Week Ending October 13, 2017

Perry Defends ‘Getting Conversation Started’ on NOPR; Chatterjee Lists Options

This Article Appears as Published in Foster Report No 3169
Perry Defends ‘Getting Conversation Started’ on NOPR; Chatterjee Lists Options

Neil Chatterjee

FERC Chairman Neil Chatterjee on October 13 said the Commission has many tools available to address the notice of proposed rulemaking (NOPR) from the Department of Energy (DOE) on grid resiliency and the 60-day comment period provides ample time to address the issues that have been before the Commission for some time.

Chatterjee said he aims to address the issues in a way that is not too disruptive of energy markets and he endorsed recent comments from Commissioner Cheryl LaFleur about providing value to resources based on their attributes and not choosing a resource first.Speaking with reporters at a media availability, Chatterjee said he was not part of any discussion at DOE prior to the release of the NOPR. He commended Energy Secretary Rick Perry for his leadership in trying to bring a resolution to wholesale power market issues associated with baseload coal and nuclear power plants and said he intends to have the Commission take a fuel-neutral approach while examining the record in the NOPR (RM18-1).

“I think 60 days is a sufficient amount of time for us to take action,” he said, laying out several steps FERC could take in response to the proposal from DOE. Those include an Advanced NOPR, a Notice of Inquiry, a NOPR to supersede the DOE proposal, a denial of the proposal or action to address the comment schedule, among others.

He echoed some comments from Perry on Capitol Hill that energy markets have different types of subsidies, referring to state preferences for nuclear, renewable or different types of power supply resources. “There is no doubt that state mandates and subsidies have had an impact” on the wholesale power market, and FERC may need to take action to address such impacts after taking comments on the DOE proposal. “These challenges are not new,” he said, referring to price formation activities FERC has been pursuing.

Rick Perry

Perry on October 12 defended his agency’s proposed rule to improve compensation for power plants in organized wholesale power markets that have on-site fuel supplies as members of the House Energy and Commerce Committee asked about the motivation and reasoning behind the proposed rule.

The NOPR that Perry submitted to FERC would subsidize coal and nuclear plants in independent system operator (ISO) regions under the guise of improving grid resiliency and reliability, Democrats said at the hearing. They questioned Perry about why the Department of Energy (DOE) is trying to support coal and nuclear plants, while Republicans generally praised him for issuing the NOPR and leading a discussion on wholesale power market design.

Perry acknowledged that the NOPR is in the hands of FERC to do as it sees fit, and said he submitted the proposal under the rarely-used Section 403 of the DOE Organization Act to kick-start a national discussion about the resiliency of the grid. “I hope to have a thoughtful, respectful conversation” about generation resources and the importance of an “all of the above” energy strategy to ensure the power grid can meet the challenges of natural disasters and severe weather, Perry said.

While the grid is reliable under normal conditions, it can be stressed when pipelines cannot deliver fuel to generators because of high heating demand and the sun and wind do not cooperate for renewable resources, he said. Perry said such issues have been “kicked down the road” for too long and it is time for FERC to take some action.

Addressing questions from Rep. Pete Olson (R-Texas), Jerry McNerney (D-Calif.) and others, Perry said previous presidential administrations have favored renewable resources or “placed their thumb on the scale” to favor particular technologies or resources and disregard nuclear generation. “The idea that there is a free market in the energy industry is a fallacy” because all types of resources have subsidies in one form or another, including state preferences for renewables or specific types of generation, he said.

The subsidies are in place, so the question becomes “how do you make it as fair as you can” while protecting the grid from major outages and having to explain to constituents why more resiliency wasn’t favored, Perry said at the hearing. “FERC ought to have an open conversation with all of us” about such issues, he said.

At the Commission, the conversation has started with comments rolling into FERC under a tight deadline that was upheld in an October 11 decision denying requests for more time. Numerous energy groups asked FERC to extend the comment periods set when it initially acted on the DOE NOPR, but the Commission denied the requests without providing any explanation.

Initial comments on the proposed rule are due October 23, with reply comments due November 7.

The Commission also altered what was submitted to be published in the Federal Register in an October 11 notice. The wording in the new version indicates that the rule should be applied to ISOs or regional transmission organizations (RTOs) “with energy and capacity markets,” which limits its applicability because not all ISOs and RTOs have capacity markets.

In the October 11 notice, FERC included a footnote stating that the version attached to the notice and submitted to the Federal Register supersedes the earlier version of the NOPR that was available on the Commission’s eLibrary system. That earlier version, in the section describing the scope of its application, said the proposed rule would apply to ISOs and RTOs with a day-ahead and a real-time market or the functional equivalent. That would include Southwest Power Pool and other ISOs that do not have a capacity market.

Industry observers noticed the altered version, with one source speculating that the wording change to specify ISOs and RTOs with energy and capacity markets illustrates that the NOPR has been 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.

DOE made the wording change in the document it submitted to the Federal Register, and FERC’s notice used the language from DOE, FERC staff explained during Chatterjee’s media briefing. Any questions about the applicability of the proposal and limiting it to capacity markets should be directed to DOE, FERC staff said on October 13.

The version of the NOPR attached to the October 11 notice also indicates that for the purposes of Executive Order 12866 – a 1993 order that says significant regulatory actions should be submitted for review to the Office of Management and Budget – the proposed rule has been determined not to be a significant regulatory action. “As a result this rule was not reviewed by the Office of Management and Budget.”

The proposed rule has sparked controversy since DOE submitted it to FERC at the end of September with the goal of ensuring adequate compensation for coal and nuclear plants with a 90-day supply of fuel on site. It calls for FERC to allow for the recovery of costs by fuel-secure generation units that provide reliable capacity, resilient generation, frequency and voltage support and an on-site fuel inventory. It seeks full recovery of costs for eligible units that have a 90-day fuel supply on site to address supply disruptions caused by emergencies, extreme weather or other disasters.

“These resources must be compliant with all applicable environmental regulations and are not subject to cost-of-service rate regulation by any state or local authority. The rule requires the organized                                                   markets to establish just and reasonable rate tariffs for the recovery of costs and a fair rate of return,” DOE told FERC.

The oil and natural gas sector, consumer groups, competitive generators, environmental groups, renewable energy interests and others are opposing the market intervention sought by DOE and the Trump administration. If adopted as proposed, the NOPR would have far-reaching, negative impacts on the power sector, critics said, registering concerns about the substance of the plan and the process of seeking quick action by FERC.

Attorneys and sources indicated that as an independent agency, FERC could concur in the adoption of a proposed rule after receiving comments, adopt a rule or policy statement as it sees fit, or reach the conclusion that a rule or statement not be adopted.

Perry indicated that if the proposal would have such negative consequences as some fear, the Commission will not adopt it.

Commissioner Robert Powelson, a former state regulator from Pennsylvania and an appointee of President Donald Trump, told a meeting of stakeholders in the PJM Interconnection that he would not support a proposal that would have such a negative effect on power markets, according to media outlets.

Commissioner Cheryl 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.

Several lawmakers at the House hearing questioned the 90-day fuel supply threshold and raised concerns about DOE asking FERC to favor particular resources. What DOE has proposed “is rather extreme” and would cause a major disruption in energy markets, said Rep. Michael Doyle (D-Pa.). “You’re putting a heavy finger on the scale” in support of coal and nuclear resources, Doyle said.

Rep. Kevin Cramer (R-N.D.) countered that DOE is simply trying to “rebalance the scale” to provide similar treatment for all resources and to ensure the power grid can withstand extreme weather events. It is appropriate for FERC to address the NOPR, Cramer said in support of the proposal.

He did question the 90-day fuel supply threshold, however, noting that some mine-mouth coal-fired power plants do not have large coal piles on hand because they are located so close to a coal mine that the supplies can be delivered promptly from the mines.

Rep. Frank Pallone (D-N.J.), ranking member on the committee, questioned Perry about the proposal and submitted a letter to Perry’s office seeking details about the process Perry used to develop the NOPR. He asked for the records of meetings Perry and his staff held developing a plan that seems directed toward helping a select group of favored energy sources.

The letter seeks a list of all DOE staff, their titles and number of hours applied to the proposed rule and whether the individuals are political appointees or career DOE employees. It also asks for a list of DOE expenditures related to preparing the rule and documents demonstrating compliance with all applicable DOE regulatory development and rulemaking processes, including management review and approvals, and compliance with legal standards.

At the hearing, Pallone said it is ironic that DOE is making the proposal when in his comments to repeal the Clean Power Plan, Environmental Protection Agency Administrator Scott Pruitt said regulatory agencies should not pick winners and losers. “But, Mister Secretary that’s exactly what you are doing here. You are distorting the market, damaging the environment, and delivering preferential treatment to favored industries,” Pallone said.

Among the comments filed at FERC on the proposal are more than 10,000 submissions by individuals opposed to the NOPR, the Nuclear Information and Resource Service (NIRS) said at an October 11 demonstration in front of the Commission headquarters. The group knew that the Trump administration was working toward such a proposal to support coal and nuclear resources since Perry sought a baseload power plant study earlier this year, and it gathered 10,561 comments in opposition to the plan, said Tim Judson, executive director of NIRS. “We’ve seen this coming for some time,” he said at the demonstration.

The comments of Powelson and LaFleur sounding somewhat wary of DOE’s plan do not provide any comfort to NIRS, as Perry also made comments about supporting all energy resources, yet followed through with the Trump administration plan to seek a “bailout” for coal and nuclear plants, Judson said.

By Tom Tiernan TTiernan@fosterreport.com


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