Rapid timeline stands for Ferc to take final action on coal and nuclear pricing Rule. October 10, 2017 marked the date of Federal Register publication of the Notice of Proposed Rulemaking (NOPR), wherein the Secretary of the Department of Energy (DOE) directs the Federal Energy Regulatory Commission (FERC) to issue a final rule requiring each independent system operator (ISO) and regional transmission organization (RTO) (collectively, “ISO/RTO”) to implement proposed energy price formation reform. Grid Resilience Pricing Rule, 82 Fed. Reg. 46940 (Oct. 10, 2017) (to be codified at 18 C.F.R. pt. 35), available at https://federalregister.gov/d/2017-21396.

The Secretary of the DOE has set forth a rapid timeline that requires FERC to take final action on the proposed rule within 60 days of NOPR publication, and proposes that FERC require ISOs/RTOs to submit a compliance filing within 45 days of such FERC final rule publication. Grid Resilience Pricing Rule, 82 Fed. Reg. at 46941. Shock resonated through the energy industry in response to the fast-track timeline, and a legion of entities filed motions for extension of time requesting that FERC provide a 90 day initial comment period. See, e.g., Joint Motion for Extension of Time of the Energy Industry Associations, RM18-1-000 (Oct. 3, 2017).

Today, FERC denied the motions for extension of time to file comments. Notice Denying Extension of Time, RM18-1-000 (Oct. 11, 2017). Whether or not this denial was based on its construction of the statutory mandate pursuant to Section 403(b) of the Department of Energy Organization Act (DOE Act), FERC did not say. See Statutory Framework discussion infra. To be certain, comments on the NOPR are due by October 23, 2017; reply comments are due by November 7, 2017.

The short of it is the DOE’s NOPR directs FERC to revise its regulations to require ISOs/RTOs to implement new energy price formation reform to ensure cost recovery and fair return on equity for “eligible [generation] resources.” Grid Resilience Pricing Rule, 82 Fed. Reg. at 46948. The DOE’s stated purport for the rule is to address “the crisis at hand” which is retirements of “fuel-secure” generation that is specified as coal and nuclear generation. Id. at 46942 & 46948.

In light of FERC’s denial of the motions for extension of time, the following stands as the timeline set by the Secretary:

• December 11, 2017: FERC final action on the NOPR
• January 15, 2018: ISO/RTO filing demonstrating compliance with the rule

GRID RESILIENCY PRICING RULE

Statutory Framework

The Secretary issues the proposed pricing rule pursuant to Section 403(a) of the DOE Act which authorizes the Secretary to “propose rules, regulations, and statements of policy of general applicability[.]” DOE Act of 1977 §403(a), 42 U.S.C. § 7173(a) (emphasis added).

Section 403(b) of the DOE Act governs FERC’s response to the proposal and provides that FERC “shall consider and take final action on any proposal made by the Secretary . . . in accordance with such reasonable time limits as may be set by the Secretary[.]” §403(b) (emphasis added). The plain language of the statute mandates FERC to take final action on the NOPR according to the timeline set by the Secretary.

The Secretary directs FERC to exercise its authority under the Sections 205 and 206 of the Federal Power Act to issue the proposed regulation mandating that ISOs/RTOs establish a tariff to ensure that “fuel-secure” generation facilities recover costs and a fair return on equity. Grid Resilience Pricing Rule, 82 Fed. Reg. at 46945.

Discussion of Proposed Rule

The Secretary asserts that it is FERC’s immediate responsibility to address the “crisis at hand,” which is identified as being the loss of “fuel-secure” generation. Id. The Secretary contends that there have been significant retirements of fuel-secure generation, specifying that “[c]oal-fired and nuclear generation have the added benefits of high availability rate, low forced outages, and secured on-site fuel.” Id. at 46942. Accordingly, the Secretary states that FERC must issue a final rule to stop the imminent loss of these generators. Id. at 46945.

The text of the DOE’s proposed regulation provides, regarding the scope of the rule’s application, that the “rule shall apply to Commission-approved [ISOs] or [RTOs] with energy and capacity markets and a tariff that contains a day-ahead and a real-time market[.]” Id. at 46948. Hence, the proposed rule would apply to the Midcontinent ISO (MISO), Pennsylvania New Jersey Maryland Interconnection (PJM), ISO New England (ISO NE), New York ISO (NYISO), and California ISO (CAISO).

IMPLEMENTATION OF THE PRICING RULE

Energy Price Formation Reforms

The NOPR at bar is now docketed by FERC as RM18-1-000. However, the DOE initially released this NOPR referencing FERC Docket No. RM17-3-000, which incidentally is the second most recent energy formation docket initiated by FERC. Fast-Start Pricing in Markets, RM17-2-000 (Dec. 15, 2016). FERC issued this “Fast-Start” NOPR to “revise its regulations to require that each [RTO] and [ISO] incorporate market rules that meet certain requirements when pricing fast-start resources.” Id. The ISOs/RTOs responses to FERC’s Fast-Start NOPR varied greatly in content. See, e.g., Supplemental Comments of CAISO, RM17-3-000 (Aug. 18, 2017) (“[T]he measures proposed [] would be unlikely to further those goals in the CAISO’s markets.”); Comments to NOPR of PJM, RM17-3-000 (Feb. 28, 2017) (“PJM generally supports the Commission’s proposed rules for fast-start resources.”). However, all responses demonstrated the need for flexible application of the price formation rule to reflect the specific circumstances of each ISO/RTO. See, e.g., Comments to NOPR of PJM (“Each RTO/ISO is unique.”); Comments of ISO New England, RM17-3-000 (Feb. 28, 2017) (“ISO-NE requests that any final rule issued by [FERC] allow for regional variations.”).

Most recently, FERC issued a price formation “Uplift” NOPR to “revise its regulations to require that each [RTO] and [ISO] that currently allocates the costs of real-time uplift due to deviations should allocate such real-time uplift costs only to those market participants whose transactions are reasonably expected to have caused the real-time uplift costs.” Uplift Cost Allocation and Transparency in Markets, RM17-2-000 (Jan. 19, 2017). Again, there was near-universal consensus that FERC should allow sufficient regional flexibility for ISOs/RTOs adoption of the proposed price formation rule. See, e.g., Comments of NYISO, RM17-2-000 (Apr. 10, 2017) (“NYISO requests that [FERC] provide regional flexibility.”); Comments of MISO, RM17-2-000 (Apr. 10, 2017) (“MISO supports regional flexibility.”).

ISO/RTO Implementation

The Secretary is directing FERC issue a final rule requiring each ISO/RTO to “submit a compliance filing, including a revised tariff pursuant to section 205 of the [FPA]” within 45 days of publication of such FERC final rule. Grid Resilience Pricing Rule, 82 Fed. Reg. at 46946. Alternatively, any ISO/RTO that believes it “already complies with the reforms proposed in this NOPR” would be required to demonstrate such in its compliance filing required by the same time limit. Id.

Many of the fundamental questions and concerns currently implicated by the NOPR, e.g., effects on how power is priced in the markets, consumer electricity bills, could depend on how each ISO/RTO would implement any such final rule. See, e.g., DOE Requests FERC Fast-Track a Rule That Will Benefit Coal and Nuclear Plants, Environment & Energy Alert (McCarter & English, Oct. 10, 2017), available at http://www.mccarter.com/files/Uploads/Documents/Website/Oct102017_EnvironmentandEnergyAlert_Print.pdf.

On one end of the spectrum, PJM has stated in regard to FERC’s Fast-Start NOPR that “because the FERC’s proposed scope price setting reform is limited only to “fast start” resources . . . it does not extend the benefits of the proposed change to larger units (such as coal and nuclear units) . . . [PJM] believes price formation should be addressed on a broader scale and the inquiry should not be limited only to a particular class of flexible resources.” Energy Price Formation and Valuing Flexibility, PJM (Jun. 15, 2017). As such, PJM may opt to submit the alternative compliance filing and demonstrate that it already complies with the reforms in the proposed rule.

On the other side of the coin, also in the context of the Fast-Start NOPR, CAISO expressed concern that the proposed price formation rules could undermine its “significant and carefully tailored market design changes the CAISO has made in recent years to address the challenges raised by the transformation of its resource fleet.” Supplemental Comments of CAISO, RM17-3-000. The first of three dynamics driving CAISO’s transformation of its electric service is to “decarbonize,” which includes the trajectory that “[b]y 2030, California gets more than two-thirds of its electricity from non-fossil, non- nuclear resources.” Electricity 2030: Trends and Tasks for the Coming Years, CAISO (Oct. 2017). Upon close perscrutation, it is reasonable to believe that CAISO’s compliance filing should differ vastly from PJM’s compliance filing.

CURRENT STATE OF THE NOPR

Past is prologue. This DOE NOPR marks the beginning of a new chapter in the story of U.S. energy policy. Set to unfold next will be the initial comments due by October 23, 2017, filed in response to FERC’s request for information which asks commenters to address a set of questions to assist Staff in understanding the implications of the NOPR. FERC Request for Information, RM18-1-000 (Oct. 4, 2017).

Without wishing unduly to prolong the discussion, FERCblog shall now meditate on the difference between “resiliency” and “reliability.”

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