July 15, 2020

Volume X, Number 197

July 15, 2020

Subscribe to Latest Legal News and Analysis

July 14, 2020

Subscribe to Latest Legal News and Analysis

July 13, 2020

Subscribe to Latest Legal News and Analysis

US Energy Secretary Directs FERC to Issue Rules Supporting Nuclear, Coal Generation

If the proposed rules are adopted, they could provide significant economic support to coal and nuclear generation in organized markets.

Invoking rarely used statutory authority, on September 29, US Secretary of Energy Rick Perry directed the Federal Energy Regulatory Commission (FERC) to undertake a rulemaking to enable generation assets in regional transmission organizations (RTOs) and independent systems operators (ISOs) to receive payments for reliability and resiliency benefits that the US Department of Energy (DOE) views as uncompensated under current market rules.

The proposed rules, if adopted, ultimately could provide significant economic support to coal and nuclear generation in organized markets by allowing cost-based recovery, separating these resources from the normal market forces in certain regions that recently have exerted significant downward pressure on rates paid to such baseload generators.

The Energy Secretary’s Rationale

Aimed squarely at the potential loss of baseload coal and nuclear generators due to existing market and regulatory pressures, Secretary Perry explained in an accompanying letter to FERC that “the resiliency of the electric grid is threatened by the premature retirements of these fuel-secure traditional baseload resources.”

According to Secretary Perry, existing market rules for RTOs and ISOs result in “distorted price signals” that prevent traditional baseload generators from receiving payments for the positive benefits they provide to system reliability. Unless the situation is remedied, the secretary states, grid reliability could suffer, which would be “unjust, unreasonable, and contrary to the public interest.” In support of this claim, the secretary cites the large number of baseload generation retirements identified in DOE’s January 2017 Quadrennial Energy Review, the risk of generator loss during extreme load such as during the 2014 polar vortex, concerns from the North American Electric Reliability Corporation regarding premature retirements of “fuel secure baseload generating stations” such as fossil and nuclear generators, and DOE’s own recent report on the economic struggles of baseload generators and the reliability risk that presents.

Driven by these concerns, Secretary Perry invoked his authority under section 403 of the Department of Energy Organization Act to require FERC to conduct a rulemaking using FERC’s authority under sections 205 and 206 of the Federal Power Act. Under the secretary’s proposed regulations, which were provided in the Notice of Proposed Rulemaking (NOPR) issued by DOE to start the FERC rulemaking, Part 35 of FERC’s regulations would be revised so that all RTO and ISO tariffs must provide a mechanism for “eligible grid reliability and resiliency resources” to (1) sell at cost-based rates; (2) fully recover costs, including a return on equity (ROE); and (3) be compensated for the reliability, resiliency, and onsite fuel assurance benefits provided to the electric grid.

Eligible Generators

“Eligible grid reliability and resiliency resources” are proposed to be defined as generators that

  • are in an RTO or ISO region;

  • provide essential reliability services, including voltage support, frequency response, operating reserves, and reactive power;

  • have a 90-day onsite fuel supply;

  • are compliant with environmental laws; and

  • are not currently subject to cost-of-service regulation by US state or local governments.

Comment Period and Effective Date

The proposed rulemaking is not self-implementing; multiple steps need to be taken before it can take full effect. 

Under section 403, the secretary of energy can establish a deadline for FERC action, but the ultimate substantive rule is within the discretion of FERC itself. As explained in the NOPR, comments on the proposal will be due 45 days after it is published in the Federal Register. FERC must either take final action or adopt Secretary Perry’s proposed language as an interim final rule within 60 days after publication. The NOPR proposes that any final rule would take effect within 30 days of publication of the final rule in the Federal Register, and that RTO and ISO compliance filings would be due 15 days after that effective date. Those compliance filings would initiate new rate proceedings on the rules established for each organized market. 

The specific “eligible grid reliability and resiliency resources” rate treatment will be determined through each RTO and ISO stakeholder process and then filed with FERC for review. No rate change can be payable to an eligible resource until the applicable RTO’s or ISO’s filing has become effective.

Copyright © 2020 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VII, Number 276


About this Author

J. Daniel Skees, Energy attorney, Morgan Lewis

J. Daniel Skees represents electric utilities before the Federal Energy Regulatory Commission (FERC) and other agencies on rate, regulatory, and transaction matters. He handles rate and tariff proceedings, electric utility and holding company transactions, reliability standards development and compliance, and FERC rulemaking proceedings. The mandatory electric reliability standards under Section 215 of the Federal Power Act are a major focus of Dan’s practice. He advises clients regarding compliance with reliability standards, and helps them participate in the...

Grant Eskelsen, Morgan Lewis, Litigation lawyer

Grant W. Eskelsen handles a broad range of matters for the nuclear industry. He routinely counsels clients on compliance with nuclear-export related matters, including 10 CFR Part 810 and 10 CFR Part 110. Grant holds a top-secret security clearance and supports investigations and litigation involving classified information. He also provides due diligence support for energy transactions and supports clients in claims against the government for its ongoing failure to accept spent fuel from utilities. Grant also assists clients in internal investigations and litigation related to government contracting.