US Energy Industry Associations Urge FERC To Reject DOE Proposal To Subsidize Coal & Nuclear

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A diverse group of a dozen US energy industry associations which represent oil, natural gas, wind, solar, efficiency, and other technologies, have come together to urge the Federal Energy Regulatory Commission to reject the Department of Energy’s proposal to subsidize the coal and nuclear energy industries, claiming that such a proposal is unsupported by record and would throw a costly wrench into the nation’s electricity markets.

In only the space of a month, the hullaballoo surrounding the US energy markets has significantly increased following the long-awaited release of the Department of Energy’s (DOE) grid study — which showed a clear preferential treatment of the country’s coal and nuclear industries. The report, released in late August, led to the early October proposal made by Energy Secretary Rick Perry to the Federal Energy Regulatory Commission (FERC) which essentially seeks to subsidize the coal and nuclear industry for some imaginary grid resiliency they provide.

Almost immediately, critics of the proposal came out to urge the FERC Commissioners to abandon the proposal — an idea which might have been mirrored by at least two of the Commissioners, who within a week expressed their own concerns with the proposal. The level of criticism and opposition only increased, and within a fortnight a bipartisan group of former Federal Energy Regulation Committee Commissioners filed a letter with their former agency opposing the DOE proposal.

A day later, a group of 12 energy industry associations submitted their comments to FERC opposing the proposal.

That same group of 12 energy industry associations have followed up this week in continuing their opposition to the proposal, in which they have filed a response to initial public comments filed with FERC — a traditional back and forth process. The original comment period yielded “an unprecedented volume” of comments made by filers including grid operators, industry associations, industry representatives, and a “small set of interests” who would benefit financially if the proposal was passed.

This last group, the smallest, unsurprisingly argued in favor of the proposal but failed to provide anything close to justification as to why FERC should approve the proposal. Rather, the clear majority of those filing comment with FERC opposed the proposed rule.

“We are encouraged to see overwhelming recognition that the proposal would undermine competitive electricity markets, harming consumers and reliability in the process,” said Amy Farrell, Senior Vice President for Government and Public Affairs, for the American Wind Energy Association (AWEA).

“It is particularly telling that even many coal and nuclear plant owners who would receive those payments under the proposal filed in opposition, recognizing short term gains would be outweighed by long-term harm to electricity markets. We look forward to working with FERC, grid operators and other stakeholders to ensure markets value generation performance and deliver affordable, reliable electricity.”

“The joint comments filed today with partners across the energy spectrum reflect the overwhelming majority view that this proposed rulemaking by FERC is unprecedented and unwarranted,” said Todd Foley, Senior Vice President, Policy & Government Affairs, American Council on Renewable Energy (ACORE). “We’re hopeful that FERC will rule against an anti-competitive distortion of the electricity marketplace and avoid new unnecessary initiatives that increase power prices for American consumers and businesses.”

The new reply comments from the Energy Industry Associations submitted in response to initial comments filed by hundreds of stakeholders on or before October 23 are highlighted below:

Despite hundreds of comments filed, no new information was brought forth to validate the assertion — by DOE or the NOPR Beneficiaries — that an emergency exists that requires accelerated action to prop up certain power plants that are failing in competitive electricity markets:  

• “The record in this proceeding, including the initial comments, does not support the discriminatory payments proposed” by DOE, state the industry groups.”

Nearly all of the initial comments filed in the matter take issue with the DOE NOPR and its claim of imminent threats to the reliability and resilience of the electric power system:

• “Of the hundreds of comments filed in response to the DOE NOPR, only a handful purported to provide substantive evidence in support of the proposal. In contrast, an overwhelming majority of initial comments agree that the DOE NOPR fails to substantiate its assertions of an immediate reliability or resiliency need related to the retirement of merchant coal-fired and nuclear generation.”

Grid operators filed comments refuting claims that the potential retirement of coal and nuclear plants which could not compete economically present immediate or near term challenges to grid management:

• “Even the RTOs and ISOs themselves filed comments opposing the DOE NOPR, noting that the proposed cost-of-service payments to preferred generation would disrupt the competitive markets and are neither warranted nor justified…. Most notably, this includes PJM Interconnection, … the RTO in which most of the units potentially eligible for payments under the DOE NOPR are located. PJM states that its region ‘unquestionably is reliable, and its competitive markets have for years secured commitments from capacity resources that well exceed the target reserve margin established to meet [North American Electric Reliability Corp.] requirements.’ And PJM analysis has confirmed that the region’s generation portfolio is not only reliable, but also resilient.”

The need for NOPR Beneficiaries to offer alternative proposals reflects the weakness of DOE’s rule as drafted, but their options for propping up uneconomic power plants are no better, practically or legally:

• Plans put forward by supporters of the power plant bailout “acknowledge, at least implicitly, that the preferential payment structure proposed in the DOE NOPR is unclear, unworkable, or both. However, the alternatives offered by the NOPR Beneficiaries, are equally flawed both substantively and procedurally, extending well beyond the scope of the DOE NOPR.”

Citing one example, the energy groups note that the detailed plan put forward by utility FirstEnergy Service Co. would provide preferential payments far more costly than those now provided to individual power plants needed for immediate reasons (and given a “reliability must run” contract, or RMR):

• “Compensation provided under [FirstEnergy’s proposal] would be significantly expanded beyond RMR precedent, going so far as to include bailing [a qualifying] unit out of debt based on an unsupported assertion that revenues are needed to ensure long-term operation..”

Calling the action FERC would be required to take in adopting the DOE proposal “unprecedented,” the energy industry associations reiterate their opposition:

• “While the undersigned support the goals of a reliable and resilient grid, adoption of ill-considered discriminatory payments contemplated in the DOE NOPR is not supportable – or even appropriate – from a legal or policy perspective.”

“Even in the wake of hundreds of comments filed — most of them in opposition — there is no evidence that reliability and resilience of the electric power system are at risk, much less that there is an emergency that would justify giving preferential treatment for uneconomic power plants, at great cost to customers, particularly those in the Midwest and Atlantic states who would bear the brunt of that cost,” added Malcolm Woolf, senior vice president of policy for Advanced Energy Economy (AEE). “The only interests speaking up for this proposed rule are those that would gain from it what they cannot in open competition. I hope that FERC sees this proposal for what it is — a politically motivated bailout with no benefit for the public — and puts an end to it.”

The total group of twelve energy industry associations are as follows:

• Advanced Energy Economy
• American Biogas Council
• American Council on Renewable Energy
• American Petroleum Institute
• American Wind Energy Association
• Electric Power Supply Association
• Electricity Consumers Resource Council
• Energy Storage Association
• Independent Petroleum Association of America
• Interstate Natural Gas Association of America
• Natural Gas Supply Association
• Solar Energy Industries Association