DOE NOPR opponents: No basis for expanded FPA to justify coal, nuke cost recovery

Dive Brief:

In a press call Tuesday, a group of clean energy and natural gas stakeholders pushed against arguments from supporters of the Department of Energy's cost recovery proposal for baseload generation.
Supporters of DOE's NOPR say the Federal Energy Regulatory Commission relied on a narrow interpretation of its mandate laid out in the Federal Power Act to provide just and reasonable rates and failed to account for long-term risks to electric consumers if these baseload resources retire.
Opponents pushed against the argument, saying the DOE and its supporters failed to provide adequate evidence that the existing structure does not work and that ongoing proceedings are addressing resilience issues.

Dive Insight:

In its high-profile study released in August, the Energy Department listed the Federal Power Act as a potential means to address resilience and grid reliability issues. A month later, the DOE issued a proposed rulemaking under the FPA to provide cost recovery for merchant coal and nuclear plants with 90 days of fuel supply onsite.

Now the FPA appears central to arguments from the supporters of the proposed rulemaking. They say FERC has historically interpreted the law too narrowly and failed to adequately compensate coal and nuclear plants for the value of onsite fuel supplies and their contribution to generation diversity.

But representatives from a wide array of trade groups say otherwise. Representatives from the Solar Energy Industries Association (SEIA), Advanced Energy Economy (AEE), American Petroleum Institute (API), American Wind Energy Association (AWEA), Natural Gas Supply Association (NGSA) and the American Council on Renewable Energy (ACORE) all said the agency so far has interpreted the law as intended.

Under the FPA, FERC must find the existing structure doesn't work, and is unjust, unreasonable and discriminates against resources, according to Dena Wiggins, president of NGSA. And if they find that the existing structure fails to measure up, the agency must establish a remedy that is "just and reasonable."

"There are a couple of steps that FERC has to go through," Wiggins noted. "And I think in our view the threshold hasn’t been met. There hasn’t been proof offered in the record to date that the existing structure is inappropriate."

Both sides largely agree the issue of resilience need to be addressed. "No one is suggesting that we stick our heads in the sand ... all we’re asking for is a deliberative process that can value [attributes] that best deliver performance," said Amy Farrell, senior vice president for government and public policy affairs at AWEA."

However, supporters of the rule question whether organized markets are producing just and reasonable market outcomes.

"You also have your core responsibility under the FPA is to protect customers against unreasonable electricity costs and some very strong evidence [shows] that the current market rules are not doing that and you need to broaden your focus," Andy Weissman, senior counsel at the Washington, D.C. law firm Pillsbury, told Utility Dive.

The DOE NOPR brought together an odd assortment of bedfellows, as natural gas and renewables trade groups aligned against the proposed rule. Eight former FERC regulators, attorneys general from 10 states and the independent grid operators also filed comments opposing the proposal.

Numerous studies have put potential costs on consumers in the billions, ranging from $4 billion annually to as much as $11 billion. An Energy Innovation analysis noted the proposed out-of-market subsidies for these coal and nuclear power plants would raise consumer costs between $2.4 billion and $10.6 billion annually, with the majority of payments going to only a handful of companies: NRG, FirstEnergy, Dynegy, Exelon and Entergy.

NRG, Entergy, Exelon and Dynegy do not explicitly endorse the NOPR, but noted wholesale markets are in need of reform. Exelon in its filing supports a form of out-of-market remedy, but urged FERC to preserve the regional independence of Independent System Operators and Regional Transmission Operators (RTOs).

"Exelon believes that RTOs should be given the opportunity to propose such market reforms. But, given the urgency of the problem, we need to 'get it right' the first time,” the company wrote. “So the Commission should also consider the efficacy of alternative remedies, including non-market approaches, particularly if those have the potential to achieve the goal at a lower overall system cost.”

FirstEnergy, which is tried for years to nab some sort of financial support for its struggling nuclear and coal fleet, came out in support of the rule. The utility pushed back against the arguments that say ongoing FERC initiatives would tackle the same issues the NOPR seeks to address.

"Fuel-secure, resilient generators are retiring at an unprecedented pace as a direct result of the RTO/ISO markets failing to compensate them for their resiliency contributions," the company wrote.

It's unclear the direction FERC intends to take with the proposed rule. FERC Chairman Neil Chatterjee, who has publically supported compensation for coal plants, said the agency has a wide variety of tools to address the issues within the NOPR.

Commissioners Richard Powelson and Cheryl LaFleur appear unlikely to vote for the NOPR as written. LaFleur told Utility Dive that the proposed rulemaking probably is not detailed enough to form a final rule, and Powelson promised the agency would not "destroy the marketplace."