RenewElec October 21, 2010 Robert Nordhaus, David Yaffe Van Ness Feldman 1050 Thomas Jefferson Street, NW Washington, DC (202) FERC’s Role in Renewable Electricity Integration: The Bulk Power System, Wholesale Markets and Reliability Standards

RenewElec 2 Overview FERC’s Role Ongoing Proceedings at FERC that Address Key Renewable Issues Opportunities for RenewElec Input

RenewElec 3 FERC’s Role Regulates rates, terms and conditions of unbundled transmission services over the interstate transmission grid and wholesale power sales using that grid  Tariff and contract approvals  General rules, including pro forma OATT Regulates RTOs and ISOs (outside ERCOT) Supervises NERC, which sets mandatory reliability standards for the bulk power system Limited role in transmission planning and siting Establishes, with state commissions, ground rules for small renewable projects under PURPA States (not FERC) regulate retail power sales, local distribution, generation and most transmission siting, and “bundled” retail energy and transmission services Transmission and Wholesale Sales Organized Markets Reliability New Transmission Small Renewables

RenewElec 4 Ongoing Proceedings at FERC Impacting Renewables Integration of Variable Energy Resources Notice of Inquiry Jan Transmission Planning and Cost Allocation Proposed Rule June 2010 Demand Response Standards and Pricing as a Generation Resource Final Rule (Standards) April 2010 Proposed Rule (Pricing) March 2010 Electric Storage Technologies Request for Comments March 2010 Renewable Integration under OATT Case-by-case Orders NERC reliability standards Significant changes to be considered

RenewElec 5 Integration of Variable Energy Resources (VERs) Jan FERC Notice of Inquiry takes a “fresh look” at barriers to transmission service and wholesale markets for VERs (e.g. wind, solar) Comments solicited on 7 topics:  Data and Reporting Requirements  Scheduling Practices and Incentives  Forward Market Structure; Reliability Commitment  Balancing Authority Coordination  Reserve Products and Ancillary Services  Capacity Markets  Redispatch and Curtailment Practices

RenewElec 6 Transmission Planning and Cost Allocation June 2010 proposed rulemaking If finalized as proposed, transmission providers must amend OATTs (or safe harbor tariffs) to reflect:  Region-wide transmission planning  Elimination of rights of first refusal  Interregional transmission planning agreements  Regional and inter-regional cost allocation methodologies Could stimulate new investment in renewables- oriented transmission (including merchant lines)

RenewElec 7 Demand Response Two areas of demand response (DR) being addressed that could expand use of DR in wholesale markets (i) April 2010 – Standard DR performance metrics adopted  FERC codified industry-standard terms and protocols for evaluating DR performance in wholesale markets (ii) March 2010 – Proposed Rule to set DR pricing scheme  RTOs/ISOs that allow DR as generation resource would be required to pay DR providers, at all hours, the locational marginal price (LMP) for energy reduced  Pushback from commenters

RenewElec 8 Electric Storage Technologies Electric storage has many uses  A generation resource  An ancillary service for transmission  A distribution asset March 2010 – FERC Staff requests comments on rates, accounting and financial reporting for electric storage technologies to lay foundation for categorizing varied storage services for rate purposes Clear rules for electric storage compensation could expand quick-ramping electric storage ancillary services to complement renewable integration

RenewElec 9 OATT Rules Ancillary Service Charges  Charges for “wind following” ancillary services, like generator imbalance  Approved, but no clear precedent  “Proxy generator” approach to calculate marginal cost of wind following ancillary service  Rejected in 2010 Interconnection Rules  Special interconnection rules and procedures for large wind generators (> 20 MW)  Exempt from power factor requirement for synchronous generators  Mandatory low voltage ride-through capabilities  Reactive power requirement evaluated on basis of need, case-by-case

RenewElec 10 NERC Reliability Standards NERC develops and enforces reliability standards, subject to FERC approval 2009 NERC Report: off-peak nature of most new renewables requires “significant changes” to traditional grid planning and operations to maintain reliability.  Wind GW total new capacity, 38 GW on-peak  Solar - 20 GW total new capacity, 17 GW on-peak Over the next two years, NERC’s Integrating Variable Generation Task Force will publish reports recommending “significant changes” to reliability standards to accommodate large-scale renewable electricity integration

RenewElec 11 Conclusion Capacity and accessibility of bulk power system and wholesale markets to accommodate renewables is major issue within FERC’s (and NERC’s) domain Renewables will also be indirectly impacted by FERC rules on electric storage and demand response  RenewElec opportunities to inform FERC:  Filing comments in ongoing proceedings  Briefing Commission staff

RenewElec October 21, 2010 ROBERT NORDHAUS DAVID YAFFE Thank you. Questions?