By Rich Heidorn Jr.

Energy Secretary Rick Perry on Friday ordered FERC to rescue at-risk nuclear and coal generation in deregulated states by ensuring they receive “full recovery” of their costs.

Perry’s extraordinary Notice of Proposed Rulemaking, invoked under Section 403 of the Department of Energy Organization Act, requires FERC to complete a final rule within 60 days after publication of the NOPR in the Federal Register.

Separately, DOE announced it had conditionally approved a $3.7 billion increase in the federal loan guarantees for the over-budget and behind-schedule Vogtle nuclear project. Georgia Power and its partners, Oglethorpe Power and the Municipal Electric Authority of Georgia, had previously received guarantees of $8.3 billion to support construction of Vogtle Units 3 and 4.

In a letter to FERC, Perry cited coal and nuclear retirement statistics and DOE staff’s recommendations in the grid study it released in August. The study said FERC “should expedite its efforts with states, RTO/ISOs and other stakeholders to improve energy price formation in centrally organized wholesale electricity markets” to ensure “baseload” coal and nuclear generators receive compensation for their “resilience” to fuel supply disruptions. (See Perry Grid Study Seeks to Aid Coal, Nuclear Generation.)

Coal generators typically keep 60 to 90 days of fuel at plant sites; operators of nuclear plants refuel every 18 to 24 months.

60 Days to Act

“Now that a quorum has been restored at the commission, I am confident that the commission will act in an expeditious manner to address this urgent issue,” Perry said his letter. “To that end, in the enclosed NOPR, I direct the commission to consider and complete final action on the rule proposed therein within 60 days from the date of the publication of the NOPR in the Federal Register. As an alternative, I urge the commission to issue the proposed rule as an interim final rule, effective immediately, with provision for later modifications after consideration of public comments.”

Perry said the final rule should take effect within 30 days of publication in the Federal Register and that each RTO and ISO submit a compliance filing within 15 days of the effective date of the rule.

Perry began his letter by invoking President Trump’s campaign slogan, saying “America’s greatness depends on a reliable, resilient electric grid powered by an ‘all of the above’ mix of generation resources.”

The secretary went on to cite the 2014 polar vortex, Superstorm Sandy and Hurricanes Harvey, Irma and Maria as evidence that “much more work needs to be done to preserve these fuel-secure generation resources” to ensure sufficient power, “voltage support, frequency services, operating reserves and reactive power.”

“Distorted price signals in the commission-approved organized markets have resulted in under-valuation of grid reliability and resiliency benefits provided by traditional baseload resources, such as coal and nuclear,” he said. “The rule will ensure that each eligible reliability and resiliency resource will recover its fully allocated costs and thereby continue to provide the energy security on which our nation relies.”

Polar Vortex

When PJM lost as much as 22% of its generating capacity to forced outages during the polar vortex, Perry noted, the RTO needed generation from coal plants scheduled for retirement to prevent rolling blackouts, with American Electric Power reporting that it deployed 89% of its coal units scheduled for retirement. Nuclear plants, he noted, had an average capacity factor of 95% during the crisis. He did not mention that some coal plants also were unable to operate because of frozen coal piles and other problems.

Perry cited DOE’s January 2017 Quadrennial Energy Review, which reported that 37 GW of coal capacity retired between 2010 and 2015, more than half of all generation retirements during the period. The report predicted coal would also represent half of the 34.4 GW of retirements projected between 2016 and 2020, with natural gas plants (30%) and nuclear (15%) making up most of the remainder.

The secretary quoted NERC’s warning that “premature retirements of fuel-secure baseload generating stations reduces resilience to fuel supply disruptions.” Unmentioned was that NERC’s most recent State of Reliability report concluded “bulk power system reliability remained … adequate” in 2016, repeating the group’s findings from 2013–2015.

At a 2013 technical conference, FERC stopped short of NERC’s warning, saying that the shift in generation from coal toward gas and renewables “may result in future reliability and operational needs that are different than those of the past.” (See Capacity Market Attracts Praise, Criticism at FERC.)

“The fundamental challenge of maintaining a resilient electric grid has not been sufficiently addressed by the commission or the commission-approved ISOs and RTOs, and the lack of a quorum at the commission has undoubtedly thwarted the issuance of rules,” Perry continued in his letter. “But the continued loss of baseload generation with on-site fuel supplies, such as coal and nuclear, must be stopped. These generation resources are necessary to maintain the resiliency of the electric grid. Failure to act expeditiously would be unjust, unreasonable and contrary to the public interest.”

Asked for comment, FERC spokeswoman Mary O’Driscoll said only, “We have received the proposal and are reviewing it.”

DOE’s proposed rule would require RTOs and ISOs to implement market rules that allow the generators with a minimum 90-day fuel supply on site “full recovery of costs.”

“These resources must be compliant with all applicable environmental regulations and are not subject to cost-of-service rate regulation by any state or local authority,” Perry said. “The rule requires the organized markets to establish just and reasonable rate tariffs for the full recovery of costs and a fair rate of return.”

Analysts at ClearView Energy Partners said Perry’s action makes it likely that some method of compensating “essential reliability services” (ERS) could be in place in RTO markets by next spring, “although we caution that it may differ from the NOPR and reflect substantive variations across regions.” NERC has described ERS as including frequency and voltage support, and ramping capability.

“In our view, DOE has placed the essential reliability services issue at the top of FERC’s near-term electric agenda (even though we thought FERC might be leaning that way anyway). We also believe this rulemaking pushes consideration of the non-peak pricing proposal sketched out by PJM and other general price formation rulemakings aside between now and December, at least, should FERC hit DOE’s aggressive timeline.”

Industry Reaction

Predictably, Perry’s order sparked widely divergent reactions.

Maria Korsnick, CEO of the Nuclear Energy Institute, praised what she called Perry’s “decisive … remarkable action,” which she said addresses two “fundamental problems” in the electric sector.

“One is markets that fail to value everything that is important to our electricity system. … Our pricing system is badly broken and … is based almost entirely on short-term price. As a result, nuclear reactors, which provide benefits that everyone agrees we need, find themselves struggling to survive when the nation needs them most,” she said.

“The other problem is that electricity is essential to modern life but only gets noticed if the electricity fails to flow, as has happened most recently in Texas, Florida and Puerto Rico. It is taken for granted, and it does not command the attention it needs from policymakers all across the nation. This course needs to change.”

“We commend Secretary Perry for initiating a rulemaking by FERC that will finally value the on-site fuel security provided by the coal fleet,” said Paul Bailey, CEO of the American Coalition for Clean Coal Electricity. “The coal fleet has large stockpiles of coal that help to ensure grid resilience and reliability. We look forward to working with FERC and grid operators to quickly adopt long overdue market reforms that value the coal fleet.”

The American Wind Energy Association said Perry’s proposal “would upend competitive markets that save consumers billions of dollars a year.”

“The best way to guarantee a resilient and reliable electric grid is through market-based compensation for performance, not guaranteed payments for some, based on a government-prescribed definition,” said Amy Farrell, AWEA’s senior vice president for government and public affairs.

“This looks like federal cost-of-service regulation, and a major retreat from competition in electricity,” said Rob Gramlich, a consultant who worked for AWEA for several years after serving as an aide for former FERC Chairman Pat Wood III.

Mary Anne Hitt, director of the Sierra Club’s Beyond Coal campaign, said the NOPR ignores FERC’s role as an independent agency.

“The Federal Power Act clearly states that FERC cannot favor one energy source over others in its rulemakings, and Perry’s ask — without evidence or common sense — seeks to prop up dangerous coal and nuclear plants that can no longer compete in the wholesale market,” she said. “We are prepared to take to court any illegal rule that props up dirty fossil fuel plants or weakens clean energy’s market access.”

Graham Richard, CEO of Advanced Energy Economy, said FERC should reject what he called a “Perry Energy Tax” on consumers.

“Simply put, this proposed rule has something for everyone to dislike. If you’re a believer in competition and free markets, this rule would insert the federal government squarely into the middle of market decisions. If you are driven by keeping energy costs low, this rule would impose higher energy costs on consumers for no tangible benefit by forcing electricity customers to pay to keep uneconomic power plants in operation,” Richard said. “Finally, if you are driven by innovation and technology, this rule purposefully puts a thumb on the scale for existing, century-old technology at the expense of modern advanced energy that is currently winning based on price and performance.”

RTO Response

ISO-NE spokesman Matthew Kakley said the RTO was reviewing the NOPR while it completes work on a fuel security study. “New England’s wholesale markets have been competitive and brought forward the resources necessary for reliable operations. With the region’s resource mix evolving, ISO New England is conducting an operational analysis of fuel security risks under a range of potential resource scenarios, and we plan to release the study results next month.”

SPP spokesman Derek Wingfield said the RTO was awaiting FERC’s response to the NOPR. “As always, we remain committed to partnering with DOE, FERC and others in our industry to ensure our markets and other services are designed to protect our nation’s electricity infrastructure,” he said.

CAISO is aware of the NOPR and will continue working “with state and federal energy regulators and stakeholders to maintain and strengthen grid resiliency and reliability,” said spokesman Steven Greenlee.

PJM, NYISO and MISO all said they were reviewing the directive.

“As you can imagine, with this just out, we’ll need time to review, analyze and understand,” said PJM spokesman Ray Dotter.

Vogtle Guarantees

While Perry’s NOPR is intended to preserve the current nuclear fleet, his approval of additional loan guarantees is intended to ensure that hopes for a new generation of units are not crushed under the weight of Vogtle’s delays and cost overruns. Vogtle Units 3 and 4 are the first nuclear plants to be licensed and begin construction in the U.S. in more than three decades.

“I believe the future of nuclear energy in the United States is bright and look forward to expanding American leadership in innovative nuclear technologies,” Perry said. “Advanced nuclear energy projects like Vogtle are the kind of important energy infrastructure projects that support a reliable and resilient grid, promote economic growth, and strengthen our energy and national security.”

Rory D. Sweeney, Jason Fordney, Peter Key, Amanda Durish Cook, Tom Kleckner and Michael Kuser contributed to this story.