Regulators reject energy pricing proposal
The Federal Energy Regulatory Commission has opted to take a different course in how the electrical industry should address potential supply threats to the nation’s power grid, rejecting a proposal by the Department of Energy to set pricing rules that compensate coal and nuclear-powered generators for on-site storage of fuel.
The DOE’s proposal stemmed from a department study that raised questions about the grid’s capacity when stressed by natural disasters. The problem is compounded by the retirement of nuclear and coal-powered plants.
The proposal drew criticism from natural gas suppliers and supporters of renewable energy who called it a subsidy for coal and nuclear plants that can’t compete in the generation marketplace.
Had it been enacted, the proposed rule would have allowed the FERC, with its authority under the Federal Power Act, to require third-party power transmission entities such as Regional Transmission Organizations or Independent System Operators to set “just and reasonable rates” for wholesale electricity from power plants that show reliability and resiliency in supplying the grid by maintaining a 90-day supply of fuel on site, for one example.
In its Jan. 8 decision, the FERC ruled the pricing proposal ‘did not satisfy clear and fundamental legal requirements under …the Federal Power Act.”
Instead, the commission will tap into the expertise of the RTOs and ISOs and request they provide data as to whether the commission and markets need to take additional action on the resilience of the bulk power system.
“The goals of this proceeding are to develop a common understanding among the commission, industry and others of what resilience of the bulk power system means and requires; to understand how each Regional Transmission Organization and Independent System Operator assesses resilience in its geographic footprint, and to use this information to evaluate whether additional commission action regarding resilience is appropriate,” the commission said in a prepared statement.
It has set a 60-day deadline for operators to submit the information.
“As the DOE grid study documented, we have seen a variety of economic, environmental and policy drivers that are changing the way electricity is procured and used,” the FERC said. “These changes present new opportunities and challenges regarding the reliability, affordability, and environmental profile of each region’s electric system. These changes may impact the resilience of the bulk power system. As we navigate these changes, the commission’s markets, transmission planning rules and reliability standards should evolve as needed to address the bulk power system’s continued reliability and resilience.”
PJM Interconnection is the RTO that coordinates the movement of wholesale electricity in Ohio, Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.
Problem misidentified
The DOE…misidentifies a problem, misstates the cause, and then proposes a radical solution that is antithetical to clear Congressional and Commission policy in favor of promoting competitive energy markets,” PJM said in its response to the department’s proposal. “The DOE … assumes without support that there is a resilience crisis that is urgently unfolding because coal and nuclear units are retiring, that market prices are to blame, and that the only solution is to incentivize those coal and nuclear units to remain in service by providing them with guaranteed cost of service rate recovery regardless of whether they are needed for resilience or actually provide measurable resilience benefits.”
