On January 8, 2018, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an order declining to conduct a rulemaking proposed by Department of Energy Secretary Rick Perry to that would create rate incentives for the coal and nuclear industries (“Proposed Rule”). The Proposed Rule would have required FERC-jurisdictional Independent System Operators (“ISOs”) and Regional Transmission Organizations (“RTOs”) to develop rules for compensation of certain “fuel-secure” electric generating facilities for their grid reliability and resiliency attributes.

The proposal attracted controversy because the proposed rules would effectively have provided subsidies to traditional generators like coal and nuclear plants, some of which presently face economic challenges in the ISO/RTO administered markets. Proponents of the Proposed Rule argued that the regulations would stave off plant retirements which would preserve electrical reliability and resiliency, reduce the likelihood of electrical outages in the event of fuel disruptions, and save jobs. However, critics argued that the subsidies would risk disruption of competitive wholesale electricity markets and driving out more efficient energy resources.

FERC rejected the rulemaking because the record was bereft of evidence that the existing ISO/RTO rules and practices are unjust, unreasonable, unduly discriminatory or preferential as required by section 206 of the Federal Power Act. In other words, the Commission concluded that it could not legally impose the proposed regulations with the evidence currently before it.

FERC, however, reiterated that “resilience remains an important issue that warrants the Commission’s continued attention, including through the development of a clear understanding of what each RTO/ISO currently does with respect to the assurance or strengthening of resilience and what more the RTOs/ISOs and the Commission could be doing on this issue.” In furtherance of its goal of providing assurance or strengthening of the resilience of the bulk power grid, the Commission initiated a holistic information gathering proceeding in which ISOs and RTOs are asked for certain information about grid resiliency in their respective regions. FERC’s goal is to “(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.”

Certain Commissioners made it very clear where they stood regarding the Proposed Rule. Democrat Commissioners Cheryl LaFleur and Richard Glick issued concurring statements criticizing the Proposed Rule. “In effect, it sought to 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,” LaFleur said.  Commissioner Glick called it a “multi-billion dollar bailout targeted at coal and nuclear generating facilities.” In contrast, Republican Commissioner Neil Chatterjee issued a statement supporting the NOPR’s goal and said he would have preferred that the Commission require the ISO and RTOs to implement an interim rule while working out a longer term solution. He also noted that short-term interim measures still need to be considered in context of new proceeding.

Secretary Perry’s reaction was appreciative of FERC’s commitment to seeing the issue through, albeit at a slower pace than the DOE desired. His statement read: "I appreciate the commission's consideration and effort to further assess the marketplace distortions that are putting the long-term resiliency of our electric grid at risk.  As intended, my proposal initiated a national debate on the resiliency of our 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."

What It Means

The Commission’s new approach is more aligned with how the agency traditionally undertakes rulemaking. However, FERC is not letting the matter stagnate.  The information sought by the FERC is extensive. ISOs and RTOs are required to provide the requested information within 60 days of the order and reply comments by interested parties are due 30 days after those submissions.  After these filings, FERC will have a substantial record with which to determine whether additional Commission action is warranted to address grid resilience.