Electricity Markets

FERC scraps DOE proceeding, launches ISO/RTO resilience review

The Federal Energy Regulatory Commission on Jan. 8 said that it was terminating a proceeding it initiated in order to address a proposed rule on grid reliability and resilience pricing submitted to the commission by Secretary of Energy Rick Perry last year.

At the same time, FERC in its order said that it was initiating a new proceeding to specifically evaluate the resilience of the bulk power system in the regions operated by regional transmission organizations and independent system operators. 

“In this order, we direct each RTO and ISO to submit information to the Commission on certain resilience issues and concerns identified herein to enable us to examine holistically the resilience of the bulk power system,” FERC said.

DOE proposed rule in late September

The Department of Energy in September 2017 proposed a rule to be issued by FERC that would have required several regional organized wholesale power markets to “develop and implement market rules that accurately price generation resources necessary to maintain the reliability and resiliency” of the country’s bulk power system, and specifically described such rules as establishing electric energy rates that provide for the recovery of costs and a return on equity for certain “eligible reliability and resiliency resources.”

FERC launched a proceeding to consider the proposed rule and it issued a related notice inviting comments.

In initial comments filed on Oct. 23, the American Public Power Association urged FERC to reject the DOE proposed rule. The Association said that while it agreed that the DOE’s proposed rule raised important questions that the industry should study further, the proposed rule did not establish the existence of an imminent threat to the electric grid requiring cost-recovery payments to merchant generators. The Association also told FERC that the proposal was ambiguous and incomplete in many respects, and unworkable in its current form. The Association also submitted reply comments in the proceeding.

FERC explains rationale for terminating DOE proposed rule docket

After considering the proposed rule and the related comments from various parties, FERC in the Jan. 8 order said that it had decided to terminate the proceeding. 

It said the Federal Power Act 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.  Thus, there must first be a showing that the existing RTO/ISO tariffs are unjust, unreasonable, unduly discriminatory or preferential.”

Then, any remedy proposed under FPA section 206 must be shown to be just, reasonable, and not unduly discriminatory or preferential.

FERC said the proposed rule did not “satisfy those clear and fundamental legal requirements under section 206 of the FPA.” Given those legal requirements, FERC said it had no choice but to terminate the proceeding related to the DOE proposed rule.

It said that neither the proposed rule “nor the record in this proceeding has satisfied the threshold statutory requirement of demonstrating that the RTO/ISO tariffs are unjust and unreasonable.”

While some commenters alleged grid resilience or reliability issues due to potential retirements of particular resources, “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,” FERC went on to say.

The commission also disagreed with assertions that an adequate record existed through the commission’s price formation efforts to support the proposed rule’s action regarding bulk power system resilience.

Turning to the second prong of the FPA Section 206 analysis, FERC noted that the proposed rule would have allowed all eligible resources to receive a cost-of-service rate regardless of need or cost to the system. “The record, however, does not demonstrate that such an outcome would 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.

“For example, the proposed rule’s on-site 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,” the commission noted.

FERC launches resilience proceeding

At the same time, FERC decided to launch a new proceeding to take additional steps to explore resilience issues in the RTOs/ISOs.

FERC said 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.

“This examination of the resilience of the bulk power system will be a priority of the Commission,” FERC said, noting that each RTO and ISO will need to submit specific information regarding the resilience of its respective region.

Kelly comments on FERC decision

Sue Kelly, president and CEO of the Association, commented on FERC’s order at a Jan. 18 U.S. Energy Association event in Washington, D.C.

“We at APPA were encouraged by FERC’s action,” Kelly said at the USEA’s 14th annual State of the Energy Industry Forum where she participated on a panel that focused on 2018 electric issues.

“We actually have considerable sympathy for the problems” that Perry raised. “In particular, we noted the language that he said that he thought that mandatory capacity markets are substantially flawed.” The Association has made this point for “quite some time,” Kelly pointed out.

“However, we weren’t necessarily enamored of the solution because we saw it as one more Ace bandage on a leg that has multiple fractures and the question is what we really need to do to address this problem” in a more systematic and organic way, she said.

Three Commissioners -- Cheryl LaFleur, Neil Chatterjee and Richard Glick -- filed concurrences to the Jan. 8 FERC order.

“What was striking to me was what a broad swath there was between and among these concurrences,” Kelly said. “Clearly, different commissioners are in very different places and to me that’s going to make this year extremely interesting.”