Dive Brief:

• Federal Energy Regulatory Commissioner Neil Chatterjee said Tuesday that a new FERC investigation into grid resilience could take longer than the 90-day timeframe established by regulators last week in a decision that rejected a major coal and nuclear subsidy proposal from the Department of Energy.
• Owners of coal and nuclear assets hope to see quick market changes to benefit their resources as a result of the resilience docket. Chatterjee said those companies will need to make that case in their comments to the commission, but the DOE put forth the "wrong remedy" by basing its proposal on the onsite fuel supplies of certain generators.
• Commissioner Cheryl LaFleur said market changes to enhance resilience could differ by region, but any new compensation for power plants should be "determined by the market." Both she and Chatterjee stressed FERC will take a fuel-neutral approach to the resilience docket. 

Dive Insight:

In their first public appearance since rejecting the DOE's controversial cost recovery plan, Chatterjee and LaFleur agreed that Secretary of Energy Rick Perry raised legitimate issues about grid resilience in his Notice of Proposed Rulemaking (NOPR) filed at the end of September.

But his call to grant cost recovery to plants with 90 days of fuel supply onsite killed the proposal at FERC, they told an audience at the Bipartisan Policy Center.

"While I feel Secretary Perry asked the right question, he proposed the wrong remedy," Chatterjee said.

"We weren’t going to favor certain fuel sources, whether coal or nuclear," he said. "That was one of the challenges with the Secretary’s proposal. By focusing on 90 days of onsite fuel, it seemed to be favoring certain fuel sources and that is why it didn’t meet legal muster."

Before the decision, Chatterjee outlined a short-term plan to save struggling coal and nuclear generators while FERC took a longer look at grid resilience. While those interim subsidies were left out of the final decision, Chatterjee said he is still "very pleased with the ultimate outcome," particularly that FERC will undertake its resilience docket under a "truncated timeframe."

In rejecting the proposal, FERC gave regional grid operators 60 days to detail how they could enhance grid resilience, after which industry participants will have 30 days to reply. That is considerably faster than most major market reform discussions at FERC, but Chatterjee warned the docket could stretch further. 

"One of the reasons I thought the record warranted the short-term [coal and nuclear payments] is ... it's going to take time to sort through this," he said. "I am under no illusion that this process will end in 90 days."

Coal and nuclear interests have already indicated they will pursue speedy changes to price formation in wholesale power markets after losing the DOE NOPR decision. Chatterjee said his comments do not preclude that outcome, but that the asset owners will have to prove their need to the commission. 

"They will have the opportunity in that 30-day period when the RTOs and the ISOs come back [with comments]," he said. "If they have that concern then they need to lay that out clearly and distinctly with compelling arguments in that 30-day reply period and we will evaluate the record at that time."

LaFleur, for her part, said she never saw justification for the interim payments.

"I didn't think that a problem had been demonstrated that made the current rules unjust or unreasonable," she said. "For me, an interim solution has to have, if anything, even more evidence … I didn’t see that in this record."

Moving ahead, LaFleur said she expects to see different resilience proposals from each region of the country. 

"How you make your system more resilient depends on what risk you're mitigating against," she said, emphasizing that market functions should be used to value any new resilience attributes FERC identifies.  

"What I think about the magnitude of compensation is that it should, if at all possible, be determined by the market," she said. "I think that's true whether you're talking about carbon or frequency response ... If there are things that can't be set by the market, there should be general standards so everyone is on the same playing field."

In their order, FERC commissioners singled out pricing reforms in PJM and ISO-New England, asking for more information on how they can impact resilience. Critics of those proposals say they won't offer benefits to the system and instead amount to attempts by plant owners to obtain bailouts for struggling generators. 

LaFleur said FERC would evaluate those pricing proposals similar to recent capacity market reforms in each jurisdiction, which enhanced payments to plants that provide services during extreme grid conditions. 

"I'll draw an analogy to the pay for performance and capacity performance proposals that came in from ISO-NE and PJM," she said. "Those also had a lot of support from people who owned baseload units, but we looked at the facts, at the evidence in the record, and I at least decided that it was responding to a real need ... making sure we have enough power in times of system stress."

Both commissioners lauded FERC's independence and an "evidence-based approach" that led them to dismiss the plan submitted by DOE.

"There certainly was a lot of frenzy in the press about this changing FERC and I was very happy we were able to come together on a consensus order," LaFleur said. "It felt like a very FERC-like day and in my value system that is good."