FERC, CFTC, and State Energy Law Developments

The White House announced late last week that President Donald Trump has directed Energy Secretary Rick Perry to “prepare immediate steps to stop the loss” of “fuel-secure power facilities,” noting that near-term retirements of these facilities could lead to “a rapid depletion of a critical part of our nation’s energy mix, and impact the resilience of our power grid.” Although the federal government has not yet disclosed what those steps might be or which generators are at issue, press reports from CNN and Bloomberg, among others, have emerged suggesting that the US Department of Energy (DOE) is considering a directive that would require Independent System Operators and Regional Transmission Operators (ISOs/RTOs) to purchase energy from designated “fuel-secure” plants for a period of up to, and possibly more than, 24 months to avoid any near-term decommissioning.

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.

In an admonishing response letter issued December 8, US Secretary of Energy Rick Perry granted the Federal Energy Regulatory Commission’s (FERC) request for a 30-day extension to consider final action on its Proposed Grid Reliability and Resiliency Pricing Rules. The proposed rules, if adopted, could provide economic support to coal and nuclear generation in organized markets.

FERC had emphasized in its request that extra time is needed to provide adequate opportunity for recently sworn-in Chairman Kevin J. McIntyre and Commissioner Richard Glick to consider the voluminous record in the proceeding that includes more than 1,500 comments in response to FERC’s solicitation for public comment on the proposed rules. Mr. Perry granted FERC’s request while noting in his letter that, as explained in his original directive, failure to act expeditiously within a 60-day timeframe would be unjust, unreasonable, and contrary to the public interest. Given the circumstances highlighted by FERC, he agreed to allow FERC to take final action by Wednesday, January 10, 2018. Despite granting the request, Mr. Perry strongly urged FERC to act before the deadline to ensure the “resilience and security of the electric grid.”