Rick Perry’s proposal would upend years of power reform
Energy Secretary Rick Perry’s proposed rule to prop up coal and nuclear plants looks to upset two decades of electricity market reforms, while potentially stifling the development of natural gas power plants that have become a leading source of the nation’s electricity.
Although Perry has said he meant the rule to begin “a conversation,” that hasn’t stopped the proposal from moving forward at unprecedented speed while prompting a major backlash from a broad swath of the energy industry.
Perry last week teetered back and forth on whether the proposal is a conversation starter or taking direct “action” to ensure “our diverse generation mix,” while testifying before the House Energy and Commerce Committee’s energy subcommittee. “As secretary of energy, I will not sit idly by when I see a threat to that reliability, or a reasonable course of action that is within my authority to mitigate it,” he said in prepared remarks.
Rep. Fred Upton, R-Mich., chairman of the energy subcommittee, said that while he will “reserve judgment on the policy solutions, the fact that the secretary stepped into this complicated debate reflects the current need to have a broader conversation about the functioning of the nation’s electricity markets.”
The rule looks to provide market incentives to coal and nuclear plants for providing increased “resilience” for the grid.
A range of businesses, from crude oil and natural gas to wind and solar companies, have pushed back against the proposal. Analysts suggest the rule would require months of deliberation and modeling before it could even approach the proposal stage, especially for a regulation that could affect billions of dollars in investments and planning decisions.
Instead, the Perry proposal was shipped over to the Federal Energy Regulatory Commission on Sept. 28 in a peculiar way that broke with 40 years of commission precedent. FERC typically doesn’t issue rulemakings at the behest of a Cabinet-level agency.
A proposal from the Department of Energy “is not the standard process” for writing a rule that represents a “significant departure” from the last two decades of electricity regulation, said Judah Rose, senior vice president and managing director at the energy consulting firm ICF, on a recent conference call trying to decipher the harm the rule could cause.
Another unprecedented step by FERC at the behest of Perry is the length of time it is giving businesses, states and others to comment on the proposal. It is providing a bare-bones 21 days. Most complex rules require at least a 90-day public comment period, with additional time for stakeholder responses, almost like the structure of a court proceeding ahead of oral arguments. Perry wants the entire process wrapped up in 60 days.
Rose suggested it would be next to impossible in that time frame to do the modeling and analytics required by the commission to evaluate the proposal’s impact. On top of that, ICF sees major costs for natural gas generators trying to abide by the new rules. “So there are costs” for complying with the rule, which is “driving uncertainty,” Rose said.
It also is not clear if natural gas plants would be able to benefit from the proposal under the 90-day fuel criteria. Renewables, such as wind and solar, which don’t use fuel, “do not appear to qualify” for any incentives, Rose said. A preliminary analysis by ICF said the rule would cause the growth of gas-fired power plants to drop off because fewer coal and nuclear plants would close.
Perry is attempting to solve a problem that he framed as grid resiliency. He says power plants, primarily coal and nuclear, need to be compensated for being able to withstand an infrequent, but devastating, event such as a hurricane or some other potentially catastrophic scenario such as a cyber or physical attack on the electric grid.
Coal and nuclear plants can store 90 days worth of fuel on site in the form of piles of coal or a reactor’s fissile material that can last months in the reactor before having to be replenished, Perry says.
But the plan seems to be gaining more detractors than champions.
The latest big hit came from Thomas Pyle, the former head of Trump’s Energy Department transition team, and the president of the Institute of Energy Research.
Pyle’s group issued an analysis last week that concurred with the scores of industry group, utilities, oil companies, renewable energy groups, and other conservative groups opposing the Perry 90-day rule.
Pyle’s group is willing to go the furthest to give the proposed rule the benefit of the doubt.
The group concedes that the Energy Department has “identified a real problem,” dinging the “growth of intermittent sources of electricity like wind and solar” that have increased the need for “reliable” baseload power plants, “but the expansion of natural gas generation is an important consideration as well.”
Despite its willingness to entertain Perry’s ideas, the group came down hard on the way he has translated those ideas into regulation. The proposal is “excessive and unnecessarily distortive” to the electricity markets it would undoubtedly destroy.
“Like using a sledgehammer to swat a fly, this rule would end up causing enormous destruction even if it also managed to provide more resilient baseload capacity,” the analysis read.
“Guaranteeing cost recovery for certain types of generation would destroy electricity markets.”
FERC oversees the wholesale electricity markets in some of most densely populated and industrial parts of the United States. FERC-overseen market operators such as the Northeast’s PJM Interconnection typically look to address a problem like the one identified by Perry through their own processes.
But the problem is that stakeholders haven’t said that compensating power plants for resilience is an issue.
“This whole effort would undermine [the FERC restructured markets] particularly in the Northeast,” said Phil VanHorne, CEO of energy retailer Blue Rock Energy, which uses the markets to deliver lower costs to manufacturers, which is one of the major benefits of the FERC-overseen markets.
