FERC rejects DOE’s grid resiliency proposal
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January 11, 2018
FERC rejects DOE’s grid resiliency proposal

The five-member Federal Energy Regulatory Commission (FERC) rejected a U.S. Department of Energy (DOE) proposal that would have provided financial assistance to coal-fired and nuclear electric power plants. The proposal or recommendation would have identified these facilities as energy “reliability and resilience resources” and enabled them to price their product so that all costs of operation can be recovered. According to the FERC commissioners, the proposal would have unfairly discriminated against electricity providers that would not qualify for cost recovery but which still have resilience attributes.

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coal plant

Fuel secure

Under DOE’s proposal (October 10, 2017, FR), to qualify for cost recovery, electricity generators would need to be “fuel secure,” which the proposal defines as having a 90-day fuel supply on-site in the event of supply disruptions caused by emergencies, extreme weather, or natural or man-made disasters. Mainly, the proposal would constitute government relief for coal and nuclear electricity providers since they would be able to meet the requirement to have 90 days of fuel on-site. The intended results of such relief is that the trend of retirements of coal- and nuclear-based generation that cannot compete with low-cost natural gas generation would be slowed and perhaps halted and even reversed.

Providers of renewable energy, including wind, solar, and hydro, do not store energy and would have been able to benefit from the proposed provisions. The proposal, said the DOE, was based on the premise that energy facilities that are willing to provide their customers, the electric power grid, and the nation with the resiliency and security that goes with being fuel secure deserve compensation from the government.

While federal energy law allows the DOE to write such a proposal, FERC is an independent federal agency and is not required to act on it. But the DOE argued that FERC has independently recognized the need to take the kind of action the DOE proposed.

“Beginning in June 2013, the Commission recognized the changing mix of generation resources, determined that existing capacity markets were not providing a sufficiently reliable supply of electricity, predicted the loss of fuel-secure generation, and sought input from the public through proceedings on price formation in the organized markets,” stated the DOE.

Four of the five FERC commissioners were nominated by President Donald Trump; the fifth by President Barack Obama.

No demonstration that tariffs are unjust

In its order terminating the DOE-initiated proceeding, FERC focused on the inequality of DOE’s recommendation.

“Neither the proposed rule nor the record in this proceeding has satisfied the threshold statutory requirement of demonstrating that the [regional transmission organization (RTO) and independent system operator (ISO)] tariffs are unjust and unreasonable,” stated FERC. “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. In addition, the extensive comments submitted by the RTOs/ISOs do not point to any past or planned generator retirements that may be a threat to grid resilience.”

New proceeding initiated

FERC did concede that a closer look at grid resilience is warranted.

“The Commission concluded that it must remain vigilant with respect to resilience challenges,” stated the order. “Although the Proposed Rule failed to satisfy the fundamental legal requirements of section 206 of the [Federal Power Act], the Proposed Rule and the record developed to date have shed additional light on resilience more generally and on the need for further examination by the Commission and market participants of the risks that the bulk power system faces and possible ways to address those risks in the changing electric markets.”

Accordingly, FERC stated that it is initiating a new proceeding to address resilience in a broader context and is directing RTOs/ISOs to provide information—followed by an opportunity for comment by any other interested entity—that will inform FERC as to whether additional actions by the Commission and the ISOs/RTOs are warranted with regard to resilience issues. The Commissioners state that this proceeding is a priority and has given the ISOs/RTOs 60 days to provide the requested information.

Perry looks to national debate

DOE’s proposal had the vocal backing of Energy Secretary Rick Perry, who testified before Congress on the critical role of grid resiliency and how the proposal would promote it. But Perry appeared to accept FERC’s rejection calmly.

“I appreciate the Commission’s consideration and effort to further assess the marketplace distortions that are putting the long-term resiliency of our electric grid at risk,” Perry said in a statement. “As intended, my proposal initiated a national debate on the resiliency of our electric system. What is not debatable is that a diverse fuel supply, especially with onsite [sic] fuel capability, plays an essential role in providing Americans with reliable, resilient and affordable electricity, particularly in times of weather-related stress like we are seeing now. I look forward to continuing to work with the Commissioners to ensure the integrity of the electric grid.”

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