DOE confident FERC will ‘dutifully’ finalize a price formation rule, senior advisor says

Dive Brief:

  • The Department of Energy is “confident” the Federal Energy Regulatory Commission will “dutifully consider and adopt a rule that will address price formation in the electric markets,” a senior DOE official told state utility regulators at their annual conference yesterday. 
  • Sean Cunningham, head of the DOE’s Office of Energy Policy and Systems Analysis, told regulators that baseload power resources should be “revived, not reviled,” and the cost of not supporting such plants would be far more than enacting the DOE’s proposed subsidy program. Travis Fisher, a DOE senior advisor, aimed to “calm the waters” in the natural gas sector, telling stakeholders that industry will have a chance to “prove it’s resilient” in the future. 
  • FERC Commissioner Robert Powelson, meanwhile, said that he, like Acting Chairman Neil Chatterjee, has met with coal generator FirstEnergy to discuss the NOPR, along with a variety of other companies. 

Dive Insight:

Department of Energy staffers arrived at the annual conference of the National Association of Regulatory Utility Commissioners in Baltimore this week to find a skeptical audience. 

NARUC submitted comments to FERC last month asking it to pump the breaks on DOE’s proposal to support coal and nuclear plants and further study its impacts. A number of state utility commissions and environmental regulators also filed comments independently, pushing for extensive revisions or a rejection of the proposal.

It was in that atmosphere that Cunningham delivered his keynote address on Monday, standing in for Deputy Energy Secretary Dan Brouillette, who was absent without explanation.

In his stead, Cunninham delivered what’s become a familiar DOE narrative supporting its Notice of Proposed Rulemaking (NOPR), filed at the end of September. 

“Coal and nuclear power remain crucial to the continued functioning of America’s electric grid,” he said. “Both of these sources need to be revived, not reviled in America.”

Cunningham repeated the claim that the polar vortex — a prolonged cold snap in January 2014 — justified the need for the NOPR. With natural gas being diverted for home heating, coal and nuclear plants “came to the rescue,” using the fuel they had stored onsite to provide power. 

“What if they weren’t there?” Cunningham said of the baseload plants. “The loss of generation could have been catastrophic.”

Many energy analysts find fault in this narrative, as coal plants also went offline due to frozen fuel and mechanical issues, but they represent the party line at DOE. Last month, Secretary of Energy Rick Perry told members of the House Energy and Commerce Committee that a new cold snap could force customers to choose between heat and power

During that hearing, Perry was asked if DOE modeled the expected costs of the NOPR, which would provide cost recovery to merchant plants that keep 90 days of fuel supply onsite. Perry provided no pricetag estimate for the NOPR, but said those considerations are secondary to supporting at-risk plants. 

“I think you take costs into account, but what’s the cost of freedom?” Perry asked. “What is the cost to build a system to keep America free? I’m not sure I want to put that straight out on the free market and build the cheapest delivery system here.”

Cunningham echoed those comments in remarks on Monday. Asked by Montana PSC Vice Chair Travis Kavulla about the costs of the NOPR, the DOE advisor reversed the query.  

“We have to consider what the cost would be, including the economic cost and the cost to consumers, of a world without nuclear and coal generation,” he said. “It’s simply economics 101 that if you back out those resources from the mix, it’s going to create a narrower resource base and prices are going to go up.”

Cunningham referenced a study from IHS Markit, released weeks before the NOPR was filed, that compared the current U.S. grid to one without any coal or nuclear generators, finding that the latter could be 27% more expensive for power customers. 

“We found that study to be very informative,” he said. 

Many energy analysts take issue with the IHS report, in part because it only considered one hypothetical scenario. But the study, funded by the coal and nuclear sectors, has become a central piece of evidence for supporters of the NOPR, showing up in Secretary Perry’s letter to FERC and comments filed by the likes of Murray EnergyExelon and FirstEnergy.

Those companies also appear to be the ones who have gotten traction with federal policymakers on the NOPR. Last week, the nominee for the No. 2 position at the EPA admitted being present for meetings at DOE and on Capitol Hill that sought to craft baseload plant supports in his former role as a lobbyist for Murray. 

Cunningham, meanwhile, is a former lobbyist for FirstEnergy, and Chatterjee last week endorsed an interim proposal to keep coal and nuclear plants online that closely reflects comments filed by the coal generator. Chatterjee told reporters he had met with the CEO of the company to discuss its “thoughtful” proposal. 

“We met with the FirstEnergy team, with our team at the commission, to really kick the tires on what they proposed and challenge them on some of what they had put forward,” Chatterjee said. 

He’s not the only one. After addressing the NARUC gas committee, Powelson confirmed to reporters that he, too, had met with the coal generator, among others. 

“I think everybody’s come through to meet with us. I’ve had a ton of meetings,” Powelson said. “They all came through, I mean every company. All of us got a brief.” 

“Everybody has their views in this commission and that’s been the good thing about this commission,” he said. “We’re trying to have a good conversation about where we need to head on this.”

Powelson was joined at the gas committee by Travis Fisher — the DOE advisor who led efforts on the agency’s grid study, released earlier this year that Perry views as justification for the NOPR. Fisher sought to “extend the olive branch” to the gas industry, which is opposed to the NOPR, saying that gas infrastructure will have a chance to “prove its resilience.”

Fisher did not elaborate on that statement and declined to offer comments after his remarks. But he did make a point to tell the gas committee that the results of the NOPR might not be as bad as they fear. 

Much of the power sector was apprehensive about the results of the grid study, and

“in contrast the final report was pretty even handed and fair.”

“I think that’s exactly what we’re going to see from FERC at the end of this NOPR process,” he said.

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