Déjà Vu All Over Again: US FERC Announces New Proceeding to Examine Electric Reliability in the Face of Climate Change
On February 22, 2021, the United States Federal Energy Regulatory Commission (FERC) announced its intention to open a new proceeding to examine the threat that climate change and extreme weather events pose to electric reliability. The proceeding will examine how grid operators prepare for and respond to extreme weather events, including, but not limited to, droughts, extreme cold, wildfires, hurricanes, and prolonged heat waves. FERC also announced that the proceeding would include a technical conference with an opportunity for parties to submit comments in advance of that conference, with additional details to follow.
Of course, FERC has had previous similar proceedings, and they may be instructive regarding factual findings and the jurisdictional limits that may constrain ultimate action by FERC in this new proceeding.
For example, by a letter dated September 28, 2017, from the then-Secretary of Energy, FERC was directed to adopt a proposed rule requiring certain regional transmission organizations (RTOs) and independent system operators (ISOs) to establish a grid reliability and pricing tariff mechanism providing for (1) the purchase of energy from an eligible “reliability and resilience resource” and (2) the recovery of costs and a return on equity for such resources (i.e., a “resilience rate”). The proposed rule stated that eligible reliability and resilience resources must (1) be located in an RTO/ISO with an energy and capacity market, (2) be able to provide essential reliability services, and (3) have a 90-day fuel supply on-site.
Following a relatively active proceeding (Docket RM18-1-000), FERC terminated the proceeding on January 8, 2018 (the January 2018 Order), finding that, in order to require RTOs/ISOs to implement tariff changes as contemplated by the proposed rule, section 206 of the Federal Power Act (FPA) requires that there must first be a showing that the existing RTO/ISO tariffs are unjust, unreasonable, unduly discriminatory, or preferential and that, in the absence of such showing, the proposed rule could not be adopted.
Concurrently with that termination, FERC opened a further new proceeding (Docket No. AD18-7-000) to evaluate the resilience of the bulk power system in the regions operated by RTOs and ISOs. The January 2018 Order directed each RTO and ISO to submit information to FERC on certain resilience issues and concerns identified therein. That proceeding was also terminated on February 18, 2021 (the February 2021 Order), and FERC found that, based on its review of the record compiled over the past three years, it did not believe that any generic action was appropriate. FERC, however, also stated that this finding “was not to suggest that resilience concerns are no longer an issue or that RTOs and ISOs have addressed all threats to the resilience of the bulk power system” and that, “[t]o the contrary, the resilience and reliability of the bulk power system must—and will—remain one of FERC’s paramount responsibilities and concerns.”1 FERC stated that is also believed, however, that:
[C]oncerns about the resilience of the bulk power system are best addressed on a case-by-case and region-by-region basis [whether it be for] wildfires in the West, hurricanes in the Southeast, or even the extreme cold weather experienced this week in Texas and the Great Plains [because] these threats present stark, but different challenges to the reliability of the electric grid [and] [a]ddressing those individual challenges in a manner that is both effective—for the grid and the region—and consistent with our statutory authority under the FPA requires an approach that is tailored to the specific threats and circumstances in a particular region, not a one-size-fits-all solution.2
The recent events affecting the Electric Reliability Council of Texas (ERCOT), while still being investigated (and certainly in FERC’s “mind” as evidenced by the latest issue of FERC Insight), appear to show the critical interrelationship of electricity and natural gas markets at times of stress due to extreme weather. FERC’s ability to effectively use its Natural Gas Act authority3 to influence ERCOT—over which it has no direct tariff or ratemaking authority—will be an important part of the new proceeding, as will the contemporaneous joint inquiry by FERC and the North American Electric Reliability Corporation (NERC) into bulk-power system operations during the current extreme winter weather conditions in the Midwest and South Central states and FERC’s examination of whether any wholesale natural gas and electricity market participants engaged in market manipulation or other violations during last week’s extreme cold weather.
3 With respect to apparent electricity price super-spikes in ERCOT during the recent extreme weather event, it is not certain what relief FERC would award even if FERC had rate regulatory jurisdiction over ERCOT. In prior weather-related pricing spikes, FERC has declined to retroactively adjust pricing, finding that courts have determined that the Federal Power Act prohibits FERC from engaging in retroactive ratemaking. See, e.g., Old Dominion Electric Cooperative v. FERC, 892 F.3d 1223 (D.C. Cir. 2018).
