After months of speculation impacted by lack of quorum, delayed confirmations, new commissioners and replacing an interim chairman, the Federal Energy Regulatory Commission (Commission) voted on January 8, 2018 to terminate a Notice of Proposed Rulemaking stemming from Department of Energy (DOE) Secretary Rick Perry’s September 29, 2017 proposal to initiate new pricing rules. The proposed rules sought to allow certain generation units in competitive wholesale power markets to recover costs for power plants with at least 90 days’ supply of fuel on hand – reserves that generally only apply to coal and nuclear generation plants.
DOE argued in its proposed rule under Section 403 of the Department of Energy Organization Act that the price changes were needed to prevent immediate dangers to grid resiliency caused by the rising number of retiring coal and nuclear power plants in the competitive markets.1 The Proposed Rule directed the Commission to consider requiring certain RTOs and ISOs to establish a tariff mechanism providing for: (1) the purchase of energy from an eligible “reliability and resilience resource;” and (2) the recovery of costs and a return on equity for such resources (i.e., a “resilience rate”). The Proposed Rule stated that eligible reliability and resilience resources must be: (1) located in an RTO/ISO with an energy and capacity market; (2) be able to provide essential reliability services; and (3) have a 90-day fuel supply on-site.
In unanimously rejecting this proposal, the Commission held that the Department hasn’t created a record demonstrating that the existing RTO/ISO market rules are “unjust and unreasonable,” under Section 206 of the Federal Power Act. Neither the Proposed Rule nor the record in this proceeding has satisfied the threshold statutory requirement of demonstrating that the RTO/ISO tariffs are unjust and unreasonable. While some commenters allege grid resilience or reliability issues due to potential retirements of particular resources, we find that these assertions do not demonstrate the unjustness or unreasonableness of the existing RTO/ISO tariffs.
We note that the Proposed Rule would allow all eligible resources to receive a cost-of-service rate regardless of need or cost to the system. The record, however, does not demonstrate that such an outcome would be just and reasonable. 2
As Commissioner Glick noted in his concurring opinion, even the Department’s own grid reliability study which it cited to justify the proposed rule “concluded that changes in the generation mix, including the retirement of coal and nuclear generators, have not diminished the grid’s reliability or otherwise posed a significant and immediate threat to the resilience of the electric grid”.
In its place, the Commission voted to initiate a new proceeding to consider additional steps in resilience issues in the RTOs/ISOs. The goal of this proceeding is: (1) to develop a common understanding among the Commission, industry, and others of what resilience of the bulk power system means and requires; (2) to understand how each RTO and ISO assesses resilience in its geographic footprint; and (3) to use this information to evaluate whether additional Commission action regarding resilience is appropriate at this time.
The Commission ordered each RTO/ISO to submit responses to specific questions within 60 days of publication. Importantly, noting that the Department’s proposed rule focused solely on a single aspect of resiliency (90-day fuel supply on site), the new proceeding will “encompass a broader consideration of resilience issues, including wholesale electric market rules, planning and coordination, and NERC standards.” 3 The Commission will also allow interested entities an opportunity to reply to the RTO/ISO comments within 30 days of submission.
Some highlights of the topics that the Commission has required RTOs and ISOs to comment upon include:
- The Commission’s proposed definition of Resilience in the context of the bulk power system;
- How each RTO or ISO currently evaluates the resilience of the system;
- How the RTOs and ISOs identify and plan for naturally occurring and man-made risks and risks associated with high-impact, low-frequency events (e.g., physical and cyber-attacks, accidents, extended fuel supply disruptions, or extreme weather events);
- Identify any studies that have been conducted, are currently in progress, or are planned to be performed in the future to identify the ability of the bulk power system to withstand a high-impact, low-frequency event;
- How the RTO or ISO evaluates whether specific components of the bulk power system contribute to system resilience;
- How the RTO or ISO coordinates with other RTOs/ISOs, Planning Coordinators, and other relevant stakeholders to identify potential resilience threats and mitigation needs;
- Describe any existing operational policies or procedures you have in place to address specific identified threats to bulk power system resilience within your region and how existing market-based mechanisms (e.g., capacity markets, scarcity pricing, or ancillary services) currently address these risks and support resilience;
- Are there any market-based constructs, operating procedures, NERC reliability standards, or planning processes that should be modified to better address resilience?