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DOE's proposed resiliency rule prompts plenty of questions from FERC staff

With initial comments due Oct. 23 on the U.S. Department of Energy's demands that federal regulators adopt a new rule allowing certain struggling nuclear and coal-fired generators to fully recover their costs, Federal Energy Regulatory Commission staff has posed a long series of questions related to the proposal.

In an Oct. 4 notice, staff asked commenters to address whether existing power markets need to be reformed and, if so, exactly how FERC should tailor a new rule to reflect the needed changes. For instance, the DOE's proposed rule defines eligible resources as having a 90-day fuel supply, and staff wants to know how it should define that requirement.

"Should each resource be required to have sufficient fuel for 24 hours/day and sustained output at its upper operating limit for the entire 90-day period?" staff asked. "Is there a direct correlation between the quantity of on-site fuel and a given level of resilience or reliability?"

The DOE proposal would allow nuclear and coal-fired generators that meet the fuel requirement and operate in states with organized markets to recover their costs plus a return on investment. In submitting the proposed rule Sept. 28, the DOE told FERC to provide limited time for comments and to act within 60 days. The proposal also said organized market operators should be given only 15 days after the effective date of the final rule to submit compliance filings.

Many legal questions were raised by the DOE proposal, partly because it is so vague on how the concerns described in the proposed rule should be addressed but also because that agency employed a rarely used provision of federal law — Section 403 of the Department of Energy Organization Act — to propose a rule for FERC action.

FERC is an independent agency, and it therefore does not have to comply with any of DOE's demands. Nevertheless, the commission has set an Oct. 23 deadline for initial comments and a Nov. 7 deadline for reply comments, despite 11 trade groups joining together to ask FERC to provide more time for comments and an eventual order. Moreover, FERC's general counsel told federal lawmakers that the commission fully intends to act on the DOE proposal within 60 days.

The Oct. 4 staff notice tees up for comment the many legal questions surrounding the proposal that the commission will need to address.

For instance, the DOE said its proposed rule is needed to ensure that the grid is resilient, and staff asked what resilience really means, how it should be measured and how it differs from reliability. Staff also wondered what levels of resilience and reliability are appropriate and to what extent reliability and resilience are valued by competitive market structures.

The DOE also cited the reliability issues created by the 2014 polar vortex that hit the PJM Interconnection and much of the East Coast and other extreme weather events as examples of the need for the proposed reform. Staff asked whether the DOE's assertions and characterization of those events are correct.

Perhaps showing some skepticism, staff queried about the impact the proposed rule would have on the time required for system restoration, "particularly if there is associated severe damage to the transmission or distribution system."

Other staff questions involved the impact the retirement of coal and nuclear resources has had, or can be expected to have if current market constructs are not modified, on grid reliability. "Is fuel diversity within a region or market itself important for resilience?" staff inquired.

In addition, staff posed a long series of questions about potential eligibility requirements, such as whether resources such as hydroelectric, geothermal, dual-fuel with adequate on-site storage, generating units with firm natural gas contracts or energy storage should be eligible. Staff also noted that the 90-day fuel supply requirement raises a number of environmental regulatory issues.

Staff also asked several questions on implementation issues, including how should eligible resources receiving cost-based compensation under the proposed rule be considered in the clearing and pricing of centralized capacity markets, what types of costs should eligible units be allowed to recover, and how should those costs be allocated?

Finally, staff raised several practical issues, such as whether the DOE's proposed deadlines would give market operators enough time to develop and implement the mechanisms needed to facilitate the required changes and if the proposed rule's estimated burden of $291,042 per market operator to develop and implement new market rules and potential software upgrades is accurate. Staff also asked how the proposed rule would impact consumers. (FERC docket RM18-1)