FERC Issues Reliability NOPR Establishes Top-Down Reliability Structure

On Thursday, September 1st, the Federal Energy Regulatory Commission (FERC) released a Notice of Proposed Rulemaking (NOPR) implementing the newly enacted reliability provisions of the Federal Power Act (FPA). This is FERC’s first significant step towards implementing the Electricity Title of the recently enacted Energy Policy Act of 2005 (EPAct ‘05). The deadline for public comments on the NOPR has been set at thirty (30) days after publication in the Federal Register.

FPA Section 215 establishes a new reliability regime based on a “top-down” structure where FERC, not the reliability councils, is the final arbiter of reliability standards and compliance. In its NOPR, FERC unequivocally assumes the central authority to review and enforce reliability standards stating that FPA Section 215 buttresses “the Commission’s efforts to strengthen the reliability of the interstate grid through the grant of new authority which provides for a system of mandatory Reliability Standards developed by the ERO and reviewed and approved by the Commission.” The NOPR affirms FERC’s central responsibility for electric system reliability and begins the process of shaping a reliability regulatory structure that will be different in form, structure and effect than the NERC/regional council procedures that exist today.

FPA Section 215 requires FERC to certify and approve the establishment of a single Electric Reliability Organization (ERO), adopt and enforce mandatory reliability standards, and apply those standards to all “users, owners and operators of the bulk power system,” including load-serving utilities, power marketers, merchant generators, and public power and rural electric cooperatives. The ERO may delegate to regional councils (referred to as “Regional Entities”) the responsibility for proposing and enforcing Reliability Standards. In most cases, the proposed regulations remain close to the text of FPA Section 215. However, FERC's accompanying discussion highlights many of the key issues that will need to be resolved in order to take FPA Section 215 from statutory language into real-world application. Further, the NOPR highlights several key developments including:

• Regional reliability councils that are not organized on an Interconnection-wide basis will not be given deference. Unlike the deference given to existing regional reliability councils, the NOPR states that FERC is not required to give due weight to the technical determinations of Regional Entities not organized on an Interconnection-wide basis or confer any presumption of reasonableness to reliability standards proposed by such Regional Entities. Further, FERC “expects a greater level of uniformity among Reliability Standards approved for Regional Entities not organized on an Interconnection-wide basis.”
• FERC will actively oversee ERO/Regional Entity enforcement actions and retains the authority to independently enforce Reliability Standards. The NOPR lays out an active FERC role in reliability enforcement from receiving notice of initiated enforcement actions by an ERO or Regional Entity, through hearing appeals of enforcement decisions, and retaining the discretion to independently initiate enforcement actions. As part of the centralization of enforcement, the NOPR invites public comments on a series of questions including: the appropriate type and level of monetary and non-monetary penalties; the appropriate process for appeal/review of an ERO/Regional Entity enforcement action; the role, if any, of RTOs and ISOs in reliability enforcement as well as their liability for penalties; and other procedures for handling potential violations.
• The “fair processes” for reconciliation of conflicts between transmission tariffs and approved Reliability Standards remain largely undefined. FPA Section 215 requires FERC to establish “fair processes” for the identification and timely resolution of conflicts between a Reliability Standard and a function, rule, order, tariff, rate schedule or agreement applicable to a Transmission Organization. The NOPR largely follows the statutory text with little or no elaboration. The nature and extent of any FERC proceeding examining a potential conflict is likely to raise a number of legal and procedural questions regarding the standards for review and determination by FERC as well as the practical procedures for addressing what will often be highly technical discussions on the relationship and interaction of particular Reliability Standards with a Transmission Organization’s tariffs and rules.

The matters noted above are only a sampling of the issues and implications raised both by FPA Section 215 and the NOPR. The NOPR itself covers full implementation of FPA Section 215 including:

• Explanations of the Commission’s jurisdiction and the applicability of Reliability Standards approved in accordance with FPA Section 215;
• Procedures for certification of the ERO and approval of proposed Reliability Standards;
• Enforcement of Reliability Standards by the ERO, Regional Entities and FERC;
• The ability of FERC to audit and take enforcement actions against either the ERO or a Regional Entity;
• The process for delegation of the ERO’s authority to Regional Entities;
• FERC review of organizational and rule changes by an ERO or Regional Entity;
• Reconciliation of tariff and market rules with Reliability Standards;
• Establishment and activities of Regional Advisory Bodies;
• ERO and Regional Entity reporting requirements;
• Avoidance of conflicts between Reliability Standards and State actions; and
• FERC oversight of the ERO funding and budgets.