FERC, CFTC, and State Energy Law Developments

The Commissioners of the Federal Energy Regulatory Commission (FERC or the Commission) testified on June 12 at an oversight hearing before the Senate Committee on Energy and Natural Resources. They addressed FERC-jurisdictional issues, including grid modernization, resiliency, security, and enforcement, and President Donald Trump’s recent directive to US Department of Energy (DOE) Secretary Rick Perry to prepare immediate steps to stop the loss and retirement of nuclear and coal generation facilities. The Commissioners’ testimony provides an insight into the issues that FERC may prioritize in the near future.

The Nuclear Regulatory Commission (NRC) and the Federal Energy Regulatory Commission (FERC) entered into a Memorandum of Understanding (MOU) on June 6 regarding the care and protection of critical energy/electric infrastructure information (CEII). The MOU delineates how the two agencies will cooperate to identify, process, and protect CEII that the NRC holds, explaining that the two independent agencies “mutually agree that it is important to protect CEII to ensure the safety and security of the electric grid.” Under the MOU, the NRC will be able to consult with FERC to designate certain NRC-held information as CEII—and therefore FOIA-exempt—if requested by a third-party under that open records law.

The MOU is another step in the US government’s attempt to address growing concerns about physical and cybersecurity threats to the electricity grid. Congress, recognizing these threats, directed the US Department of Energy and FERC to identify and protect CEII when it passed the “Fixing America’s Surface Transportation Act” (FAST Act) in 2015. FERC issued its CEII regulations in late 2016.

The commissioners from the Federal Energy Regulatory Commission (FERC) and the Nuclear Regulatory Commission (NRC) held a joint meeting on June 7 to discuss grid reliability and cybersecurity. FERC and NRC staff provided presentations on the recent and ongoing activities of both agencies to promote a stable, resilient, and secure grid. The presentations were largely a summary of recent agency activities and served to continue the practice of both independent regulatory agencies meeting to discuss items of common interest.

The White House announced late last week that President Donald Trump has directed Energy Secretary Rick Perry to “prepare immediate steps to stop the loss” of “fuel-secure power facilities,” noting that near-term retirements of these facilities could lead to “a rapid depletion of a critical part of our nation’s energy mix, and impact the resilience of our power grid.” Although the federal government has not yet disclosed what those steps might be or which generators are at issue, press reports from CNN and Bloomberg, among others, have emerged suggesting that the US Department of Energy (DOE) is considering a directive that would require Independent System Operators and Regional Transmission Operators (ISOs/RTOs) to purchase energy from designated “fuel-secure” plants for a period of up to, and possibly more than, 24 months to avoid any near-term decommissioning.

The US Department of Justice (DOJ) and the Federal Energy Regulatory Commission (FERC) filed a joint brief on May 29 in the US Court of Appeals for the Seventh Circuit, stating that Illinois’ zero emission credit (ZEC) program for eligible nuclear plants in Illinois is not preempted by the Federal Power Act (FPA). Because the panel in a substantially similar case pending in the Second Circuit has indicated that it would review the government’s filing in the Seventh Circuit case, the views of FERC and DOJ could be critical as this issue plays out in the federal court system.

The Illinois legislature passed a law in 2016 requiring utilities to purchase ZECs at administratively set prices from nuclear plants in the state. Generators that compete with the ZEC-receiving nuclear plants challenged the law, arguing that the ZEC program is preempted by the FPA. The district court upheld the program, and the generators appealed the decision to the Seventh Circuit. FERC did not take a position in the trial court but has now done so after the Seventh Circuit invited the US government to file a brief.

The Federal Energy Regulatory Commission issued a final rule revising the Large Generator Interconnection Procedures and Large Generator Interconnection Agreement. The changes are intended to provide increased certainty and additional interconnection service options to generation interconnection customers, while also enhancing the information available for interconnection decisionmaking. Transmission providers will be required to submit compliance filings. Read the full LawFlash.

The heads of 12 federal agencies signed an MOU on April 9 committing to “a more predictable, transparent and timely Federal review and authorization process for delivering major infrastructure projects.” The signatory agencies, all of which have responsibilities to review or authorize infrastructure projects, agreed to take certain steps to create a more coordinated and streamlined federal environmental review process. Although the commitments in the MOU are voluntary and not mandated by statute, adherence to them could shorten the period of time required by the Federal Energy Regulatory Commission (FERC) to perform National Environmental Policy Act (NEPA) reviews.

Background

President Donald Trump signed Executive Order (EO) 13807 (“Establishing Discipline and Accountability in the Environmental Review and Permitting Process for Infrastructure Projects”) in August 2017. This EO was intended to speed up the environmental reviews required for major infrastructure projects by mandating additional coordination and planning activities among various federal agencies. The EO defines “major infrastructure project” as “an infrastructure project for which multiple authorizations by Federal agencies will be required to proceed with construction, the lead Federal agency has determined that it will prepare an Environmental Impact Statement (EIS) under [NEPA] . . . and the project sponsor has identified the reasonable availability of funds sufficient to complete the project.”

In response to concerns that the ability of the electric system to provide frequency response following a system disturbance is falling across the United States, the Federal Energy Regulatory Commission (FERC) changed its generation interconnection requirements on February 15. Frequency response is, generally speaking, the ability of the system to quickly return to 60 Hz frequency following a system event such as the sudden loss of a generator. If frequency is not immediately corrected, over- or under-frequency events can occur, which would lead to more and more facilities tripping out of service. The ability of the bulk electric system to provide frequency response is therefore critical in order to avoid cascading outages.

Under the revisions to the pro forma Large Generator Interconnection Agreement (LGIA) and the Small Generator Interconnection Agreement (SGIA), nonsynchronous generators (typically renewable generation) will for the first time be required to have equipment that enables the generator to provide frequency response. Previously, only synchronous generators were required to have that capability because of concerns that nonsynchronous generators were not technically capable of providing that service. FERC found that with recent technological developments there is no longer a reason to treat synchronous and nonsynchronous generation differently on this issue.

The new requirements will apply only to new interconnection agreements, including those driven by changes at an existing generator that necessitate a new interconnection agreement.

On January 8, 2018, the Federal Energy Regulatory Commission (FERC) issued an order rejecting the US Department of Energy’s (DOE’s) proposed changes to organized market rules that would have permitted certain baseload resources with at least 90 days of on-site fuel to be paid a cost-of-service rate rather than relying on compensation under market-determined prices. DOE’s September 29, 2017 proposal was focused on ensuring the “resilience” of energy service in these organized markets, and was widely viewed as benefitting primarily coal and nuclear generation.

In its order, FERC concluded that it lacked the record necessary for FERC to take the requested action to order changes to existing market rules under Section 206 of the Federal Power Act. Under that statute, FERC must first find that the existing rates are unjust and unreasonable and then replace it with a rate that is just and reasonable. According to FERC, the DOE proposal failed to satisfy either prong. First, FERC explained that none of the comments submitted by the RTOs/ISOs indicated any threat to resilience posted by past or future generator retirements. Second, FERC explained that allowing any resource that met DOE’s resiliency criteria to receive a cost-of-service rate would not be just and reasonable because that payment would not be tied to the need for the facility or the cost to the system of providing that payment.

As bitcoin and other cryptocurrency values continue to rise, the sheer number of cryptocurrency transactions rises as well. By now, almost 500,000 unique bitcoin transactions are taking place every day, with the number increasing exponentially over the last six months of the year.

So what does cryptocurrency have to do with what is often viewed as a very staid and traditional electric utility business? On the surface, the cryptocurrency and electric businesses could not seem more different. The electric utility business began in the 19th century, while bitcoin is less than a decade old and internet-dependent. But in reality, the operability of bitcoin and other cryptocurrencies relies on massive computing power distributed around the world because of the nature of the technology that makes cryptocurrencies possible. And that computing power requires massive amounts of always-on electric power.