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FERC Unanimously Rejects Plan To Prop Up Struggling Coal, Nuclear Plants

January 16, 2018

Federal regulators unanimously rejected a proposal from U.S. Department of Energy Secretary Rick Perry aimed at propping up financially struggling coal and nuclear plants, saying the plan did not show that current market rules were unjust or unreasonable and that the government had not proved the measure was necessary to ensure grid reliability.

In its decision, the Federal Energy Regulatory Commission concluded that Perry’s Notice of Proposed Rulemaking “failed to satisfy the fundamental legal requirements” of the Federal Power Act (which a Forbes contributor interpreted as FERC’s way of chastening the plan’s supporters for “wasting their time”); that the Department of Energy had not shown a need to change existing rules governing competitive power markets; and that the rule would have limited competition unfairly.

In making its decision, the five-member commission essentially rebuffed arguments by Perry and the Trump administration that the U.S. power supply was at risk because of looming closures of coal and nuclear generating facilities.

“While some commenters allege grid resilience or reliability issues due to potential retirements of particular resources, we find that these assertions do not demonstrate the unjustness or unreasonableness of the existing RTO/ISO tariffs,” FERC wrote in its order. “In addition, the extensive comments submitted by the RTOs/ISOs do not point to any past or planned generator retirements that may be a threat to grid resilience.”

The commission went on to say that the proposal “would allow all eligible resources to receive a cost-of-service rate regardless of need or cost to the system,” adding: “The record, however, does not demonstrate that such an outcome would be just and reasonable. It also has not been shown that the remedy in the Proposed Rule would not be unduly discriminatory or preferential."

But the agency did concede that power system resilience “is an important decision that warrants further attention,” and requested input from grid operators within 60 days on how they plan for it.

Despite the setback, Perry did not back away from his basic arguments that the nation needed a diverse mix of fuels to preserve grid dependability.

“As intended, my proposal initiated a national debate on the resiliency of our electric system,” he said in a statement. “What is not debatable is that a diverse fuel supply, especially with on site fuel capability, plays an essential role in providing Americans with reliable, resilient and affordable electricity. 

Perry’s plan would have paid generating plants a premium for storing at least 90 days of fuel on site. It was widely seen as giving an advantage to coal and nuclear plants over both natural gas – which requires pipelines – and renewables such as solar and wind, which do not rely on fuel.

Since it was announced last September, the proposal has come under withering criticism from virtually every direction.

Grid operators said it imperiled competitive markets, and consumer advocates said ratepayers would pick up a tab projected to be anywhere from $1 billion to $4 billion per year. Additionally, opponents charged it would keep coal-fired and nuclear generating plants operating long after they were economically viable and that it would hinder the growth of cleaner-burning natural gas and renewables for power production.

As expected, the coal industry denounced FERC’s decision.

Paul Bailey, head of the American Coalition for Clean Coal Electricity, said the recent cold spell that gripped the nation demonstrated a need for more coal-fired power, and warned that FERC’s request for information from grid operators represented a potentially dangerous delay.

“We are disappointed by FERC’s decision because the electricity grid could become less reliable and less resilient while more information is being collected,” Bailey said. “The recent bomb cyclone is a reminder why we need a healthy coal fleet.”

But for the most part, the commission’s decision drew praise – and not only from stakeholders who were opposed, Utility Dive reported.

“The independent agencies have a critical role in our administrative state and this decision vindicates that role,” Joel Eisen, a University of Richmond law professor, told the publication. “I think this is one of the most impressive actions…that I’ve ever heard the commission utter, and it was made by a new five-member commission that was just formed and was under enormous political pressure to do otherwise.”

Former FERC chairman Pat Wood echoed Eisen’s comments. “Independence is a great thing but it has to be fought for and earned by every new generation at FERC,” she said. “This commission passes muster.”

And Jon Wellinghoff, another former chairman, added: “FERC did its job.”

While the commission’s decision was definitive, it left some potential questions unanswered. For example, in the rejection of a federal solution, will states and utilities now move forward with their own out-of-market plans? And as the debate over grid reliability continues to unfold, will players beyond utilities and generation owners – such as retail suppliers and consumers, which can also play a role in enhancing system resilience – have a voice in the policy conversation?

Whether and how those questions will be resolved is uncertain. But for the time being, the Energy Department said it will continue working with the commission on system resilience as the commission collects input from ISOs/RTOs. “We do feel a sense of urgency and we would hope that FERC would act quickly,” said Dan Brouillette, deputy Energy secretary.