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FERC Votes 5-0 to Dump DOE NOPR, But Chatterjee Still Seeking Interim Coal, Nuke Support

Concurring opinions from two commissioners supported FERC's unanimous rejection Monday of a controversial proposal by the Department of Energy (DOE) to subsidize the coal and nuclear industries, but a third, Commissioner Neil Chatterjee, still sought an end-around to keep the idea alive.

While he voted with his colleagues, Chatterjee posted an opinion to the Federal Energy Regulatory Commission’s website. "...I believe that the record compiled in this proceeding speaks to the prudence of considering, as soon as practicable, whether interim measures may be needed to avoid near-term bulk power system resilience challenges that could result from the rapid, unprecedented changes in our generation resource mix."

Chatterjee said he thought FERC should have taken the additional step of issuing an order for regional transmission organizations (RTO) and independent system operators (ISO) to either submit tariff revisions to compensate existing generation sources at risk of retirement during the interim period, or for the RTOs and ISOs to explain why such a move was unnecessary.

"Such an approach would have struck an appropriate balance to remedy any potentially unjust and unreasonable compensation practices while minimizing the impact on consumers and markets as the Commission considered longer-term reforms," Chatterjee said.

Separate opinions by Commissioners Cheryl LaFleur and Richard Glick, however, pulled no punches in lambasting the notice of proposed rulemaking (NOPR) offered by DOE Secretary Rick Perry.

"This proposed remedy, which simply designated resources for support rather than determining what services needed to be provided, would be highly damaging to the ability of the market to meet customer needs -- including any demonstrated resilience needs -- fairly, efficiently and transparently," LaFleur said.

"In effect, it sought to freeze yesterday's resources in place indefinitely, rather than adapting resilience to the resources that the market is selecting today or toward which it is trending in the future."

Glick said "the proposed rule had little, if anything, to do with resilience, and was instead aimed at subsidizing certain uncompetitive electric generation technologies...

"There is no evidence in the record to suggest that temporarily delaying the retirement of uncompetitive coal and nuclear generators would meaningfully improve the resilience of the grid. Rather, the record demonstrates that, if a threat to grid resilience exists, the threat lies mostly with the transmission and distribution systems, where virtually all significant disruptions occur.

"In addition, coal and nuclear generators face resilience challenges of their own," Glick said. "As has been well documented, many coal and nuclear plants with significant on-site fuel supplies have failed to function during extreme weather events because those fuel supplies froze, flooded, or were otherwise unavailable. 

"In fact, initial reports indicate that coal-fired facilities accounted for nearly half of all forced outages in PJM during last week’s period of extreme temperatures. Similarly, during the same period, the Pilgrim Nuclear Power Station was manually removed from service complicating efforts to serve load" within grid operator ISO New England.

Even when fully operational, Glick said, many coal and nuclear generators are incapable of providing all the essential reliability services of the North American Electric Reliability Corp., or NERC.

"It is perhaps for that reason that the department's grid study recommended pursuing 'wholesale market and product designs that recognize and complement resource diversity by compensating providers for the value of [essential reliability services] on a technology-neutral basis,'" Glick said.

Perry said he appreciated FERC for not only considering the proposal, but making a commitment to further study the reliability of the nation's power grid.

"As intended, my proposal initiated a national debate on the resiliency of our electric system," Perry said. "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, particularly in times of weather-related stress like we are seeing now."

Substantive Changes Ahead?

In a note to clients Monday, analysts at ClearView Energy Partners LLC said they had expected "a more robust recast of the DOE's rulemaking request," but warned that there was no guarantee that FERC would initiate a rulemaking following its review of the nation's power grid.

"While today's order contains some strong wording regarding the 'importance' of resiliency and promised 'vigilance' via a focused new proceeding, we do not think this proceeding is likely to translate into substantive changes to energy market tariffs to increase compensation for 'baseload units' in the end," ClearView said.

ClearView analysts said since FERC closed, rather than revised, the DOE's request, it might be easier for the Trump administration to continue its strategy of slowing, revising or rescinding existing environmental laws instead of looking to a truly independent agency like FERC to play along.

"We expect possible future action on 'resiliency' -- should it happen -- to differ substantially from what the DOE proposed in September, and we believe it could extend beyond identifying potentially optimal fuel-type shares in the nation's generation portfolio," ClearView said.

Moody's Investors Service’s Toby Shea, vice president, called FERC's rejection of the NOPR "a win for market-based reform and a credit positive for baseload generators."

Debate over the merits of the NOPR created strange bedfellows. While trade associations in support of coal and nuclear power supported the proposal, their counterparts backing the oil, natural gas, wind and solar energy industries were adamantly opposed.

The spectacle of 11 trade associations holding a joint press conference Tuesday regarding the NOPR decision helped to illustrate the point. Those participating included the American Petroleum Institute, the Independent Petroleum Association of America (IPAA), the Interstate Natural Gas Association of America and the Natural Gas Supply Association (NGSA).

NGSA CEO Dena Wiggins said the NOPR "would have undermined competitive power markets and hurt consumers without bolstering reliability," while IPAA spokeswoman Susan Ginsberg called FERC's order "sound and in keeping with the overwhelming documentation submitted‎ by a diverse group of interested parties.

"Even the organized markets stated there is no grid reliability emergency," Ginsberg said. "FERC took the reasonable, conservative approach to initiate a new proceeding to further evaluate the resilience of certain bulk power systems."

Other participants were Advanced Energy Economy; the American Council on Renewable Energy; the American Wind Energy Association; the Electric Power Supply Association (EPSA); the Electricity Consumers Resource Council; the Energy Storage Association; and the Solar Energy Industries Association.

"Today is not the end of the matter nor should it be," said EPSA CEO John Shelk. "Rather, today begins the next phase of FERC's critical and urgently needed work to improve price formation for all bulk power resources, not just a select few. As we learned from the recent cold snap, during which the bulk power system performed very well, fuel-neutral reforms such as those implemented after the polar vortex of 2014 are the most effective way to move forward."

Proponents Disappointed

National Mining Association CEO Hal Quinn called FERC's decision "disappointing," especially considering it came after last week's cold snap.

"With a surge in demand, coal was the leading electricity supplier in many of the markets subjected to the deep freeze, providing a critical measure of reliability and resiliency to the nation's grid operators," Quinn said. "That coal-powered electricity came from many plants that will no longer be available if retirements continue at the pace expected."

Nuclear Energy Institute CEO Maria Korsnick warned that more nuclear units would retire.

"America's nuclear fleet must remain a strategic asset contributing to energy security, resilience, reliability, economic growth and environmental protection," Korsnick said. "The status quo, in which markets recognize only short-term price signals and ignore the essential role of nuclear generation, will lead to more premature shutdowns of well-run nuclear facilities. Once closed, these facilities are shuttered forever."

However, environmental groups, which often deride FERC as a rubber stamp of the oil and gas industry, praised the Commission's decision. Some even hinted at support for natural gas.

"FERC's announcement is a return to reality after months of billionaire coal and nuclear executives pressuring DOE and FERC to illegally setup bailouts for their uneconomic plants," said Sierra Club spokeswoman Mary Anne Hitt. "This entire NOPR process has been a comically orchestrated ploy by unscrupulous coal and nuclear executives to handicap their competition because they were foolish enough to think that American electricity customers wanted their dirty, expensive power plants when cheaper, cleaner alternatives are available."

Other environmentalists made no secret that they supported wind and solar power.

"Tens of thousands of people wrote to FERC demanding the rejection of Secretary Perry's ludicrous proposal to bailout failing nuclear and coal projects," said Friends of the Earth spokesman Damon Moglen. "No matter how forceful industry lobbying, the market factors simply dictate that nuclear and coal power plants should be replaced by cheaper, cleaner, and safer solar and wind power."

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