The Department of Energy's (DOE) recent proposal to provide reliability and resiliency compensation to coal and nuclear baseload generators was meant to both open a national debate on the topic and to direct FERC to take action, DOE Secretary Rick Perry said Thursday.
"We can have a conversation, and I think we must move. I think they must act," Perry told members of a House Committee on Energy and Commerce subcommittee. "We've kicked this can down the road as long as we need to."
DOE's Notice of Proposed Rulemaking (NOPR), submitted to the Federal Energy Regulatory Commission late last month, "was a way to kickstart a national discussion about resiliency and about reliability of the grid, and best I can tell, we're pretty successful in doing that...We're having this conversation now that we really haven't had in this country.
"I want to drive the conversation because...this has been talked about a lot, but there hasn't been any action, and I want to try to push the FERC and this country to take action so that we don't face that event in the future where people's lives are put in jeopardy or where this country's national security is jeopardized because we just refused to buy into the concept that we needed a very diverse energy portfolio," Perry said.
Perry said he disagreed with critics of the NOPR who have said it would unfairly tilt the scales in favor of nuclear and coal-fired generation by subsidizing them. Free markets in the U.S. energy industry exist only "in a mythical world," he said.
"We subsidize a lot of different energy sources. We subsidize wind energy, we subsidize ethanol, we subsidize solar, we subsidize oil and gas. The question is, how do you make it as fair as you can?...We have subsidized the energy industry for a long time, and I frankly don't have a problem with that."
But Perry also argued for an end to some energy industry financial incentives.
"There's a place for these subsidies as we build innovation and we commercialize it, [but] there's some point that you say you're on your own, you can stand or fall on the market. I would suggest to you that both the solar and the wind industry is approaching that very mature stage. You can't on the one hand say 'we are this clear deliverer of a baseload of energy, but we need to continue to be treated like we were when we were not that mature.'"
NOPR critics remain on the subcommittee.
DOE's proposal would "upend competitive electricity markets by providing unduly preferential rates to coal and other baseload generation," said Rep. Frank Pallone (D-NJ). "The substance of that proposal has serious flaws, in my opinion.
“Under the guise of the crisis of grid reliability, this proposal props up coal and nuclear generation with the goal of protecting fuel-secure plants that have 90 days of fuel stored on site...it's an ironic proposal, considering that EPA Administrator [Scott] Pruitt states as part of his announcement in rolling back the Clean Power Plan that 'regulatory power should not be used by any regulatory body to pick winners and losers.' But, Mr. Secretary, that's exactly what you're doing here."
Last week, all six witnesses at a hearing before the same subcommittee said they opposed for both process and substance reasons DOE’s NOPR, and several subcommittee members were sharply critical of the proposal as well.
Under the proposed Grid Resiliency Pricing Rule, FERC would "exercise its authority under sections 205 and 206 of the Federal Power Act, to establish just and reasonable rates for wholesale electricity sales."
The rule would allow "for the recovery of costs of fuel-secure generation units that make our grid reliable and resilient," and 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."
The NOPR was prompted by lessons learned from the experiences of the polar vortices of 2014 and recent hurricanes, and is needed "to protect the American people from the threat of energy outages that could result from the loss of traditional baseload capacity," according to DOE.
While natural gas industry groups vehemently opposed the proposal, coal and electricity organizations, on the other hand, have shown support for the NOPR. Coal has seen its once-dominant share of the power stack slip in recent years amid competition from natural gas and renewables, leading to retirements of baseload generating units.
FERC began accepting comments on the NOPR last week [RM18-1]. On Thursday, FERC rejected calls from the oil and gas industry and others, including environmental groups, to extend the NOPR’s public comment period.