How DOE’s baseload power rule ‘would blow the market up’
Former FERC officials and energy experts say moves to guarantee cost recovery for generators with onsite fuel supplies could unravel wholesale power markets.
The Department of Energy’s proposed rulemaking to cover the costs of baseload coal and nuclear generators could lead to an unraveling of wholesale power markets if adopted by the Federal Energy Regulatory Commission, energy regulators and industry analysts told Utility Dive.
“This would blow the market up,” former FERC Chairman Jon Wellinghoff, a Democrat appointed to the commission by President Bush in 2006, told Utility Dive. “And you can quote me on that.”
On Friday, the DOE directed FERC to open a rulemaking proceeding to provide “full recovery of costs” for power plants that keep 90 days of fuel supplied onsite. DOE officials wrote that the Notice of Proposed Rulemaking (NOPR) would enhance the resilience of the nation’s electric system and “protect the American people from energy outages expected to result from the loss of this fuel-secure generation.”
Former FERC Commissioner Tony Clark, a Republican appointed by Obama, stressed that FERC is an independent federal agency and does not have to adopt the details of the DOE proposal. But FERC will likely have to address the NOPR in a rulemaking proceeding, and applying its basic tenets could threaten market operations.
“[FERC] could take a look and try to do something more modest,” he told Utility Dive. “But I think if they took the most aggressive angle that they could on it, which is … to figure out how to put money into coal and nuclear plants, it would be very challenging for the markets.”
The DOE directed FERC, which has the final say over power market regulation, to act on its proposal within 60 days. Energy lawyers say the vagueness of the NOPR language and the need to build a regulatory record will make that nearly impossible, adding that FERC will likely extend its rulemaking timeframe.
“What FERC will have to do is essentially start over,” Ari Peskoe, senior fellow in electricity law at Harvard Law School’s Environmental Policy Initiative, told Utility Dive. “It will essentially have to use this as a prompt for comments and then from that actually develop a proposed rule.”
Coal and nuclear operators praised the proposal, saying it could enhance power system resilience by ensuring baseload generators threatened by retirement stay online. But much of the sector joined with the former FERC commissioners in criticizing the rule on Friday, saying it could increase customer costs and power sector pollution while actually doing little to enhance system resilience.
“It’s gonna be as expensive as hell,” Wellinghoff said. “Expensive as it can be because we will be paying the full freight on coal and nuclear plants.”
FERC is unlikely to take up the proposal as written, analysts and former regulators agreed, but regulators currently at the agency have indicated they plan to address plant compensation and reliability questions — making the NOPR the Trump administration’s opening salvo in what is likely to be a long and contentious regulatory battle over the future of the fuel mix and competitive electricity markets.
Resilience benefits questioned
The DOE proposal comes as part of the Trump administration’s fresh focus on the reliability and resilience of the nation’s power sector.
Throughout the year, EPA Administrator Scott Pruitt has repeated that the power sector needs generators with “solid hydrocarbons onsite” to protect from extreme weather or grid attacks. In the days before the NOPR’s release, Secretary of Energy Rick Perry framed power reliability as a national security issue in several public appearances, saying his agency could act to preserve power mix diversity and keep baseload generators online.
The administration’s concern is that across the nation’s wholesale power markets, low-priced natural gas generation and renewable energy are threatening older coal and nuclear plants, forcing many to retire before the end of their operational lives. Earlier this year, Perry ordered a reliability study of the nation’s bulk electricity system. Released in August, the study concluded that reliability is strong today, but that regulators should consider higher compensation for generators if they feel the power supply’s reliability is threatened in the future.
The language of the NOPR draws directly on lines from the DOE grid study, saying cost recovery is necessary because of the “recognition that organized markets do not pay generators for all the attributes they provide.” The proposal calls for grid operators to establish “just and reasonable rate tariffs” with a “fair rate of return” for generators that have secure fuel supplies and are able to provide ancillary and reliability services.
Wellinghoff questioned the DOE’s linking of the grid study to the directives in the NOPR, saying the report “in no way or in no place supports what’s in this letter to FERC.”
That and the NOPR’s specific connection of fuel supply to resilience led many industry experts to believe the proposal is aimed more at shoring up uncompetitive baseload generation than preserving the power supply.