Former FERC heads: DOE NOPR would 'fundamentally distort' power markets
- A bipartisan group of former leaders of the Federal Energy Regulatory Commission filed comments with the agency on Thursday urging it to reject or substantially alter a Department of Energy proposal to provide cost recovery to coal and nuclear plants.
- Former Chairmen Pat Wood III (R), Joe Kelliher (R), James Hoecker (D), Betsy Moler (D) and Jon Wellinghoff (D) wrote that the DOE proposal would "fundamentally distort" wholesale power markets, undermining investor confidence and thereby harming grid reliability. Former Commissioners Donald F. Santa, Jr. (D), Linda Key Breathitt (D) and Nora Mead Brownell (R) also signed the letter, urging the sitting regulators to either modify the existing proposal or initiate regional proceedings to consider resilience issues.
- The filing comes days after Commissioner Cheryl LaFleur said the DOE proposal is likely not detailed enough to form the basis of a final rule and will likely require consideration beyond the 60-day timeframe requested by DOE. Hundreds of other entities have filed initial comments ahead of the Oct. 23 deadline.
When the Department of Energy published its Notice of Proposed Rulemaking to provide cost recovery for plants with a 90-day fuel supply onsite, former FERC Chair Jon Wellinghoff immediately told Utility Dive the proposal would "blow the market up" if enacted as written.
Now he and four other past chairs are putting that sentiment into official comments, writing to sitting regulators that the NOPR would be "a significant step backward" from FERC's "long and bipartisan evolution to transparent, open, competitive wholesale markets."
Independent grid operators have done "a superb job" at ensuring grid reliability while lowering costs to customers served by wholesale power markets, the former regulators wrote. But the introduction of subsidies for such a significant portion of the generation fleet would "fundamentally distort" their functioning.
"The subsidized resources would inevitably drive out the unsubsidized resources, and the subsidies would inevitably raise prices to customers," they wrote. "Investor confidence would evaporate and markets would tend to collapse. This loss of faith in markets would thereby undermine reliability."
Those comments echo concerns of independent analysts and state energy regulators in the weeks after the NOPR. “There would not be competitive resources on the market if the rule's text is to be taken seriously,” said Montana Public Service Commission Vice Chair Travis Kavulla.
Instead of finalizing the NOPR as written, the former FERC chairs urge the sitting regulators to "use the opportunity" created by its discussion to "identify attributes of the current competitive market system that need to be improved."
From there, FERC should "crisply define" those attributes and "either modify the current published proposal or initiate regional proceedings to examine resilience issues and consider the need for market rule changes."
In particular, the former regulators pushed FERC to identify "outcome-based" resilience services. All organized markets procure Black Start resources, for instance, either through cost-of-service tariffs or competitive processes, as in ERCOT. And RTOs also have reliability must-run (RMR) contracts that ensure specific resources do not retire and are instead "available for a specified length of time to provide a base level of energy production."
But while additional resilience attributes may be identified, the former chairmen urged FERC to look beyond the characteristics of generators. Fuel supply issues have been an "insignificant cause" of customer outages, they wrote, while a "more robust transmission and distribution system will add resilience in all markets."
Those comments align with recent analysis of U.S. power outages, including an Oct. 3 report from the Rhodium Group, which held that 0.00007% of the total customer outage hours between 2012 and 2016 were due to fuel supply issues — and most of those stemmed from a coal generator.
If fuel supply does become an issue, "there are market-based solutions that can be employed" instead of the NOPR, former chairmen wrote.
"[F]or example, the recently-implemented capacity performance programs in PJM and ISO-NE are intended to incent and reward fuel supply certainty, and to severely penalize the failure to provide power at critical times," they wrote.
The FERC chairmen's comments are just one entry among hundreds filed in recent weeks by companies, organizations and individuals seeking to influence the FERC decision. On Thursday, a group of Democratic Congressional leaders wrote to FERC as well, urging them to reject the NOPR.
The filing from former regulators could fall on sympathetic ears at FERC. Earlier this week, LaFleur said the proposal would likely need to be significantly altered to form a final rule, and Commissioner Robert Powelson has said he would not vote for a reform that would unravel wholesale markets. Acting Chairman Neil Chatterjee has expressed support for preserving the coal fleet in the past, but has also repeatedly pledged to maintain the commission's independence.
Former Chairman Pat Wood III coordinated drafting of the comments and said he was "heartened" by the remarks of sitting regulators, but not surprised.
"Once you're up there and you see the issues from that chair, whoever appointed you doesn't matter," said Wood, now chairman of the board at Dynegy Corp. "You generally come out with the same kind of conclusions about how to hit the balance right."
Wood, chairman from 2001 to 2005, expressed hope that FERC would move quickly to expand the NOPR discussion into one focused on broader resilience and wholesale market reform issues.
"Honestly in light of the fact that we've got real issues I just hate that we're having to spend a second of time on something like this," he said, "but I guess the one upside is it really makes people look internally and decide that for all the imperfections we sure do like wholesale markets, and we need that."
While it could take a number of actions, Wood expects the commission will ultimately move to preserve the wholesale market model within the timeline requested by DOE, though more general conversations on grid resilience should continue.
"I think anybody who takes the job seriously and is informed about what is going on out there realizes that there are ways that would work and there are ways that would not work, and I think they can figure that out in 60 days."
At FERC's monthly open meeting on Thursday, Chatterjee said the current regulators will carefully consider the comments of the former chairmen alongside other input.
"The fact that concerns are being raised by some of the former chairmen, we're surely going to factor that. I'm certain there will be comments from others strongly in favor of what DOE's put out," Chatterjee said. "So we will carefully examine it, look at the record, and move forward in a manner that [will] ... potentially address this issue in a legally defensible matter that does not ... blow up the markets."
This post has been updated to add comments from Chairman Chatterjee, include the official filing from former FERC regulators and reflect that that Commissioner Donald F. Santa, Jr. signed the comments between the official filing and the draft supplied to Utility Dive.
- Utility Dive Comments of former FERC Commissioners
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