FERC Rejects DOE’s Proposed Grid Resiliency Rule

The Federal Energy Regulatory Commission (FERC) has rejected the Department of Energy’s (DOE’s) controversial proposed rule on grid reliability and resilience pricing, initiating instead a new proceeding that will examine the resilience of the bulk power system.

The DOE’s “Grid Resiliency Pricing Rule” proposed on Sept. 29 directed FERC—an independent regulatory government agency that is officially organized as part of the DOE—to exercise its authority under sections 205 and 206 of the Federal Power Act (FPA) and require that independent system operators (ISOs) and regional transmission organizations (RTOs) “establish just and reasonable rates for wholesale electricity sales” for power plants that show “reliability and resiliency attributes.” The DOE required the commission to act on the notice of proposed rulemaking (NOPR) by January 10, after the agency granted it a 30-day extension.

But in a new order issued on January 8, FERC terminated the proceeding initiated in Docket RM18-1-1000 and initiated a new proceeding in Docket No. AD18-7-000 to specifically evaluate the resilience of the bulk power system in regions operated by RTOs and ISOs.

The order also directs RTOs and ISOs to submit information to FERC on certain resilience issues and concerns identified to allow it to “holistically” examine the resilience of the bulk power system.

FERC noted that it had previously taken steps with regard to reliability and other matters that have helped to address the resilience of the bulk power system. However, it added: “The Commission recognizes that it must remain vigilant with respect to resilience challenges, because affordable and reliable electricity is vital to the country’s economic and national security.”

Not “Just and Reasonable”

The vast majority of the numerous comments and reply comments submitted by a broad swath of power sector stakeholders—from utilities, industry groups, and state agencies to independent analysts, academics, and environmental organizations—in FERC’s Docket RM18-1 lambasted the DOE’s short timetable to implement a rule many said could alter the nation’s markets significantly. Others contested the rule’s legality and vagueness.

In its January 8 order, FERC said that the rule didn’t satisfy the Federal Power Act (FPA). “The FPA is clear: in order to require RTOs/ISOs to implement tariff changes as contemplated by the Proposed Rule, there must be a demonstration that the specific statutory standards of section 206 of the FPA are satisfied,” it said. First it must show that the existing RTO/ISO tarriffs are unjust, unreasonable, unduly discriminatory or preferential. Then, any remedy proposed under the FPA must itself show not to be be “just, reasonable, and not unduly discriminatory, or preferential.”

However, neither the proposed rule nor the record in the proceeding “satisfied the statutory requirement of demonstrating that the RTO/ISO tariffs are unjust and unreasonable,” it said.

As significantly, the commission did not find that potential retirements of coal and nuclear plants could jeopardize grid resilience or reliability issues. “We find that these assertions do not demonstrate the unjustness or unreasonableness of the existing RTO/ISO tariffs. In addition, the extensive comments submitted by the RTOs/ISOs do not point to any past or planned generator retirements that may be a threat to grid resilience,” the order says.

Finally, FERC disagreed with assertions that an “adequate record exists through the commission’s price formation efforts to support the proposed rule’s action regarding bulk power system resilience.” Rather, it added, the record showed that if implemented, the proposed rule would not be just and reasonable.

“It also has not been shown that the remedy in the proposed rule would not be unduly discriminatory or preferential,” FERC said. One example the order cites is that the proposed rule’s onsite 90-day fuel supply requirement would appear to permit only “certain resources” to be eligible for the rate, “thereby excluding other resources that may have resilience attributes.”

Perry: But the Rule Opened Up a National Debate

In a statement issued on January 8, Secretary of Energy Rick Perry said that the proposal was “intended” to initiate a national debate on the resiliency of the electric system.

“What is not debatable is that a diverse fuel supply, especially with onsite fuel capability, plays an essential role in providing Americans with reliable, resilient and affordable electricity, particularly in times of weather-related stress like we are seeing now. I look forward to continuing to work with the Commissioners to ensure the integrity of the electric grid,” he said.

DOE spokesperson Shaylyn Hynes added that it was clear that the grid’s integrity was being “severely stressed” by frigid temperatures faced by the nation. “While the grid’s integrity is being maintained by an abundant and diverse supply of fuel sources today, the real question is whether or not this diversity will be here tomorrow,” she said. “Marketplace distortions are putting the very resource mix that has enabled our ability to endure severe events at risk. Without action, we cannot guarantee the long term reliability and resiliency of the electric grid. This is a priority for Secretary Perry, because energy security drives the economy and ensures our nation’s security.

—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)