'FERC did its job:' Former regulators, lawyers laud DOE NOPR rejection
Regulators didn't just kill a coal and nuclear bailout — they preserved FERC's critical policymaking independence.
The Federal Energy Regulatory Commission took an important step to preserve its independence in rejecting a coal and nuclear support proposal from the Department of Energy, energy lawyers and former members of the commission told Utility Dive.
"FERC did its job," said former Chairman Jon Wellinghoff, a Democrat appointed by President George W. Bush and reappointed by Obama. "[Regulators] analyzed the evidence of record and based on that made a decision that the [DOE proposal] had to be dismissed."
"I'm extremely pleased," he added.
On Monday, FERC unanimously rejected a Notice of Proposed Rulemaking (NOPR) filed by the Department of Energy that would have provided cost recovery for power plants that keep 90 days of fuel onsite.
Approval of the NOPR was a top priority for Secretary of Energy Rick Perry, who argued that the coal and nuclear plants that would benefit from the rule are essential for grid resilience — the ability to "bounce back" from outages.
A wide swath of critics, however, said the plan was more about rewarding friends of the Trump administration than protecting the electrical system. Little evidence exists to support the DOE's resilience argument, they said, and moving so many generators into cost recovery could "blow up" wholesale power markets.
FERC sided with those critics in its ruling, rejecting Perry's proposal and turning to regional grid operators for a longer-term assessment of system resilience. The decision came despite the fact that three of the five sitting regulators are Republicans, and four were appointed by President Trump.
FERC is an independent agency and was under no obligation to approve the Trump administration's proposal. Still, the decision won plaudits from observers keen to see FERC preserve its policymaking role in light of public pressure from DOE officials to approve the NOPR.
“It’s a great countervoice to some of the other things going on in [Washington D.C.]...I wish [we] could run the whole damn country like we do FERC.”
Former FERC Chairman
"The independent agencies have a critical role in our administrative state and this decision vindicates that role," said Joel Eisen, a University of Richmond law professor. "I think this is one of the most impressive actions ... that I've ever heard the commission utter, and it was made by a new five-member commission that was just formed and was under enormous political pressure to do otherwise."
"The whole proposal was unique," said Ari Peskoe, senior fellow at Harvard's Environmental Policy Initiative. "There really are no precedents and I think FERC certainly resisted any political pressure to do what the administration wants and followed what they are supposed to do by the law."
Other former FERC regulators were similarly pleased. Former Commissioner Nora Brownell, a Republican appointed by George W. Bush, said in an email that the decision "shows strong leadership and the independence of the commission." Former Chairman Pat Wood agreed, saying FERC’s ruling "validates their approach" to the NOPR.
"Independence is a great thing but it has to be fought for and earned by every new generation at FERC," said Wood, another Republican Bush appointee. "This commission passes muster."
Wood and other regulators singled out the new FERC Chairman, Kevin McIntyre, for praise, saying he was able to lead the commission to a unanimous decision despite earlier divides over the NOPR. That leadership could prove critical as the commission moves into what may become a lengthy examination of grid resilience.
"Now it is up to the RTOs to determine what resilience means," Eisen said. "We could be in for a very long proceeding and could be talking about this for a very long time."
Anatomy of the decision
When the Department of Energy filed its NOPR at the end of September, it invoked a rarely-used section of the Federal Power Act that allows it to propose rules at FERC.
DOE argued that existing market structures do not correctly value how generators with onsite fuel contribute to the reliability and resilience of the power system. Many of these plants are struggling to compete with cheap natural gas and renewable energy in power markets, and granting them cost recovery would keep them from retiring, the agency argued.
Regional grid operators — referred to as RTOs and ISOs — set the tariffs in wholesale power markets and are overseen by FERC. To force changes, DOE had to persuade FERC that the existing tariffs are “unjust and unreasonable” under the FPA, as well as prove they had a better alternative.
FERC, however, ruled that DOE and its allies in the coal and nuclear sector failed on both counts.
"While some commenters allege grid resilience or reliability issues due to potential retirements of particular resources, we find that these assertions do not demonstrate the unjustness or unreasonableness of the existing RTO/ISO tariffs," FERC wrote in the decision. "In addition, the extensive comments submitted by the RTOs/ISOs do not point to any past or planned generator retirements that may be a threat to grid resilience."
NOPR supporters also did not convince regulators their solution would be better than current market rules.
"[T]he [NOPR] would allow all eligible resources to receive a cost-of-service rate regardless of need or cost to the system. The record, however, does not demonstrate that such an outcome would be just and reasonable," FERC wrote. "It also has not been shown that the remedy in the [NOPR] would not be unduly discriminatory or preferential."
For such a prominent case, FERC dispensed with the DOE’s arguments “very efficiently and very quickly,” Peskoe said.
“They didn’t spend a lot of time struggling with the evidence here,” he said of the decision. “They don’t take anything DOE says at face value. They take their own look at the record and very clearly do not reach DOE’s desired conclusions.”
Opponents of the NOPR say that’s because the DOE’s proposal was never supported by the record in the case.
“There was no evidence to support current tariffs being unjust and unreasonable,” Wellinghoff said. “This is pretty cut and dried and it’s right down to the line, by the book what an independent agency should be doing. “
While many lauded FERC’s decision, few were surprised. Former Commissioner Tony Clark, a Republican Obama appointee who left FERC in 2016, noted that Commissioners Cheryl LaFleur and Robert Powelson indicated early in the NOPR debate they were unlikely to support the DOE proposal.
“Once you started counting noses, you knew they didn’t have the numbers to move the policy forward,” Clark said. “Then [the question] became what are they going to do?”
While approval of the NOPR may not have been likely, unanimous rejection was also not assured. Before McIntyre and Commissioner Richard Glick were both installed at FERC, the dialogue about the NOPR was quite different.
In November, Commissioner Neil Chatterjee, then the acting chairman of FERC, outlined a short-term subsidy package designed to keep coal and nuclear plants online as FERC took on a broader examination of grid resilience.
Chatterjee’s proposal would have directed grid operators to either approve new tariffs to keep the generators online or prove to FERC why they are not necessary. The proposal came after Chatterjee met with owners of coal and nuclear plants, who he said convinced him that the grid could be at risk.
“This isn’t what Neil Chatterjee thinks,” he said. “The people who are submitting the comments are the people that own these assets who are saying that the threat is imminent and that these plants are set on the current trajectory to be prematurely retired.”
Chatterjee, however, voted with the rest of FERC on Monday to reject the DOE plan without any short-term plant supports. In a concurrence, he made clear that he would have preferred to enact interim subsidies, but wrote that the order “represents a positive step forward in addressing these critical issues.”
The 5-0 vote shows that “Chairman McIntyre has some real ability to bring all of the commissioners together to speak unanimously, and that’s impressive in itself,” Eisen said. “If this result had been reached a month ago it could have been a very different result indeed and that would have been very unfortunate.”
Wellinghoff and other regulators also credited McIntyre with bringing Chatterjee over to the majority. In his first open meeting, the new chairman made clear he preferred unanimous decisions on contentious issues, and Commissioner Glick, a Democrat, specifically called out McIntyre’s leadership in the opening lines of his concurrence.
“If you read the concurrence of Commissioner Glick, he in fact commends Mcintyre for his leadership,” Wellinghoff said. “So I think it’s quite obvious in his concurrence it was Chairman McIntyre who in fact led this direction toward an appropriate result based on evidence of record.”
Wood agreed, saying he was especially pleased to see the commission come together after months of politically-charged debate in the sector.
“I’m delighted. I’ve never met McIntyre but I look forward to that because he did a good job,” Wood said. “It was lovely to see in the first big item from this commission that kind of collegiality kind of bleeding off the page. I gave some really good years of my life to that institution and it makes me feel really happy not only to see the substance but how they got there.”
Others pointed out that Chatterjee had little to gain from being the sole vote for the DOE proposal.
“I suspect that unanimity was important,” Peskoe said. “There would have been very little point in being 4-1 and being a dissent.”
Onward to grid resilience
In rejecting the NOPR, FERC asked regional grid operators to report back to the commission within 60 days on grid resilience. In particular, FERC wants input on how the operators define resilience, how they assess it in their service areas, and whether any action from FERC is needed to assist them.
That is a decidedly open-ended request, Clark pointed out.
“The path they chose was relatively passive — not an aggressive way of dealing with the next steps,” he said. “They said to RTOs and ISOs, ‘give us something in 60 days’ but there wasn’t a lot of specificity on that.”
Much of that may be due to the absence of a common definition of grid resilience, Clark said. While resilience conversations in the past typically referred to black-start resources or grid hardening, the DOE proposal expanded the conversation to include the value of resource diversity and fuel supplies.
“Because resiliency itself has never been defined at the federal level, certainly not by FERC itself, it probably led them to say ‘let’s begin to fill out the notepad on what resilience means,’” Clark said.
In their order, FERC regulators highlighted efforts by PJM and ISO-NE to “better understand vulnerabilities in their systems.” Both grid operators are considering changes to pricing rules in their markets to better integrate subsidized resources and ensure reliability is not threatened in the future.
In PJM, one major proposal would allow large generators like coal and nuclear plants to set energy market prices, helping them cover their costs. ISO-NE, for its part, filed new forward capacity market rules with FERC on Jan. 8 that would require subsidized resources, like renewables, to identify existing capacity market resources to retire if they are to enter the market.
It remains to be seen whether grid operators offer these pricing proposals as part of FERC’s resilience proceeding, but some analysts think the commission’s action could push things along.
“I hope that ultimately what the NOPR did accomplish was provide some urgency to tackle some of the issues that [FERC] was going to do anyway,” said Jeremy Harrell, policy director at the free-market think tank ClearPath. “The biggest pitfall is we continue to move at this glacial pace [on pricing reforms].”
Other analysts remain skeptical that the proposed pricing changes at RTOs and ISOs will really enhance the security of the electric system.
“The main downside of all of these things is they increase costs for customers without any tangible benefit,” said Robbie Orvis, policy design projects manager for Energy Innovation. “I hope what [grid operators] say is basically that it's under control, we could use improvements to these price formation proposals, but we're pursuing them in a separate docket which is where it really should happen.”
After grid operators file with FERC, other commenters will have 30 days to respond. While the outcome of that longer resilience proceeding remains unclear, the former regulators all agreed FERC took the proper approach to the issue in its decision yesterday.
“It’s a great countervoice to some of the other things going on in that great city,” Wood said, referring to Washington, where the commission is headquartered. “I wish [we] could run the whole damn country like we do FERC.”
Follow Gavin Bade on Twitter