Thursday, February 21, 2019

UPDATED: FERC Blindsided by Half-Baked Trump Order

By Rich Heidorn Jr.

WASHINGTON — FERC was given no advance notice of President Trump’s directive Friday ordering Energy Secretary Rick Perry to prevent further nuclear and coal plant retirements and has been provided no details since, officials said Tuesday.

FERC DOE Trump Rick Perry Kevin McIntyre

Menezes | © RTO Insider

FERC Chairman Kevin McIntyre and Department of Energy Undersecretary Mark Menezes had few answers for reporters’ questions in brief press conferences after speaking at the Energy Information Administration’s 2018 Energy Conference in D.C. on Tuesday morning.

Menezes told reporters DOE is still working out the details of the plan. He said the department would not necessarily be ordering RTOs and ISOs to purchase energy or capacity from at-risk plants — as was detailed in a DOE memo leaked last week — but that it was one of the options under review.

“We’re still evaluating the problem and what the options are,” Menezes said. “It was a leaked document that was in the process of being drafted.”

He did not respond when asked why Trump had made the directive last week when the details were uncertain.

Kevin McIntyre FERC DOE Trump Rick Perry

McIntyre | © RTO Insider

McIntyre told reporters that he has not been briefed by DOE nor seen a list of plants that might be affected.

“We had no idea” the directive was coming Friday, an exasperated senior FERC official told RTO Insider afterward.

Asked about DOE’s contact with FERC, Menezes said, “We talk to FERC on a fairly regular basis. We have not got into any specific proposals with FERC because we’re still working on specific proposals.

“This is a process that is bigger than the Department of Energy. … We’re getting input from all of … the agencies as to how they assess this,” he continued — an apparent reference to the National Security Council’s Policy Coordinating Committees. FERC is not a principal in the process.

McIntyre said the Trump administration’s directive is within the law under Federal Power Act Section 202c.

“The opening phrase uses something along the lines of, ‘In a time of continuing war’ … and so it has the feel of a kind of a wartime emergency. It then does go on …to have more inclusive emergency-type or urgent circumstances-type language that in my view avowedly could be invoked to capture this situation,” he said. “That is a decision not for me or anyone at the FERC, but rather for the secretary of energy.”

FERC Role in Question

McIntyre said FERC might not be involved in setting prices on rescued generators if they can reach agreements on compensation with RTOs.

“Under the [Federal Power Act] as it’s written, and the regulations of the DOE, there are different scenarios that could develop that would not involve a rate proceeding before the FERC. We’re looking at those details now as you can imagine.”

If FERC is not involved, the contracts would be judged on an “easier standard” than FERC’s traditional determinations of “just and reasonable,” he said.

[Editor’s Note: An earlier version of this article incorrectly quoted the chairman, saying FERC would use a lesser standard. A FERC spokeswoman said that was incorrect but that she did not know who would enforce the lower standard for settlements.]

McIntyre also discussed Trump’s directive in response to audience questions moderated by EIA Administrator Linda Capuano after his speech to the EIA conference.

If the 202c “trigger is pulled,” McIntyre said, generating plants could attempt to work out a contract with the entity providing it compensation. “If that effort should fail, then the matter could [come] up to the FERC for what FERC would regard as — for lack of a better term — a rate case … which the FERC has been handling for decades. So, from that standpoint it wouldn’t be a dilemma. In a sense it would almost be bread and butter. We’d have to figure out how to get the dollars and cents right, that would be probably the biggest [challenge]. We’ve got a very talented staff” to do that.

“If it comes to us a rate proceeding it would indeed be subject to [just and reasonable],” McIntyre added in the press scrum later. But a contract negotiated between an RTO and a generator — “something [that’s] worked out almost in a settlement fashion [is] subject to … effectively an easier standard … fair and reasonable,” he explained.

Asked whether FERC would have to mitigate the impact of power plant subsidies on the wholesale markets, the chairman responded, “I think there are a number of different ways we could approach it as long as we’ve satisfied ourselves that it meets our standards of justness and reasonableness.”

McIntyre said he didn’t know whether the directive would affect the resilience rulemaking FERC opened in January after rejecting Perry’s Notice of Proposed Rulemaking to provide cost-of-service payments to coal and nuclear plants with on-site fuel. The NOPR was submitted under Section 403 of the Department of Energy Organization Act. (See FERC’s Independence to be Tested by DOE NOPR.)

‘Not a New Issue’

In his remarks to reporters earlier, Menezes indicated the policy initiative was far less settled than the memo suggested. He said there is no deadline for DOE’s next step.

Asked whether ordering capacity and energy purchases — as spelled out in the memo — was the main option under consideration, he said DOE is considering “as many [options] as people can come up with. … It’s an iterative process.”

“This is not a new issue that we’ve been trying to address. Right?” Menezes continued. “I mean, we sent a [Section] 403 letter over to FERC … We’ve identified this issue for some time. So, we have continued to look at our options.”

“Why did the president announce this Friday if you don’t know what you’re doing?” Menezes was asked.

“I didn’t say we don’t know what we’re doing. I said we are considering options, is what we’re doing,” he responded. “We want to make sure that whatever we do works and is upheld by courts.”

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Menezes addressing attendees at this year’s EIA Annual Conference | © RTO Insider

The undersecretary dismissed the suggestion that the administration is threatening to disrupt RTO power markets. “FERC has to figure out a way to keep the so-called ‘markets’ operating. But they are voluntary,” he said.

“These markets have not been mandated by Congress. … It’s important for the RTOs to keep their states happy. If the states are not happy with the RTOs in which they participate, the RTOs won’t exist. … These are not natural markets. In fact, electricity is a natural monopoly,” he said.

Losing ‘Energy Security’

During his address to the EIA conference, Menezes decried the grid’s “growing dependence on pipeline-dependent and intermittent resources,” noting that there are no mandatory reliability standards for gas pipelines.

He also said the premature closures of nuclear plants has Saudi Arabia and other nations “questioning our commitment to remain leaders in nuclear technology.” He said that has opened opportunities for South Korea, which won nuclear generation contracts with the United Arab Emirates, and China, which he said does not require clients to sign the antiproliferation protections the U.S. mandates.

“So, we’re losing more than grid resilience. We’re losing energy security,” he said. “… Imagine a world where the U.S. sits on the sidelines while other countries can dictate what other countries can do with their nuclear fuel. Think about that for a few minutes.”