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Welcoming look into grid reliability, energy CEOs are wary of Perry's proposal

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Essential Energy Insights - October 2021


Welcoming look into grid reliability, energy CEOs are wary of Perry's proposal

Dynegy Inc. CEO Robert Flexon sees plenty wrong with organized power markets in the U.S., but he is not convinced that Energy Secretary Rick Perry has the right ideas for fixing them.

"For us, the markets are in an incredibly fragile situation," Flexon said Oct. 16, pointing to a patchwork of subsidies, mandates and power plant bailouts that he said have shrunk the addressable market for independent power producers like Dynegy, which operates approximately 28,000 MW of natural gas and coal-fired power plants.

Perry, who recently proposed a rule to pay certain plants for the reliability benefits they provide to the grid, "shined a bright light on the issue," Flexon told a gathering of energy lawyers in Washington, D.C. However, the proposal would just create more market disruptions, he said.

John Berger, CEO of the rooftop solar developer Sunnova Energy Corp., agreed. "Secretary Perry was right to say, 'Hey, we need a different regulatory structure, something's not working here,'" Berger said in a recent interview. However, Berger wants to see more competition in the market, not less, and Perry's proposal has been widely criticized as an attempt to subsidize nuclear and coal plants.

"While I don't agree with his initial move, if that gets people really talking about actually doing some things and changing the market structures, then I think ... it was the right move to make and it's a good leadership move," Berger said. "We need to figure out a different way of regulating and structuring the market of the U.S. power industry, and we need to do it quick."

John Di Stasio, president of the Large Public Power Council, an advocacy group for large municipal utilities, warned against policies designed to benefit individual sectors of the energy industry, an approach that the Trump administration has criticized President Obama for taking.

"The concern is if you start to pick certain resources, even though they are different ones [than] were picked in the past, it still creates the same dynamic, and it could distort everything," Di Stasio said at the conference hosted by the Energy Bar Association. Perry raised an important issue, "but when you start to speak to resilience, there may be many other ways to accomplish it. And we'd rather have the focus be on, what are the attributes we need in the system? What are the policy outcomes we're trying to achieve? And how do you get at that and allow regional differences to determine the best way to achieve it?"

Perry wants the Federal Energy Regulatory Commission to craft a rule ensuring full cost recovery for merchant power plants operating in regions with competitive wholesale energy and capacity markets that have at least 90 days of fuel supply onsite.

FERC Chairman Neil Chatterjee said the proposal "fits comfortably within" the commission's efforts to ensure the electric grid operates reliably. "It's a conversation that I believe we need to have," Chatterjee said Oct. 17 during the legal conference. "We must ensure that we don't find ourselves coming to regret not having asked hard questions like these amongst all of the changes in the energy industry."

Stefan Bird, president and CEO of Pacific Power, a division of PacifiCorp, said he hopes regulators will keep "a regional point of view" in mind as they consider Perry's proposal. "One size fits all is generally not a good answer as we look across the country, and I think FERC's done a generally good job of allowing the west to evolve with things like the energy imbalance market, which enables better use of the whole grid," Bird said.

Noting economic headwinds buffeting "baseload generation" and the rise of renewable energy from "niche players to market-driving resources," Chatterjee said that as part of its broader discussion about reliability, FERC should consider streamlining the review process for natural gas and hydroelectric power projects and incentivizing development of transmission infrastructure that can relieve congestion and link renewable energy assets to industrial customers and population centers.