Academic journal article Energy Law Journal

When Should the Ferc Defer to the Nerc?

Academic journal article Energy Law Journal

When Should the Ferc Defer to the Nerc?

Article excerpt

Synopsis: There is significant tension between the Federal Energy Regulatory Commission (FERC or Commission) and the North American Electric Reliability Corporation (NERC) over the development of reliability standards. In March 2010, the Commission issued nine orders that reflected deep dissatisfaction with the manner in which reliability standards were being developed. This article examines two recurring legal issues presented by these orders: (i) the extent of the FERC's authority to require changes to a reliability standard; and (ii) the level of deference the FERC should give to the NERC in reviewing its proposed standards.

This article surveys the history of tension between the FERC and the NERC, and considers comparable areas of the law that provide a broader perspective on these two issues. The article then concludes that the FERC should begin a transition to a posture in which it focuses primarily on setting broad policy objectives for the reliability issues of greatest importance to the nation, rather than continuing to order hundreds of individual changes to the NERC's proposed standards. This approach will focus the FERC's scarce resources on the tasks of greatest importance, will increase the NERC's independence by allowing it more discretion in developing individual standards, and will maintain the benefits of a stakeholder-driven standards development process. The article also recommends that the FERC provide greater guidance on the deference that it will give the NERC when reviewing individual standards and, specifically, that the FERC defer to the NERC if it has provided a rational basis for a proposed standard, even if the FERC would have reached a different outcome considering the matter de novo.

I. INTRODUCTION

The electric reliability program is at a crossroads. In March 2010, the FERC issued nine orders that taken together could be interpreted as a vote of no confidence in the self-regulatory model administered by the NERC-and, in some respects, the NERC itself. The FERC found, inter alia, that the NERC was not complying with FERC directives (either by failing to implement them or being too slow in doing so) and, in addition, proposed to remand a NERC standard, overturn a NERC standards interpretation, and redefine the boundaries of the Bulk Electric System.

This article addresses two related issues that underlie this conflict. The first is the extent of the FERC's authority to prescribe specific changes to a reliability standard. The Federal Power Act (FPA) section 215(d)(2)-(4) gives the FERC authority to approve or remand a proposed standard, but not to rewrite it;1 however, section 215(d)(5) gives the FERC authority to require the NERC to ?propose[] . . . a modification to a reliability standard that addresses a specific matter."2 The question, in harmonizing these provisions, is how far the FERC can (or should) go in prescribing how a "Dspecific matter" is addressed.3

The second, and closely related, issue is how much deference the FERC should give to the NERC when reviewing proposed reliability standards. Section 215(d)(2) requires that the FERC give "Ddue weight to [the NERC's] technical expertise," but there is little guidance as to what this means.4 The absence of guidance is a growing concern as the FERC tightens its oversight of the NERC's standards development process. This issue is also closely related to the first issue because each time the FERC orders a standard modified under section 215(d)(5), it has essentially chosen not to defer to the NERC's determination that the standard was acceptable as written.

What should the FERC do in resolving this conflict? On the one hand, there are institutional prerogatives and political pressures that will continue to push the FERC in the direction of attempting to assert control over the standards development process. On the other hand, if the FERC goes too far it will undermine the strength of the NERC and marginalize the self-regulatory model adopted in section 215. …

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