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Power & Pipes

FERC, CFTC, and State Energy Law Developments

The Commissioners of the Federal Energy Regulatory Commission (FERC or the Commission) testified on June 12 at an oversight hearing before the Senate Committee on Energy and Natural Resources. They addressed FERC-jurisdictional issues, including grid modernization, resiliency, security, and enforcement, and President Donald Trump’s recent directive to US Department of Energy (DOE) Secretary Rick Perry to prepare immediate steps to stop the loss and retirement of nuclear and coal generation facilities. The Commissioners’ testimony provides an insight into the issues that FERC may prioritize in the near future.

Overview of FERC Priorities

The Commissioners addressed several topics, including:

  • Resilience of the Bulk Power System – The Commissioners stressed the importance of protecting the resilience of the bulk power system (BPS). Chairman Kevin McIntyre said BPS resilience will remain a top priority during his tenure, and noted that FERC is working with Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) to develop a common definition and understanding of the term “resilience” and with state regulators and other stakeholders to address resilience at the distribution level.

    Commissioner Cheryl LaFleur added that the Commission’s recent efforts seek to inform the current debate on grid resilience, and focus on whether the continued retirement of certain uneconomic coal and nuclear generating facilities threaten grid resilience. She also explained that “the resource turnover [that the United States is] experiencing is an expected consequence of markets, and the lower prices that result from well-functioning markets are a benefit to customers, not a problem to be solved, unless reliability is compromised.”
  • Natural Gas Pipeline Certificate Policy Statement ­– The Commission provided an overview of FERC activities that could change the process that FERC uses to certify interstate natural gas pipelines for construction and operation under the Natural Gas Act. The Commissioners explained that FERC issued a Notice of Inquiry seeking stakeholder perspectives to help the Commission explore whether, and if so, how, it should adjust (1) its methodology for determining whether there is a need for a proposed new interstate gas pipeline project; (2) its contribution to applicants’ exercise of eminent domain and landowner interests related to proposed projects; (3) its evaluation of environmental impacts of proposed projects; and (4) its timeline for determining whether it will authorize applications for construction and operation of proposed projects.
  • FERC Policies under PURPA –Mr. McIntyre also addressed his recent directive that FERC Staff re-initiate a review of FERC’s policies under the Public Utility Regulatory Policies Act of 1978 (PURPA). The Commissioners explained that PURPA, which broadly establishes a class of generating facilities entitled to special rate and power sale treatment and partial relief from certain regulatory burdens, was enacted to foster alternative energy resource development and to conserve resources understood to be scarce in the late 1970s. However, according to Commissioner Neil Chatterjee, the energy landscape today differs in that alternative energy resources—namely solar and wind power—are no longer fledgling technologies. As a result, the Commission will be investigating various areas of its PURPA regulations to modernize and encourage competition in a manner that more accurately reflects the availability of generation resources today. Mr. McIntyre added that he expects an opportunity for stakeholder comment on these issues.
  • Cybersecurity – The Commissioners expressed support for a “two-pronged approach” to addressing cyber threats to the BPS. According to the Commissioners, this approach consists of a combination of the development of mandatory reliability standards of voluntary best practices and information sharing among stakeholders and federal and state regulators. They stated that, in recent years, FERC Staff has increased its interaction with its sister agencies, including the US Department of Homeland Security (DHS) and DOE, to share information and cooperation on cybersecurity issues.
  • Addressing Specific Energy Resources – FERC explained that it has taken steps to address the rapid increase in the export of natural gas. Technological enhancements led the United States to become a net exporter of natural gas in 2017 through a combination of increased pipeline exports to Mexico, reduced imports from Canada, and increased liquefied natural gas (LNG) export activity. To address the increased LNG workload, FERC has hired private contractors to increase the size of its workforce working on LNG export projects.

    In addition, the Commissioners addressed recent decisions concerning storage and aggregation of distributed energy resources. Specifically, the testimony referred to FERC’s recent decisions in Order Nos. 745, 755, and 764, which were aimed at encouraging the incorporation of variable energy resources into wholesale markets, including compensation for demand response resources, and compensation for new resource technologies like energy storage. In addition, the Commissioners testified that FERC issued Order No. 841 in February 2018 to further encourage energy storage participation in wholesale capacity, energy, and ancillary service markets operated by RTOs and ISOs.

Fuel Security Concerns Due to the Variable Generation Mix

After the Commissioners presented their opening statements, the Senate committee’s questions during the Q&A portion of the hearing primarily concerned President Trump’s directive to the DOE to prepare immediate steps to stop the loss and retirement of “fuel-secure” plants around the United States. These “fuel-secure” plants would include coal and nuclear power plants, according to a draft DOE memorandum circulated in the press. That memorandum suggests that DOE would require RTOs and ISOs to purchase energy from designated plants for a period of up to, and possibly more than, 24 months to prevent any near-term decommissioning. That draft memorandum premised its possible issuance on the concept that baseload generation, including nuclear generation, is important to national security because those resources enhance the resiliency of the electric system in response to extreme weather events, cyberattacks, and other emergencies.

Mr. Chatterjee said that although utilities should be mindful of the risk of relying too heavily on a singular source of energy, such as natural gas, competitive markets generally encourage utilities to make reasonable fuel choices. He also highlighted the potential impact of a cyberattack on the natural gas pipeline system.

Commissioner Robert Powelson added that “[t]he frequency of cyber and physical threats to the nation’s energy infrastructure is only increasing [and] [t]he Commission is aware of this and has made cyber and physical security a top priority.” However, he emphasized that “unprecedented steps by the federal government—through the president’s recent directive to the DOE to subsidize certain resources—threaten to collapse the wholesale competitive markets that have long been a cornerstone of FERC policy.”