United States: "Deep State" FERC? What Might FERC's Response To DOE Grid Resiliency Rule Tell Us About FERC Under The Trump Administration?

On January 8, 2018, two days before the January 10 extended deadline set by the Secretary of Energy, the Federal Energy Regulatory Commission (FERC) issued its much-anticipated response to the Proposed Rule on Grid Reliability and Resilience Pricing submitted to FERC by Rick Perry, the Secretary of Energy, in late September 2017.¹ In a 5-0 decision, FERC declined to adopt the rule proposed by Perry to require FERC- approved regional transmission organizations (RTOs) and independent system operators (ISOs) with energy and capacity markets and a tariff that contains a day-ahead and a real-time market to allow for the recovery of costs and a return on investment by "eligible grid reliability and resiliency resources" participating in those markets. ² At the same time, FERC also initiated a new proceeding to "take additional steps to explore resilience issues in RTOs and ISOs." ³

Following the issuance of the FERC Order, Perry issued a statement that, as intended, his proposed rule "initiated a national debate on the resiliency of our electric system," and said that he is looking forward to continuing to work with FERC commissioners to ensure the integrity of the electric grid. However, Corey Lewandowski, a former manager of the 2016 Trump presidential campaign, took to social media to characterize FERC's action as evidence that "[t]he deep state is very real," and to characterize FERC as "[m]ore government officials who don't support the Trump agenda." In response to Lewandowski, numerous observers pointed out that all but one of the five FERC commissioners who voted on the order were appointed by President Trump and that three of those commissioners, including the chairman, are Republicans. Nonetheless, Lewandowski's heated criticism has raised in some minds the question of what FERC's action on the DOE Pricing Rule reveals about how the newly constituted FERC intends to function as an independent agency under the Department of Energy (DOE) in an administration headed by a president who, in the context of another governmental department, reportedly has complained about not being able "to simply give orders to 'my guys.'" ⁴

DOE Pricing Rule

Under Section 402 of the Department of Energy Organization Act (DOE Organization Act), which allows the Secretary of Energy to propose rules, regulations and statements of policy of general applicability with respect to any function under FERC's jurisdiction, Perry directed FERC to consider a proposed Pricing Rule under which FERC would amend its regulations governing the tariffs and operations of FERC-approved ISOs and RTOs⁵ to require that RTO and ISO tariffs provide a just and reasonable rate for the purchase of electric energy from an "eligible reliability and resilience resource" and for the recovery of costs (such as operating and fuel expenses, and costs of capital and debt) and a return on equity for such resource dispatched during grid operations. The proposed Pricing Rule prescribed that the just and reasonable rate 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.

The proposed Pricing Rule defined "eligible grid reliability and resiliency resources" as any electric generation resource that is physically located within a FERC-approved ISO or RTO; is able to provide essential energy and ancillary reliability services, such as voltage support, frequency services, operating reserves and reactive power; 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; is compliant with all applicable federal, state and local environmental laws, rules and regulations; and is not subject to cost-of-service rate regulation by any state or local regulatory authority. This definition generally was interpreted to include nuclear and coal-powered electricity generating facilities.

In support of the proposed Pricing Rule, DOE argued that "the changing electricity sector is causing the closure of many coal and nuclear plants" ⁶ and that because wholesale pricing in organized markets does not adequately consider or accurately value benefits that fuel-secure generation resources provide to the grid, such resources often are not compensated for those benefits. ⁷ DOE also asserted that "the continued loss of fuel-secure generation must be stopped" because these generation resources "are necessary to maintain the resiliency of the electric grid." ⁸ According to DOE, FERC must adopt rules requiring FERC-jurisdictional RTOs and ISOs to "reduce the chronic distortion of the markets that is threatening the resilience of the Nation's electricity system." ⁹

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Footnotes

1 Grid Reliability and Resilience Pricing, "Order Terminating Rulemaking Proceeding, Initiating New Proceeding, and Establishing Additional Procedures," 162 FERC ¶ 61,012 (Jan. 8, 2018)("FERC Order")/

2 "Grid Resiliency Pricing Rule," Notice of Proposed Rulemaking, Docket No. RM18-1-000 (issued Sept. 28, 2017) ("Pricing Rule").

3 FERC Order at P 18.

4 Parker, Ashley, et al., "Trump sought release of classified Russia memo, putting him at odds with Justice Department," The Washington Post, Jan. 27, 2018.

5 18 C.F.R. 35.29(g).

6 Pricing Rule at p. 3.

7 Pricing Rule at p. 5.

8 Pricing Rule at p. 10.

9 Pricing Rule at p. 10.

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