FERC members told a House panel on Tuesday that an order it issued in January to address the reliability and resilience of the nation's power grid was moving forward, but decisions made by states over the composition of their energy portfolios could further squeeze coal and nuclear power generators.
It didn't take long for lawmakers on the House Subcommittee on Energy to address the Federal Energy Regulatory Commission's unanimous decision in January to reject a controversial proposal by the Department of Energy (DOE) to subsidize the coal and nuclear industries. Supporters of coal and nuclear power, as well as DOE Secretary Rick Perry, had argued that the notice of proposed rulemaking (NOPR) was a necessary bulwark to maintaining resiliency of the nation's power grid.
"Does the Commission believe that we are truly heading past the point of no return on the retirement of coal and nuclear facilities, leaving us in a situation where we will soon be unable to meet our energy demands if we do not act quickly?" asked Rep. Bobby Rush (D-IL), the subcommittee's ranking member. "Does the agency support action by states, RTOs [regional transmission organizations], the markets or the Congress? Or does the Commission have a means and the authority to act on this issue if and when it becomes a problem?"
Instead of approving the NOPR, the Commission issued an order directing operators of regional wholesale power markets "to provide information as to whether FERC and the markets need to take additional action on resilience of the bulk power system." Chairman Kevin McIntyre said the initial round of comments from RTOs and independent system operators (ISO) was complete, and that FERC was in a subsequent commenting phase over the order [AD18-7].
"The questions you raise are among the very important issues that we will have to grapple with," McIntyre told Rush. "Are there categories of resources, or even specific important resources, that if they were to retire on a permanent basis...would that be harmful to American interests? It's a very important issue and a tricky one. That is very much within the scope of the matters that we will be looking at as we make our decisions going forward."
Commissioner Cheryl LaFleur said market rules and a series of broad standards, including voltage control and frequency control, are directed to maintaining the resilience of the nation's power grid.
"In terms of specific resources that are needed, all of the market operators have in place reliability-must-run tariffs," LaFleur said. "If a resource wants to retire, a test is done to make sure that its retirement will not put customer reliability at risk. If there are changes needed in those tariffs, we will look at them, but I think that's a good place to start."
Commissioner Neil Chatterjee said he was "initially sympathetic" when DOE Secretary Rick Perry presented the NOPR to the Commission. Hailing from Kentucky, and having worked previously for Senate Majority Leader Mitch McConnell (R-KY), "I saw firsthand the devastating impact that coal plant shutdowns had on coal communities throughout Appalachia."
"That said, none of those issues were relevant to the docket that was before us," Chatterjee said. "I agreed with all of my colleagues in voting to reject it because the record simply did not support compensating plants based on the availability of 90-days supply of fuel.
"That doesn't mean that Secretary Perry didn't ask the right question, and I do believe that the question of resilience that we are examining in this current docket is an essential one. I think over the course of time Secretary Perry will be proven right -- we are going to ultimately have resilience challenges in this country and we need to be prepared for that."
Chatterjee also repeated his belief that a show cause order he had proposed in January "may have been the right thing to do." Under that order, RTOs and ISOs would have been asked to either submit tariff revisions to compensate existing generation sources at risk of retirement, or for the RTOs and ISOs to explain why such a move was unnecessary.
Later in the hearing, Rep. John Shimkus (R-IL) asked what FERC was doing about states intervening in wholesale markets to support generation.
"How are you handling that?" Shimkus queried. "That kind of addresses a couple things -- reliability, possibly. If you're trying to ensure low-cost, reasonable prices in the wholesale sector, the two issues kind of conflict, do they not?
McIntyre said Shimkus had "gone directly to one of the trickiest areas that we deal with."
"The states have their valid role in making policy choices as to energy resources that are preferred by that state, and they reflect that through their legal decision making," McIntyre said. "We have an obligation at the FERC level to ensure that the electricity generated by those resources is sold at rates that are just and reasonable.
"The costs behind that generation, though, are affected by the resource policy choices. So we have to be respectful of the states' roles, while ensuring that we do our federal role right of ensuring just and reasonable rates."
But Commissioner Robert Powelson said that while states are "clearly allowed to design things” such as renewable portfolio standards (RPS), “what's happening is we are creating these markets in such a way where the states are picking winners and losers.
"They're allowed to do that. But now it's coming at the consequence of the capacity market construct. Secretary Perry was right -- these constructs are bastardizing these markets and the availability of generators to receive adequate compensation for that resource. It is a concern that we have to be cognizant of, to the point of giving states flexibility -- within reason -- of the Federal Power Act [FPA]."
Rep. Michael Doyle (D-PA) said he agreed with Powelson's point that state interventions come with consequences to grid reliability, but he asked him to elaborate on what was meant by respecting states' rights "within reason."
"Your testimony highlights an inherent tension: the oversight role of FERC, but the independence of the states," Doyle said. "Do you think FERC oversight or potential intervention will or should be applied on a case-by-case basis? Do you think that Congress ought to provide additional clarity here, also?"
Powelson, a former chairman of the Pennsylvania Public Utility Commission (PUC), told Doyle that Pennsylvania "has a very successful RPS." But when the state tried to pick 13 categories of what qualified for an RPS, nuclear power was rejected.
"That state construct in Pennsylvania did not recognize the value of nuclear power," Powelson said. "If a state wants to go down that path, they're more than willing to do so. My drawing the line in the sand is how it impacts the wholesale power markets. Once we surrender that flag, we're out of business. We've got to protect the sanctity of those organized markets."
Last week, Perry told the subcommittee that new legislation from Congress may be a more appropriate vehicle for helping to keep uneconomic coal and nuclear power plants running. The secretary made the comment in response to questions over an application for an emergency order filed in late March by FirstEnergy Solutions Corp.