On January 8, 2018, FERC terminated the Department of Energy’s (“DOE”) Proposed Rule on Grid Reliability and Resilience Pricing (“Proposed Rule”) proceeding, and, instead, initiated a new proceeding whereby FERC plans to collect information on resilience from regional transmission organizations (“RTO”) and independent system operators (“ISO”).  Once that information is collected, FERC will determine whether further action is necessary to address grid resilience.  While FERC’s decision was unanimous, three of FERC’s Commissioners issued separate concurring opinions.  Of note, Commissioner Neil Chatterjee stated that while he would have preferred an order that took an interim step to address the issues raised in the Proposed Rule, he looked forward to addressing those critical issues in the new proceeding established by FERC.

In the Proposed Rule, DOE questioned whether RTOs and ISOs appropriately compensate resources for all the attributes they contribute to the grid, including resilience.  To help address this concern, the Proposed Rule asked FERC to consider ordering RTOs and ISOs to establish provisions in their FERC tariffs that would adequately compensate the energy sold by an eligible “reliability and resilience resource” using a cost-of-service rate mechanism.  The Proposed Rule also clarified that an eligible resource would need to have a 90-day fuel supply on-site, which according to the Proposed Rule, would enable it to operate during an emergency, extreme weather conditions, or a natural man-made disaster (see October 2, 2017 edition of the WER).

In its order terminating the proceeding, FERC concluded that the Proposed Rule did not satisfy the statutory scheme under the Federal Power Act (“FPA”).  FERC reasoned that the FPA was clear, noting that under section 206 of the FPA: “[T]here must first be a showing that the existing RTO/ISO tariffs are unjust, unreasonable, unduly discriminatory or preferential.  Then, any remedy proposed…must be shown to be just, reasonable, and not unduly discriminatory or preferential.”  With regard to existing RTO/ISO tariffs, FERC maintained that various comments alleging resiliency or reliability issues as a result of power plant retirements did not demonstrate that the existing RTO/ISO tariffs are unjust and unreasonable.  In addition, FERC also disagreed that there was sufficient evidence in other Commission proceedings establishing that RTO/ISO tariffs are unjust and unreasonable because “they do not adequately account for resilience.”  As for the Proposed Rule’s remedy – the cost-of-service rate mechanism for qualifying resources – FERC questioned whether it was unduly discriminatory or preferential, noting that the 90-day fuel supply requirement would exempt certain resources that may have resilience attributes.

Although FERC terminated the Proposed Rule proceeding, it decided to initiate a new proceeding under Docket No. AD18-7-000 to assess grid resilience and whether further FERC action is necessary or appropriate.  The RTOs/ISOs have sixty days to submit information to FERC regarding FERC’s current understanding of the term resilience, how RTOs/ISOs assess threats to resilience, and how RTOs/ISOs mitigate threats to resilience.  Once RTOs/ISOs have submitted their responses, all interested entities will have thirty days to submit reply comments.

While FERC’s decision was unanimous, Commissioners Cheryl LaFleur, Neil Chatterjee, and Richard Glick each issued concurring opinions to FERC’s order.  Both Commissioner LaFleur and Commissioner Glick generally expressed their strong support for FERC’s decision.  Meanwhile, Commissioner Chatterjee expressed concerns regarding continued fuel supply and other significant resilience risks.  Given these risks, Commissioner Chatterjee added that it would have been prudent to issue an order under FPA section 206 requiring each RTO/ISO to “either (1) submit tariff revisions to provide interim compensation for existing generation resources that may provide necessary resilience attributes and are at risk of retirement before the conclusion of the proceeding established today or (2) show cause why it should not be required to do so.”

FERC’s order, along with the concurrences, can be found here.