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FERC, CFTC, and State Energy Law Developments

FERC issued a pair of orders terminating, or upholding the termination of, proceedings designed to evaluate the resiliency of the electric grid on February 18. Both proceedings arose from the US Department of Energy’s (DOE’s) controversial proposal directing the Commission in 2017 to consider market reforms that would benefit certain baseload generation resources.

Order Affirming Termination: Grid Reliability and Resilience Pricing

In October 2017, the Commission initiated its Grid Reliability and Resilience Pricing proceeding in Docket No. RM18-1. The goal of that proceeding was to evaluate the DOE’s proposed rule directing the Commission to consider requiring certain Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) to implement reforms allowing certain baseload resources with at least 90 days of onsite fuel to be paid a cost-of-service rate instead of relying on compensation under market-determined prices. DOE’s proposal focused on ensuring the “resilience” of energy service in organized energy markets, and was widely viewed as benefiting coal and nuclear generation resources.

FERC rejected the DOE proposed rule in January 2018, concluding that neither the proposed rule nor the record satisfied the threshold statutory requirement under Section 206 of the Federal Power Act. Specifically, FERC found that claims alleging inadequate grid resilience or reliability due to potential retirements of coal and nuclear baseload resources did not demonstrate the unjustness and unreasonableness of existing organized market tariffs.

The Foundation for Resilient Societies (Foundation), a nonprofit group, requested rehearing of the decision to terminate the proceeding. The Foundation argued that the Commission, among other things, failed to respond to a number of issues raised in the record and ignored pleas to establish a technical conference to investigate the market and reliability concerns surrounding the DOE’s proposal. FERC rejected those arguments in its February 18 order and upheld its prior finding that nothing in the DOE’s proposed rule or the record demonstrated the unjustness and unreasonableness of existing market rules.

Order Terminating Proceeding: Grid Resilience in RTOs and ISOs

When it rejected the DOE’s proposed rule in January 2018, the Commission initiated a new proceeding in Docket No. AD18-7 to evaluate issues pertaining to the resilience of the bulk power system and to understand how the ISOs and RTOs addressed threats to resilience in their regions (Grid Resilience proceeding). The proceeding gathered informational submissions from the organized market operators and public comments, but otherwise resulted in no action for three years.

On February 18, the Commission issued an order terminating the Grid Resilience proceeding. Although the Commission emphasized that resilience concerns still exist and should be studied further, it ultimately decided that no generic action on this issue is appropriate. Instead, the Commission held that the resilience of the bulk power system would be best addressed with a more tailored approach based on the region and each case.

The Commission terminated the Grid Resilience proceeding in the wake of recent extreme weather events across the nation, including wildfires in the West, hurricanes in the Southeast, and, most recently, extreme cold weather in Texas, that exposed significant grid vulnerabilities. Although the Commission opted not to move forward with the Grid Resilience proceeding, it made clear in its order that future action is likely and that resilience issues will remain a priority for the agency.

Commissioner Chatterjee dissented from the opinion and criticized the Commission’s refusal to implement a generic action that could address resilience concerns in a comprehensive way. Commissioner Danly concurred, but was critical of power market constructs that he said led to inadequate cost recovery and reliability for generation resources. Commissioners Christie and Clements issued a separate statement in concurrence to emphasize the need to tackle resilience issues. Those statements, and the Commission’s finding that its authority under the Federal Power Act requires a more tailored approach to address specific resiliency threats, suggest that further action is on the horizon.