
[Federal Register Volume 82, Number 194 (Tuesday, October 10, 2017)]
[Proposed Rules]
[Pages 46940-46948]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-21396]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM18-1-000]


Grid Resiliency Pricing Rule

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Notice of proposed rulemaking.

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SUMMARY: Pursuant to the Department of Energy Organization Act (DOE 
Act), the Secretary of Energy (Secretary) is proposing a rule for final 
action by the Federal Energy Regulatory Commission (Commission or 
FERC). The Secretary is proposing the Commission exercise its authority 
under the Federal Power Act (FPA) to establish just and reasonable 
rates for wholesale electricity sales. Under the proposal, the 
Commission will impose rules on Commission-approved independent system 
operators

[[Page 46941]]

(ISOs) and regional transmission organizations (RTOs) to ensure that 
certain reliability and resilience attributes of electric generation 
resources are fully valued. The Secretary is directing the Commission 
to take final action on this proposal within 60 days of publication of 
this proposed rule in the Federal Register or, in the alternative, to 
issue the rule as an interim final rule immediately, with provision for 
later modifications after consideration of public comments. The 
Secretary further directs that any final rule adopting this proposal 
take effect within 30 days of publication of such final rule in the 
Federal Register and proposes that each ISO and RTO subject to the rule 
shall submit a compliance filing within 15 days of the effective date 
of such final rule.

DATES: The Commission is directed either to take final action by 
December 11, 2017 or to issue the proposed rule as an interim final 
rule. Public comment is due either November 24, 2017 or according to a 
schedule to be published by the Commission.

ADDRESSES: Comments, identified by docket number, may be filed in the 
following ways:
     Email: Electronic Filing through http://www.ferc.gov. 
Documents created electronically using word processing software should 
be filed in native applications or print-to-PDF format and not in a 
scanned format.
     Mail/Hand Delivery: Those unable to file electronically 
may mail or hand-deliver comments to: Federal Energy Regulatory 
Commission, Secretary of the Commission, 888 First Street NE., 
Washington, DC 20426.
    Instructions: For detailed instructions on submitting comments and 
additional information on the rulemaking process, see the Comment 
Procedures Section of this document.

FOR FURTHER INFORMATION CONTACT: Ronald (R.J.) Colwell, U.S. Department 
of Energy, Office of the Assistant General Counsel for Electricity and 
Fossil Energy (GC-76), Forrestal Building, Room 6D-033, 1000 
Independence Avenue SW., Washington, DC 20585; (202) 586-9507; email 
ronald.colwell@hq.doe.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Statutory Background
II. Discussion of Proposed Rule
    A. Affordable, Reliable and Resilient Electricity Is Vital to 
the Economic and National Security of the United States and Its 
People
    B. There Have Been Significant Retirements of Fuel-Secure 
Generation
    C. The 2014 Polar Vortex Exposed Problems With the Resiliency of 
the Electric Grid
    D. Regulated Wholesale Power Markets Are Not Adequately Pricing 
Resiliency Attributes of Fuel-Secure Power
    E. The Preservation of Generation Diversity Will Benefit 
Consumers
    F. NERC Warns That Premature Retirements of Fuel-Secure 
Generation Threaten the Reliability and Resiliency of the Bulk Power 
System
    G. The DOE Staff Report Made Clear the Challenges to the Grid 
and That Resiliency Must Be Addressed
    H. Congress Is Concerned About the Potential Loss of Valuable 
Generation Resources
    I. The FERC Is Cognizant of the Problem and Has the Necessary 
Information on Which To Act Expeditiously
III. Proposal
IV. Procedures for Completion of Final Action
    A. Deadlines
    B. Comment Procedures
    C. Compliance Filings
V. Statutory and Regulatory Review
VI. Information Collection Statement
VII. Environmental Analysis
VIII. Regulatory Flexibility Act
IX. Executive Order 12866
X. Document Availability
XI. Approval of the Office of the Secretary

I. Statutory Background

    Section 403 of the DOE Act authorizes the Secretary of Energy to 
propose rules for Commission action regarding certain Commission 
functions, including its electricity rate-related functions under 
sections 205 and 206 of the Federal Power Act, and to set reasonable 
time limits for Commission completion of the proposed action. Section 
403(a) provides for the initiation of rulemaking proceedings by either 
the Secretary or the Commission. In the exercise of this authority, the 
Commission proposes rules by publishing Notices of Proposed Rulemaking 
(NOPR) in the Federal Register. The Secretary has likewise exercised 
his section 403 authority by publishing NOPRs in the Federal Register. 
This authority was first exercised by the Secretary in 1979 by 
publication of a NOPR (``Transportation Certificates for Natural Gas,'' 
44 FR 17644, March 22, 1979). The Secretary has subsequently acted 
under section 403 on several occasions by publication of a NOPR in the 
Federal Register. By proposing a rule in this manner, the Secretary 
enables the Commission to proceed directly to the consideration of, and 
final action on, the proposal and eliminates the need for the 
Commission to order or publish its own separate rulemaking proposal.
    Independent of the Secretary's action under section 403(a), FERC 
has full authority to establish the rule set forth in this proposed 
rule. Specifically, FERC has authority to establish just and reasonable 
rates, terms, and conditions for wholesale electricity sales under 
sections 205 and 206 of the Federal Power Act, and FERC has discretion 
to do so by means of a rulemaking pursuant to section 403(c), which 
authorizes FERC to use rulemaking procedures to conduct its Federal 
Power Act functions relating to rates and charges. Transmission Access 
Policy Study Group v. F.E.R.C., 225 F.3d 667, 688 (D.C. Cir. 2000), 
aff'd 535 U.S. 1 (2002). FERC has on numerous occasions imposed market 
rules on ISOs and RTOs. See 18 CFR part 35.
    Furthermore, section 403(b) requires that FERC ``shall consider and 
take final action on any proposal made by the Secretary [under 
subsection (a)] in an expeditious manner in accordance with such 
reasonable time limits as may be set by the Secretary for the 
completion of action by the Commission on any such proposal.'' The 
Secretary is therefore authorized to direct the Commission to consider 
and take final action within the reasonable time limits the Secretary 
establishes in this proposed rule. Given the extensive record the 
Commission has already developed on the subject matter of this proposed 
rule, the time limit for final action provided herein allows adequate 
time for the Commission to receive and consider public comments.

II. Discussion of the Proposed Rule

    The resiliency of the nation's electric grid is threatened by the 
premature retirements of power plants that can withstand major fuel 
supply disruptions caused by natural or man-made disasters and, in 
those critical times, continue to provide electric energy, capacity, 
and essential grid reliability services. These fuel-secure resources 
are indispensable for the reliability and resiliency of our electric 
grid--and therefore indispensable for our economic and national 
security. It is time for the Commission to issue rules to protect the 
American people from energy outages expected to result from the loss of 
this fuel-secure generation capacity.

A. Affordable, Reliable and Resilient Electricity Is Vital to the 
Economic and National Security of the United States and Its People

    Ensuring that American families and businesses have access to 
reliable, resilient and affordable electricity is vital to the economy, 
national security, and quality of life. From heating homes in the 
winter to cooling them in the summer, providing lighted streets so

[[Page 46942]]

people can walk safely at night, powering machines and technology that 
create jobs, and connecting us through smart phones and the internet--
electricity is a key driver of America's economic prosperity and the 
basic necessities of life. The American economy, government and 
national defense all depend on electricity. Therefore, ensuring a 
reliable and resilient electric supply and corresponding supply chain 
are also vital to national security.
    The sheer size and impact of the electricity market on our economy 
cannot be overstated. According to the Department of Energy's January 
2017 Quadrennial Energy Review (January 2017 QER): In the United 
States, there are around 7,700 operating power plants that generate 
electricity from a variety of primary energy sources; 707,000 miles of 
high-voltage transmission lines; more than 1 million rooftop solar 
installations; 55,800 substations; 6.5 million miles of local 
distribution lines; and 3,354 distribution utilities delivering 
electricity to 148.6 million customers. The total amount of money paid 
by end users for electricity in 2015 was about $400 billion. This 
drives an $18.6 trillion U.S. gross domestic product and significantly 
influences global economic activity totaling roughly $80 trillion.\1\
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    \1\ Transforming the Nation's Electricity System: The Second 
Installment of the Quadrennial Energy Review, January 6, 2017 
(January 2017 QER).
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B. There Have Been Significant Retirements of Fuel-Secure Generation

    Market changes are resulting in a significant loss of fuel-secure 
generation. According to the January 2017 QER: Currently, the changing 
electricity sector is causing the closure of many coal and nuclear 
plants in a shift from recent trends. From 2000 through 2009, power 
plant retirements were dominated by natural gas steam turbines. Over 
the past 6 years (2010-2015), power plant retirements were dominated by 
coal plants (37 GW), which accounted for over 52 percent of recently 
retired power plant capacity. Over the next 5 years (between 2016 and 
2020), 34.4 GW of summer capacity is planned to be retired, and 79 
percent of this planned retirement capacity are coal and natural gas 
plants (49 percent and 30 percent, respectively). The next largest set 
of planned retirements are nuclear plants (15 percent).\2\
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    \2\ January 2017 QER at 3-73.
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    The ``Staff Report to the Secretary on Electricity Markets and 
Reliability'' (``DOE Staff Report'') \3\ also discusses the large 
number of fuel-secure plants that have retired or are scheduled to 
retire:
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    \3\ U.S. Department of Energy, Staff Report to the Secretary on 
Electricity Markets and Reliability, August 2017 (DOE Staff Report).
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     Between 2002 and 2016, 531 coal generating units 
representing approximately 59,000 MW of generation capacity retired 
from the U.S. generation fleet.\4\
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    \4\ DOE Staff Report at 22.
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     EIA reported that coal-fired power plants made up more 
than 80 percent of the 18,000 MW of electric generating capacity that 
retired in 2015.\5\
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    \5\ DOE Staff Report at 22, citing U.S. Energy Information 
Administration, Today in Energy, March 8, 2016. More recent EIA data 
shows an overall larger amount of 2015 generation capacity 
retirements (25,400 MW), of which coal-fired power plants made up 
72%. EIA Monthly Update to the Annual Electric Generator Report, 
Form EIA-860m, March 2017.
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     It is anticipated that approximately 12,700 MW of coal 
generation will retire through 2020.\6\
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    \6\ U.S. Energy Information Administration (EIA), Monthly Update 
to the Annual Electric Generator Report, Form EIA-860m, June 2017, 
https://www.eia.gov/electricity/data/eia860m/.
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     Between 2002 and 2016, 4,666 MW of nuclear generating 
capacity was announced for retirement, or approximately 4.7 percent of 
the U.S. total.\7\
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    \7\ DOE Staff Report at 29.
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     Eight reactors representing 7,167 MW of nuclear capacity 
(7.2 percent of U.S. nuclear capacity and 0.6 percent of total U.S. 
generating capacity) have announced retirement plans since 2016. This 
does not include seven reactors that averted early retirement through 
state action.\8\
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    \8\ DOE Staff Report at 30.
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C. The 2014 Polar Vortex Exposed Problems With the Resiliency of the 
Electric Grid

    In early 2014, the Polar Vortex (a band of very cold weather spread 
across much of the eastern and central United States) created record-
high winter peak electric demand for heating and equally high demand 
for natural gas for residential heating. During the Polar Vortex, PJM 
Interconnection (PJM) \9\ struggled to meet demand for electricity 
because a significant amount of generation was not available to run. 
According to the DOE Staff Report, the loss of generation capacity 
could have been catastrophic, but a number of fuel-secure plants that 
were scheduled for retirement were called upon to meet the need for 
electricity: American Electric Power reported that it deployed 89 
percent of its coal units scheduled for retirement in 2014 to meet 
demand during the Polar Vortex, and Southern Company reported using 75 
percent of its coal units scheduled for closure. Using these retiring 
units enabled utilities to meet customer demand during a period when 
already limited natural gas resources were diverted from electricity 
production to meet residential heating needs. Once retired, however, 
these units will not be available for the next unseasonably cold 
winter.\10\
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    \9\ PJM Interconnection is the regional transmission 
organization (``RTO'') serving thirteen states and the District of 
Columbia.
    \10\ DOE Staff Report, at 98 (internal citations omitted).
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    Likewise, the DOE Staff Report notes that, overall, nuclear 
generators performed extremely well during the Polar Vortex, with an 
average capacity factor of 95 percent.\11\
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    \11\ DOE Staff Report, at 95 (internal citations omitted).
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    Sixty-five million people within the PJM footprint could have been 
affected if these units were not available. The 2014 Polar Vortex was a 
warning that the current and scheduled retirements of fuel-secure 
plants could threaten the reliability and resiliency of the electric 
grid.\12\
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    \12\ DOE Staff Report, at 98-99, 118.
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D. Regulated Wholesale Power Markets Are Not Adequately Pricing 
Resiliency Attributes of Fuel-Secure Power

    There is a growing recognition that organized markets do not 
necessarily pay generators for all the attributes that they provide to 
the grid, including resiliency. Because wholesale pricing in those 
markets does not adequately consider or accurately value those 
benefits, fuel-secure generation resources are often not compensated 
for those benefits.
    The January 2017 QER summarizes the problem of how regulated 
wholesale markets are not adequately pricing resiliency attributes of 
fuel-secure generation: Reliability investments are typically 
incorporated into ratemaking processes for all electric utilities. 
Supplementary investments for recovery from outage events also are 
handled through established ratemaking processes. Resilience 
requirements tend to be valued as contributions to reliability and 
incorporated as part of ratemaking processes. These processes are more 
easily executed in structures that are traditional end-to-end, 
vertically integrated electricity delivery services; other market 
structures complicate reliability and resilience investment decision-
making. Short-run markets may not provide adequate price signals to 
ensure long-term investments

[[Page 46943]]

in appropriately configured capacity. Also, resource valuations tend 
not to incorporate superordinate network and/or social values such as 
enhancing resilience into resource or . . . investment decision making. 
The increased importance of system resilience to overall grid 
reliability may require adjustments to market mechanisms that enable 
better valuation.\13\
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    \13\ January 2017 QER, at 4-41 (emphasis added).
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    A recent study by IHS Markit amplifies the same point: ``the 
increasing cost of ensuring power system resilience is exposing the 
problem that some current wholesale market price formation rules do not 
fully compensate generating resources for providing the desired power 
system supply resiliency.'' \14\
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    \14\ IHS Markit, ``Ensuring Resilient and Efficient Electricity 
Generation: The Value of the current diverse US power supply 
portfolio'' at 8.
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E. The Preservation of Generation Diversity Will Benefit Consumers

    The IHS Markit study also concludes that preservation of generation 
diversity provided by fuel-secure resources benefits consumers: ``The 
current diversified US electric supply portfolio lowers the cost of 
electricity production by about $114 billion per year and lowers the 
average retail price of electricity by 27%'' compared with a ``less 
efficient diversity case'' involving ``no meaningful contributions from 
coal or nuclear resources.'' \15\
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    \15\ Id. at 4-5.
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F. NERC Warns That Premature Retirements of Fuel-Secure Generation 
Threaten the Reliability and Resiliency of the Bulk Power System

    The North American Electric Reliability Corporation (NERC) (the 
FERC-designated Electric Reliability Organization), whose mission is to 
assure the reliability and security of the bulk power system in North 
America, states: The North American electric power system is undergoing 
a rapid and significant transformation with ongoing retirements of 
fossil-fired and nuclear capacity, as well as growth in natural gas, 
wind, and solar resources. This shift is caused by several drivers, 
such as federal, state, and provincial policies, low natural gas 
prices, electricity market forces, and integration of both distributed 
and utility-scale renewable resources. The changing resource mix is 
altering the operating characteristics of the bulk power system (BPS). 
These changing characteristics must be well understood and properly 
managed in order to assure continued reliability and ensure 
resiliency.\16\
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    \16\ NERC Letter to Secretary of Energy Rick Perry, May 9, 2017, 
Attachment ``Synopsis of NERC Reliability Assessments'' (Synopsis) 
at 1.
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    Specifically, according to NERC, ``Coal-fired and nuclear 
generation have the added benefits of high availability rate, low 
forced outages, and secured on-site fuel. Many months of on-site fuel 
allow these units to be operated in a manner independent of supply 
chain disruptions.'' \17\
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    \17\ NERC, Synopsis at 2.
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    As a consequence, NERC warns, ``Premature retirements of fuel 
secure baseload generating stations reduces resilience to fuel supply 
disruptions.'' \18\
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    \18\ NERC, Synopsis at 3.
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G. The DOE Staff Report Made Clear the Challenges to the Grid and That 
Resiliency Must Be Addressed

    The DOE Staff Report confirms these observations and exposes the 
potential challenges and threats to the reliability and resiliency of 
the electric grid, as well as the economic hardship faced by some of 
the most resilient types of generation. Among other things, the DOE 
Staff Report warns that premature retirements of fuel-secure resources 
impose serious risks: Ultimately, the continued closure of traditional 
baseload power plants calls for a comprehensive strategy for long-term 
reliability and resilience. States and regions are accepting increased 
risks that could affect the future reliability and resilience of 
electricity delivery for consumers in their regions. Hydropower, 
nuclear, coal, and natural gas power plants provide ERS [(``essential 
reliability services'')] and fuel assurance critical to system 
resilience. A continual comprehensive regional and national review is 
needed to determine how a portfolio of domestic energy resources can be 
developed to ensure grid reliability and resilience.\19\
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    \19\ ``Staff Report to the Secretary on Electricity Markets and 
Reliability,'' U.S. Department of Energy, August 2017 at 14 
(emphasis added).
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    The DOE Staff Report also recognizes that ``system fuel supply 
chain disruptions can impact many generators during a single widespread 
fuel shortage event,'' and that ``[n]uclear and coal plants typically 
have advantages associated with onsite fuel storage[.]'' \20\ In light 
of these facts, the DOE Staff Report calls for prompt action: Markets 
need further study and reform to address future services essential to 
grid reliability and resilience. System operators are working toward 
recognizing, defining, and compensating for resource attributes that 
enhance reliability and resilience (on both the supply and demand 
side). However, further efforts should reflect the urgent need for 
clear definitions of reliability- and resilience-enhancing attributes 
and should quickly establish the market means to value or the 
regulatory means to provide them.\21\
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    \20\ DOE Staff Report, at 91. For example, ``coal plants . . . 
maintain onsite coal stockpiles to accommodate both normal variance 
in deliveries and the possibility of a major supply disruption. Coal 
stockpiles have recently been slightly smaller than historical 
averages, while days of burn have increased slightly relative to 
historic averages from the 70-80 range to the 85-100-day range.'' 
Id., at 95.
    \21\ Id., at 10 (emphasis added).
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    The DOE Staff Report's first recommendation for protecting the 
resiliency of the electric grid is to correct distortions in price 
formation in the organized markets: FERC should expedite its efforts 
with states, RTO/ISOs, and other stakeholders to improve energy price 
formation in centrally-organized wholesale electricity markets. After 
several years of fact finding and technical conferences, the record now 
supports energy price formation reform, such as the proposals laid out 
by PJM and others.\22\
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    \22\ Id., at 126 (internal citations omitted).
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H. Congress Is Concerned About the Potential Loss of Valuable 
Generation Resources

    In July 2015, the chairmen of the Senate Committee on Energy and 
Natural Resources, the House Committee on Energy and Commerce, and the 
House Subcommittee on Energy and Power, sent correspondence to the 
Commission about challenges in the Commission-approved organized 
electricity markets.\23\ The chairmen expressed their concern that 
``[v]aluable baseload power plants in these markets, including reliable 
nuclear and coal-[fired] plants, are facing premature retirement.'' 
\24\
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    \23\ Letter from Fred Upton, Lisa Murkowski, and Ed Whitfield, 
U.S. Congress, to Norman Bay, Chairman, FERC (July 8, 2015).
    \24\ Id.
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    More specifically, the Chairmen's letter stated: ``There are 
growing indications that owners and operators of major baseload power 
plants are facing imminent decisions regarding their continued economic 
viability'' \25\ and ``broad scale premature retirements of otherwise 
performing baseload units because of market rules--rather than market 
forces--would represent failure of regulation.'' \26\ The letter made 
clear that electricity market prices for energy and capacity should 
reflect the ``true marginal cost of supply, promote

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necessary investment, and produce meaningful price signals that clearly 
indicate where new supply and investment are needed.\27\
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    \25\ Id.
    \26\ Id.
    \27\ Id.
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I. The FERC Is Cognizant of the Problem and Has the Necessary 
Information on Which To Act Expeditiously

    Over the past several years, the Commission has developed an 
extensive record on price formation in the Commission-approved ISOs and 
RTOs. The Commission has recognized that there are deficiencies in the 
way the regulated wholesale power markets price power (i.e., energy, 
capacity, and ancillary services) and that these deficiencies are 
undermining reliability and resiliency.
    Beginning in June 2013, the Commission recognized the changing mix 
of generation resources, determined that existing capacity markets were 
not providing a sufficiently reliable supply of electricity, predicted 
the loss of fuel-secure generation, and sought input from the public 
through proceedings on price formation in the organized markets. In a 
2013 technical conference, FERC explained: The purpose of the technical 
conference is to consider how current centralized capacity market rules 
and structures are supporting the procurement and retention of 
resources necessary to meet future reliability and operational needs. 
Since their establishment, centralized capacity markets have continued 
to evolve. Meanwhile, the mix of resources is also evolving in response 
to changing market conditions, including low natural gas prices, state 
and federal policies encouraging the entry of renewable resources and 
other specific technologies, and the retirement of aging generation 
resources. This changing resource mix may result in future reliability 
and operational needs that are different than those of the past.\28\
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    \28\ FERC, Centralized Capacity Markets in Regional Transmission 
Organizations and Independent System Operators, Docket No. AD13-7-
000, p. 1.
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    In December 2014, PJM requested that the Commission issue an order 
approving PJM's revisions to its capacity market rules to require 
resources participating in the capacity market to honor contractual 
commitments to deliver electricity at any time of the year.\29\ The 
Commission determined that the existing capacity market was not 
providing a sufficiently reliable supply of electricity and, to remedy 
this urgent shortfall, accepted PJM's proposed market rule changes. 
FERC's order was recently upheld by the D.C. Circuit in Advanced Energy 
Management Alliance v. FERC, D.C. Cir. (June 30, 2017).
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    \29\ 151 FERC ] 61,208, PJM Interconnection, L.L.C., Order on 
Proposed Tariff Revisions (2015); rehearing denied, PJM 
Interconnection, L.L.C., Order on Rehearing and Compliance, 155 FERC 
] 61,157 (2016).
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    A year after its initial 2013 proceeding, the Commission initiated 
a proceeding in June 2014, entitled ``Price Formation in Energy and 
Ancillary Services Markets in Regional Transmission Organizations and 
Independent System Operators'' (Price Formation Proceeding) to evaluate 
issues regarding price formation in the energy and ancillary services 
markets operated by RTOs and ISOs.\30\ In a December 2014 staff 
analysis for this proceeding, the FERC Staff observes that ``[a]ll RTOs 
and ISOs have identified a class of reliability and operational issues 
that are incorporated into the day-ahead and real-time market processes 
but which are not reflected in day-ahead and real-time energy and 
ancillary services prices.'' \31\
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    \30\ Price Formation in Energy and Ancillary Services Markets in 
Regional Transmission Organizations and Independent System 
Operators, Docket No. AD14-14-000, June 2014.
    \31\ Staff Analysis of Operator[hyphen]Initiated Commitments in 
RTO and ISO Markets, Price Formation in Organized Wholesale 
Electricity Markets, [Docket No. AD14-14-000], December 2014 at 5.
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    The Price Formation Proceeding resulted in a number of additional 
proceedings and rulemakings, some of which are described below:
     In November 2016, under Order No. 825, Settlement 
Intervals and Shortage Pricing in Markets Operated by Regional 
Transmission Organizations and Independent System Operators, the 
Commission directed reforms to settlement intervals and shortage 
pricing to more accurately compensate resources based on the value they 
provide the system.\32\
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    \32\ 155 FERC ] 61,276; 18 CFR part 35 [Docket No. RM15-24-000, 
Order No. 825] Settlement Intervals and Shortage Pricing in Markets 
Operated by Regional Transmission Organizations and Independent 
System Operators (Issued June 16, 2016).
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     In November 2016, pursuant to a NOPR entitled Essential 
Reliability Services and the Evolving Bulk-Power System--Primary 
Frequency Response, the Commission proposed a rule to require all newly 
interconnecting large and small generating facilities, both synchronous 
and non-synchronous, to install and enable primary frequency response 
capability as a condition of interconnection.\33\
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    \33\ 157 FERC ] 61,122, Essential Reliability Services and the 
Evolving Bulk-Power System--Primary Frequency Response, Notice of 
Proposed Rulemaking (November 17, 2016).
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     In December 2016, under Order 831, Offer Caps in Markets 
Operated by Regional Transmission Organizations and Independent System 
Operators, the Commission raised existing caps on energy market offers 
and allowed those higher-price offers to set market clearing 
prices.\34\
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    \34\ 157 FERC ] 61,115, 18 CFR part 35 [Docket No. RM16-5-000; 
Order No. 831] Offer Caps in Markets Operated by Regional 
Transmission Organizations and Independent System Operators 
(November 17, 2016).
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     In December 2016, pursuant to a NOPR entitled Fast-Start 
Pricing in Markets Operated by Regional Transmission Organizations and 
Independent System Operators, the Commission proposed revising its 
regulations to require RTOs and ISOs to incorporate market rules that 
properly price fast-start resources.\35\ As stated in the NOPR, the 
proposed Fast-Start Pricing ``should lead to prices that more 
transparently reflect the marginal cost of serving load, which will 
reduce uplift costs and thereby improve price signals to support 
efficient investments.'' \36\
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    \35\ 157 FERC ] 61,213, 18 CFR part 35 [Docket No. RM18-1-000] 
Fast-Start Pricing in Markets Operated by Regional Transmission 
Organizations and Independent System Operators (December 15, 2016).
    \36\ 157 FERC ] 61,213, 18 CFR part 35 [Docket No. RM18-1-000] 
Fast-Start Pricing in Markets Operated by Regional Transmission 
Organizations and Independent System Operators (December 15, 2016), 
at 1.
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     In January 2017, the Commission issued a NOPR entitled 
Uplift Cost Allocation and Transparency in Markets Operated by Regional 
Transmission Organizations and Independent System Operators.\37\ Among 
other things, this proposed rule would require that ``each regional 
transmission organization (RTO) and independent system operator (ISO) 
that currently allocates the costs of real-time uplift due to 
deviations should allocate such real-time uplift costs only to those 
market participants whose transactions are reasonably expected to have 
caused the real-time uplift costs.'' \38\ This NOPR establishes that 
the goals of the price formation in the proceeding are to:
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    \37\ 158 FERC ] 61,047 Federal Energy Regulatory Commission, 18 
CFR part 35 [Docket No. RM17-2-000] Uplift Cost Allocation and 
Transparency in Markets Operated by Regional Transmission 
Organizations and Independent System Operators (January 19, 2017).
    \38\ Id. at 1.
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    (1) Maximize market surplus for consumers and suppliers;
    (2) Provide correct incentives for market participants to follow 
commitment and dispatch instructions, make efficient investments in 
facilities and equipment, and maintain reliability;

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    (3) Provide transparency so that market participants understand how 
prices reflect the actual marginal cost of serving load and the 
operational constraints of reliably operating the system; and
    (4) Ensure that all suppliers have an opportunity to recover their 
costs.\39\
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    \39\ 158 FERC ] 61,047 Federal Energy Regulatory Commission, 18 
CFR part 35 [Docket No. RM17-2-000] Uplift Cost Allocation and 
Transparency in Markets Operated by Regional Transmission 
Organizations and Independent System Operators (January 19, 2017) at 
5, para 6.
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    Through these proceedings, the Commission has developed an 
extensive record on price formation in the Commission approved ISOs and 
RTOs. Nevertheless, the fundamental challenge of maintaining a 
resilient electric grid has not been sufficiently addressed by the 
Commission or the ISOs and RTOs. The continued loss of fuel-secure 
generation must be stopped. These generation resources are necessary to 
maintain the resiliency of the electric grid. FERC must adopt rules 
requiring the Commission-approved ISOs and RTOs to reduce the chronic 
distortion of the markets that is threatening the resilience of the 
Nation's electricity system.

III. Proposal

    In light of these threats to grid reliability and resilience, it is 
the Commission's immediate responsibility to take action to ensure that 
the reliability and resiliency attributes of generation with on-site 
fuel supplies are fully valued and in particular to exercise its 
authority to develop new market rules that will achieve this urgent 
objective.
    The recent Polar Vortex, as well as the devastation from Superstorm 
Sandy and Hurricanes Harvey, Irma, and Maria, reinforces the urgency 
that the Commission must act now. Moreover, the Commission should take 
action before the winter heating season begins so as to prevent the 
potential failure of the grid from the loss of fuel-secure generation--
as almost happened during the 2014 Polar Vortex.
    As outlined, the Commission has developed a vast record of 
comments, hearings, and technical conferences on price formation 
matters, but has not done enough to address the crisis at hand. 
Immediate action is necessary to ensure fair compensation in order to 
stop the imminent loss of generators with on-site fuel supplies, and 
thereby preserve the benefits of generation diversity and avoid the 
severe consequences that additional shut-downs would have on the 
electric grid.
    Over the past few years, the Commission has been considering 
various aspects of accurate price formation within Commission-approved 
organized markets in its ongoing price formation docket. Throughout 
these proceedings the Commission has declared that a key goal of price 
formation is to ``ensure that all suppliers have an opportunity to 
recover their costs.'' \40\ The Commission has conducted technical 
conferences, sought and received significant stakeholder and public 
input, and issued and approved several market rule changes to 
accomplish these goals.
---------------------------------------------------------------------------

    \40\ FERC's Price Formation in Energy and Ancillary Services 
Markets Operated by Regional Transmission Organizations and 
Independent System Operators; Docket No. AD14-14-000; Notice 
Inviting Post-Technical Workshop Comments (January 16, 2015), Post-
Technical Conference Questions for Comment at 1.
---------------------------------------------------------------------------

    Pursuant to the Secretary's authority under section 403 of the 
Department of Energy Organization Act (42 U.S.C. 7173), the Secretary 
is directing the Commission to exercise its authority under sections 
205 and 206 of the Federal Power Act to issue a final rule requiring 
its organized markets to develop and implement market rules that 
accurately price generation resources necessary to maintain the 
reliability and resiliency of our Nation's bulk power system.
    The proposed rule allows for the recovery of costs of fuel-secure 
generation units frequently relied upon to make our grid reliable and 
resilient. Such resources provide reliable capacity, resilient 
generation, frequency and voltage support, on-site fuel inventory--in 
addition to providing power for our basic needs, quality of life, and 
robust economy. The rule allows the full recovery of costs of certain 
eligible units physically located within the Commission-approved 
organized markets. Eligible units must also be able to provide 
essential energy and ancillary reliability services and have a 90-day 
fuel supply on site in the event of supply disruptions caused by 
emergencies, extreme weather, or natural or man-made disasters. These 
resources must be compliant with all applicable environmental 
regulations and are not subject to cost-of-service rate regulation by 
any State or local authority. The rule requires the organized markets 
to establish just and reasonable rate tariffs for the recovery of costs 
and a fair rate of return.

IV. Procedures for Completion of Final Action

A. Deadlines

    Pursuant to section 403(b) of the DOE Act, the Secretary is 
requiring the Commission to consider and take final action on the 
proposed rule herein within 60 days from the date of the publication of 
this NOPR in the Federal Register. As an alternative, the Secretary 
urges the Commission to issue the rule proposed herein as an interim 
final rule, effective immediately, with provision for later 
modifications after consideration of public comments. The Secretary 
further directs that any final rule adopting this proposal take effect 
within 30 days of publication of such final rule in the Federal 
Register.

B. Comment Procedures

    To ensure that the Commission completes final action on this 
proposed rule within the deadline provided, it will be necessary to 
provide for the solicitation and review of public comments prior to the 
Commission's final action. To facilitate such comment process, the 
Commission is invited to issue a notice providing for such process 
within two business days of the publication of this proposed rule in 
the Federal Register. If the Commission does not do so, the following 
comment process will take effect:
    Interested persons are invited to submit comments on the matters 
and issues proposed in this NOPR to be adopted. Comments are due 
November 24, 2017. Comments must refer to Commission Docket No. RM18-1-
000, and must include the commenter's name, the organization they 
represent, if applicable, and their address in their comments.
    It is encouraged that comments be filed electronically via the 
eFiling link on the Commission's Web site at http://www.ferc.gov. The 
Commission accepts most standard word processing formats. Documents 
created electronically using word processing software should be filed 
in native applications or print-to-PDF format and not in a scanned 
format. Commenters filing electronically do not need to make a paper 
filing.
    Commenters that are not able to file comments electronically must 
send an original of their comments to: Federal Energy Regulatory 
Commission, Secretary of the Commission, 888 First Street NE., 
Washington, DC 20426.
    All comments will be placed in the Commission's public files and 
may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to

[[Page 46946]]

serve copies of their comments on other commenters.

C. Compliance Filings

    The Secretary further proposes that any final rule issued by the 
Commission pursuant to this NOPR shall provide that each Commission-
approved RTO and ISO shall submit a compliance filing, including a 
revised tariff pursuant to section 205 of the Federal Power Act, within 
15 days of the effective date of the final rule to demonstrate that it 
meets the proposed requirements set forth in any Final Rule. This 
compliance deadline is for each RTO and ISO to submit proposed tariff 
changes or otherwise demonstrate compliance with any Final Rule. 
Implementing the reforms required by any Final Rule in this proceeding 
may be a complex endeavor. However, implementation of these reforms is 
important to ensure rates remain just and reasonable. Therefore, it is 
proposed that tariff changes filed in response to a Final Rule in this 
proceeding must become effective no more than 15 days after compliance 
filings are due.
    To the extent that any RTO or ISO believes that it already complies 
with the reforms proposed in this NOPR, the RTO or ISO would be 
required to demonstrate how it complies in the compliance filing 
required 15 days after the effective date of any Final Rule in this 
proceeding. To the extent that any RTO or ISO seeks to argue on 
compliance that its existing market rules are consistent with or 
superior to the reforms adopted in any Final Rule, the Commission has 
the ability entertain such arguments at that time.\41\
---------------------------------------------------------------------------

    \41\ See, e.g., Order No. 825, FERC Stats. & Regs. ] 31,384 at P 
72; Demand Response Compensation in Organized Wholesale Energy 
Markets, Order No. 745, FERC Stats. & Regs. ] 31,322, at P 4 & n.7, 
order on reh'g and clarification, Order No. 745-A, 137 FERC ] 61,215 
(2011), reh'g denied, Order No. 745-B, 138 FERC ] 61,148 (2012), 
vacated sub nom. Elec. Power Supply Ass'n v. FERC, 753 F.3d 216 
(D.C. Cir. 2014), rev'd & remanded sub nom. FERC v. Elec. Power 
Supply Ass'n, 136 S. Ct. 760 (2016).
---------------------------------------------------------------------------

V. Statutory and Regulatory Review

    Section 403(a) of the DOE Act authorizes the Secretary of Energy to 
propose rules with respect to any function within the jurisdiction of 
the Commission. Section 403(b) of that Act provides that the Commission 
shall have exclusive jurisdiction over such proposals. Accordingly, 
although the proposal is that of the Secretary of Energy, the 
Commission is the agency which will take final action on this proposed 
rulemaking. Therefore, the Commission is the appropriate agency to 
comply with the statutory, regulatory or Executive Order requirements 
which arise in connection with this rulemaking. To the extent a 
statute, regulation, or Executive Order requires action before the 
issuance of a final rule, the Commission should take such action in 
sufficient time to permit adoption of a final rule within the deadline 
for final action set forth above.
    To the extent that a NOPR--in the event the Commission were to 
issue one--would include certain information, included below are the 
following:

VI. Information Collection Statement

    The Paperwork Reduction Act (PRA) \42\ requires each federal agency 
to seek and obtain Office of Management and Budget (OMB) approval 
before undertaking a collection of information directed to ten or more 
persons or contained in a rule of general applicability. OMB 
regulations \43\ require approval of certain information collection 
requirements imposed by agency rules. Upon approval of a collection of 
information, OMB will assign an OMB control number and an expiration 
date. Respondents subject to the filing requirements of an agency rule 
will not be penalized for failing to respond to the collection of 
information unless the collection of information displays a valid OMB 
control number.
---------------------------------------------------------------------------

    \42\ 44 U.S.C. 3507(d).
    \43\ 5 CFR 1320.
---------------------------------------------------------------------------

    Similar to other recently issued rules in its price formation 
docket, the reforms proposed in this NOPR would amend the Commission's 
regulations to improve the operation of organized wholesale electric 
power markets operated by RTOs and ISOs. The reforms proposed in this 
NOPR would require each RTO and ISO to implement market rules that meet 
certain requirements for pricing resiliency resources. The reforms 
proposed in this NOPR would require one-time filings of tariffs with 
the Commission and potential software upgrades to implement the reforms 
proposed in this NOPR. DOE anticipates the reforms proposed in this 
NOPR, once implemented, would not significantly change currently 
existing burdens on an ongoing basis. With regard to those RTOs and 
ISOs that believe that they already comply with the reforms proposed in 
this NOPR, they could demonstrate their compliance in the compliance 
filing required 15 days after the effective date of any Final Rule in 
this proceeding. The Commission will submit the proposed reporting 
requirements to OMB for its review and approval under section 3507(d) 
of the Paperwork Reduction Act.\44\
---------------------------------------------------------------------------

    \44\ 44 U.S.C. 3507(d) (2012).
---------------------------------------------------------------------------

    While the DOE expects the adoption of the reforms proposed in this 
NOPR to provide significant benefits, the DOE understands 
implementation can be a complex endeavor. Comments are sought on the 
accuracy of provided burden and cost estimates and any suggested 
methods for minimizing the respondents' burdens, including the use of 
automated information techniques. Specifically, detailed comments are 
sought on the potential cost and time necessary to implement aspects of 
the reforms proposed in this NOPR, including (1) hardware, software, 
and business processes changes; and (2) processes for RTOs/ISOs to vet 
proposed changes amongst their stakeholders.
    Burden Estimate: \45\ The DOE believes that the burden estimates 
below are representative of the average burden on respondents, 
including necessary communications with stakeholders. The estimated 
burden and cost for the requirements contained in this NOPR follow.\46\
---------------------------------------------------------------------------

    \45\ Burden means the total time, effort, or financial resources 
expended by persons to generate, maintain, retain, disclose, or 
provide information to or for a federal agency, including: ``. . . 
(ii) Developing, acquiring, installing, and utilizing technology and 
systems for the purpose of collecting, validating, and verifying 
information; (iii) Developing, acquiring, installing, and utilizing 
technology and systems for the purpose of processing and maintaining 
information; (iv) Developing, acquiring, installing, and utilizing 
technology and systems for the purpose of disclosing and providing 
information . . . .'' 5 CFR 1320.3(b)(1) (2016). The time, effort, 
and financial resources necessary to comply with a collection of 
information that would be incurred by persons in the normal course 
of their activities (e.g., in compiling and maintaining business 
records) will be excluded from the ``burden'' if the agency 
demonstrates that the reporting, recordkeeping, or disclosure 
activities needed to comply are usual and customary.
    \46\ This estimate is based on the Commission's estimate used by 
the Commission in 157 FERC ] 61,213, 18 CFR part 35 [Docket No. 
RM18-1-000] Fast-Start Pricing in Markets Operated by Regional 
Transmission Organizations and Independent System Operators 
(December 15, 2016)]. For this information collection, the 
Commission staff estimates that industry is similarly situated in 
terms of hourly cost (wages plus benefits). Based on the 
Commission's average cost (wages plus benefits) for 2016, the 
Commission is using $74.50/hour.

[[Page 46947]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Annual  number                                              Total annual burden       Cost per
                                          Number of     of  responses   Total number   Average burden hours and  hours and total  annual    respondent
                                         respondents   per respondent   of responses      cost per  response               cost                 ($)
                                                  (1)             (2)     (1) * (2) =  (4).....................  (3) * (4) = (5)........       (5) / (1)
                                                                                  (3)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tariff filing costs..................               6               1               6  80 hours, $5,920........  480 hours, $35,520.....  ..............
Implementation costs.................               6               1               6  3,853 hours, $285,122...  23,118 hours,            ..............
                                                                                                                  $1,710,732.
                                      ------------------------------------------------------------------------------------------------------------------
    Total (one-time in Year 1).......  ..............  ..............  ..............  3,933 hours, $291,042...  23,598 hours,                   291,042
                                                                                                                  $1,746,252.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Cost to Comply: The DOE has projected the total cost of compliance, 
all within six months of a Final Rule plus initial implementation, to 
be $1,746,252. After Year 1, the reforms proposed in this NOPR, once 
implemented, would not significantly change existing burdens on an 
ongoing basis.
    Title: PRA approval for this collection of information will be 
obtained by FERC.
    Action: Proposed revisions to an information collection.
    OMB Control No.: [TBD].
    Respondents for this Rulemaking: RTOs and ISOs.
    Frequency of Information: One-time during year one.
    Necessity of Information: The DOE proposes this rule to improve 
competitive wholesale electric markets in the RTO and ISO regions.
    Internal Review: The DOE has reviewed the proposed changes and has 
determined that the changes are necessary. These requirements conform 
to the Commission's need for efficient information collection, 
communication, and management within the energy industry. This estimate 
is based on the Commission's estimate in the NOPR for ``Fast-Start 
Pricing in Markets Operated by Regional Transmission Organizations and 
Independent System Operators'' \47\ and DOE believes that the NOPR is 
similar and would impose similar burden associated with the information 
collection requirements.
---------------------------------------------------------------------------

    \47\ 157 FERC ] 61,213, 18 CFR part 35 [Docket No. RM18-1-000], 
Fast-Start Pricing in Markets Operated by Regional Transmission 
Organizations and Independent System Operators (December 15, 2016).
---------------------------------------------------------------------------

    Interested persons may obtain information on the reporting 
requirements by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street NE., Washington, DC 20426, Attention: 
Office of the Executive Director, email: DataClearance@ferc.gov, Phone: 
(202) 502-6608, fax: (202) 273-0873. Comments on the collection of 
information and the associated burden estimate in the proposed rule 
should be sent to the Commission in this docket and may also be sent to 
the Office of Information and Regulatory Affairs, Office of Management 
and Budget, 725 17th Street NW., Washington, DC 20503 [Attention: Desk 
Officer for the Federal Energy Regulatory Commission], at the following 
email address: oira_submission@omb.eop.gov. Please refer to Docket No.: 
RM18-1-000 in your submission.

VII. Environmental Analysis

    Though the Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment,\48\ the 
Commission has previously concluded \49\ that neither an Environmental 
Assessment nor an Environmental Impact Statement is required for a NOPR 
under section 380.4(a)(15) of the Commission's regulations, which 
provides a categorical exemption for approval of actions under sections 
205 and 206 of the FPA relating to the filing of schedules containing 
all rates and charges for the transmission or sale of electric energy 
subject to the Commission's jurisdiction, plus the classification, 
practices, contracts and regulations that affect rates, charges, 
classifications, and services.\50\ This NOPR would require an exercise 
of the Commission's authority under sections 205 and 206 of the FPA.
---------------------------------------------------------------------------

    \48\ Regulations Implementing the National Environmental Policy 
Act of 1969, Order No. 486, FERC Stats. & Regs. ] 30,783 (1987).
    \49\ 157 FERC ] 61,213, 18 CFR part 35 [Docket No. RM18-1-000] 
Fast-Start Pricing in Markets Operated by Regional Transmission 
Organizations and Independent System Operators (December 15, 2016)] 
at para. 73.
    \50\ 18 CFR 380.4(a)(15).
---------------------------------------------------------------------------

VIII. Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980 (RFA) \51\ generally 
requires a description and analysis of proposed rules that will have 
significant economic impact on a substantial number of small entities. 
The RFA does not mandate any particular outcome in a rulemaking. It 
only requires consideration of alternatives that are less burdensome to 
small entities and an agency explanation of why alternatives were 
rejected. The Small Business Administration's (SBA) Office of Size 
Standards develops the numerical definition of a small business.\52\ 
These standards are provided on the SBA Web site.\53\
---------------------------------------------------------------------------

    \51\ 5 U.S.C. 601-12.
    \52\ 13 CFR 121.101.
    \53\ U.S. Small Business Administration, Table of Small Business 
Size Standards Matched to North American Industry Classification 
System Codes (effective Feb. 26, 2016), https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.
---------------------------------------------------------------------------

    The SBA classifies an entity as an electric utility if it is 
primarily engaged in the transmission, generation and/or distribution 
of electric energy for sale. Under this definition, the six RTOs/ISOs 
are considered electric utilities, specifically focused on electric 
bulk power and control. The size criterion for a small electric utility 
is 500 or fewer employees.\54\ Since every RTO/ISO has more than 500 
employees, none are considered small entities. Furthermore, because of 
their pivotal roles in wholesale electric power markets in their 
regions, none of the RTOs/ISOs meet the last criterion of the two-part 
RFA definition of a small entity: ``not dominant in its field of 
operation.'' \55\ As a result, we certify that the reforms required by 
this NOPR would not have a significant economic impact on a substantial 
number of small entities.
---------------------------------------------------------------------------

    \54\ 13 CFR 121.201 (Sector 22, Utilities).
    \55\ The RFA definition of ``small entity'' refers to the 
definition provided in the Small Business Act, which defines a 
``small business concern'' as a business that is independently owned 
and operated and that is not dominant in its field of operation. The 
Small Business Administration's regulations at 13 CFR 121.201 define 
the threshold for a small Electric Bulk Power Transmission and 
Control entity (NAICS code 221121) to be 500 employees. See 5 U.S.C. 
601(3) (citing to section 3 of the Small Business Act, 15 U.S.C. 
632).
---------------------------------------------------------------------------

IX. Executive Order 12866

    This proposed rule has been determined not to be a significant 
regulatory action for purposes of

[[Page 46948]]

Executive Order 12866. As a result this rule was not reviewed by the 
Office of Management and Budget.

X. Document Availability

    In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through the Commission's Home Page (http://www.ferc.gov) and 
in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street NE., Room 2A, 
Washington, DC 20426.
    From the Commission's Home Page on the Internet, this information 
is available on eLibrary. The full text of this document is available 
on eLibrary in PDF and Microsoft Word format for viewing, printing, 
and/or downloading. To access this document in eLibrary, type the 
docket number excluding the last three digits of this document in the 
docket number field.
    83. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours from the Commission's Online 
Support at (202) 502-6652 (toll free at 1-866-208-3676) or email at 
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
public.referenceroom@ferc.gov.

XI. Approval of the Office of the Secretary

    The Secretary of Energy has approved the publication of this 
proposed rule.

List of Subjects in 10 CFR Part 35

    Electric power rates, electric utilities, reporting and 
recordkeeping requirements.

    Issued in Washington, DC, on September 29, 2017.
Rick Perry,
Secretary of Energy.

    For the reasons stated in the preamble, DOE proposes that FERC 
amend part 35, chapter I of title 18, subchapter B, Code of Federal 
Regulations as set forth below:

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

0
1. The authority citation for part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r; 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.

0
2. Section 35.28 is amended by adding paragraph (g)(10) to read as 
follows:


Sec.  35.28  Non-discriminatory open access transmission tariff.

* * * * *
    (g) * * *
    (10) Pricing eligible grid reliability and resiliency resources.
    (i) Definition of eligible grid reliability and resiliency 
resources. An eligible grid reliability and resiliency resource is any 
resource that:
    (A) Is an electric generation resource physically located within a 
Commission-approved independent system operator or regional 
transmission organization;
    (B) Is able to provide essential energy and ancillary reliability 
services, including but not limited to voltage support, frequency 
services, operating reserves, and reactive power;
    (C) Has a 90-day fuel supply on site enabling it to operate during 
an emergency, extreme weather conditions, or a natural or man-made 
disaster;
    (D) Is compliant with all applicable federal, state, and local 
environmental laws, rules, and regulations; and
    (E) Is not subject to cost of service rate regulation by any state 
or local regulatory authority.
    (ii) Scope of application. The requirements of this rule shall 
apply to Commission-approved independent system operators or regional 
transmission organizations with energy and capacity markets and a 
tariff that contains a day-ahead and a real-time market or the 
functional equivalent. The application of this rule must be consistent 
between the day-ahead and real-time markets.
    (iii) Reliability and resiliency rate. (A) Each Commission-approved 
independent system operator or regional transmission organization shall 
establish a tariff that provides a just and reasonable rate for the--
    (1) Purchase of electric energy from an eligible reliability and 
resiliency resource; and
    (2) recovery of costs and a return on equity for such resource 
dispatched during grid operations.
    (B) The just and reasonable rate shall 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.
    (iv) Reliability and resiliency costs. Compensable costs shall 
include, but not be limited to, operating and fuel expenses, costs of 
capital and debt, and a fair return on equity and investment.

[FR Doc. 2017-21396 Filed 10-6-17; 8:45 am]
 BILLING CODE 6717-01-P


