Groups Seek Deliberative Process at FERC on Grid Resilience NOPR

With an avalanche of comments filed at FERC on the power grid resilience notice of proposed rulemaking (NOPR) from Energy Secretary Rick Perry, and a majority of them in opposition to the proposal, attention is turning to how the Commission will handle the plan to improve compensation for coal and nuclear power plants in organized markets.

Besides many requests for FERC to reject the proposal, plenty of companies and groups asked FERC to take a deliberative approach and not rush to issue a rule or response to the Department of Energy (DOE) under the time frame proposed by FERC and suggested by Perry.

Because the NOPR (RM18-1) as currently crafted would cause major disruptions to power markets in regions with independent system operators and regional transmission organizations and have consumers pay billions of dollars to support uneconomic power plants, FERC should not take action in a short time frame, many groups said.

FERC set an initial comment deadline of October 23, with reply comments due November 7, and Perry seeking FERC action within 60 days of when he sent the proposal to the Commission at the end of September.

In comments to media members, FERC Chairman Neil Chatterjee said he thinks 60 days is a reasonable amount of time for FERC to act on the plan, adding that there are several steps FERC could take in response to the proposal. Those include an Advanced NOPR, a Notice of Inquiry (NOI), a NOPR to supersede the DOE proposal, holding a technical conference, a denial of the proposal or action to address the comment schedule, among others, and Chatterjee has emphasized that he has not prejudged what steps FERC will take.

Many entities suggested an outright rejection of the plan. Perry’s premise for the NOPR, that the retirement of coal and nuclear generation is posing a threat to the resilience of the power grid, is unfounded, grid operators and others said.

At an October 24 briefing with media members, representatives from the natural gas, oil and renewable energy sectors expressed confidence that FERC commissioners will maintain their independence and not cater to the directive from Perry and the Trump administration. The Commission will have to develop a solid proposal based on the record to withstand any legal challenge, and the record thus far does not support what Perry submitted to FERC under Section 403 of the Department of Energy Organization Act, officials said.

Several parties filed comments that the NOPR from Perry is flawed in that under Federal Power Act, which is what the DOE Secretary directed FERC to use to support a final rule, FERC needs to find that the existing market structure is not just and reasonable before it proposes a solution. “In order for FERC to proceed with the Proposal, it would be necessary for it to overturn decades of precedent and suddenly determine the existing RTO/ISO tariffs are unjust and unreasonable. There is no supportable basis for doing so,” said the Electricity Consumers Resource Council, the American Chemistry Council and a collection of other industrial customers and manufacturers.

Numerous comments filed with the Commission charged that the proposal is a political gambit from the Trump administration to support specific companies or power plants in a limited region since DOE sought to limit its applicability to ISO and RTO regions with energy and capacity markets.

In public comments, Chatterjee has said that he is committed to upholding FERC’s status as an independent agency.

“We cannot afford to let FERC become politicized” by embracing the NOPR as crafted by Perry, said Marty Durbin, executive vice president and chief strategy officer at the American Petroleum Institute. The issue of resilience and how it fits within FERC’s existing examination of price formation issues is a worthwhile conversation to have, but not to embrace subsidizing certain fuels in such a short time frame, Durbin said at the media briefing.

Other commissioners – those sitting at FERC and the Trump administration nominees seeking confirmation by the Senate – have talked about the legal framework in which the Commission operates and the fuel-neutral and technology-neutral stance it maintains, speakers said at the media briefing. They will recognize they are constrained by the law and the development of a record upon which to act, said Dena Wiggins, president and CEO of the Natural Gas Supply Association.

“I think these people will carefully look at the record. I think that they will look at the law . . . and I have confidence that they will come up with a good result,” Wiggins said.

FERC generally has not seen partisan politics play a role in its regulatory actions, and the commissioners know that if they adopt a proposal to distort power markets in favor of a particular type of resource, it will be challenged in court and they better make sure that the record supports such action, said Christopher Mansour, vice president of federal affairs at the Solar Energy Industries Association. The legal support for such a move would have to be comprehensive and complete, and FERC cannot achieve that in the 60-day time frame of the NOPR, Mansour said.

The proposal has not been shown to be reasonable and should be rejected, and the existing markets have not been shown to be unjust and unreasonable, said Malcolm Woolf, senior vice president of policy and government affairs at Advanced Energy Economy (AEE).

AEE is a collection of business customers, and the NOPR has galvanized opposition to the plan from some “strange bedfellows” that often are on opposing sides of energy issues, Woolf said. He termed the proposal “wrong-headed” and “unneeded,” in that it would do nothing more than subsidize uneconomic power plants at the expense of consumers.

The issue of on-site fuel supplies has not been shown to be a significant measure of resilience, with most of the power outages stemming from transmission and distribution system issues, added Amy Farrell, senior vice president of government and public affairs at the American Wind Energy Association (AWEA). She mentioned data from Rhodium Group that indicated fuel supply issues were responsible for 0.00007% of customer service outages between 2012 and 2016 in the U.S.

The NOPR from Perry “is clearly motivated by the administration’s preference for coal generation above cleaner technologies,” said Jay Inslee, governor of Washington and Kate Brown, governor of Oregon, in a joint comment. The proposal “erroneously equates reliability and resilience with the ability for generators to store fuel on-site. This is a simplistic and obvious effort to manipulate energy markets to support coal-fired power generation,” they said.

Critics of the NOPR to provide full cost recovery in competitive wholesale power markets to support power plants with 90 days of fuel supply on site have been making their views known since shortly after it was submitted to FERC. The proposal 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 ISOs and RTOs 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 on-site 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 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 Interconnection, which has a capacity market and plenty of coal and nuclear resources being priced out of the market.

While the industry waits to see how FERC addresses the NOPR and two commissioners – Chatterjee and Robert Powelson – have only been at the Commission for a few months, the comments of former commissioners gives a good glimpse of how they might react, noted Farrell of AWEA.

Eight former commissioners filed a joint statement on the proposal include a mix of six Democrats and two Republicans, with five of the eight having chaired FERC. They said the NOPR as laid out by DOE “would be a significant step backward from the Commission’s long and bipartisan evolution to transparent, open, competitive wholesale markets.” The proposal would “disrupt decades of substantial investment made in the modern electric power system, raise costs for consumers, and do so in a manner directly counter to the Commission’s long experience,” they said.

With nearly 700 filings made in the docket as of October 26, including some with letters from thousands of individuals opposing the plan, the following is a summary of selected filings among key entities.

Among the comments in support of the proposal, owners of coal and nuclear generation facilities, regional and national trade groups supporting those facilities and lawmakers from coal-heavy states told FERC that they embrace the proposal, though with some caveats. A few coal entities raised concerns about the 90-day supply of fuel needed as a threshold to receive supplemental compensation, while a U.S. House of Representatives member from North Dakota asked FERC to expand the NOPR’s reach to include cost-of-service facilities regulated by states outside of the organized wholesale power markets.

Rep. Kevin Cramer (R-N.D.), a former member of the state Public Service Commission, supported the proposal and asked FERC to expand its implementation to include power plants in states with traditional cost-of-service regulation.

The Edison Electric Institute (EEI) asked for clarity on where the proposal would apply, as it appears to be the intent of DOE to limit its application to eastern ISOs and RTOs, which would be PJM Interconnection, New York ISO, and ISO New England. States in the Midcontinent ISO (MISO) have not embraced retail competition and it has a limited capacity market, so most generators in MISO are not facing the same financial pressures as those in PJM, New England, and New York, EEI noted.

Any action taken by FERC in the proceeding should recognize the actions that state regulators already have taken or may be taken in the future, since regional differences in energy policy, generation resource mix and infrastructure can affect how resilience should be addressed.

Among the comments filed by consumer groups, lawmakers, state regulators, grid operators, environmental groups and others are that: the issue of grid resilience is not clearly defined; the NOPR is designed to reward coal and nuclear plants in organized markets with no justification; it would distort markets and cost consumers billions of dollars; FERC can use market-based solutions or other options to address compensation for certain generation attributes; the short time frame for adoption does not allow enough time for FERC and the energy industry to address such complex issues; and the proposal is a “solution” to a non-existent problem.

FERC could “take final action” as called for under the statute within the time frame proposed by rejecting the proposal, several groups said.

Coal and nuclear groups filed comments in support of the NOPR. The American Coalition for Clean Coal Electricity (ACCCE) and the National Mining Association (NMA) filed joint comments in support of the NOPR, asserting that existing market designs in ISO regions do not adequately compensate baseload generation with on-site fuel supplies for the resilience they provide the bulk power system. The groups claimed that the ISO markets are not just and reasonable and that FERC needs to step in and direct ISOs to modify their tariffs to ensure that coal-fired generators can fully recover their operating costs, as outlined in the NOPR.

“This will ensure that the essential reliability, resiliency, and long-term price stability benefits of existing coal-fired generating facilities can be saved,” NMA and ACCCE said.

The Nuclear Energy Institute (NEI) had a similar perspective for support of nuclear generation that is being pushed out of ISO markets with premature retirements of nuclear plants in favor of gas-fired generation and renewable resources. “Wholesale power markets have optimized short-term prices, but they were not designed to solve long-term concerns like resource diversity and grid resiliency.  We should not allow short-term prices to dictate significant changes in our generation fleet that will reduce the nation’s resource diversity and grid resiliency,” NEI told FERC.

NEI and others that filed comments in support of the plan asserted that the current market structures in ISO regions covered by the NOPR are not providing just and reasonable rates and that the actions laid out in the NOPR are justified.

Coal firm Murray Energy Corp. said the premature retirement of baseload coal and nuclear units exposes customers to severe price spikes in natural gas markets and that the short-term marginal costs for setting prices in ISO regions fails to meet long-term investment needs for baseload generation facilities.

Several coal companies that support the plan filed comments that the 90-day fuel supply threshold is arbitrary and should be adjusted. Mine-mouth coal-fired power plants technically do not have fuel supplies on site, but they are near mines that have vast reserves to feed the plants, and other plants have coal piles that can last 40 or 60 days, which would be plenty of time to be used in case of grid emergencies or extreme weather events.

The National Rural Electric Cooperative Association (NRECA) is one of the groups that asked FERC to hold further proceedings by issuing an ANOPR or NOI, with additional time to gather input on the myriad of issues raised in the NOPR. With more time “the Commission will be in a position to determine necessary further actions,” NRECA said.

The National Association of Regulatory Utility Commissioners (NARUC) said FERC needs to give full deference to states’ longstanding authority over generation resources and rate regulation in their jurisdictions. Some states have restructured their markets and others have not, while some states take a more active role in supporting specific resources, and the NOPR as crafted would upset that structure, NARUC said.

With the limited scope of its application only to ISOs or RTOs with capacity markets, it appears that the proposal is designed to support specific power plants, NARUC added, listing plenty of questions regarding the cost and implementation of the plan.

“While the DOE’s rule proposal seems narrowly targeted and on the surface impacts relatively few states, it nonetheless is of concern to states outside of the targeted ISO/RTO areas. Even states that have chosen to retain vertically integrated utilities with cost-of-service regulation could be impacted by the proposal because of its potential to raise the wholesale cost of power,” NARUC said.

The group is unconvinced that the proposal would be in the best interest of power customers or electricity suppliers without modifications. Such a major policy shift requires more time to evaluate, NARUC said, suggesting a more thorough discussion on resilience and price formation issues.

The ISO/RTO Council, a collection of the major grid operators in the U.S. and Canada, said the proposal would provide compensation for particular plants that are older, less efficient, and less reliable than newer units, and that fuel supply issues are not a clear indication of resilience or reliability. “Supplanting newer, efficient units with older, less reliable ones in the market will threaten reliability and market efficiency,” the grid operators said.

NGSA, ELCON, API, the Electric Power Supply Association, the Energy Storage Association, and renewable energy groups filed joint comments that the NOPR would subsidize certain coal and nuclear resources without any evidence that the current market structure does not adequately value fuel security.

On the other hand, there is ample evidence that markets in a transition period to using less coal and cleaner resources are being operated in a manner that is both reliable and resilient, with outages caused by fuel supply issues essentially nonexistent.

The NOPR would “prop up uneconomic generation that is unable to compete … and that is not otherwise needed for reliability,” the groups said.

By Tom Tiernan TTiernan@fosterreport.com

 

This article appears as published in The Foster Report No. 3171, issued October 27, 2017

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