Energy Secretary Rick Perry’s demand for market-disrupting price supports for coal and nuclear power plants has broken multiple rules for how energy policy is made, from upending the facts to subverting regular order. And it’s being pushed through on a hyper-fast, 60-day review period that’s not only unjustified by the Department of Energy report it cites as justification, but “practically and legally impossible” to meet.
This is a collection of the critiques that have emerged since Friday’s shock DOE filing with the Federal Energy Regulatory Commission. In a rarely used notice of public rule making (NOPR), DOE asked FERC to create market rules to provide compensation for power plants that, among other features, have a 90-day supply of fuel on hand -- something that only coal and nuclear power plants can do.
The NOPR cited the grid reliability study ordered by Perry in April to argue that baseload power plants need compensation to shore up grid reliability. But as we covered when it was released in July, the report doesn’t actually support that conclusion, stealing some of the thunder from clean energy and environmental groups’ arguments that the report was a Trojan horse for pro-coal and nuclear power policies all along.
Friday’s NOPR seems to have vindicated those views, however, as well as drawing the fire of a much broader coalition of energy industry players. On Tuesday, FERC received a joint motion from a coalition representing literally every sector of the energy economy except coal and nuclear power, asking it to deny DOE’s request for an interim final rule to take effect within 60 days, and to extend the comment period out to at least 90 days.
The coalition includes the country’s biggestsolarand wind trade groups and renewables boosters like the American Council on Renewable Energy (ACORE) and Advanced Energy Economy. But it also includes the Natural Gas Supply Association, the Interstate Natural Gas Association of America, and the American Petroleum Institute -- a highly unusual set of bedfellows.
“This is the first time we've filed a motion in conjunction with API,” Gil Jenkins, a spokesperson for ACORE, told The Washington Post. “So it’s unprecedented, just as this very action taken by DOE.”
Also joining the motion were the American Public Power Association and National Rural Electric Cooperative Association, representing municipal and co-op utilities, and the Electricity Consumers Resource Council, representing big commercial and industrial power users. Even the generator group Electric Power Supply Association -- the same one that sued FERC to overturn its Order 745 regulations allowing demand response equal play in capacity markets -- has signed on.
“This is one of the most significant proposed rules in decades related to the energy industry, and, if finalized, would unquestionably have significant ramifications for wholesale markets under the commission’s jurisdiction,” the group wrote.
This view was shared across the energy industry spectrum this week. Former FERC chairman Jon Wellinghoff, a Democrat, told Utility Dive that the DOE rule would "blow up the markets” that the agency has spent the past four decades creating. Former FERC commissioner Nora Mead Brownell, a Republican, told RTO Insider that the proposal is “the antithesis of good economics. It’s going to destroy the markets [and] drive away investment in new, more efficient technologies.”
Even energy company CEOs are crying foul. At a Gulf Coast Power Association conference Tuesday in Austin, Texas, Dynegy CEO Bob Flexon called the NOPR a "red herring for subsidies" for nuclear and coal, while NRG Energy CEO Mauricio Gutierrez said that propping up coal and nuclear power plants, while leaving other resources open to competitive forces, would be “a recipe for disaster."
But the Edison Electric Institute utility trade group, which did not join the rest of the energy trade groups in Tuesday’s FERC filing, took a more neutral stance. In a Tuesday statement, EEI vice president of energy supply Richard McMahon said the NOPR shows that the DOE recognizes that "a balanced energy mix that includes 24/7 energy sources is vital to sustaining a secure, reliable and resilient energy grid,” and that ”new market rules should recognize the role that all generation sources play in maintaining the reliability and resiliency of the energy grid.”
Coal- and nuclear-reliant FirstEnergy Corp. was one of the lonely voices in support of the ruling. “Correcting the faulty market conditions and keeping essential baseload generating plants operating will help ensure customers continue to receive safe, reliable and affordable supplies of electricity while maintaining the security of the electricity grid,” CEO Charles Jones said in a prepared statement.
Why 90 days of fuel supply doesn’t make the grid more resilient
These views are complicated by the fact that DOE’s proposed "Grid Resiliency Pricing Rule” is lacking in so many details. Ari Peskoe, senior fellow in electricity law at the Harvard Law School Environmental Law Program Policy Initiative, pointed this out in a Monday Interchange discussion with GTM Research head Shayle Kann.
In simple terms, the rule does two things, Peskoe said. First, it defines reliability and resiliency attributes, including the 90-day fuel supply requirement. That in and of itself is a conclusion unsupported by the facts at hand, however, he said -- a point echoed by multiple parties since Friday.
“A lot of the arguments in the DOE proposal -- well, they’re certainly cherry-picked, but they’re also often specious,” said Devin Hartman, electricity policy manager at R Street, a free-market think tank in Washington, D.C. For example, the NOPR cites FERC and grid operators’ market design concerns as reasons for including 90-day fuel supply as a requirement -- but what evidence does exist indicates that fuel-supply problems are only a minor cause of power outages in the U.S., he said.
To back that up, he pointed to an analysis published Tuesday by the Rhodium Group, which crunched DOE data on the causes of the 3.4 billion customer-hours of major electricity disruptions from 2012 to 2016. Of that time, only 2,815 hours, or 0.0007 percent of the total, was due to fuel supply problems, it found -- and of those, 2,333 hours were due to fuel supply disruptions at a coal-fired power plant in northern Minnesota.
The real culprits for outages are instead severe weather, with Hurricane Sandy accounting for nearly-one third of the total hours of power lost over that period, and severe weather accounting for nearly all the rest. Puerto Rico’s nearly complete power outage in the wake of Hurricane Maria has already accounted for nearly twice the total number of outage hours in 2016.
DOE’s choice of 90 days of fuel stockpiles as the sole metric of reliability also fails to take into account the much deeper analysis presented in the DOE’s report, he noted. This built on existing work at FERC and the country’s big grid operators, calling for improvements in energy price formation and valuation of essential reliability services such as voltage support and frequency response.
Natural Resources Defense Council senior attorney John Moore told the House Energy and Commerce Subcommittee on Energy on Tuesday that the DOE proposal is “sowing confusion and suggesting the power grid will be imperiled if we don’t pay large subsidies to keep specific types of generators afloat. We can achieve a higher level of reliability at a lower cost and with less pollution by defining reliability and resiliency needs first.”
Kann asked Peskoe whether DOE or FERC are under legal obligation to consider these alternative metrics for reliability and resiliency. Peskoe replied that "FERC rules have to be non-discriminatory -- that's a really fundamental premise they operate under." But that only strictly applies to rules that are "unduly discriminatory -- they can discriminate if there's some valid purpose.”
From “flimsy and vague” proposal to final rule in 60 days?
Second, DOE’s NOPR seeks to define a special rate that these resources should provide, Peskoe said, which “kind of suggests that these resources are going to be taken out of the competitive market construct and are now going to be compensated based on cost-of-service rate-making principles.” That’s the general view being taken by industry observers, since the rule would only apply to power plants in competitive wholesale markets, not those already subject to state or federal cost-of-service regulations.
That's not entirely clear, however, because the NOPR also cites the need for markets to support the benefits and services of reliability and resiliency, and “being compensated for benefits and services is different than cost of service,” he said. That could open the options for other methods, such as some kind of “value of coal tariff” to mimic the value-of-solar tariff proposals being fleshed out by a handful of states and utilities, or defining a new set of reliability and resilience attributes and creating a new market for them.
Unfortunately, the DOE’s NOPR is quite vague on what it’s asking FERC to undertake, he said. The questions left unanswered by the NOPR, according to a series of tweets he published after its release, include: “Is this cost-of-service ratemaking or is DOE suggesting that rate should be based on a plant’s ‘benefits and services? Does an eligible generator always receive this rate, or do they normally get paid LMP but receive this rate under certain circumstances? How does dispatch work if an eligible plant is not bidding into the market? Or is an eligible plant ‘bidding’ this special rate?”
These kinds of details, so common to traditional FERC rulemakings, are completely absent from DOE’s NOPR, he said. That would make it “practically and legally impossible” for FERC to actually comply with DOE’s request to have a final rule completed within the 15 days left between the end of the public comment period and the 60-day deadline it set out, he said.
NRDC clean energy attorney Miles Farmer agreed in a Friday blog post, noting that “DOE’s proposal is so vague that FERC could not possibly adopt it as is, making it hard to see how FERC could possibly advance it in a manner that complies [with] the procedural requirements for a formal rulemaking proposal.”
That’s the same reason that the 11 energy trade groups asked FERC to extend the comment period for the new rule. Despite the NOPR’s claims, the groups said, “both DOE and NERC recently released reports categorically concluding that there is no reliability emergency” that would require such a speed-up.
FERC this week filed notice that it was taking comments on the NOPR on the accelerated schedule, with Oct. 23 as the deadline for initial comments and Nov. 7 for reply comments. But it still hasn't ruled on the groups' proposal, leaving open the potential for extending its timeline.
Jason Johns, partner in Stoel Rives’ energy practice, suggested in a blog post that the short timeframe could be “perhaps intended to allow Interim Chairman Chatterjee and Commissioner Powelson to take action on this notice alone before FERC has a full set of commissioners.” Chatterjee has already expressed his support of recognizing baseload power “as an essential part of the fuel mix” that must be “properly compensated to recognize the value they provide to the system.”
But to remain legal, any action FERC takes will have to be rooted in several fundamental principles, Peskoe noted. First, it will have to find that existing grid operator tariffs are “unjust and unreasonable,” something that DOE’s NOPR does not take up. Second, it would have to show that the new rules being promulgated are “just and reasonable,” which is again difficult given that "FERC is going to have to address the total lack of detail in this document” on that matter.