At the end of September, the U.S. Department of Energy quietly issued a Notice of Proposed Rulemaking (NOPR) with the Federal Energy Regulatory Commission that amounts to requiring subsidies for coal and nuclear power plants. The rule would be a sea change in how electricity markets have worked since competitive markets were established in the late 1990s. Some would go so far as to say that the proposal scraps competitive wholesale electricity markets entirely.
The proposed rule would provide for “accurately pric(ing) generation resources necessary to maintain reliability and resiliency.” Toward that end, the proposed rule demands the “recovery of costs of fuel-secure generation units frequently relied upon to make our grid reliable and resilient.” What that means in everyday language is that power plants that have a 90-day fuel supply on-site — coal, nuclear and hydroelectric power plants — would be guaranteed “full recovery of costs” and a “fair rate of return” — courtesy of ratepayers, of course. What is a “fair rate of return?” That’s an open question that many in other fuel sectors and consumers are worrying about. Nuclear units, coal units and hydro units are the only units with a 90-day fuel supply on-site.
The DOE’s NOPR — if enacted by FERC — would require FERC-approved regional transmission organizations and independent grid operators to establish rate tariffs that ensure such units recover their costs and earn a fair profit. Some would say the rule is a long-overdue lifeline for baseload plants and an overdue recognition, in the form of market compensation, for their important services of reliability and resiliency. Others, however, will say the rule would be antithetical to the concept of competitive wholesale power markets and fuel diversity, and a bailout for struggling uncompetitive nuclear and coal plants.
The DOE is in a big hurry, telling FERC to get the rule done in final form in 60 days. This NOPR follows on the heels of the DOE’s Staff Report to the Secretary on Electricity Markets and Reliability, issued in August. There is irony there because that report declined to endorse a policy favorable to any particular fuel type. Instead, it adhered to a market-based approach, where government eschewed picking winners and losers.
As you might expect, the NOPR has stirred up a hornet’s nest. With unprecedented speed, 11 energy trade groups weighed in on Monday. The group filed a legal motion urging FERC to consider industry input as it decides whether it will move forward with the DOE’s directive. The diversity of the group is notable. The group includes renewable energy groups, oil and gas groups, electricity consumers, rural electric cooperatives and natural gas pipeline interests. They said, in perhaps multiple levels of understatement, that:
This is one of the most significant proposed rules in decades related to the energy industry and, if finalized, would unquestionably have significant ramifications for wholesale markets under [FERC's] jurisdiction. [This rule would] … affect electricity prices paid by hundreds of millions of consumers and hundreds of thousands of businesses, as well as entire industries and their tens of thousands of workers.
The DOE says its proposal “will strengthen American energy security by ensuring adequate reserve resource supply.” But the 11 energy associations say there is no reliability emergency, and no expert (for example the North American Reliability Council) even hints that there is one. In fact, the energy associations say that both NERC and the DOE have released a report "categorically concluding” that there is no reliability problem.
It will be important for everyone who may be affected by this rule to participate actively and quickly in this NOPR process. Strategic building of the comment record will be critical to their cause, as will speed, given the 60-day timeline. Indeed, the DOE says that if FERC cannot get it done in 60 days, then it should issue an Interim Final Rule adopting the DOE proposal, effective immediately, with provision for later public comment and modification of the rule.