FERC plans fuel-neutral approach to reviewing responses in grid resiliency docket

Published on January 16, 2018 by Kim Riley


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When responses start flowing in soon to the Federal Energy Regulatory Commission (FERC) addressing its new proceeding on resiliency of the bulk power system in the areas operated by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), the five members of the independent regulatory agency plan to retain a fuel-neutral attitude.

That attitude is what helped commissioners unanimously decide Jan. 8 to terminate its proceeding to consider U.S. Energy Secretary Rick Perry’s proposed grid resiliency pricing rule, which was widely thought to be a lifeline for the struggling coal and nuclear power plant sectors.

According to two FERC members, each appointed by a Democrat and a Republican president, such a collective mindset served them well in deciding this docket, which came to FERC as a rarely used provision of the Federal Power Act.

In a nutshell, Perry had asked FERC to issue a rule on certain changes to compensation for resources in the market that were thought to be contributing to the resilience of the system, said FERC Commissioner Cheryl LaFleur on Tuesday during a discussion hosted by the Bipartisan Policy Center (BPC) at its Washington, D.C., headquarters.

And in her opinion, the commissioners tried to look at the proceeding in regular FERC fashion, said LaFleur, who was first nominated to FERC by President Barack Obama in 2010 and confirmed in 2014 by the Senate for a second term.

“This is a proposal to change something,” said LaFleur in recalling the commissioners’ decision-making process. “First, is the existing rate just and reasonable? Have they shown a factual problem with resilience or a legal problem with the existing rate, and if so — which we found they had not — but if so, is this a just and reasonable alternative? Is this proposal correct for the market?

“And I agreed with the majority … that neither of those standards had been met,” LaFleur said about the 5-0 decision FERC issued in terminating Perry’s proposed rule request. “The resilience issue had not been demonstrated in that docket and the proposal was not just and reasonable.”

Interestingly, candid remarks during the BPC event from FERC Commissioner Neil Chatterjee, nominated last May to the commission by President Donald Trump and confirmed by the Senate in August 2017, provided more insight into the commissioners’ decision-making in this case.

Chatterjee, who previously served as energy policy advisor to U.S. Senate Majority Leader Mitch McConnell (R-KY) before his FERC post, said he initially expressed sympathy with what Secretary Perry had proposed. After all, he said, he knew firsthand about the struggles related to a declining coal industry in his home state.

But Chatterjee said he also was very clear with FERC about any forthcoming action on Perry’s proposal, saying it would have to be fair and not distort the markets.

“As we went through the process, I came to really appreciate the fact-based, evidence-based approach that the commission takes,” he said. “I was aware of it prior to my confirmation to the commission, but once you really get in there and start doing the work, you realize that we do things in a cautious, steady, legally defensible manner.”

And as FERC members built their record and conducted their analyses, Chatterjee said he came to the same conclusion as did his colleagues, who include LaFleur, FERC Chairman Kevin McIntyre and Commissioners Robert Powelson and Richard Glick: “While Secretary Perry asked the right question, he proposed the wrong remedy,” he said, noting that Perry’s proposed rule did not meet FERC’s legal test and therefore had to be set aside.

FERC then decided to start anew with a proceeding that more “holistically” looks at resiliency of the bulk power system in the geographic areas of the RTOs and ISOs.

The RTOs and ISOs also opposed Perry’s cost-of-service proposal, which included giving coal and nuclear energy generators sizable subsidies for being able to have more than a 90-day supply of on-site fuel that could be used to retain electricity when the grid was threatened by widespread man-made or natural interruptions.

“I’m pleased all five commissioners agreed on the notion that resilience needs to be looked at further,” said Chatterjee, who called FERC’s “hyper-focus” on the issue important and attributed some of the intense interest in the topic to Perry’s proposal.

But he also reiterated FERC’s ability to retain its balanced, fuel-neutral, fact-based approach if the U.S. Department of Energy (DOE) decides to refile or take up the issue again. Chatterjee said that in his discussions with DOE staff, he’s not heard that’s the case.

“We demonstrated our independence and we will continue to, whether there are outside influences on the commission or not, to do things in a fact-based, evidence-based way,” Chatterjee said.

LaFleur said it’s up to the secretary if he wants to propose similar ideas.

“It’s his prerogative. What’s important to me, though, is that whatever gets proposed — whether it’s a complaint from a market participant or something that comes from the administration — we act as an independent agency and look at it based on the facts and the law we’re sworn to administer,” said LaFleur. “And I think that’s what we did in this case.”

Going forward, “by all means, let’s continue this docket,” she said, adding, however, that FERC also needs to get it over with, too; the commission has a backlog of policy issues waiting for it to work on.

“Like my colleague Mr. Glick said: ‘Let’s do it and get on with it,’” said LaFleur nodding her head in finality.