements and their attendant costs under the standard of just and reasonable rates. 

The jury was still out at this writing on how well the California compromise would work. The California PUC is set to issue a final order by the end of June in its rulemaking on resource adequacy. That timeline, in turn, has prompted Cal-ISO, hard at work in its market redesign, to wait a bit before proposing its next iteration of tariff language on how its new integrated forward market (IFM) will work. But we do know this: Cal-ISO’s comments on the PUC plan, submitted through the winter and early spring, reveal serious concerns over