Chatterjee Aiming for Interim Step with NOPR on Path Toward Long-Term Solution

Neil Chatterjee

FERC Chairman Neil Chatterjee aims to convince his colleagues that the Commission should adopt an interim step to support coal and nuclear power plants at risk of retiring in response to the notice of proposed rulemaking (NOPR) from the Department of Energy (DOE) and tie that step to a longer-term solution.

Such a move would be in line with what a handful of the companies supporting the NOPR (RM18-1) have said FERC should do in their comments on the proposal. FirstEnergy Corp., which owns coal and nuclear units in PJM Interconnection, and coal firm Murray Energy are among the entities that have suggested FERC adopt a short-term measure to improve compensation for coal and nuclear units. Chatterjee acknowledged that he has met with leaders of FirstEnergy to “kick the tires” on the company’s proposal for an interim step.

Speaking with reporters at a November 9 Platts Energy Podium event, Chatterjee addressed handing the chairman’s gavel to Kevin McIntyre at some point soon, forging ahead on the NOPR to have a response ready by December 11, turning 40 years old just prior to being sworn in as chairman, and working through the backlog of cases that was pending at FERC following an unprecedented period without a quorum.

On the latter subject, Chatterjee said that after FERC’s upcoming open meeting, he hopes to be able to say FERC has cleared the backlog that had accumulated for six months.

Chatterjee noted that he is one of the few chairmen to come into FERC “ice cold,” while most prior chairman have been commissioners prior to ascending to the chairman’s role. Although McIntyre — who is slated to join the Commission with fellow White House nominee Richard Glick and be sworn in soon – will have a similar path from outside the Commission to the chairman’s seat after many years in private law practice at Jones Day, Chatterjee said his experience was rather unique and would not be applicable for advice to provide to McIntyre.

“I’ll tell him what I learned” during rather busy three months, but “I don’t think he needs my advice,” Chatterjee said of McIntyre.

“I never expected to be chairman,” but after having the experience and seeing what comes through the chairman’s office, “I hope I’ll be a far more effective commissioner” as a result, Chatterjee said.

One element that is not often appreciated by those outside of FERC, according to Chatterjee, is the amount of time it takes for some of the work and making orders on complicated issues legally sound and supportable in the courts. During his time on Capitol Hill as energy policy advisor to Senate Majority Leader Mitch McConnell (R-Ky.), Chatterjee said perceptions about how far along FERC is on a proceeding varies greatly from the progress being made within FERC’s headquarters.

On a range of issues from pipeline certificates to an energy storage proposal that Chatterjee committed to senators to address upon his confirmation, “it takes longer than people might appreciate,” he said.

And FERC is facing a tight deadline on the NOPR, with reply comments that were due November 7, and a statutory deadline to act by December 11. While McIntyre and Glick, who also comes from Capitol Hill after serving as general counsel to Sen. Maria Cantwell (D-Wash.), will have to hire staff and get acclimated after arriving, FERC cannot afford to put work on the NOPR on hold given the December 11 deadline. “I think we have to forge ahead” and let the five commissioners address the issues raised in the NOPR, Chatterjee said.

The NOPR is designed to ensure full cost recovery for generation units that provide essential energy and ancillary services and have 90 days of fuel supply on site. Generation units subject to cost-of-service regulation in areas outside of independent system operators with capacity markets would be excluded.

In organized wholesale markets, power plants with lower operating costs are dispatched first, which has placed economic pressure on baseload generation assets that have been running continuously and providing essential reliability services, according to the NOPR. By focusing on plants with onsite fuel, it emphasizes resilience, in that a more resilient grid can respond to dynamic changes in conditions stemming from severe weather events, more use of renewable resources, or other challenges.

The wording of the NOPR was changed when it was published in the Federal Register to limit the scope of its application only to ISOs and regional transmission organizations (RTOs) that have energy and capacity markets. Sources have speculated that the change illustrates that the NOPR was designed to benefit a few special interests in PJM, which has a capacity market and plenty of coal and nuclear resources being priced out of the market.

A majority of comments on the NOPR have opposed the plan, while coal and nuclear groups are among those in support of it in some fashion, with suggestions for tweaking what DOE proposed. Because the NOPR as currently crafted would cause major disruptions to power markets in ISO and RTO regions with capacity markets and result in consumers paying billions of dollars to support uneconomic power plants, FERC should not act in a short time frame, many groups have told the Commission.

In prior speaking engagements, Chatterjee has committed to upholding FERC’s status as an independent agency and not being influenced by political forces as it considers how to address DOE’s proposal.

“I’m not taking marching orders from anybody,” he told the media at the Platts event. He noted that he spoke about his belief that baseload generation such as coal and nuclear plants not being compensated adequately in current market designs during a podcast shortly after arriving at FERC and well before the NOPR was released.

FERC will examine the record and base any decision on data and evidence. “We’re not going to be influenced by outside forces,” Chatterjee said.

He stated that he believes some type of interim measure is needed to avoid premature retirement of coal and nuclear resources, and he will try and persuade others at FERC that such a move is prudent and legally sound. He emphasized that any interim step needs to be tied to a longer-term solution to be crafted, so that the issues of resilience, price formation and other matters that FERC has been tackling are not “kicked down the road” with no end in sight.

“I think the worst outcome would be some kind of mealy-mouthed, doesn’t-accomplish-anything study that just further punts this down the road,” Chatterjee asserted. If a majority of the commissioners cannot reach agreement on the best way to address the issues presented by the NOPR, it should end the proceeding. “Anything without an end game in sight . . . that doesn’t interest me. We’re either going to solve it or end it,” he said.

Among the suggestions from parties that have commented on the NOPR for a temporary measure are compensation plans akin to contracts for power plants that are deemed to be needed for grid reliability purposes. Such reliability-must-run (RMR) or system-support-resource (SSR) contracts have a time frame associated with them and can be renewed depending on power grid conditions and reliability assessments.

When asked what an interim measure might look like that could gain support from commissioners, Chatterjee said “we’re still fleshing that out.”

He is confident, however, that the record supports taking such a step to support resources at risk of retiring. He made clear that he hopes to reach agreement on an interim step and set a time frame for a longer-term solution.

“We need to figure out, OK, how do we take that interim step. How do we potentially cast a lifeline to some of these resources so that they can stay afloat while we do that longer-term analysis.” There is sufficient precedent with RMR and SSR contracts to make any interim step legally defensible under the Federal Power Act, Chatterjee said.

Fears of such market interventions are among the flurry of comments by parties opposed to the NOPR, who told FERC that the compensation outlined in the NOPR would have a huge financial impact on consumers and disrupt competitive power markets. But “there are ways you can compensate resources without altering dispatch,” and “I disagree with the notion that you’d have a market distorting impact” with an interim step wile a long-term solution is being considered, Chatterjee said.

If coal and nuclear units are retired while FERC tries to address price formation and other issues in ISO and RTO markets, those resources will not re-enter the market and that is a consequence that needs to be addressed, Chatterjee maintained. “My hope and belief would be that the courts would give great deference to our making the case that we need to keep some of these resources afloat while doing the longer-term analysis.”

As for persuading other commissioners of his views on an interim measure, Chatterjee commented that he knows Commissioners Robert Powelson and Cheryl LaFleur do not want to “blow up the markets” and that they believe the NOPR as currently constructed would have that effect. “My hope is that we can land on an interim solution that can keep these plants afloat without altering dispatch and having that distortive impact.”

Chatterjee noted that when he worked for McConnell, the goal for passing legislation in the Senate was 100 votes in favor, knowing that 60 was needed as a minimum. At FERC, “my goal starts at three, and based on my track record it shouldn’t surprise anybody if we get four or five.”

By Tom Tiernan TTiernan@fosterreport.com

 

This article appears as published in The Foster Report No. 3173, issued November 10, 2017

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