Joseph Kelliher was the Chairman of FERC from July 2005 – January 2009 so he had a front row seat to the NERC ERO / FERC / Congress issues and enough time to get perspective from outside the FERC bubble. On April 28th he gave a speech at an Energy Bar Association, and the transcript is now up at scripd.com [hat tip: @patrickCmiller] Too many interesting and important things in this speech for a Friday News and Notes blurb.
In August 2005 NERC was not seen as a strong organization – NERC historically had been dominated by the regional reliability councils (RRCs). FERC adopted a large regulatory role in part to secure a strong ERO that was not controlled by RRCs – now Regional Entities – or by stakeholders. That goal has been achieved – NERC is independent of the regional entities and stakeholders – but at the price of calling into question NERC’s independence from FERC itself. It was my intention that the FERC role would recede when NERC fully established itself.
The March reliability orders loudly suggest FERC does not believe NERC has established itself as a strong organization. … FERC should be clearer in what its expectations are from NERC, what it means for NERC to be a strong organization; under what circumstances FERC will adopt a reduced role, and whether FERC still intends its larger role to be a temporary measure. Frankly, there is frustration that FERC asserts too much control over NERC and a growing suspicion the larger FERC role may not be temporary.
Kelliher should have an accurate reading of the original intentions of FERC taking a larger role, but those original intentions seem to have changed. While Congress is not mentioned in this speech, many of those on the relevant committees are pushing FERC to take a greater role by asking leading questions about asking Congress for more authority.
The speech gets more interesting with a discussion of whether FERC is exceeding its authority and if NERC has a responsibility to push back.
The fundamental question is who was entrusted with the substance of reliability standards by the Energy Policy Act of 2005 – FERC or NERC? … FERC directive orders push NERC to take a hard look at a reliability risk – but after taking that hard look NERC should be able to disagree on need for a standard or modification. Directive orders should not be used to compel NERC to file standards that it does not believe meet the statutory test. It would completely circumvent the statutory scheme for standards development if FERC can order NERC to file a specific standard, regardless of whether NERC believes the standard meets the statutory test. It would be perverse if the statute barred FERC from modifying a standard proposed by NERC but allowed FERC to precisely dictate the content of a standard to be filed by NERC for FERC’s approval. If FERC could do that there would be no need for FERC to ever modify a NERC proposed standard.
The March orders declare that FERC believes NERC has no choice but to submit the specific standard or modification desired by FERC on a timeline established by FERC. But I do not think that follows from a reading of the statute. … Sometimes when FERC has issued a directive to NERC to develop a reliability standard or modification, it has proposed a standard or modification to NERC for its consideration. NERC should take this as a suggestion only, since FERC cannot directly require NERC to propose any particular standard or modification. …
But what should NERC do if it disagrees with FERC on the need to address the specific matter identified by FERC? The March orders suggest FERC believes NERC must submit exactly what FERC wants exactly when FERC wants it. That view seems to ignore NERC’s distinct responsibilities as an ERO – I believe NERC has a duty to only file standards and modifications that it believes meet the statutory test. In my view, the test in section 215(d)(2) governs not only FERC’s review of standards proposed by the ERO, but also the decision by the ERO on whether to file a standard. If the ERO does not believe a particular standard is “just, reasonable, not unduly discriminatory or preferential, and in the public interest” it should not file that standard with FERC – in fact it has a duty to withhold filing.
Analysis not needed here. The message is NERC should push back. In fact, NERC is obligated to push back by statute. I’m curious if there was any reaction to this speech when it came out or since.