Energy Secretary Rick Perry provided FERC more time to respond to his proposal on power grid resilience, but he did so with some strong words that FERC should act quickly and adopt the notice of proposed rulemaking (NOPR) as crafted.
In a December 8 letter to FERC Chairman Kevin McIntyre, Perry granted the request from McIntyre for 30 more days to deliberate and respond to the Department of Energy (DOE) proposal for additional financial support for coal and nuclear generation units. The new deadline for FERC to take action on the NOPR (RM18-1) is January 10, 2018, Perry said.
FERC is authorized to act at any time prior to the deadline “and I urge the Commission to act expeditiously,” Perry told McIntyre. “I continue to believe that urgent action must be taken to ensure the resilience and security of the electric grid,” he said.
McIntyre was sworn in as Chairman on December 7, and in one of his first steps that day, sought a 30-day extension in the proceeding via a letter to Perry. With two new commissioners, after Richard Glick, a Democrat, was sworn in on November 29, and an extensive pile of comments on the proposal, McIntyre said the added time is needed to provide the Commission with time to consider the record and engage in deliberations.
Because FERC now has a roster of five commissioners, with three Republicans and two Democrats, any response to Perry’s proposal needs to gain support from a minimum of three commissioners. Four commissioners — McIntyre, Glick, and Republicans Robert Powelson and Neil Chatterjee – were appointed by President Donald Trump, while Democrat Cheryl LaFleur was appointed by former President Barack Obama.
Chatterjee, who was chairman from August 10 to December 7, has been trying to convince colleagues to support some type of interim measure to compensate generation units with 90 days of fuel on site while a long-term solution is addressed later. Where the other commissioners stand on the issues involved in the NOPR is an open question and the source of much speculation in Washington.
FERC’s role as an independent agency has been mentioned after Chatterjee expressed support for Perry’s proposal – assumed to come from the Trump administration at the behest of coal and nuclear interests –to provide full cost recovery for power plants with 90 days of fuel on site in regions with independent system operators (ISOs) that have energy and capacity markets. The proposal essentially asked FERC to put in place market rules to provide full cost recovery and a return on investment for coal and nuclear power plants in regions with capacity markets to prevent such facilities from retiring because they have been priced out of the market by lower-cost generation resources.
A collection of former FERC commissioners, a broad segment of the energy industry including independent system operators, consumer interests, and environmental groups have filed comments at FERC in opposition to the NOPR. The reasons include costs in the billions of dollars that would be imposed on consumers, the lack of a crisis requiring such a measure, the disruptive impact such a plan would have on current market designs, and the fact that the Federal Power Act requires FERC to find markets unjust and unreasonable to adopt such a plan. A majority of comments also noted that while the proposal would support coal and nuclear units with 90 days of fuel on site for grid resilience purposes, most power outages and disruptions are not due to generation fuel issues but weather or transmission/distribution system events.
Coal and nuclear plant owners and trade groups representing such resources support the NOPR, asserting that those generation units will be needed to address grid emergencies. Some sort of interim measure to keep units with resilience attributes from retiring, while FERC takes additional time to work on a longer-term solution, was suggested by several entities, including FirstEnergy Service Co., Murray Energy Corp., and others.
In his letter to McIntyre, Perry said it is FERC’s responsibility to act to ensure that generation units with on-site fuel supplies that provide voltage support and grid resilience services are fully valued and “to exercise its authority to develop new market rules that will achieve this urgent objective.” If FERC fails to adopt the proposal within the original deadline of 60 days, the security of the nation’s power grid will be at risk, he said.
“The voluminous comments filed in the record of this proceeding provide substantial evidence of, and otherwise confirm, the threat to the nation’s electricity grid and the urgent need for Commission action to reform market rules to preserve fuel-secure generation resources,” Perry said.
He granted the additional 30 days, adding that during that period, DOE will “examine all options within my authority under the Department of Energy Organization Act, the Federal Power Act and any other authorities to take remedial action as necessary to ensure the security of the nation’s electric grid.”
That raised eyebrows in Washington, as sources questioned whether DOE would seek some type of emergency authority under the Federal Power Act (FPA) if the Commission does not adopt the NOPR as suggested from Perry. Use of that authority in the past, under Section 201 of the FPA, has been limited to specific plants following a grid reliability assessment, and a broad application of such a measure would certainly be challenged in court, said several sources who asked not to be named.
When expressing his desire for an interim measure while he was chairman, Chatterjee is about the only commissioner who has stated how he hopes the Commission would respond to the NOPR, with minimal comments from other commissioners. Powelson told a meeting of stakeholders in the PJM Interconnection shortly after the NOPR was sent to FERC that he would not support a proposal that would have such a negative effect on power markets. LaFleur has appeared skeptical of a market design that starts with a resource and then tries to save it by coming up with an attribute only applicable for that resource, noting that power markets have been tailored to compensate resources based on their attributes.
Chatterjee has since acknowledged that the likelihood of convincing a majority of commissioners to support some type of interim measure directing grid operators to increase compensation for coal and nuclear units is slipping. Media reports of his remarks at a December 11 Axios event had him not backing away from the effort, but conceding that reaching consensus among the commissioners has been a challenge.
McIntyre has not spoken publicly on the issues, other than some remarks during a September 7 Senate confirmation hearing about the DOE staff report on baseload generation trends and the early retirement of coal and nuclear power plants, which preceded the proposal from Perry that was sent to FERC at the end of September.
Following an abbreviated comment period that produced thousands of filings at FERC, attention has turned to how the Commission will respond to Perry’s proposal. A directive for ISOs to define resilience or some type of measure to address DOE and Trump administration concerns is among the possibilities mentioned by sources. Other options include a Notice of Inquiry or an Advanced NOPR that may not provide financial compensation for coal and nuclear units, while seeking more information.
By Tom Tiernan TTiernan@fosterreport.com
This article appears as published in The Foster Report No. 3178, issued December 15, 2017
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