FERC Rejects DOE Grid Resiliency Proposal and Institutes New Proceeding

by Reed Smith

Reed Smith

In a unanimous order issued January 8, 2018, the Federal Energy Regulatory Commission (Commission) ended further consideration of the Department of Energy’s (DOE) controversial Notice of Proposed Rulemaking on Grid Reliability and Resilience Pricing (NOPR) in Docket No. RM18-1-000. Nonetheless, the Commission pledged to continue its inquiry into grid resiliency, albeit on different terms than previously set out in the NOPR.

On September 29, 2017, DOE directed the Commission to consider modifications to pricing structures in RTO- and ISO-administered wholesale electricity markets in order to bolster electrical generation sources that are capable of maintaining 90 days of fuel onsite, a strategy purportedly designed to improve grid resilience. The fuel supply requirements tended to favor coal-fired and nuclear generation facilities.

After receiving feedback from hundreds of stakeholders, the Commission rejected the DOE’s approach to grid resiliency. The Commission held that it did not have a sufficient record to justify adopting the NOPR’s resiliency proposals. Under section 206 of the Federal Power Act (FPA), proponents of the NOPR had the dual burden of first demonstrating that the existing pricing structures utilized in RTOs and ISOs across the country are unjust and reasonable, and second that the DOE NOPR’s proposals are a just and reasonable alternative.

The Commission concluded that record did not show that the existing RTO and ISO tariffs are unjust, unreasonable, unduly discriminatory or preferential, nor did it demonstrate that the NOPR’s recommended remedy was just, reasonable and not unduly discriminatory or preferential. In a separate concurrence, Commissioner Cheryl A. LaFleur observed that the DOE NOPR simply “presumed a resilience need and proposed a far-reaching out-of-market approach to ‘solve’ it.” Commissioner Richard Glick, also writing in support of the Commission’s order, found that “[t]he Proposed Rule had little, if anything, to do with resilience, and was instead aimed at subsidizing certain uncompetitive electric generation technologies.” The Commission found that the NOPR’s advocates failed to meet their burden under section 206 of the FPA and, therefore, terminated the rulemaking docket that had been initiated to consider the NOPR.

The Commission simultaneously opened a new proceeding, Grid Resilience in Regional Transmission Organizations and Independent System Operators, in Docket No. AD18-7-000 “to examine holistically the resilience of the bulk power system” in regions of the country operated by RTOs and ISOs. Recognizing that “resilience remains an important issue,” the Commission intends to develop a clearer understanding of what RTOs and ISOs currently do to assure or strengthen grid resiliency. To that end, the Commission’s refined resiliency analysis will: (1) develop a common understanding of what resilience of the bulk power system means and requires, (2) determine how RTOs and ISOs assess resilience in their respective regions and (3) use this information to evaluate whether additional Commission action regarding resilience is necessary.

The Commission proposes to define “grid resiliency” as:

The ability to withstand and reduce the magnitude and/or duration of disruptive events, which includes the capability to anticipate, absorb, adapt to, and/or rapidly recover from such an event.

By providing a preliminary definition, the Commission established an important baseline to begin a methodical and comprehensive debate over the issue of grid resiliency. Indeed, grid resiliency encompasses more than an evaluation of generator availability. As Commissioner Glick observed, “if a threat to grid resilience exists, the threat lies mostly with the transmission and distribution systems, where virtually all significant disruptions occur.” Expressing support for the Commission’s decision, Commissioner Neil Chatterjee, in a concurring opinion, described the order as “the first step in a more systematic effort by the Commission, over both the near and long term, to ensure the resilience of the nation’s bulk power system.”

Reiterating its support for competitive wholesale electricity markets and market-based solutions, the Commission focused its new grid resiliency review on RTOs and ISOs. The Commission directed RTOs and ISOs to submit detailed information explaining (1) how they assess threats to grid resilience in their respective regions and (2) how they mitigate those threats. The order provides a series of detailed questions that require RTOs and ISOs to further elaborate on these two core questions. RTOs and ISOs must submit their responses within 60 days of the issuance of the order. Additionally, the Commission invited other interested entities to submit reply comments within 30 days of the due date of the RTO and ISO submissions. This suggests that the Commission intends to take a deliberate and inclusive approach to further exploring the concept of grid resiliency that elicits broad stakeholder input and evaluates the effectiveness of various approaches to risk assessment and contingency planning.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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