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FERC Terminates Rulemaking Aimed At Increasing RTO/ISO Reliance On Merchant Coal and Nuclear Resources, Initiates New Proceeding To Explore RTO/ISO Resilience Issues

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On January 8, 2018, the Federal Energy Regulatory Commission (FERC or Commission) issued an Order terminating a rulemaking initiated in Docket No. RM18-1-000 in which the Commission, acting at the request of the Department of Energy (DOE), considered requiring Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) to establish tariff mechanisms ensuring appropriate compensation to “baseload” generating units with a ninety-day supply of onsite fuel storage when they participate in regional electricity markets, including full recovery of allocated costs and a fair return on equity. The Proposed Rule on Grid Reliability and Resilience Pricing (Proposed Rule) was submitted to the Commission by Secretary of Energy Rick Perry last fall pursuant to a rarely used procedure under section 403 of the DOE Organization Act, 42 U.S.C. § 7173. The criteria included in the Proposed Rule were interpreted largely as favoring merchant coal and nuclear resources over other resources.

The Commission terminated the proceeding after reviewing extensive industry comments, finding that neither the Proposed Rule nor the record evidence met the threshold statutory requirement under section 206 of the Federal Power Act showing that the existing RTO/ISO tariffs are unjust and unreasonable. The Commission also found that the proposal would guarantee compensation to owners of certain resources regardless of the need or cost of those resources to the system, rendering the proposed remedy unduly discriminatory or preferential.

Commissioners Richard Glick, Cheryl LaFleur, and Neal Chatterjee each issued separate, concurring opinions supporting the termination of the Proposed Rule. Commissioner Glick noted that the Department’s own study concluded that “changes in the generation mix, including the retirement of coal and nuclear generators, have not diminished the grid’s reliability or otherwise posed a significant and immediate threat to the resilience of the electric grid,” and that the record failed to support the proposed remedy of a “multi-billion dollar bailout targeted at coal and nuclear generating facilities.” Glick observed that RTOs and ISOs should consider how best to mitigate resiliency challenges within their markets and without prejudging what technology or fuel-type provides the best solution. Commissioner LaFleur wrote separately that the transformation of the nation’s resource mix is ever-evolving, noting that the Department of Energy’s proposed remedy would “freeze yesterday’s resources in place indefinitely rather than adapting resilience to the resources that the market is selecting today or toward which it is trending in the future.” Commissioner Chatterjee highlighted his concern that existing RTO/ISO tariffs may not adequately compensate resources for contributions to bulk power system resilience, and expressed his expectation that exploring resilience issues within RTOs/ISOs is the first step in a more systematic effort to ensure the resilience of the nation’s bulk power system.

In its Order terminating the Proposed Rule, the Commission acknowledged allegations of the existence of grid resilience or reliability issues due to the retirement of particular resources. Although the Commission concluded that such concerns do not demonstrate the unjustness or unreasonableness of the existing tariffs, it found that the record developed to date warrants further examination of the risks to the bulk power system and ways to address those risks in the changing electric markets. To that end, the Commission initiated a new proceeding (Docket No. AD18-7-000) and directed each RTO and ISO to submit information concerning resilience within their respective footprints.

The stated goal of the new proceeding is to: (1) develop a common understanding among the Commission, industry, and others of what resilience of the bulk power system means and requires; (2) understand how each RTO and ISO assesses resilience in its geographic footprint; and (3) use this information to evaluate whether additional Commission action regarding resilience is appropriate at this time. Each RTO and ISO must submit within 60 days of the date of this Order (i.e. March 9, 2018) specific information explaining how it currently addresses resilience of the bulk power system within its footprint, highlighting any specific or unique resilience challenges it faces. Each RTO and ISO may also propose resolutions to any identified gaps or exposure on the resilience of the bulk power system. Specific questions posed by the Commission begin on page 12 of the Order. These questions generally seek information regarding how RTOs/ISOs define resiliency, measure resiliency of the system, and evaluate options to mitigate resiliency risks. Those wishing to comment on the RTO/ISO submissions will have 30 days following the RTO/ISO submissions to do so (i.e. April 8, 2018).

(FERC Docket Nos. RM18-1-000 | AD18-7-000)

For more information on this topic or other energy matters, please contact any of the following attorneys at Jennings, Strouss & Salmon, P.L.C.

Debra Roby – droby@jsslaw.com

Andrea Sarmentero Garzon – asarmentero@jsslaw.com

Omar Bustami – obustami@jsslaw.com

Joel Greene – jgreene@jsslaw.com

Gerit Hull – ghull@jsslaw.com

Gary Newell – gnewell@jsslaw.com

Alan Robbins – arobbins@jsslaw.com

Debbie Swanstrom – dswanstrom@jsslaw.com

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