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Options DOE weighing to save coal, nuclear not an 'obvious fit,' FERC head says

The old, rarely employed statutes that the U.S. Energy Department is contemplating using to throw a lifeline to struggling coal-fired and nuclear power plants are "perhaps not the most obvious fit" for addressing baseload generation's resilience and national security contributions to the grid, FERC Chairman Kevin McIntyre said May 10.

His stance was shared by senators and academics who also spoke at a power grid forum hosted by The Washington Post.

The DOE has before it an application from FirstEnergy Corp.'s unregulated merchant unit FirstEnergy Solutions Corp., or FES, for an emergency order requiring the PJM Interconnection to compensate at-risk coal-fired and nuclear plants in the region "for the full benefits they provide to energy markets and the public at large."

FES' request was made under Section 202(c) of the Federal Power Act, which grants the secretary of energy authority to decide an emergency exists related to a sudden increase in electricity demand, a shortage of power, or other reasons.

McIntyre noted that "the baseline circumstance that would justify a DOE order to certain types of facilities to either begin operating or continue operations" was premised on the U.S. being involved in a war.

McIntyre does not see an emergency facing grid

While the statute also addresses other emergency situations, McIntyre said he does not think any emergency is at play that will impact the grid in the coming days, weeks or months.

"However, that's not my call," he said. "I trust the secretary of energy and his team at DOE to perform their own valid analysis of that and to determine whether or not any further action is necessary."

Indeed, Energy Secretary Rick Perry in April suggested that a declaration of emergency in PJM may not be the most "appropriate or efficient way to address this." He confirmed on May 9 while testifying before a House science panel on the DOE's fiscal 2019 budget that the department also was looking "very closely" at the Defense Production Act as it weighs options for staving off further coal and nuclear retirements that he said would be detrimental to national security.

That law was enacted in 1950 — during the Korean War — to ensure availability of critical materials and resources for the U.S. national defense. Among other authorities, the law allows the president to direct private companies to sign contracts with the government to fulfill orders for scarce materials deemed necessary for national defense. The act also authorizes the government to make loans and loan guarantees to avoid shortfalls of critical resources.

Senator John Hoeven, R-N.D., pushed back on the idea of nationalizing power plants in an effort to save them, although he acknowledged that he was not familiar with the specifics of Perry's plan.

Speaking on a panel ahead of McIntyre, Hoeven did support preserving baseload generation, arguing that intermittent, renewable energy cannot serve energy demands around the clock.

Hoeven, Heinrich see eye-to-eye on transmission

Hoeven contended that solutions need to be proffered that make space for both traditional and renewable resources in the generation mix. With that in mind, he called for greater buildout of the country's distribution and transmission networks, including pipelines and power lines, to enable energy to be moved from where it is produced to where it is consumed.

Sen. Martin Heinrich, D-N.M., agreed with Hoeven that additional transmission investment is needed and said this is one area those in his party may be able to find common ground with Republicans. But he asserted that "baseload has become a political term" and rebutted claims that coal-fired generation is more reliable than other resources.

Heinrich criticized Perry's efforts to aid coal and nuclear for not being market-based. He said Texas, where Perry "was governor and created a lot of renewables, has dramatically higher penetrations of those renewables than what we're dealing with in the places where these efforts were really designed to bail out a couple of uneconomic generators."

The DOE's review of FPA Section 202(c) and the Defense Production Act comes after FERC rejected Perry's notice of proposed rulemaking that directed the commission to put market rules in place that would have guaranteed full cost recovery and a return on investment for certain generators that maintain 90-day on-site fuel supplies. FERC instead launched a fresh review (FERC docket AD18-7) of grid resilience to determine if commission action is warranted in this area.

That proceeding is underway with comments filed to the commission in March by the regional grid operators and other interested parties submitting their views by May 9.

McIntyre said the commission is reviewing "whether there are attributes to resilience that we should recognize among different types of electric resources, and, if so, what should be the treatment of those resources for purposes of providing compensation to them."

While declining to prejudge what the key attributes of resilience may be, McIntyre did say that 90-day on-site fuel supplies would not necessarily be an attribute that makes the list. Rather, the resilience review would conceptually determine which attributes to recognize, "define them sufficiently to justify action on them and ensure that we get the compensational aspect of it right," in line with commission practice that compensates generators for providing voltage support, frequency response and other ancillary services that keep the grid functioning.

"So it wouldn't be beyond the pale to think that if we could identify with specificity what are the resilience attributes that merit compensation, then we can move to that compensation calculation stage," he said.

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