In late September, the Department of Energy (DOE) issued a Notice of Proposed Rulemaking (NOPR) for consideration by the Federal Energy Regulatory Commission (FERC). Using §403, a little-used provision in the DOE Organization Act of 1977, Secretary Perry proposed that FERC, an independent agency, exercise its authority to establish just and reasonable rates for wholesale electricity sales.
Specifically, the NOPR requires ISO’s and RTO’s create special cost of service compensation for certain types of generation that DOE alleges are essential to protecting grid reliability and resiliency. Facilities would be eligible for this special, non-market compensation if they could provide essential reliability services and have a 90-day onsite fuel supply – essentially only coal and nuclear plants. Additionally, citing an imminent threat of energy outages, DOE directed FERC to fast-track the rule. If adopted, effectively, this rule would end established electricity markets by federally reregulating coal and nuclear facilities. That said, FERC does not have to adopt the details of DOE’s proposal.
The reaction to DOE’s proposed rule have been overwhelmingly negative. Other than the nuclear and coal lobbies, a majority of the energy sector has come out against the rule – former FERC commissioners, states, environmental groups, the oil and gas lobby, the renewable lobby, and consumer groups. This reaction stems in part to several key concerns with the rule – 1) blatant appearance of coal favoritism, 2) a lack of record underlying the proposed rule, and 3) large potential economic and environmental harm resulting from implementing the rule as is.
The electric grid is not at risk of imminent energy outages as the NOPR alleges. The ISOs have already dealt with most of the issues raised by the Polar Vortex, the only potential resilience issue identified by DOE. Nevertheless, the hurricane damage in Puerto Rico, changing energy mix, and rising cyber risks raise key questions about whether the electricity system can remain reliable and resilient.