FERC Rejects DOE Proposal for Special Compensation for Coal and Nuclear Generators

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On January 8, 2018, the Federal Energy Regulatory Commission (FERC or the Commission) issued an Order terminating the rulemaking proceeding that it established to address DOE Secretary Rick Perry’s proposed Grid Resiliency Pricing Rule.  The proposed rule directed FERC to provide special compensation to certain coal and nuclear power plants (for a full summary of the proposal, refer to Husch Blackwell’s client alert).  In response, FERC found that Secretary Perry’s proposal did not meet “clear and fundamental legal requirements[.]”  FERC stated that Comments from Regional Transmission Operators (RTOs) and Independent System Operators (ISOs) did not indicate that the grid is threatened by the retirement of coal and nuclear power plants.

FERC none-the-less emphasized the importance of grid reliability and resilience, and determined that it has consistently taken action to address the issue, including:  (i) extensive reliability planning and standard setting through NERC, (ii) examination of fuel assurance methods during the 2014 Polar Vortex, (iii) certain capacity market reforms, and (iv) coordination of wholesale gas and electricity market scheduling.  To continue its reliability work, FERC initiated a new proceeding in Docket No. AD18-7 “to specifically evaluate the resilience of the bulk power system in the regions operated by regional transmission organizations (RTO) and independent system operators (ISO).”   In the new proceeding, FERC directs each RTO and ISO to submit information on certain resilience issues and concerns identified by the Commission to enable it to examine holistically the resilience of the bulk power system.  FERC stated that this new proceeding will provide further information on whether further action is warranted.   

FERC’s January 8, 2018, Order was issued with the support of all five Commissioners.  However three Commissioners wrote separate concurrences; excerpts follow:

Commissioner LaFleur: “I am a strong supporter of competitive markets, which benefit customers by reducing costs, improving efficiency and innovation, and strengthening reliability by deploying resources over a broader footprint. . . .  [T]ransformation of the resource mix to date has been accomplished without compromising reliability.  However, ensuring that this continues to be the case requires continuing diligence[.]”

Commissioner Chatterjee: “I must voice my concerns regarding bulk power system resilience in the interim period prior to the conclusion of the proceeding we initiate today. . . .  The record clearly suggests that the latter class of risks[, fuel supply risks beyond grid operators’ control,] are increasingly significant due to shifts in the generation mix and the fast‑evolving national security threat environment.”

Commissioner Glick: “[T]he addition of a diverse array of generation resources, including natural gas, solar, wind, and geothermal, as well as maturing technologies, such as energy storage, distributed generation, and demand response, have in many respects contributed to the resilience of the bulk power system. The record in this proceeding does not demonstrate any need for the Commission to interfere with the continued evolution of the bulk power system.  Nor does the record support the Department’s proposed remedy: A multi-billion dollar bailout targeted at coal and nuclear generating facilities.”

The deadline for RTOs and ISOs to submit information to FERC in Docket No. AD18-7 is March 9, and the deadline for Reply Comments from interested entities is April 9.

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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