Monday, October 23, 2017

CEO Panel: DOE NOPR Continues ‘Cycle of Subsidies’

By Tom Kleckner

AUSTIN, Texas — A panel of CEOs from some of Texas’ largest energy companies on Tuesday panned U.S. Energy Secretary Rick Perry’s directive that FERC consider supporting struggling coal and nuclear plants.

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Wood (left) and Gutierrez | © RTO Insider

Or, as former FERC Chairman Pat Wood III put it in setting up the discussion at the Gulf Coast Power Association’s Fall Conference: “This lovely little Christmas turd that showed up on our desks.”

Wood agreed with the consensus opinion that Perry was within his legal rights to issue his Sept. 29 Notice of Proposed Rulemaking to FERC, which suggests compensating baseload plants in deregulated states for preserving the grid’s reliability and resilience. (See FERC’s Independence to be Tested by DOE NOPR.)

Still, Wood, who also chaired the Texas Public Utility Commission during part of Perry’s tenure as the state’s governor, said he was caught off-guard by the NOPR.

“It was a pretty big deal for me. First thing, it was signed by the governor of this state, that made this room as big as it is,” he said, motioning to a large ballroom filled with conference attendees.

“It was his regulatory approach that allowed this state to benefit tremendously from competitive markets. It also ran counter to some of the key provisions of his staff’s grid study report, especially when talking about the unending cycle of subsidies,” Wood said.

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Former FERC Chair Pat Wood (left) moderates GPCA’s CEO panel: NRG’s Mauricio Gutierrez, Southern Power’s Buzz Miller, Dynegy’s Bob Flexon | © RTO Insider

Asked whether Perry’s letter was a “cannon” aimed at the RTOs or the natural gas industry, Dynegy CEO Bob Flexon said, “It’s going to really impact PJM, where coal and nuclear plants are surrounded by Marcellus and Utica natural gas [plays], and in Illinois.”

PJM stakeholders have questioned the RTO’s focus on being cost-based and resource-neutral, while Illinois joined New York in issuing zero-emission credits to keep Exelon nuclear plants running. (See PJM Stakeholders Offer Different Takes on Markets’ Viability.)

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Miller | © RTO Insider

“I don’t view it as negative to anyone,” Southern Power CEO Buzz Miller said. “I think it really is just the best way they could find to really prop up coal and nuclear in the competitive markets.”

“Certainly, the [Department of Energy] proposal tries to define resiliency in the form of fuel certainty, said NRG Energy CEO Mauricio Gutierrez. “The narrow definition in this proposal is coal and nuclear, the people with fuel certainty on site.

“To us, resiliency is more than that. It’s the characteristics an asset brings to the grid; whether it can withstand that type of disaster or come back significantly quicker. That characteristic has to be fuel-neutral.

“We have to think about the power delivery,” Gutierrez continued. “Are we recognizing, and pricing correctly, the resiliency value some of our power plants provide the system? If you have a generation unit that is required for reliability and resilience, then let that unit set the marginal price. There are ways to tackle this issue in a fuel-neutral way.”

“We have a long history of disasters in the Southeast, and it’s the distribution and transmission that usually goes down. … The vulnerability is the wire,” Miller pointed out. “It looks like they tried to come up with a scenario that makes coal and nuclear stand out. The problem is, if an electromagnetic pulse happens, nuclear units have more digital parts. It’s hard to cherry pick your disaster scenario and plan around that. … Generation can recover quickly, but it’s the wires that take time.”

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Flexon | © RTO Insider

Flexon, who manages a fleet with a 60/40 gas-to-coal ratio, said Perry’s letter was a result of hard lobbying by two unnamed energy companies.

“The subsidy war is alive and well,” Flexon said. “For years, we turned a blind eye to wind getting subsidies. Now, nuclear is getting subsidies and it’s disrupting the markets. That letter is just a new subsidy entering the space. This is designed to counter the effectiveness of the marketplace and save assets that should be exiting the market.

“Even though we’re a fairly large coal generator, we’re not supportive of [Perry’s memo]. We believe policy should be fuel-neutral. But if someone is going to pay us a return for our plants with 90 days’ worth of fuel on site, we’ll find a way to store 90 days of fuel at every one of our coal plants.”

Flexon noted the DOE study this summer focused on price formation, but that the generation stack has changed in the last 20 years.

“Energy price formation needs to change too,” he said. “You just can’t ignore the fact the generation stack has changed dramatically. How you price energy has to keep up, so you have new investment coming in and you’re getting the most efficient megawatts to the customer.”

Gutierrez agreed, saying Perry’s memo may have been aimed at energy markets, such as ERCOT’s.

“We need to improve the markets, and this may be the catalyst that does it,” he said.

Energy Groups Seek Longer Response Deadline

In a related development, 14 energy trade groups asked FERC on Tuesday to extend the comment periods in the commission’s consideration of the directive (RM18-1).

Perry’s NOPR called for final action on the proposed rule within 60 days from its publication in the Federal Register. On Monday, the commission issued a notice setting an Oct. 23 deadline on comments on the proposal, with reply comments due Nov. 7. (See FERC’s Independence to be Tested by DOE NOPR.)

The trade groups’ filing requests that FERC set a 90-day initial comment period and a 45-day reply comment deadline.

“The proposed reforms laid out in the NOPR, if finalized, would result in one of the most significant changes in decades to the energy industry and would unquestionably have significant ramifications for wholesale markets under the commission’s jurisdiction,” the groups said. “When agencies consider a proposed rule that could affect electricity prices paid by hundreds of millions of consumers and hundreds of thousands of businesses, as well as entire industries and their tens of thousands of workers, such as the proposal in question, it is customary for an agency to allow time for meaningful comments to be filed in the record so that the agency can make a reasoned decision thereon. In fact, agencies are under an obligation to allow a comment period of not less than 60 days for typical rulemaking proceedings, unless exceptional circumstances exist.”

Signing the joint motion were: Advanced Energy Economy, American Biogas Council, American Council on Renewable Energy, American Petroleum Institute, American Public Power Association, American Wind Energy Association, Business Council for Sustainable Energy, Electric Power Supply Association, Electricity Consumers Resource Council, Energy Storage Association, Interstate Natural Gas Association of America, National Rural Electric Cooperative Association, Natural Gas Supply Association and the Solar Energy Industries Association.

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