B&M Strong, Smart Sustainable - Modernizing the Grid

FERC Says No to Perry's Recommended Adders for Coal and Nuclear Generation

Seeing a need to examine the issue of grid resilience more “holistically,” the Federal Energy Regulatory Commission (FERC) has rejected a proposal from Rick Perry, secretary of the U.S. Department of Energy (DOE), under which owners and operators of nuclear and coal-fired generating facilities would be eligible for a rate adder to account for their role in offering an extra level of protection and dependability to the nation’s electric grid.

Secretary Perry presented FERC with his plan in mid-October and asked that the commission consider the subsidy mechanism on an expedited basis (see Letter No. 4339). Although the FERC did not adhere to the constricted timeline originally requested by DOE, it did reach a decision on Perry’s proposal in a relatively short period.

In essence, however, the FERC told Perry that while it agrees that the issue of grid reliability is an important one, it is one that should be examined on a broader basis. The commission indicated that it viewed the subsidy plan as too disruptive to the viably competitive energy marketplace that federal regulators have worked so hard to establish over the last two decades.

As initially envisioned by Perry, wholesale prices for capacity from certain coal and nuclear power plants would qualify for an adder in recognition of the value they provide the grid in terms of resilience and reliability. Under the plan, those units capable of holding a minimum 90-day supply of fuel would be eligible for the adder. In explaining the reasoning behind the DOE plan, Perry contended that the intermittent nature of renewable energy clearly makes such generating facilities less reliable while the inability of natural gas-fired power plants to store vast amounts of natural gas on-site likewise reduces their reliability.

Although the subsidy proposal was lauded by the coal and nuclear industries, for obvious reasons, it was greeted with near-universal criticism from most other segments of the energy world, including state regulators from California to Mississippi. Most such criticism took the form of concerns that the rate adders for coal and nuclear generation would wreak havoc in wholesale electric markets and would distort the true value of different energy resources. That is, opponents of the plan declared it a blatant attempt to shore up struggling coal and nuclear operations without first properly evaluating just how much of a contribution coal and nuclear facilities actually make to grid security.

Some challengers derided the adder mechanism as out-of-touch with the realities of current energy marketplace protocols. After two decades of experience with competitive and regionally administered electricity markets, opponents claimed that the DOE proposal could jeopardize efficiency improvements in grid operations and cause unnecessary increases in the price of electricity for consumers. They voiced worry that the Perry plan would disrupt let-the-market-decide principles that have come to define electric grid operations. They similarly raised questions about the potential for investors to withdraw from projects using renewable resources, to the detriment of both economic and environmental policies that have been developed on a state level over the years.

Weighing all the comments and input received from stakeholders and the public, a unanimous FERC concurred with the prevailing sentiment that it would not be prudent to implement the subsidy plan as proffered by DOE. At the same time, though, the FERC thanked Secretary Perry for bringing his plan forward, as it provided a starting point for taking a fresh look at the matter of system integrity and reliability overall.

In furtherance of that assessment and review, the commission instituted a formal proceeding through which to consider the current state of grid operations and whether or to what extent system stability and grid resiliency may be impacted by ongoing plans to shutter coal units, close nuclear plants, and introduce more and more renewable energy into the market. However, the FERC dismissed Perry’s assertions that such closures represent any imminent threat to the grid.

Three of the FERC’s five commissioners attached separate concurring opinions to the commission’s order.

In the first, Commissioner Cheryl LaFleur highlighted the fact that there was no showing that system reliability is at any greater risk as a result of the changing dynamics within the coal and nuclear sectors. However, she said, even if problems with resiliency had been demonstrated, she was not convinced that the DOE subsidy plan was an appropriate solution. She stated that she harbors “serious concerns about the nature of the proposed remedy, which would address the issue not through market rules but through out-ofmarket payments to certain designated resources.”

Commissioner Neil Chatterjee provided a softer statement, in which he praised Secretary Perry for “jumpstarting a national conversation on this urgent challenge.” And although Commissioner Chatterje joined the others in denying the subsidy proposal, he said he would have preferred that an “interim step” be taken toward assuring a continuing role for coal and nuclear in the country’s energy future.

The third commissioner statement came from Richard Glick, who expressed his view that the Perry proposal had to be rejected simply because it was “inconsistent with the Commission’s statutory responsibilities.” He conveyed that the FERC is tasked under the Federal Power Act with overseeing wholesale market transactions, including rate design that assures fair and equitable compensation be paid for diverse resources on a technology-neutral basis (emphasis added by the commissioner). Commissioner Glick commented that while he has great personal sympathy for coal miners and their families as more coal units are retired and decommissioned, it is not part of the FERC’s duties or obligations to mete out social justice in the form of a bailout for the coal and nuclear industries, which is what he viewed the Perry plan to be. The commissioner concluded that any such bailout or assistance must come from Congress or state legislatures, not the FERC. Re Grid Reliability and Resilience Pricing, Docket Nos. RM18-1-000, AD18-7-000, 162 FERC ¶ 61,012, Jan. 8, 2018 (F.E.R.C.).