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NatGas Groups Object to DOE's Electric Grid Resiliency NOPR

The Department of Energy (DOE) on Friday submitted to FERC a notice of proposed rulemaking (NOPR) to implement reforms on the reliability and resiliency of the electricity grid -- changes that, according to some industry groups, would benefit nuclear and coal at the expense of natural gas.

Under the proposed Grid Resiliency Pricing Rule, the Federal Energy Regulatory Commission would "exercise its authority under sections 205 and 206 of the Federal Power Act, to establish just and reasonable rates for wholesale electricity sales."

FERC would impose rules on independent system operators (ISO) and regional transmission organizations "to ensure that certain reliability and resilience attributes of electric generation resources are fully valued."

The rule would allow "for the recovery of costs of fuel-secure generation units that make our grid reliable and resilient," DOE Secretary Rick Perry said in a letter to FERC Friday. Eligible units would have to "be able to provide essential energy and ancillary reliability service and have a 90-day fuel supply on site in the event of supply disruptions caused by emergencies, extreme weather, or natural or man-made disasters."

According to some critics of the NOPR, it would favor nuclear and coal-fired plants, propping up their prices outside of the traditional marketplace.

The NOPR was prompted by lessons learned from the experiences of the polar vortices of 2014 and hurricanes Sandy, Harvey, Irma and Maria, Perry said.

The NOPR is needed "to protect the American people from the threat of energy outages that could result from the loss of traditional baseload capacity." From 2010-2015, 37 GW of coal-fired generation was retired, accounting for 52% of all power plant retirements, and by 2020 another 34.4 GW of summer capacity (49% of it coal, 30% natural gas and 15% nuclear) is planned to be retired, Perry said.

In a report released in August, DOE concluded that cheap and abundant natural gas is the primary driver of coal and nuclear power plant retirements in the United States.

"Distorted price signals in the Commission-approved organized markets have resulted in under-valuation of grid reliability and resiliency benefits provided by traditional baseload resources, such as coal and nuclear. The rule will ensure that each eligible reliability and resiliency resource will recover its fully allocated costs and thereby continue to provide the energy security on which our nation relies," Perry said Friday.

But adoption of the NOPR would only distort energy markets, according to the Natural Gas Supply Association (NGSA).

"We agree that our electric grid must rely on a diverse fuel mix that includes all fuels, however introducing market distortions and fuel preferences into the energy mix is a disservice to consumers and contrary to the non-discriminatory principles of the Federal Power Act," said NGSA CEO Dena Wiggins. "Instead, competitive fuel-neutral energy markets produce the best outcomes for consumers, including a diverse fuel mix. In fact, our energy mix has never been as diverse as it is today."

"We are deeply disappointed that the secretary would propose a FERC rulemaking that, if adopted, would so clearly favor a very limited set of fuels and technologies for generating electricity," said Don Santa, CEO of the Interstate Natural Gas Association of America. "This is particularly surprising given that the staff report to the secretary on electricity markets and reliability acknowledged the importance in fuel neutrality in its recommendation that FERC study and consider a way to value reliability attributes in its wholesale electric market rules."

The American Petroleum Institute said it was concerned that DOE had "mischaracterized the lessons learned from past weather-related events and appears to suggest that additional regulation is the answer where markets have already proven the ability to greatly benefit consumers and give our electric system the flexibility needed to meet constantly, and often rapidly, changing electricity demands.

"Markets play an important role in determining energy sources because markets reward innovation, spur efficiency, lower prices and work to benefit consumers. Over the last decade, competitive forces in natural gas markets have resulted in the shale gas boom currently providing numerous benefits to the nation, driving down prices for American consumers and further increasing the reliability and resiliency of supply."

At least one environmental group also objected to DOE's request. Perry, according to the Natural Resources Defense Council, was "trying to slam through an outrageous bailout of the coal and nuclear industries on the backs of American consumers."

But electric companies saw it differently.

"Correcting the faulty market conditions and keeping essential baseload generating plants operating will help ensure customers continue to receive safe, reliable and affordable supplies of electricity while maintaining the security of the electricity grid," said FirstEnergy Corp. CEO Charles Jones, whose of Akron, OH-based subsidiaries own or control about 17,000 MW of nuclear, coal, gas, hydro, wind and solar generation facilities.

Perry asked that final action on the NOPR be taken within 60 days of its publication in the Federal Register, with the final rule to take effect within 30 days of its publication in the Federal Register.

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