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Power & Pipes

FERC, CFTC, and State Energy Law Developments

On January 8, 2018, the Federal Energy Regulatory Commission (FERC) issued an order rejecting the US Department of Energy’s (DOE’s) proposed changes to organized market rules that would have permitted certain baseload resources with at least 90 days of on-site fuel to be paid a cost-of-service rate rather than relying on compensation under market-determined prices. DOE’s September 29, 2017 proposal was focused on ensuring the “resilience” of energy service in these organized markets, and was widely viewed as benefitting primarily coal and nuclear generation.

In its order, FERC concluded that it lacked the record necessary for FERC to take the requested action to order changes to existing market rules under Section 206 of the Federal Power Act. Under that statute, FERC must first find that the existing rates are unjust and unreasonable and then replace it with a rate that is just and reasonable. According to FERC, the DOE proposal failed to satisfy either prong. First, FERC explained that none of the comments submitted by the RTOs/ISOs indicated any threat to resilience posted by past or future generator retirements. Second, FERC explained that allowing any resource that met DOE’s resiliency criteria to receive a cost-of-service rate would not be just and reasonable because that payment would not be tied to the need for the facility or the cost to the system of providing that payment.

Despite closing the docket created in response to the DOE proposal, FERC concluded that the voluminous record in the proceeding did suggest that FERC should continue to investigate the issue of “resilience.” As envisioned by FERC, “resilience” is ”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.” As such, FERC described this as more than the on-site fuel security covered by the DOE proposal, and instead encompassing “a broader consideration of resilience issues, including wholesale electric market rates, planning and coordination, and NERC standards.” To continue its examination of the issue, FERC directed each RTO and ISO to comment on this understanding of “resilience” and to submit responses to a list of questions intended to examine how each region evaluates the resilience of its own system and how it addresses or mitigates any resiliency concerns. Those initial responses are due in 60 days, with reply comments from interested parties due 30 days after that.

FERC did not commit to acting on the responses but explained that it would review the responses and “promptly decide whether additional Commission action on this issue is warranted.”