Energy Secretary Rick Perry’s proposal to give cost-recovery status to coal and nuclear plants in competitive energy markets in the name of grid resilience continued to draw heated debate this week, as estimates of how much it would cost U.S. ratepayers mounted into the tens of billions of dollars per year.
Meanwhile, with little likelihood of the Federal Energy Regulatory Commission passing anything like the proposed rule as written before year’s end, parties on both sides of the debate are preparing for the next steps with their own alternative plans for how FERC might value energy reliability, security and resilience -- or, first, define what those terms mean.
This was the state of play outlined at a Tuesday event in Washington, D.C., featuring four former FERC commissioners united against the DOE’s notice of proposed rulemaking (NOPR), energy company executives with a mix of policy agendas and concerns, and an off-the-agenda appearance by DOE’s newly appointed director for the Office of Energy Policy and Systems Analysis, Sean Cunningham, who reiterated Secretary Perry’s view that coal and nuclear plant retirements are a threat to energy security.
“In terms of picking winners, as I keep coming back to, this is about national security,” said Cunningham, an attorney representing utilities and a Federalist Society member appointed by the Trump administration last month. “National security is a winner, no matter how you want to argue about it -- and we’re picking that. Part of that is fuel-secure generation.”
But James Hoecker, a FERC commissioner from 1997 to 2001, drew a laugh from the crowd when he expressed a view more widely held in the industry, calling the proposal a “Scud missile of a NOPR." Hoecker, along with Nora Mead Brownell, Betsy Moler and Pat Wood III, were on stage to represent the 11 former commissioners who filed comments earlier this month calling the NOPR a “significant step backward” for the agency.
“If the goal of the NOPR is to stimulate a conversation to promote greater reliability and a more resilient electric system, then I think that’s laudable -- and I think it’s not going to accomplish that,” Hoecker said. “If the goal of the NOPR is to save uneconomic coal and nuclear plants, then that’s probably starting off on the wrong foot.”
There have been many critiques of the DOE’s plan, from its lack of support for linking 90-day fuel supplies with grid reliability and its unclear definition of the key term of “resilience,” to its insistence on a 60-day timeline for final action from FERC.
The costs and market disruptions of the proposal were front and center in Tuesday’s debate hosted by the Bipartisan Policy Center, both in terms of the additional billions of dollars to keep uncompetitive plants running, to the potential for billions more in lost opportunities for investing in energy alternatives to solve the grid’s problems.
Over the past two and a half decades of FERC’s efforts to bring competition to the energy sector, “We’ve seen billions of dollars of new investment in new technologies, an abundance of innovation that’s allowed customers to participate in markets via energy efficiency and demand response and renewable energy,” said Brownell, a commissioner from 2001 to 2006.
Competitive energy markets have also been “avoiding some of the disasters we’ve seen in the Southeast,” which lacks them, she added, referencing the multibillion-dollar cost overruns and cancellations of massive nuclear power plant construction projects in the region.
John Moore, director of the Natural Resources Defense Council, noted that the cost estimates of the plan have been growing over the weeks, from up to $3.8 billion per year according to research firm ICF, to a more recent study from Energy Innovation and the Climate Policy Initiative that projects more than $10 billion per year, out of an energy economy of roughly $280 billion.
Mid-Atlantic grid operator PJM, with the largest share of coal power of any region in the country, would likely bear the brunt of this change, up to $7.3 billion per year, the latter report found. Moore noted that PJM’s Independent Market Monitor has estimated the rule could cost “hundreds of billions” of dollars, with “impacts on price formation that are very difficult to calculate.”
Meanwhile, nearly 90 percent of the nuclear energy support would go to five companies -- Exelon, Entergy, PSEG, NextEra and FirstEnergy -- while NRG, Dynegy, FirstEnergy, American Electric Power and Talen Energy would receive 80 percent of the coal subsidies, the report found.
Kathleen Barrón, vice president of competitive market policy for Exelon, noted in Tuesday’s panel that these costs should be considered against the potential costs of allowing more of these baseload plants to close.
“We wouldn’t say we want to have an all-nuclear fleet. But do you want to have an all-natural-gas fleet?” she said. “It’s important to ask the RTO leaders to weigh in on this question; it’s important to collect the data. There’s not enough information.”
At the same time, "We’d like to see people work toward figuring out what cost-effective solutions would be," she said. This kind of work is underway at FERC already, and it's also being pursued at the state level via proposals to offer zero-carbon emissions credits to nuclear power plants.
Cunningham, who wasn’t on the same panel as Brownell and the other commissioners opposed to the plan, chose to stick to the DOE’s talking points in his opening remarks. “FERC has been talking about price formation for years. Meanwhile, coal and nuclear generation businesses have continued to be pushed out of the market,” not due to market forces, he said, but rather because “FERC markets are not adequately valuing the resilience attributes they provide.”
Cunningham also insisted that even those who disagree with the DOE’s plan “agree that the problem is real" -- a statement at odds with the majority of energy industry opinion. Many industry experts find no evidence that the current rate of coal and nuclear power plant closures, along with a rising share of natural gas and continued growth in wind and solar power, threaten grid reliability.
But Cunningham also said that the DOE is “delighted to see there’s been such an outpouring of interest -- a lot of it against, but a lot of it for,” and “many...alternative proposals.”
These proposals may find a place in the comments to be filed on whatever proceeding FERC ends up initiating on the matter. As Hoecker noted, “a final rule is not going to happen this year. A policy statement maybe, or an order to convene technical conferences -- the options are many.” In that light, he said, “Let’s take this opportunity to [discuss] how markets can make electric service more reliable and resilient."
Rich Powell, executive director of the conservative clean energy policy group ClearPath Foundation, offered one such proposal in the form of two new market constructs, meant for coal and nuclear power plants, respectively.
The first is a “ready reserve market,” designed for highly resilient generators with on-site fuel that could spin up within a day to serve as “the firefighter of the energy system.” Those plants would not be eligible to participate in capacity or energy markets, however, meaning they would sit idle most of the time, not burning coal or emitting carbon.
The second is a “resiliency operating market,” where only highly resilient generators would be able to participate, with the kind of physical and cybersecurity features common to the country’s nuclear power fleet. Participating plants would be able to play in capacity and energy markets, he said.
