For the first time since the mid-1980s, DOE issued a NOPR pursuant to Section 403(a) of the Department of Energy Organization Act (42 U.S.C. § 7173). The NOPR, entitled the “Grid Resiliency Pricing Rule,” states: “In light of … threats to grid reliability and resilience, it is [FERC’s] immediate responsibility to take action to ensure that the reliability and resiliency attributes of generation with on-site fuel supplies are fully valued and particular to exercise its authority to develop new market rules that will achieve this urgent objective.” Pursuant to FERC’s Notice Inviting Comments, initial comments on the DOE NOPR are due on October 23, 2017 and reply comments are due on November 7, 2017.
The NOPR does not propose particular market or cost recovery mechanisms, but requires each RTO and ISO, pursuant to Sections 205 and 206 of the Federal Power Act (“FPA”) to “establish a tariff that provides a just and reasonable rate for the (a) purchase of electric energy from an eligible reliability and resiliency resource and (b) recovery of costs and a return on equity for such resource dispatched during grid operations.” The just and reasonable rate must “ensure that each eligible resource is fully compensated for the benefits and services it provides to grid operations, including reliability, resiliency, and on-site fuel assurance, and that each eligible resource recovers its fully allocated costs and a fair return on equity.” DOE proposes to define an “eligible grid reliability and resiliency resource” as an electric generation resource that is (a) located within an RTO or ISO, (b) able to provide energy and ancillary services, (c) has a 90-day fuel supply on site “enabling it to operate during an emergency, extreme weather conditions, or a natural or man-made disaster,” (d) is compliant with environmental requirements, and (e) is not subject to state or local rate regulation. See NOPR, Proposed § 35.28(g)(12).
The majority of the NOPR is devoted to discussing the DOE’s concerns that grid reliability is threatened by the planned retirements of a substantial number of coal and nuclear generating facilities. The NOPR points to the 2014 Polar Vortex, Superstorm Sandy, and the recent hurricanes as examples of situations demonstrating a need for RTO and ISO market reforms. The NOPR also says that FERC is aware of the problem and already has the information necessary to modify RTO and ISO markets to more appropriately price services provided by grid reliability and resiliency resources. DOE further asserts that, as this proposal will be implemented pursuant to Sections 205 and 206 of the FPA, FERC need not issue an Environmental Impact Statement or an Environmental Assessment under NEPA.
The NOPR establishes an aggressive timeline for implementation. DOE proposes that the new rules become effective prior to the winter heating season. The NOPR states that DOE “is requiring [FERC] to consider and take final action on the proposed rule” no later than 60 days after the publication of the NOPR in the Federal Register. In the alternative, DOE suggests that FERC could implement the NOPR as an interim final rule, to be effective immediately, with provision for later modification following public comment.
The NOPR has already generated controversy in the energy industry. Groups representing natural gas interests have issued statements in strong opposition to the NOPR, stating that a proposed rule favoring particular types of generation resources will distort energy markets, increase costs to consumers, and undermine FERC’s mandate pursuant to the FPA to be fuel neutral. For example, the Natural Gas Supply Association (“NGSA”) stated that “introducing market distortions and fuel preferences into the energy mix is a disservice to consumers and contrary to the non-discriminatory principles of the [FPA].” The renewable energy industry and environmental groups are also likely to oppose the NOPR, and several states have adopted policies to discourage the use of coal-fired generation, which may lead those states to oppose the NOPR.
Client Alert 2017-233
