On January 8, 2018, the Federal Energy Regulatory Commission (FERC) rejected the Department of Energy’s (DOE) Proposed Rule, which would have required organized wholesale electricity markets run by independent system operators (ISOs) or regional transmission organizations (RTOs) to establish tariff mechanisms for purchasing energy from eligible “reliability and resilience resources” and mandated a recovery of costs plus a return on equity for such resources. Eligible reliability and resilience resources would have to be (1) located within an RTO/ISO, (2) able to provide essential reliability services, and (3) have a 90-day fuel supply on-site. Practically, these requirements would limit participation to coal and nuclear plants.

After reiterating support for “pro-competition, market driven” regulation of wholesale electricity markets, FERC rejected the Proposed Rule. Under the Federal Power Act, FERC may require RTOs/ISOs to implement tariff changes if there is a prerequisite showing that the existing tariffs are unjust, unreasonable, unduly discriminatory or preferential. According to FERC, “[n]either the Proposed Rule nor the record in this proceeding has satisfied the threshold statutory requirement of demonstrating that the RTO/ISO tariffs are unjust and unreasonable.” FERC also noted that the Proposed Rule would allow eligible resources to receive cost-of-service rates, which was not shown by the record to be just and reasonable. According to FERC, the results of the Proposed Rule may be “unduly discriminatory or preferential.”

FERC, however, concluded that “it must remain vigilant with respect to resilience challenges,” and announced it was initiating a new proceeding to explore resiliency issues in the RTOs/ISOs. The goals of the new proceeding are to develop a common understanding of what resilience means and requires, to understand how each RTO/ISO assesses resilience, and to use this information to evaluate whether additional FERC action on resilience is required.

In connection with this the new proceeding, FERC seeks ISO/RTO comment on the following proposed definition of resilience: “The ability to withstand and reduce the magnitude and/or duration of disruptive events, which includes the capability to anticipate, absorb, adapt to, and/or rapidly recover from such an event.” FERC also posed questions to each RTO/ISO about how it assesses threats to resilience and how it mitigates such threats. FERC directed each RTO and ISO to submit specific information regarding the resilience of its respective region within 60 days. FERC will then permit interested entities to submit reply comments to the RTO/ISO submissions.

FERC noted that its focus on RTOs/ISOs is not intended to discount the importance of resiliency of systems in non-RTO/ISO regions. However, some resiliency issues extend beyond FERC’s jurisdiction. FERC encouraged RTOs/ISOs and other interested entities to engage with state regulators and other stakeholders to address resilience at the distribution level.

Although FERC rejected DOE’s Proposed Rule, it appears that resilience will remain a hot topic. FERC has recently addressed elements of resilience in a number of proceedings, including a recently issued notice of proposed rulemaking aimed at improving reporting of cybersecurity incidents.