FERC Rejects Secretary of Energy Direction to Assure Cost Recovery for Coal and Nuclear Generators

On January 8, 2018, the Federal Energy Regulatory Commission (FERC) issued an Order terminating a rulemaking proceeding ordered by the U.S. Secretary of Energy (Rick Perry). This overrules Secretary Perry’s September 2017 Direction and “Notice of Proposed Rulemaking” to the FERC requiring the establishment of market rules to assure cost recovery for baseload generators.

As discussed in an earlier post, the specific requirement was for FERC to enact rules that allow for “the recovery of costs of fuel-secure generation units that make [the] grid reliable and resilient.” The Direction is premised on a stated concern that the American public needs protection from “the threat of energy outages that could result from the loss of traditional baseload capacity.” The requirement would apply to generation units that can provide essential energy and ancillary reliability services and have a 90-day fuel supply on site in the event of supply disruptions caused by emergencies and extreme weather. Practically speaking, the cost recovery market rules would benefit coal and nuclear generation facilities.

After receiving submissions from a range of parties, the FERC declined to establish new market rules as directed. In coming to this conclusion, the FERC found that existing regional transmission organization (RTO) and independent system operator (ISO) tariffs have not been shown to be unjust and unreasonable and there is no justification for new tariffs. The FERC also noted that there is no evidence that planned generator retirements are a threat to grid resilience. Additionally, the FERC indicated concern that the proposed rules would be unjustly discriminatory or preferential because only some generators could benefit.

Perhaps in an effort to assuage the Secretary of Energy, FERC did initiate a new proceeding to evaluate the resilience of the bulk power system operated by RTOs and ISOs. Those parties are directed to file a range of specified information to allow the FERC to determine if additional action is warranted to address grid resilience.