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FERC chair: Baseload plants can be compensated without blowing up markets

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FERC chair: Baseload plants can be compensated without blowing up markets

Speaking to reporters at the Federal Energy Regulatory Commission's headquarters in Washington, D.C., on Oct. 13, Chairman Neil Chatterjee said he is "sympathetic" to some of the concerns raised by U.S. Department of Energy Secretary Rick Perry about existing power market structures.

However, Chatterjee also expressed a strong belief in competitive markets and vowed to address Perry's concerns without destroying competitive power market structures. "We've invested nearly two decades and billions and billions of dollars in our existing market structure, and I don't want to do anything to disrupt that market structure, and I want to ensure that whatever step the commission takes withstands legal scrutiny," Chatterjee said.

Nearly all of Chatterjee's question-and-answer session with reporters centered on a FERC notice of proposed rulemaking, or NOPR, incorporating the DOE's proposal to ensure that certain power plants serving wholesale markets can fully recover their costs. To qualify for full cost recovery under the NOPR (FERC docket RM18-1), plants must have at least 90 days of fuel supply onsite, meaning the proposal would largely benefit coal and nuclear power plants.

The proposal prompted plenty of concern about how it would impact competitive power markets, and FERC Commissioner Robert Powelson pledged not to do anything that would destroy energy markets. "I did not sign up to go blow up the markets," he said shortly after the proposal was filed.

Chatterjee similarly expressed a strong desire to keep competitive power market structures viable. But he also insisted that those structures can be changed to better value the reliability and resilience attributes of certain generation resources without inflicting a mortal blow to the markets.

"We will evaluate whether attributes certain sources have aren't currently being accurately valued, with a desire to preserve our existing market structure," Chatterjee said. If those attributes are not being valued as they should be, FERC can correct the market deficiencies "in a legally defensible manner that doesn't blow up markets," he said.

Chatterjee repeatedly noted that FERC has been refining market structures for decades and said the agency can find a way to "accurately value resilience" using the same methods: assembling a record with stakeholder input and then analyzing that record.

The chairman further insisted that accurately valuing resilience is not a zero-sum game. "Compensating baseload generation does not equate to destruction of the markets. On the contrary, I think it's a step toward accurately pricing the contribution of all market participants," Chatterjee said. "There's a sweet spot you can land on there and I'm confident ... that we can get there."

When asked why he decided to concede to the DOE's demands that FERC act on the proposal within 60 days and to deny the many requests for more time, Chatterjee noted that the agency already has been working on price formation issues for some time. For instance, he said FERC has compiled a fairly extensive record by holding technical conferences on similar price formation issues and taking comments.

"What Perry has done is start this conversation and accelerated this conversation so we can take action," Chatterjee said. "These are the kind of difficult, vexing issues that, if not met head on, can linger and can get punted."

Although he acknowledged that the power industry is not facing an immediate crisis, Chatterjee said FERC has to consider how long-term reliability may be impacted if certain baseload assets no longer are available. "It's a long-term question but not a new issue, we've seen this coming for some time," he said.

The chairman stressed that FERC has many different options for acting on the NOPR that do not include issuing a final rule within 60 days. It could issue a different NOPR of its own, superseding the DOE proposal, or take more preliminary action such as issuing a notice of inquiry or an advanced NOPR. The agency also could ask for more comments, hold more technical conferences or initiate a review under Federal Power Act Section 206.

Chatterjee further cited the PJM Interconnection's efforts to address the issue and suggested the proposal that grid operator has been developing "could be one of the directions we choose to go." Whatever solution FERC ultimately decides on, he pledged it would be fuel neutral. "We don't start with a resource and work backward, we come up with policies to be applied in a fuel neutral way," he said.

While he noted that he is a firm believer in states' rights, Chatterjee said, "The reality is that we have a federal system, and when different states take actions that can unbalance the national marketplace, it's our role at the commission to remediate that."

Chatterjee denied being involved in the development of the NOPR, reporting that he found out about it only the night before it was filed by the DOE. A Kentucky native and Republican, Chatterjee also said he has not been in recent contact with fellow Kentuckian and Senate majority leader Mitch McConnell.