As Deadline Approaches, FERC Chairman Hints at Interim Solution to Keep Coal and Nuclear Plants Afloat
As the deadline imposed by the U.S. Department of Energy (DOE) approaches for the Federal Energy Regulatory Commission (FERC) to determine whether to exercise its regulatory authority over the electricity market in a manner designed to prevent the closure of coal and nuclear power generators, the FERC commissioners have not hesitated to make their feelings on the rule known publicly. In a recent interview with Bloomberg, Chairman Neil Chatterjee hinted that FERC may take a temporary, middle-ground approach in order to meet the DOE deadline.
DOE’s proposed rulemaking addresses Energy Secretary Rick Perry’s concern that the closure of coal and nuclear plants would negatively impact the reliability and resilience of the U.S. electrical grid. While Chairman Chatterjee did not provide full support for DOE’s subsidy-based plan to stop the decommissioning of coal and nuclear plants, the interim solution the chairman suggested in the interview offers some hope for proponents of the rule after S&P Global reported that Commissioner Robert Powelson had indicated at that FERC did not “do politics” and would not “destroy the marketplace” and Commissioner Cheryl LaFleur offered support to these statements on twitter.
The Department of Energy’s Efforts to Protect Fuel-Secure Generating Units
While FERC has statutory authority to regulate the transmission and wholesale sales of electricity independent of DOE review, DOE has an interest in the electricity market and has spent much of the year reviewing the reliability and resiliency of the grid. In January, DOE released its second Quadrennial Energy Review (QER). Chapter 3 (p. 3-73) of the QER indicates that coal accounts for more than half of the decommissioned power generating capacity between 2010 and 2015. It projected that coal units would account for 49 percent of the decommissioned capacity between 2016 and 2020, with nuclear plants representing an additional 15 percent of the decommissioned capacity during that time period.
In light of arguments that the decommissioning of such sources will negatively impact the reliability and resiliency of the electricity grid, Chapter 4 of the QER (p. 4-41) discussed how reliability and resiliency are accounted for in the electricity market. While concluding that the ratemaking process for utilities does account for reliability and resiliency of the generating sources, the QER went on to indicate that investment decisionmaking may rely too heavily on the short run market without proper valuation for the role that the system resilience plays in overall grid reliability.
Building upon the QER’s long-term reliability discussion, DOE Secretary Rick Perry issued a memorandum, on April 14, 2017, calling for a DOE study on the reliability of the electric grid. Secretary Perry indicated he was concerned about the future performance of the electric grid in light of “regulatory burdens introduced by previous administrations that were designed to decrease coal-fired power generation.”
In August, the DOE finalized the study Secretary Perry had called for, releasing a detailed report on Electricity Markets and Reliability. To the chagrin of the coal sector, the report found that “the biggest contributor to coal and nuclear plant retirements has been the advantaged economics of natural gas fired generation.” However, on the topic of grid resilience, the report concluded that “questions about revenue sufficiency and resilience must be addressed quickly, before the fast-moving evolution of our power system outpaces our ability to understand and manage it responsibly.”
Shortly thereafter, DOE finalized a proposal for FERC rulemaking to promote resiliency by protecting fuel-secure generators in the market. The proposed rulemaking suggests that FERC exercise its authority over the electricity market to provide for full recovery of costs for “fuel-secure” generating units. To qualify as fuel-secure under the DOE proposal, the units must maintain a 90-day fuel supply on site, effectively limiting the full cost recovery to coal and nuclear plants. DOE’s concern stems from the scheduled closure of many fuel-secure plants that it believes were vital in meeting regional electricity demand during the Polar Vortex in the winter of 2014.
FERC’s Action on the DOE Proposal
In light of DOE’s request that FERC take final action within 60 days of the proposal’s publication, by December 11, 2017, FERC requested that public comments on the proposal be submitted by October 23, 2017. FERC received comments from numerous and wide-ranging organizations. While many comments supported DOE’s proposal, a wide range of opponents—including public utility commissions, a free market nonprofit, natural gas trade associations, and Walmart—submitted comments arguing that the proposed exercise of FERC’s authority would raise prices on consumers, be anti-competitive, and fall outside of FERC’s authority.
In his interview with Bloomberg, Chairman Chatterjee indicated that FERC would meet DOE’s December 11 deadline and that it was committed to answering Secretary Perry’s questions without distorting existing markets. However, a reasoned and complete analysis of long-term reliability and resilience would necessarily extend past the deadline. Instead, he hinted that FERC might take an interim measure to keep coal and nuclear plants online while the full analysis is completed.
Under federal law, FERC has exclusive jurisdiction to act on DOE’s proposal, but must take final action in accordance with reasonable time limits set out in the proposal. In light of the wide-ranging public comments submitted to FERC and the expanse of information that FERC would need to consider in exercising its regulatory authority as DOE suggests, a fully-reasoned adoption or rejection of the proposal may not be feasible by the December 11, 2017 deadline. Squire Patton Boggs will remain diligent in following FERC’s action on the proposal and any additional steps that FERC takes to determine whether to grant full recovery of costs to eligible electricity generators.