Demand Response Energy Efficiency Energy Storage FERC Planning Transmission

Non-Transmission Solutions for Grid Problems

November 25, 2013

ferc-slide-3Electric transmission grid managers routinely face grid planning challenges like aging infrastructure, power plant retirements, and a changing resource mix (more wind and gas-fueled generation, less coal).  For example, existing transmission capacity in a rapidly growing suburb may be nearing its limits or a large coal power plant that provides a significant portion of a town’s power may announce its retirement. Regardless of the issue, and there are many, grid planners evaluate the situation and then identify the most cost-effective solutions to issues arising from the situation – solutions that can be implemented at a reasonable cost and in time to prevent system reliability problems.

Whenever grid planners assess a looming system problem, they are supposed to include energy efficiency, demand response, energy storage and even new power generation in their toolbox of potential solutions. The federal agency in charge of regulating the high-power grid, the Federal Energy Regulatory Commission, or FERC, requires grid planners to treat these and other non-transmission alternatives (NTAs) “comparably” to transmission solutions such as wires and transformers.

Including energy efficiency, demand response and other NTAs as potential grid solutions would seem to be a common sense approach to planning. Many grid problems result from the potential for an imbalance between supply (production of electricity) and demand (consumption of electricity). While expanding transmission infrastructure to deliver or handle more power often is the right answer, NTAs also can help by reducing the demand for electricity in particular locations or at particular times and therefore the need to expand the grid. For example, instead of expanding the capacity of an outdated transformer, customers in the region around the transformer might be able to reduce their consumption of energy a small amount through energy efficiency programs, which would reduce the amount of electricity moving through the transformer below the level of concern.

Legal Basis for Comparable Treatment

Because NTAs are often the most cost-effective choices in the grid planners’ toolbox, considering them helps to ensure that wholesale rates are “just and reasonable” as the Federal Power Act requires. The Act also prohibits grid planners from giving “undue preference” to certain customers and solutions, and excluding lower cost, equally effective solutions, which could include NTAs.

Order 890,” which FERC issued in 2007, made clear that NTAs are in the solutions toolbox and that grid planners must evaluate them on a comparable basis with transmission solutions. In discussing the use of demand response (customer-driven reductions in electricity use in response to price or other signals), FERC explained that “where demand resources are capable of providing the functions assessed in a transmission planning process, and can be relied upon on a long-term basis, they should be permitted to participate in that process on a comparable basis.”

Recognizing that states have significant control and authority over demand response, energy efficiency and other NTAs, FERC also explained in Order 890 why the grid planning process could identify system needs for the states so that states could add their solutions to the grid planners’ toolbox:

[The] transparency provided under an open regional transmission planning process can provide useful information which will help states to coordinate transmission and generation siting decisions, allow consideration of regional resource adequacy requirements, facilitate consideration of demand response and load management programs at the state level, and address other factors states wish to consider.

Later, in Orders 719 (2008) and 745 (2011), FERC applied the concept to demand response in wholesale electricity markets, requiring that grid operators running these markets must a) accept bids from demand response resources for so-called “ancillary services” and  (b) pay cost-effective demand response the same compensation received by generation in energy markets, i.e., the locational marginal price (“LMP”). (The term “ancillary services” refers to the electric power resources needed to maintain reliable grid operation, such as power that’s on standby or reserve and ready to be activated if a power plant or transmission line fails.) These new FERC-regulated market opportunities make it more likely that providers will offer up NTA options as part of the solutions toolbox. Finally, in 2011, FERC’s seminal Order 1000 affirmed the comparability requirement for non-transmission alternatives in the regional grid planning process.

The Gulf Between Law and Reality

Even though energy efficiency and other NTAs can be cost-effective solutions to electric grid needs, and despite the legal requirements to consider them on a comparable basis, grid planners rarely pull them from their toolbox for at least three reasons:

  1. Comfort Level: Transmission system planners  are most comfortable with transmission-based solutions to grid problems;
  2. Payback: FERC has interpreted the Federal Power Act to allow recovery of system upgrade costs only for transmission infrastructure solutions, leaving states and other federal incentives to cover costs for NTAs; and
  3. Influence: Companies in the business of building and owning transmission lines and related equipment often have outsized influence in the regional grid planning organizations, which creates an unfair bias in favor of transmission solutions.

These and other barriers limit consideration of cleaner and cheaper solutions to grid problems. The solutions may exist but the grid planners don’t “see” them in their toolbox.

Our Role – Breaking Down Barriers

The Sustainable FERC Project and its allies are working to remove these barriers. We insist on compliance with Order 890 and other rules, prepare strong legal arguments to support our positions and develop the technical analysis necessary to ensure “apples-to-apples” comparison of all resources.  Through our work on coal power plant retirements, we also are working to ensure that grid planners consider non-transmission alternatives in their toolbox of solutions to plant closures.

The Project and our allies have faced many examples where non-transmission alternatives are not receiving a fair shake in the grid planning process, including for example:

  • Order 1000: The New York Independent System Operator (NYISO) proposed tariff rules intended to comply with FERC Order 1000 explicitly limited consideration of solutions only to transmission alternatives. The Project, Pace Law School’s Energy & Climate Center and NRDC successfully challenged NYISO’s proposal at FERC, which agreed and ordered NYISO to fix its rules.
  • Power Plant Retirements: The Midcontinent Independent System Operator (MISO) struggled to craft rules to ensure the clear and comparable consideration of all solutions when coal plants retire and leave potential reliability gaps. The Project and our allies persuaded FERC to order that MISO create a more transparent and deliberative process for ensuring consideration of demand response and other NTAs. Still, more work remains, especially in getting MISO to recognize more state-regulated and utility-controlled NTAs.
  • Power Plant Retirements: Also in New York, the Sierra Club’s Beyond Coal Campaign sponsored reports showing how demand response could meet a major portion of the energy needs left by the closure of the Dunkirk and Cayuga power plants. The reports could serve as a useful template for similar analyses in other regions.

A good example of how energy efficiency improvements can defer the need for transmission expansion is in Vermont, where energy efficiency investments have avoided the need to spend $416 million in regional transmission system upgrades to date. Also, the growth of small clean energy power generation in homes and businesses (usually referred to as “distributed generation”) will provide additional solutions in the grid planners’ toolbox.