FERC Chairman Neil Chatterjee has announced an ambitious agenda for addressing a myriad of regulatory issues affecting the wholesale electricity industry during 2019. In remarks delivered during the NARUC 2019 Winter Policy Summit, Chairman Chatterjee observed that “the energy landscape in the United States is currently undergoing a dramatic and historic transformation,” and identified some of the major actions that the FERC may take during 2019 to facilitate this transformation. These remarks reiterate comments by Chairman Chatterjee in a 2018 year-end podcast which is posted on the FERC website. Although Chairman Chatterjee’s focus was on actions under consideration by the FERC, he observed it might be necessary for the FERC to collaborate with state regulators in order to achieve some of its regulatory objectives. Read more here.
Pending Issues to be Addressed
Pending issues affecting wholesale electricity markets that Chairman Chatterjee expects the FERC to address during 2019 include the following:
First and foremost on Chairman Chatterjee’s agenda is alignment of the implementation of the Public Utility Regulatory Policies Act of 1978 with the modern energy landscape. PURPA provided for the establishment of a class of wholesale generators known as Qualifying Facilities, and the adoption of rules under which a regulated electric utility may be required to purchase electricity from a QF at rates reflecting the purchaser’s avoided cost of electricity it would otherwise obtain from alternative sources. Certain practices adopted by the FERC to implement PURPA were reviewed during a June 2016 Technical Conference on Implementation Issues under PURPA in FERC Docket No. AD16-16-000. Among the actions being considered by Chairman Chatterjee are the possibility of providing more flexibility and market-driven pricing of electricity sold by QFs; the potential to foster development of new QFs in locations where they are most needed; and the possible reduction in administrative burdens and costs associated with PURPA.
Distributed Energy Resources
Potential reforms to eliminate barriers to participation of energy storage and distributed energy resources (DERs) in the competitive wholesale electricity marketplace were discussed in Electric Storage Participation in Markets Operated by Regional Transmission Organizations and Independent System Operators, 157 FERC ¶ 61,121 (2016). Subsequently, the FERC hosted a technical conference to examine market design, reliability, and other challenges associated with participation of such resources in the wholesale electricity marketplace. Chairman Chatterjee expects that the FERC can now proceed to remove barriers to integration of energy storage and DERs so that consumers are better able to enjoy the benefits of electricity from such resources.
Grid Resilience and Cyber Security
In this modern era, the delivery of electricity to consumers may be affected not only by forces of nature, but also by acts of terrorism or cyber-attacks by foreign nations. Concerns have been raised that the closure of existing coal-fired and nuclear generating stations for economic reasons may have weakened the ability of the electric system to withstand these forces. The FERC has announced that a technical conference will be held in Docket No. AD19-13-000 in June 2019 to discuss policy issues related to the reliability of the bulk power system.
In Grid Resilience in Regional Transmission Organizations and Independent System Operators, 162 FERC ¶ 61,012 (2018), the FERC sought to develop a record on the risks of such forces to the bulk power system and possible ways to address those risks in the changing electric markets. Chairman Chatterjee believes that as the FERC considers actions to protect the resilience of the electric grid, it will need to weigh the cost of potential service disruptions against the benefits of additional reliability that might result from enhanced system security.
In Cyber Security Incident Reporting Reliability Standards, 164 FERC ¶ 61,033 (2018), the FERC directed the North American Electric Reliability Corporation to facilitate improved awareness of existing and future cyber security threats and potential vulnerabilities by augmenting the reporting of Cyber Security Incidents, including incidents that might facilitate subsequent efforts to harm the reliability of the bulk electric system. Submittal of the proposed rules by NERC is due early this year, so Chairman Chatterjee expects to review them during the year ahead.
Review of Existing Policies
In addition to resolution of matters currently pending before the FERC, Chairman Chatterjee believes the FERC may revisit the following transmission policies that are currently in effect:
Transmission Rate Incentives
Following enactment of the Energy Policy Act of 2005, the FERC offered financial incentives in Order No. 679, such as enhanced rates of return on common equity, to encourage transmission developers to undertake beneficial transmission projects that are subject to increased financial risks. Chairman Chatterjee stated that “[t]he time is ripe for the Commission to step back and ask whether we’re actually incenting the type of transmission that we need or if there are smart changes we should make to encourage what is needed in light of today’s realities.” Such review follows the FERC’s modification in Coakley v. Bangor Hydro Electric Co., 165 FERC ¶ 61,030 (2018), of its methodology for determining the base return on equity that transmission owners may use to calculate transmission service rates.
Order No. 1000
In Order No. 1000, the FERC required each transmission provider to participate in a regional transmission planning process that produces a regional transmission plan, and to improve coordination with neighboring transmission planning regions. The FERC intended Order No. 1000 to foster competition among transmission developers for the right to construct new transmission facilities to meet regional and inter-regional transmission needs. Chairman Chatterjee observed that “everyone seems to agree that Order 1000 is not working as intended,” but there is no consensus on how to fix it. In his view, the ideal solution lies in greater competition that results in lower costs of new transmission facilities and promotes more technically advanced solutions to transmission needs.
In addition to these major programmatic issues to be addressed, the FERC has other work to do.The FERC has before it, either initially or on rehearing, a number of contested proceedings involving participants in the wholesale electricity market - some of which have been pending for more than a year - that cannot be resolved by the FERC Staff on delegated authority. The FERC also is tasked with the regulating hydroelectric power plants and natural gas pipelines. This extensive workload associated with other matters impacts the ability of the Commissioners to focus on the complex policy questions affecting the wholesale marketplace discussed by Chairman Chatterjee.
At the same time, the FERC is significantly handicapped by recent changes in membership which may affect its operation as a collegial body. Although the FERC nominally is comprised of five commissioners, there is a vacancy due to the recent death of former FERC Chairman Kevin McIntyre. Commissioner Bernard L. McNamee, who was sworn in late last year, has refrained from participating in a number of FERC orders. Additionally, the term of Commissioner Cheryl A. LaFleur will expire in June, and she is no longer seeking another term. As a result, there will soon be a second vacancy to be filled.
Perhaps significantly, the FERC is now comprised of two Republicans (Chairman Chatterjee and Commissioner McNamee), and two Democrats (Commissioners LeFleur and Glick). This even split of FERC Commissioners along party lines affects the FERC’s ability to resolve controversial issues. For example, the FERC recently was unable to act on a petition for relief by Vineyard Wind LLC in a timely manner because it lacked a majority of votes for a particular action. See, Statement of Cheryl A. LaFleur and Richard Glick issued Feb. 4, 2019 in Docket No. ER19-570-000. It therefore is not clear whether and to what extent the FERC may proceed to follow the agenda laid out by Chairman Chatterjee until a full complement of commissioners has been restored.
Observing the rise of renewable energy resources and new technologies, the development of competitive electricity markets, and the evolution of consumer preferences, Chairman Chatterjee declared that “it’s an exciting time to be at the Commission.” Members of DWT’s Energy Practice Group agree, and will be following developments on these critical issues closely on behalf of interested entities as the year unfolds.