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DOE's Perry, EPSA highlight dueling views on proposed resilience pricing rule

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DOE's Perry, EPSA highlight dueling views on proposed resilience pricing rule

In a message tweeted out Oct. 10, U.S. Department of Energy Secretary Rick Perry posted quotes from various stakeholders loudly praising his effort to have the Federal Energy Regulatory Commission issue a rule he insists would safeguard grid reliability and resilience by offering more cost support to struggling nuclear and coal-fired power plants.

For instance, Perry quoted David Blee, the executive director for the U.S. Nuclear Infrastructure Council, as saying the proposal "'comes at an especially critical juncture for the nation and nuclear energy with America facing a wave of historically unprecedented premature grid retirements, including a flotilla of nuclear plants that have provided reliable, economical electricity for America over the past five decades.'"

The Electric Power Supply Association, or EPSA, however, fired back by issuing a release highlighting the views of those who believe Perry's proposed rule is unsupported by the facts or by the DOE's own grid reliability study and, if adopted, would "dismantle competitive markets for electricity."

"Such an outcome would be extremely costly, discourage efficiency, and create perverse incentives for energy resources and technologies," EPSA said.

Filed with FERC on Sept. 28, the DOE's proposal would allow generating resources having a 90-day fuel supply and operating in states with organized markets to recover their costs plus a return on investment. The DOE set a tight timeline, 60 days, for FERC to act on the proposal, and FERC is sticking closely to that schedule despite requests for extensions filed by various stakeholders.

Reaction to the proposal has been sharply divided, but Perry in his tweet quoted a statement by Paul Bailey, president and CEO of the American Coalition for Clean Coal Electricity, who lauded the energy secretary for initiating a rulemaking that will "'finally value'" the large stockpiles of fuel the coal fleet has on hand "'to help ensure grid resilience and reliability.'"

EPSA countered by asserting that fuel supply disruptions account for only 0.0007% of all electric disturbances, citing a report released recently by the Rhodium Group entitled "The Real Electricity Reliability Crisis." According to that report, EPSA said, only 2,815 of the 3.4 billion customer-hours impacted by major electricity disruptions between 2012 and 2016 were the result of fuel supply problems.

"'Interestingly, 2,333 of those customer-hours were due to one event in Northern Minnesota in 2014,'" EPSA continued, quoting the Rhodium Group report. "'And it involved a coal-fired power plant.'"

Another issue raised by both Perry's and EPSA's missives is the extent to which the DOE's own grid study backs that agency's use of a rarely invoked legal mechanism to direct FERC's quick action on the matter. Blee asserted that the proposed pricing reforms will "'address the threat to U.S. electric grid resiliency from premature retirements of fuel-secure traditional baseload resources,'" the energy secretary said. But citing U.S. Rep. Frank Pallone Jr., D-N.J., EPSA insisted that stakeholders "'on both sides of the aisle'" share the view that the DOE's reliability study does not support the proposal.

Moreover, while Charles Jones, president and CEO of FirstEnergy Corp., asserted that the proposal will correct the "'faulty market conditions'" that are leading to the retirement of baseload generating plants, according to Perry, EPSA quoted Pallone as saying a resilience pricing rule would "'provide unduly preferential and discriminatory rates to coal and nuclear generators.'"

As for the proposal's potential impact on customers, ClearPath Foundation's Executive Director Rich Powell warned that allowing "'a lot of these generators to go down'" will result in rates "'going ... up, because we're going to take a lot of capacity offline, which is going to mean power supply is scarcer,'" Perry said.

Pallone, in contrast, said the proposal "'will certainly result in increased costs to consumers with no significant benefit and it will mark the beginning of the end of competitive electricity markets,'" according to EPSA.

To underscore that point, EPSA further recounted that J.P. Morgan Securities analysts recently stated "'effectively re-regulating a major portion of the currently de-regulated organized markets via a cost-of-service system would presumably render any existing discernible market pricing mechanisms irrelevant.'"