Members of the Federal Energy Regulatory Commission leveled pointed criticism and probing questions at Energy Secretary Rick Perry's plan to reward coal and nuclear plants for stockpiling fuel.
In the week after DOE’s surprise request, two out of five FERC commissioners expressed opposition to the rule, which would jeopardize competitive wholesale electricity markets as currently practiced. The first was FERC Commissioner Rob Powelson, a former Pennsylvania public utilities commissioner nominated in May and approved by the Senate in August, who said in a speech before a PJM meeting last week, "FERC does not do politics. We don't do energy politics.”
"I'll give Secretary Perry credit; he's trying to be thoughtful in the approach, but there [are] many different approaches on how we can tackle this issue," Powelson said.
"I did not sign up to go blow up the markets,” he added. "When that happens, we're done. I'm done; I don't need this job."
Cheryl LaFleur, the sole remaining FERC commissioner appointed by the Obama administration, endorsed Powelson’s comments in a tweet, calling it a “great message.”
Opposition to Perry’s proposed rule in hearings before Congress last week has also energized lawmakers.
Rep. Frank Pallone (D-NJ) called the proposal an “ill-conceived and wholly unjustified effort” to get FERC to “provide unduly preferential and discriminatory rates to coal and nuclear generators.”
And Rep. Pete Olson (R-TX) said he is "concerned" the rule would drive up power prices by "picking winners and losers” -- a view corroborated by an analysis of the proposed rule released by ICF on Wednesday that estimated a cost to ratepayers from $800 million to $3.8 billion annually through 2030.
Perry is scheduled to appear before the House Energy and Commerce Committee this week. On Friday, Perry noted, “We have elections, and they have consequences,” and characterized DOE's proposal as a reversal of Obama administration policies that “had their thumb on the scale at great detriment to reliable baseload industries that are really important for the future security of this country.”
Still, he insisted that the notice of proposed rulemaking (NOPR) is “not a directive,” but instead, a request for FERC to “take a look at this and have this conversation about making sure we have an energy foundation that is stable [and] resilient, and I happen to think coal and nuclear should be a part of that.”
Meanwhile, last week’s opening of comments by J. Arnold Quinn, director of FERC’s Office of Energy Policy and Innovation, includes a list of questions that indicate the agency will be taking a close look at every aspect of the DOE NOPR, as well as taking on multiple areas the document simply failed to address.
The first question tackles the core concept of resiliency versus reliability -- a set of terms that DOE’s NOPR uses loosely and without definitions.
“What is resilience, how is it measured, and how is it different from reliability?” FERC asks. It also asks commenters to describe how reliability and resilience are valued, or not valued, in grid operator energy and/or capacity markets, and what resources can address reliability and resilience in which ways.
The next question delves into the 2014 polar vortex, the cold snap that stressed Northeastern energy supplies, which is cited extensively by DOE’s NOPR as the main reason why its proposed reform is needed. DOE urges FERC to “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.”
FERC’s question -- “Do commenters agree?” -- opens the door for the multiple critiques we’ve been covering over the past week, such as the fact that coal piles froze solid alongside natural-gas-fired power plants, and that wind and demand response provided critical capacity during the event.
There’s little evidence that fuel supply is the cause of blackouts in storms like these, compared to transmission and distribution system damage. FERC asks how the rule could effect the time required for system restoration in hurricanes, earthquakes, terrorist attacks or geomagnetic disturbances, “particularly if there is associated severe damage to the transmission or distribution system.”
FERC also dissects the DOE’s proposal to privilege generation resources based primarily on their ability to stockpile 90 days of fuel -- a characteristic that many commenters have said doesn’t have any impact on reliability and resiliency, according to national outage data.
FERC asks the same question: “Is there a direct correlation between the quantity of on-site fuel and a given level of resilience or reliability? Please provide any pertinent analyses or studies. If there is such a correlation, is 90 days of on-site fuel necessary and sufficient to address outages and adverse events? Or is some other duration more appropriate?”
The agency also asks for data missing from DOE’s sparse proposal, such as, “Should a final rule be limited to existing units or should new resources also be eligible for cost-recovery? Should it also include re-powering of previously retired units? Alternatively, should there be a minimum number of megawatts or a maximum number of megawatts for resources receiving cost-of service payments for resilience services?”
And once those technical qualities are defined, FERC asks, shouldn’t they be applied to a broad range of resources that could fit the bill, including energy storage? FERC lists “hydroelectric, geothermal, dual-fuel with adequate on-site storage, generating units with firm natural gas contracts, or energy storage,” as long as they’re technically capable -- a criterion that DOE hasn’t yet set in its NOPR.
FERC’s questions seem to indicate that it’s intent on exploring fully the concept of cost-recovery-based compensation for these resources -- “compensable costs” like operating and fuel expenses, costs of capital and debt and a “fair return on equity and investment.”
To do that, it will need to know how eligible resources receiving cost-of-service compensation under the proposed rule might be committed and dispatched in the energy market, or involved in the clearing and pricing of centralized capacity markets -- a distinction that DOE’s NOPR fails to mention.
But the lack of detail from DOE’s proposal, combined with its potentially major impacts on energy policy and markets, makes it very doubtful that FERC will meet the 60-day turnaround that DOE has requested -- a timeline that’s almost universally seen as impossible to meet.
“The proposed requirement for submitting a compliance filing is 15 days after the effective date of any final rule in this proceeding, with the tariff changes to take effect 15 days after the compliance filings are due,” FERC noted. “Please comment on the proposed timing, both to develop a mechanism for implementing the required changes and to implement those changes, including whether or not such changes could be developed and implemented within that timeframe.”
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