Dive Brief:

• The Department of Energy will "respect" and "honor" the Federal Energy Regulatory Commission's decision to reject its cost recovery proposal for coal and nuclear plants, Deputy Secretary Dan Brouillette said Tuesday. 
• Brouillette told House lawmakers the cost recovery proposal was DOE "participating" in ongoing conversations about price formation at FERC and regional grid operators. The nonprofit grid operators, however, filed comments in opposition to the defunct proposal. 
• Brouillette backed away from previous statements from DOE officials warning power reliability could be at risk if FERC rejected its proposal. While the wholesale market model may work today, he said, "the question is will it work tomorrow." 

Dive Insight:

On Monday, FERC handed DOE its biggest defeat of the Trump administration, unanimously rejecting its proposal to grant cost recovery to plants with onsite fuel supplies.

But you wouldn't realize it talking to Dan Brouillette.

"We are actually encouraged," Brouillette told reporters after a hearing at the House Energy and Commerce Committee. "We think they are taking the appropriate steps and we are looking forward to working with them."

In their rejection order, FERC asked regional grid operators to answer an extensive list of questions on grid resilience — the ability to "bounce back" after outages. During the hearing, Brouillette tried to position the DOE proposal as part of the ongoing conversations at many of these grid operators over reforming generator compensation.

"In some respects it wasn’t the DOE asking [for market changes]," Brouillette said. "It was the people who actually run the grid, the PJM folks in particular and others, who were asking for changes to market rules because they themselves acknowledge in certain cases the providers of this [baseload] electricity are not properly compensated."

"They have sought changes as well and that’s what we were participating in was the conversation to do exactly that," he added. 

Grid operators like PJM, ISO-NE and MISO were all discussing changes to how generators are compensated before the DOE proposal was announced in September, and those discussions continue. The DOE plan, however, would have gone beyond the pricing proposals, potentially moving plants out of the wholesale markets and into full cost recovery.

That dynamic inspired fears in many market participants and former FERC regulators that the DOE plan could "blow up" wholesale power markets, and the regional grid operators filed comments against the DOE proposal, saying it is not necessary to preserve reliability. 

In the aftermath of the decision, coal and nuclear interests said they would push FERC to quickly approve pricing reforms to keep their plants online. Brouillette, however, said he has not met with those interests and would not pressure FERC to move faster on its new resilience docket. 

"They've decided the process and the steps they are going to take, and we're going to respect that and honor it and work with them," Brouillette said. "Should there be an emergency of some type [Secretary Perry] has emergency authorities to act appropriately ... so we stand ready to use that but I don't see a need to do something to push FERC along."

Brouillette's comments represented a break from earlier statements from DOE officials, who pressured FERC to "dutifully" approve the cost recovery plan and warned that grid reliability could be at risk if they did not. At an October hearing at House E&C, Secretary Perry told lawmakers their constituents could have to choose between heat and light during extreme weather situations if the proposal did not pass. 

Asked if the DOE's outlook on grid reliability has changed, Brouillette said the secretary was referring to "some of the economics that you saw in this particular round of cold weather" that hit the East Coast last week.

"The lack of natural gas supply in certain parts of the Northeast region did what? It produced high gas prices," Brouillette said. "That's something that raises concern from a national security, or an energy national security standpoint. It's fine for us to pursue least cost fuel sources in certain times ... but we need to realize that the market sometimes produces these sorts of outcomes."

ISO-New England, the grid operator hardest hit by the weather, relied on dual-fuel plants, hydropower and electricity imports to get through the cold snap, staying reliable even when a major nuclear plant went offline. Brouillette said while the market model there appeared to work for that storm, DOE is more concerned with if it will work in the future.

"You can make the argument that the markets work today and the diversity in the system that provided the security that we all saw through this last winter event perhaps worked," Brouillette said. "The question is will it work tomorrow?"

"What the secretary is concerned about," he added, "and the emergency security he's been referencing is if the market rules today force out some sources of generation throughout the next two, three, four, five years, then we have to ask ourselves that fundamental question: Will that diversity of supply be there when we need it as we just saw we needed it in this last winter event?"