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With new FERC chair set to take seat, DOE NOPR takes center stage at PJM meeting

The Federal Energy Regulatory Commission announced late in the day Dec. 6 that at long last Kevin McIntyre would be sworn in the following day as FERC chairman, giving the agency a full complement of five sitting commissioners for the first time since October 2015.

McIntyre joins Commissioner Cheryl LaFleur, a Democrat who has served several stints as either chairman or acting chairman since she joined the agency in July 2010, as well as more recent appointees Commissioners Neil Chatterjee, Robert Powelson and Richard Glick.

Both Glick and McIntyre were confirmed by the U.S. Senate on Nov 2. Glick was sworn in on Nov. 29 but McIntyre was not. The delay raised speculation that it was tied to acting Chairman Chatterjee's interim plan for addressing the concerns raised in a U.S. Department of Energy proposal designed to provide economic support for struggling coal-fired and nuclear power plants.

That plan took center stage during a PJM Interconnection general session held in Philadelphia Dec. 6. Mark Menezes, DOE undersecretary, revealed during that meeting that DOE Secretary Rick Perry and U.S. Secretary of State Rex Tillerson were at a meeting in early spring with international counterparts in energy. During that meeting representatives from Germany explained the challenges faced when they decided to shut down their nuclear power fleet after the Fukushima plant melted down in Japan.

Germany used feed-in tariffs and other methods of incentivizing renewable energy that led to "difficulty with prices" and ultimately ended up hurting their economy so the country's leadership decided to build lignite coal production facilities, Menezes said. The German officials therefore recommended that the U.S. stick to an "all of the above" energy resource strategy in an effort "to avoid what happened here."

That encounter led the DOE to commission a grid resilience study and then propose the grid resilience rule under Section 403 of the DOE Organization Act, Menezes revealed. "Simply put, we have closures of nukes, coal. We went to FERC’s website and confirmed that since 2013 the issue of premature closings was identified and that price formation was an issue," Menezes said.

During the same PJM meeting FERC Commissioner Rob Powelson discussed the need for a resilient power grid and said the job of ensuring that resilience will get easier when McIntyre joins the agency.

"We look at grid resiliency. I’d like to think this 500 Tcf of natural gas in Pennsylvania will provide a remarkable opportunity for potential utility load growth within the PJM footprint," Powelson said. "Now with four of us and I'm told tomorrow we'll be at five which is great with Kevin McIntyre joining us that we’ll be able to kind of address this [grid resilience] issue in a way that, as I said, respects the balance within the organized markets to continue to deliver the value proposition of these organized markets."

Jason Stanek, senior counsel for the House Committee on Energy and Commerce's Subcommittee on Energy, noted that Congress has yet to hold a hearing on the DOE proposal.

"It's one that has split our members and not necessarily by party but more by reading. We've had a number of members come out in full-throated support of the NOPR and we've had other members express concern with the impacts it may have on competitive markets," Stanek stated.

Stanek added that federal lawmakers have no immediate plans to hold a hearing on the proposal and are looking forward to the results of "thoughtful and deliberative process" that FERC is using to consider the proposal. However, he also acknowledged that the FERC process is moving far more quickly than other major rulemakings.

"Obviously a NOPR of this size if taken through regular order at FERC would take anywhere from nine to 18 months," Stanek said. When asked what a successful outcome might be for the NOPR, Menezes said one that eliminates existing power market dysfunctions.

When competitive power markets were created in the 1990s, nuclear units were at the bottom of the price stack and coal was typically next, then gas and renewables. "That's sort of how it was designed and that's sort of how it was just expected," Menezes said. However, state policies like renewable portfolio standards that require utilities to sell a certain volume of renewable energy have inverted the price stack and led to negative pricing in certain instances. "How is it possible that you could have markets that allow negative pricing," Menezes asked, noting that no markets outside of electricity experience negative pricing.

Powelson agreed that "these markets aren’t pure." The PJM energy mix in 2006 was 41% coal, 26% gas, 19% nuclear and 5% hydro, he said. "And by the way there was no renewables back in 2006." But both Republican and Democratic governors adopted RPS programs that "doubled down" and "picked winners and losers," nurturing the development of wind and other renewable sources, but leaving nuclear power out of the process, Powelson said.

"I remember the conversation in Pennsylvania at the time. Exelon, TPL at the time, said wow, we're doing nuclear upgrade projects can we get credit for that? And the answer was no, we don't want to talk to you guys. We're wind and solar and 13 other categories but nuclear upgrades we can't define that in the RPS," Powelson recalled.

So the unintended consequences are the nuclear and coal plant shutdowns that are taking place around the U.S., Powelson said. He added that the goal is to get back to the basics of the bulk power system which are low costs and reliability.

Jared Anderson is a reporter for S&P Global Platts which, like S&P Global Market Intelligence, is owned by S&P Global Inc.

Jared Anderson