United States: Department Of Energy Proposes Ferc-Authorized Full Cost Recovery For Certain Nuclear And Coal Power Generation

On September 29, 2017, United States Department of Energy ("DOE") Secretary Rick Perry took the unusual step of proposing a rule for final action by the Federal Energy Regulatory Commission ("FERC"). Secretary Perry's initiative, a DOE-issued Notice of Proposed Rulemaking ("NOPR") under section 403 of the Department of Energy Organization Act ("DOE Act") (42 U.S.C. § 7173), urges FERC to act extremely quickly to enact rules requiring regional transmission organizations and independent system operators ("RTOs/ISOs") to provide just and reasonable rates for "fuel-secure" generation units (e.g., coal and nuclear units). See Grid Resiliency Pricing Rule, Docket No. RM17-3-000, at 4–5 (Sept. 29, 2017) ("DOE NOPR").

The DOE NOPR states that Secretary Perry is "directing [FERC] to issue a final rule requiring its organized markets to develop and implement market rules that accurately price generation resources necessary to maintain the reliability and resiliency of our Nation's power system." Id. at 11. DOE asks FERC to enact a final rule "before the winter heating season begins so as to prevent potential failure of the grid from the loss of generation as what almost happened during the 2014 polar vortex." Id. The DOE NOPR states that market changes have resulted in the loss and retirement of fuel-secure generation resources, and that competitive wholesale power markets do not adequately price the resiliency attributes of fuel-secure power. DOE notes also that the North American Electric Reliability Corporation, and its own August 2017 staff report on electric market reliability, have each highlighted the risks presented to the grid when resources with on-site fuel sources are shut-down or retired. Moreover, DOE notes that FERC itself has adjudicated many cases in organized markets demonstrating that reliability resources are undervalued.

Highlights of the Secretary's action include the following key components:

  • Cost-Based Compensation from Organized Markets for a New Category of Generators (Grid Reliability and Resiliency Resources). DOE's proposal asks FERC to issue a final rule within sixty (60) days directing RTOs/ISOs to establish "Reliability and Resiliency Rates." See DOE NOPR at 18–19 (proposing revised 18 C.F.R. § 35.28(g)(12)).
  • "Reliability and Resiliency Rates." Under the DOE NOPR, FERC would order RTO/ISO tariffs to provide just and reasonable rates for the purchase of electric energy from eligible Reliability and Resiliency Resources that are "dispatched during grid operations." The proposed rule would require that RTO/ISO organized markets thus ensure that FERC-filed tariffs include market rules allowing such units "recovery of [their] costs and a return on equity" and "pricing to ensure that each eligible resource is fully compensated for the benefits and services it provides to grid operations including reliability, resiliency, and onsite fuel assurance, and that each eligible resource recovers its fully allocated costs and a fair return on equity. The proposed rule states that "comparable costs shall include but not be limited to, operating and fuel expenses, costs of capital and debt, and a fair return on equity and investment."
  • Timing. The Secretary directs FERC to take final action on the proposal within sixty (60) days of publication of the notice of the DOE NOPR in the Federal Register. In the alternative, DOE suggests that FERC can issue the rule as an interim final rule immediately, with provision for later modifications after consideration of public comments. The Secretary directs the agency to ensure that, in any event, any final rule adopting his proposal take effect within thirty (30) days of publication of in the Federal Register. Public comment is due either: (1) forty-five (45) days from publication of notice of the DOE NOPR in the Federal Register; or (2) according to a schedule to be published by FERC.
  • Compliance Filings. DOE proposes that FERC require each RTO/ISO to submit a compliance filing within fifteen (15) days of the effective date of any final rule.
  • Key Dates. (**PROJECTED for illustrative purposes if publication in the Federal Register occurs October 4, 2017)
    • FERC issues a final rule by December 1, 2017;
    • FERC could issue an interim final rule as early as October 26, 2017;
    • In either event, comments could be due as early as November 27, 2017;
    • RTO/ISO compliance filings could be due as early as November 10, 2017, or as late as December 16, 2017 with comments likely due on an expedited basis thereafter.

DOE-FERC Authority and Due Process Considerations. Section 403 of the DOE Act authorizes the Secretary of Energy to propose rules for FERC action regarding rate-related functions under Federal Power Act sections 205 and 206. The Secretary may set reasonable time limits for FERC completion of any such proposed action. Section 403 provides for the initiation of rulemaking proceedings by either the Secretary or FERC. Importantly, DOE states that under section 403, the Secretary authorizes FERC to proceed directly to the consideration of, and final action on, a rulemaking. This is in contrast to the often lengthy procedures FERC undertakes when considering rulemaking proceedings. Furthermore, DOE notes that section 403(b) of the DOE Act requires that FERC "shall consider and take final action on any [NOPR] proposal made by the Secretary" under section 403(a) in an "expeditious manner in accordance with such a reasonable time limits as may be set by the Secretary for the completion of action by the Commission on any such proposal." DOE notes that FERC has already developed an extensive record on the subject matter of its notice, and therefore, it states that the time limit for final action is adequate to receive and consider public comments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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