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October 2, 2017Client Alert

Notice of Proposed Rulemaking on Traditional Baseload Generator Cost Recovery Sent to FERC by Secretary of Energy Rick Perry

On September 28, 2017, Secretary Rick Perry, U.S. Department of Energy, sent a Notice of Proposed Rulemaking (NOPR) to the Federal Energy Regulatory Commission (FERC or Commission) directing FERC to issue so-called “Grid Resiliency Rules” to ensure that each eligible reliability and resiliency resource will recover its fully allocated costs and thereby continue to provide energy security to the nation.

The proposed rule, amending Section 35.28 of the Commission’s regulations:

  • Allows for the full recovery of costs of certain “eligible” generation units which are
    • “fuel-secure” generators that have at least a 90-day supply of fuel on-site at the generating plant, such as coal or nuclear, in the event of supply disruptions caused by emergencies, extreme weather, or natural or man-made disasters;
    • physically located within the Commission-approved organized markets (i.e., those markets operated by Regional Transmission Organizations (RTOs) or Independent System Operators (ISOs));
    • able to provide essential energy and ancillary reliability services, including but not limited to voltage support, frequency services, operating reserves, and reactive power;
    • compliant with all applicable Federal, State and local environmental laws, rules, and regulations;
    • not subject to cost-of-service rate regulation by any State or local authority.
  • Requires the RTOs and ISOs with a day-ahead and a real-time market, or the functional equivalent, to establish just and reasonable rate tariffs for the
    • Purchase of electric energy from an eligible reliability and resiliency resource, and
    • Recovery of costs and a fair rate of return on equity for these eligible units that are dispatched during grid operations.
      • The just and reasonable rate must include pricing to ensure that each eligible resource is fully compensated for the benefits and services it provides to grid operations, including reliability, resiliency, and on-site fuel assurance, and that each eligible resource recovers its fully allocated costs and a fair return on equity.
      • Reliability and resiliency costs are defined in the NOPR as compensable costs that include, but are not limited to, operating and fuel expenses, costs of capital and debt, and a fair return on equity and investment.
  • Established the following deadlines:
    • The NOPR must be considered by FERC and FERC must take final action on the proposed rule within 60 days from the date of the publication of the NOPR in the Federal Register (thus, by approximately the end of November),
      • with public comments on the NOPR filed within 45 days from the date of the publication of the NOPR in the Federal Register.
    • Alternatively, FERC may issue this NOPR as an interim final rule, effective immediately, with provision for later modifications after consideration of public comments.
    • The Final Rule must be made effective within 30 days of the publication of such Final Rule in the Federal Register.
    • RTOs and ISOs must submit to FERC a compliance filing, including a revised tariff pursuant to Federal Power Act (FPA) Section 205 within 15 days of the effective date of the Final Rule to demonstrate that each RTO/ISO meets the proposed requirements in the Final Rule.
    • Tariff changes filed in response to the Final Rule must become effective no more than 15 days after compliance filings are due.
    • Any RTO or ISO which believes that it already complies with the reforms proposed in the NOPR must demonstrate how it complies in the compliance filing, by showing that its existing market rules are consistent with or superior to the reforms adopted in the Final Rule.

The proposed rule could have significant effects on RTO/ISO energy markets. If you are interested in commenting on the NOPR, please contact your Michael Best attorney.

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