On September 29, 2017, the Department of Energy (“DOE”) filed a Notice of Proposed Rulemaking (“NOPR”) at the Federal Energy Regulatory Commission (“FERC”) in order to require additional compensation to baseload generators that provide reliability and resiliency benefits to the electric grid.  In order to qualify for additional compensation, generators must have 90 days of fuel on-site, meaning the new rule would apply almost exclusively to nuclear and coal generators, and perhaps some hydroelectric dams.

The filing by DOE was unusual because, although the FERC is technically a branch of the DOE, it operates almost entirely independently of its parent agency.  The Secretary of Energy, Rick Perry, cited to a little-used provision of the Department of Energy Organization Act for authority to file the NOPR.  That provision authorizes the Secretary of Energy to propose rules for FERC action and to set reasonable time limits for FERC completion of the proposed action.

The NOPR was also unusual for the 60-day time limit mandated by Secretary Perry.  Typically, FERC takes months, if not years, to finalize rule affecting the wholesale electric markets.  Once FERC finalizes a rule, it typically takes Independent System Operators (“ISOs”) and Regional Transmission Organizations (“RTOs”), which operate the markets, several more months to implement the rules.  There is good reason for the long lead time before implementing new rules: the electric markets are extremely complex, their proper function is vital to the reliability of the grid, and the due process rights of numerous stakeholders must be satisfied.  The NOPR filed by Secretary Perry calls for final action by FERC within 60 days, an effective date 30 days thereafter, and compliance filings by the ISOs and RTOs 15 days after the effective date.  Relative to typical FERC NOPRs of this magnitude, this is warp speed.

Several industry groups asked for an extension of time to file comments on the NOPR, but FERC denied their requests.  Therefore, initial comments are due October 23, 2017 and reply comments are due November 7, 2017.  Despite FERC’s unwillingness to extend the comment period, all three of the current Commissioners have hinted that they will not rush into a decision on new market rules for baseload generators.

Acting Chairman Neil Chatterjee has expressed sympathy for some of the issues raised by the NOPR, but has also stated that he wants a final rule that preserves the existing market structure and that will withstand legal scrutiny.  He stated that FERC has “numerous tools at its disposal” other than implementing the rule as proposed within 60 days.  “We could do an advanced notice of proposed rulemaking, we could do a notice of proposed rulemaking superseding the DOE NOPR, we could issue a final rule or an extension of the comment period and a solicitation of further comments,” Chatterjee said.  “We could convene technical conferences, we could do a notice of inquiry, we could initiate Federal Power Act Section 206 review proceedings, so there are many tools available to the commission to act within 60 days.”

Meanwhile, Commissioner Robert Powelson vowed that FERC “will not destroy the marketplace” in response to the DOE NOPR and has questioned the validity of using power outages during the Polar Vortex as justification for the proposed rule.  Commissioner Cheryl LaFleur has stated that the DOE NOPR is not detailed enough to form a final rule and that anything other than an outright rejection “would require more work.”

Therefore, despite the anxiety caused by the announcement of the NOPR, it appears that the current version of FERC will maintain its independence from DOE and will not make any snap judgements with regard to the NOPR.  It is possible that the dynamic could change when FERC nominees Kevin McIntyre and Richard Glick are confirmed by the Senate, but it is also unlikely that those nominees will rush to judgment on the NOPR.  McIntyre is a veteran FERC attorney with a deep understanding of FERC independence and process.  Glick is also a veteran of the energy industry and is currently serving as an aide to the Senate Committee on Energy and Natural Resources.

No matter how one feels about the merits of the proposed rule, FERC’s commitment to deliberate and independent decisions is good for the energy industry.  With so much at stake in our energy markets, having an apolitical, data-based agency calling the shots is absolutely essential.

Andrew Schulte guides energy industry clients through the complex and dynamic regulatory environments at the local, state, and federal levels. Andrew has significant experience with matters set for hearing before regulatory bodies, including preparing filings and testimony, negotiating multi-party settlements, managing discovery, presenting oral arguments, cross-examining expert witnesses, and drafting motions and briefs for presentation to regulatory decision-makers.