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AUTHOR Gavin Bade@GavinBade
PUBLISHED Sept. 8, 2017

The hearing illustrated how politicians of all stripes are deploying the study’s findings to support their views on power sector transformation.

The Department of Energy’s recently released grid study dominated the nomination hearing for two federal energy regulators this week as senators sought to ascertain their views on providing financial support for baseload generators.

In the hearing before the Senate Energy and Natural Resources Committee, Senate aide Richard Glick and energy lawyer Mark McIntyre, both nominated to sit on the Federal Energy Regulatory Commission (FERC), gave little direct indication of how they would use the study’s recommendations to shape policymaking. But the debate illustrated how both sides of the political spectrum are deploying the report’s findings to bolster their views on the power sector transformation.

The hearing, which also considered the nominations of two Department of Interior officials, touched on FERC’s jurisdiction over state energy policies, particularly nuclear supports.

The DOE staff study, released Aug. 23, found that the retirement of baseload coal and nuclear generators has not threatened reliability to this point. However, it also recommended that FERC explore how to better compensate generators for their resiliency benefits if the commission concludes reliability is under threat in the future.

Environmentalists and clean energy advocates fear that recommendation will be used by fossil fuel interests and their allies to push for financial supports to prop up coal plants that are otherwise uneconomic in the nation’s wholesale markets. Sen. John Barrasso (R-WY) took up that line in his questions for the nominees.

“The study expresses concerns that wholesale electricity markets do not adequately compensate coal and nuclear baseload power generation resources,” Barrasso said. “If this problem continues, baseload plants continue to be taken offline, the study concludes that reliability and resilience of the nation’s power grid may be at risk.”

Barrasso asked the nominees what action they would take “to improve how electricity markets compensate this baseload power generation.” Both nominees, however, said it would be “inappropriate” to give specific policy recommendations, as FERC has ongoing business on the subject.

“[FERC has] convened a series of conferences earlier this year on price formation in the energy markets with a particular eye toward issues along those lines,” said McIntyre, head of the energy practice at law firm Jones Day. “If confirmed to FERC, I would commit to looking very carefully at this issue and giving it the attention it deserves.”

The nominees did stress that FERC does not have the authority to shape the nation’s fuel mix directly. When Barrasso asked the pair if they agreed with a statement from acting FERC Chairman Neil Chatterjee that coal plants should be “properly compensated to recognize the value they provide to the system,” the nominees demurred.

“The importance of [baseload] resources cannot be denied,” said McIntyre, who will chair the commission if confirmed. “However, FERC is not an entity whose role includes choosing fuels for the generation of electricity. FERC’s role rather is to ensure that the markets for the electricity generated by those facilities proceed in accordance with law.”

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Glick, a Democratic Senate aide to the Energy and Commerce Committee, said changing plant compensation is a “question of reliability.” Turning the grid study’s analysis around, he told Barrasso that its findings indicate that enhanced compensation may not be necessary at present.

“The Department of Energy grid study that was released recently … essentially suggests that the significant loss of baseload generation — both coal and nuclear — has not impaired reliability to date but also suggested it was something to keep an eye on in the future,” he said. “So, I think FERC and the DOE should keep an eye on that.”

Barrasso’s comments on the grid study contrasted those of his Democratic counterparts on the Energy and Commerce Committee. Sen. Martin Heinrich (D-NM) outlined the environmental critique of the study to set up his questioning.

“I am concerned that the term ‘baseload power’ has potentially become less of an engineering term and more of a political term in recent years,” Heinrich said. “In particular, the indication within that report that potentially FERC should modify existing competitive markets for bulk power as an attempt to either prop up or subsidize central generation power technologies that are no longer cost competitive.”

Glick reiterated that changes to baseload plant compensation would have to come in the form of an initiative to preserve reliability or resiliency, and that he doesn’t see that as an immediate issue. McIntyre again promised to give the issue close consideration.

“The commission does not have the authority, nor should it, to prop up a failing technology,” Glick said. “The DOE grid study suggests there are some reliability attributes that those technologies provide … that the loss of those technologies — the loss of the baseload generation — has not had an impact on reliability, but like I said before, it’s worth looking at and continuously studying.”

Sen. Angus King (I-ME), who caucuses with Democrats, said he was “disturbed that the term baseload has become a political term and not necessarily a scientific term.” He implored the nominees to “go with the science” in making power sector decisions and “not get tangled up, advertently or inadvertently, in favoring one technology over another.”

McIntyre reiterated that FERC “does not pick fuels for different generating resources,” and said he would base his decisions on science, “which I would expand somewhat to include the characteristics of reliability, economics and the other features that are important to satisfying the energy needs of our nation.”

The hearing also hit on state energy policies, with Democratic senators seeking to confirm that the nominees would not interfere with renewable energy or nuclear power supports. Sen. Tammy Duckworth (D-IL), whose state passed nuclear energy supports last year, sought “reassurance” that states are “the focal place” for policies that shape the fuel mix.

With independent generators challenging the Illinois and New York nuclear supports at FERC, the nominees stayed away from concrete statements on their legality. Glick, however, said he believes the Supreme Court’s decision in Hughes v. Talen Energy “essentially outlined how states can affect resource decisions so they do not interfere with FERC’s jurisdiction.”

That 2016 decision held that states can take actions to promote generation resources that are not directly tethered to wholesale market participation, which falls under FERC’s jurisdiction. Legal scholars largely viewed that distinction as vague, but federal judges in New York and Illinois both ruled in July that the nuclear subsidies fall within state authority. Litigation is ongoing.

Without touching on the nuclear subsidies, McIntyre endorsed states’ power to create renewable energy standards. “We do have a federal system of law,” he said. “FERC has its role and the states have theirs and there is no question that states have the authority to create RPSs.”

FERC’s options

How the newly constituted FERC will handle reliability and jurisdictional issues remains to be seen. In August, the Senate confirmed two Republicans — Chatterjee and Pennsylvania utility regulator Robert Powelson — to join former Chair Cheryl LaFleur (D) on the panel.

The move allowed FERC to regain its quorum after losing it in February in the wake of former Chairman Norman Bay’s resignation. Sen. Lisa Murkowski (R-AK), chair of the Senate Energy and Natural Resources Committee, indicated after the hearing that she hopes to confirm Glick and McIntyre in the coming weeks.

If the new FERC decides that reliability could be at risk from baseload plant retirements, legal analysts say it has broad power to alter plant compensation.

“FERC has very broad authority to consider not just reliability but the broader concept of resilience under the Federal Power Act and really set whatever terms and conditions it thinks are most appropriate to ensure the adequacy of service under the grid,” Andrew Weissman, senior counsel at the Washington law firm Pillsbury, told Utility Dive in an interview.

Policy options could come from individual market operators or FERC itself, he said. At present, PJM is considering strategies to better compensate for plants’ resiliency characteristics. PJM and ISO-New England are exploring two-part capacity auctions to handle subsidized resources, and the New York ISO is implementing a more robust price on carbon.

If FERC takes up the resiliency mantle, Weissman said solutions could look similar to reliability programs already active in the nation’s wholesale markets.

“They could, for example, come up with some criteria for determining what generating units … are essential for adequacy of future service,” Weissman said. “Then, with respect to those units, they could create a new category to provide cost-of-service recovery, just as they do for reliability must-run units currently, and socialize the costs of providing that cost recovery.”

Another potential policy solution could be to devise adders to capacity payments for plants deemed essential for resiliency.

“In the past they’ve approved a fixed adder in MISO that MISO determined was necessary for the future operation of the grid,” Weissman said. “They could — and in my view they actually should — seriously consider providing a super capacity payment as a significant add-on to the capacity payment for units they conclude are essential to the long-term adequacy of service in the wholesale markets.”

Such market reforms, either at the RTO or federal level, are controversial with environmentalists and clean energy advocates, who say they will do little more than prop up uncompetitive, inefficient generation with minimal impacts on generator revenues or reliability. But Weissman said that FERC’s jurisdiction to ensure adequate service could extend to environmental impacts like climate change, if the commission chooses to do so.

“FERC has plenty of authority to take into account impacts on the environment in its ratemaking,” Weissman said. “Obviously whether it should or not is something people have strong views about, but if you’re asking the lawyer’s question of whether they have authority to act, I think the answer is certainly yes.”