FERC Spotlights Uplift Payments & Pipeline Project Review

The Federal Energy Regulatory Commission April 19 unanimously approved rules to increase transparency on above market payments grid operators make to resources needed for reliability and to speed up interconnection agreements for generating resources 20 MW and larger.

The regulators also launched a review of the agency's 1999 intrastate gas pipeline project certification process.

“Uplift payments can be costly in stressful situations,” noted Commissioner Cheryl LaFleur of the above market payments subject to FERC’s new rule.

The commission concluded that uplift payments “are insufficiently transparent and result in rates that are not just and reasonable.”

FERC Chair Kevin McIntyre said the generic rule approval was the last step in its price reformation effort begun in 2014.

The rule also requires regional market operators to include in their tariffs details of transmission constraint penalty factors, including the circumstances when they set locational marginal prices. The constraint penalty factor is “the maximum price that the system will pay to re-dispatch resources before allowing power flow to exceed a transmission element’s maximum operating level,” according to FERC.

Commissioner Robert Powelson said the rule balances the required granular data against commercially sensitive data.

“It is not sexy, but we do love price formation,” he added.

The new rule is expected to increase investments in efficient and new resources, said FERC staffer Adam Cornelius.

The five commissioners declined to include in this newly adopted final rule a proposal that market operators allocate the costs of real-time uplift costs to the market participants whose transactions likely cause the costs. The challenges of compliance led to this provision’s withdrawal from the adopted rule.

The commission also approved rules to create a more efficient interconnection process for large generation systems 20 MW and larger. There have been ongoing complaints about the delays, including systems in the queue which are considered unlikely to make it to commercialization and wind up clogging up the interconnection review process.

The new final rules are aimed at reducing practices that may hinder new generation and stifle competition, McIntyre said.

The rule also adds transparency to the dispute resolution process and seeks “to improve certainty for interconnection customers and enhance the interconnection process to provide opportunities to bring new generation online faster and mitigate the construction of unnecessary upgrades through interconnection service alternatives,” FERC stated.

This was commission’s first effort in this area in 15 years, LaFleur said.

The federal regulators additionally issued a notice of inquiry, seeking input on whether to reform FERC's process for determining if new intrastate natural gas pipelines are needed when it considers public necessity and convenience permits.

The federal agency has been criticized that its outdated pipeline certification has not kept up with market changes, including responding to higher levels of renewables. Critics contend the commission has allowed unnecessary pipelines to be built.

“FERC now has the opportunity to address the flaws that are posing climate and other environmental, health and safety risks, plus economic risks to consumers and markets,” the Natural Resources Defense Counsel and several other groups stated in a joint April 18 letter.

LaFleur noted that the appropriateness of including the social cost of carbon may be part of the inquiry.

Finally, during this week’s meeting, the energy regulators raised ongoing concerns about the natural gas constraints in Southern California, including supplies to gas plants during peak periods. Concerns stem from reduced storage at the Aliso Canyon natural gas storage field, its 10 year phase out, as well as gas import pipelines being offline.

“2017 was the year of close calls,” warned Commissioner Neil Chatterjee.

FERC noted too that last year the U.S. was a net exporter of natural gas for the first time since 1985. — Elizabeth McCarthy

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FERC Spotlights Uplift Payments & Pipeline Project Review

William J. Kelly

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