FERC ends DOE resilience rulemaking, opens new proceeding

Tuesday, January 9, 2018

U.S. energy regulators have terminated a fast-tracked proceeding opened last fall to consider rules proposed by the Department of Energy that would have compensated certain electric generating plants for reliability and resilience values; instead, the Federal Energy Regulatory Commission has opened a broader case to examine the resilience of the bulk power system.

On September 29, 2017, Secretary of Energy Rick Perry directed the Commission to consider a proposed rulemaking to ensure that "traditional baseload resources, such as coal and nuclear" are rewarded for their reliability and resilience attributes. As proposed, the rule would have required grid operators to set rates for compensation paid to certain "grid reliability and resiliency resources" with a 90-day fuel supply on site and capable of providing "essential energy and ancillary reliability services, including but not limited to voltage support, frequency services, operating reserves, and reactive power."

The request under Section 403 of the Department of Energy Organization Act bore an expedited timeline. The Commission solicited public comments on the proposed rulemaking, and Commission staff issued a series of questions to frame the discussion. Many comments expressed concerns that rapid changes to wholesale markets could have harmful or perverse effects, and prior to yesterday's most seated Commissioners had publicly expressed reservations.

On January 8, 2018, the Commission issued its Order Terminating Rulemaking Proceeding, Initiating New Proceeding, and Establishing Additional Procedures.  In doing so, it recognized "that we must remain vigilant with respect to resilience challenges, because affordable and reliable electricity is vital to the country’s economic and national security." The order recites a history of the evolution of the electric power industry and the Commission's efforts to help ensure bulk power system resilience, including the adoption of NERC reliability standards, reforms to capacity markets and gas-electric coordination.

But the Commission found that neither the Department of Energy's proposed rulemaking nor the record in the case satisfied a key legal standard for Commission action under Section 206 of the Federal Power Act. Specifically, it concluded that the existing tariffs had not been demonstrated to be unjust, unreasonable, unduly discriminatory or preferential.

The Commission also noted potential problems with the proposed rule. For example, it said that allowing all eligible resources to receive a cost-of -service rate regardless of need or cost to the system had not been demonstrated to be just and reasonable, and that the proposed rule's on-site 90-day fuel supply requirement hadn't been shown not to be unduly discriminatory or preferential -- but that it would exclude some resources with resilience attributes.

At the same time, the order states, "The resilience of the bulk power system will remain a priority of this Commission." It continued, "Although the Proposed Rule failed to satisfy the fundamental legal requirements of section 206 of the FPA, the Proposed Rule and the record developed to date have shed additional light on resilience more generally and on the need for further examination by the Commission and market participants of the risks that the bulk power system faces and possible ways to address those risks in the changing electric markets." Noting "a variety of economic, environmental, and policy drivers that are changing the way electricity is procured and used," the Commission said these changes "present new opportunities and challenges regarding the reliability, affordability, and environmental profile of each region’s electric system."

To address these changes, the Commission initiated a new proceeding, Docket No. AD18- 7-000, to take additional steps to explore resilience issues in organized wholesale electricity markets. According to the order, the goal of this proceeding is: "(1) to develop a common understanding among the Commission, industry, and others of what resilience of the bulk power system means and requires; (2) to understand how each RTO and ISO assesses resilience in its geographic footprint; and (3) to use this information to evaluate whether additional Commission action regarding resilience is appropriate at this time."

The Commission directed six regional transmission organizations and independent system operators to respond within 60 days with comments on the definition of resilience, plus how they assess and mitigate threats to resilience. The Commission also solicited public comment within 30 days of the grid operators' due date.

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