Grid Study / Resiliency Pricing Rule

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Why it Matters 

The DOE/FERC Notice of Proposed Rule Making for the Grid Resiliency Price Rule sought public comment on a scheme under which coal-fired and nuclear generation would be provided direct subsidies to operate in three wholesale electricity markets, where such generation has become economically uncompetitive with other sources of generation, and demand response.  Coal-fired generation is a significant source of carbon dioxide emissions and other air, water, and ground pollution.

Current Status

The Department of Energy (DOE) Grid Study, released on August 23, 2017, suggested, among other things, that coal and nuclear generators were being economically disadvantaged and that the closure of such “baseload” generators could lead to reliability challenges in the future. This reasoning was used to justify the September 29, 2017 proposed Resiliency Pricing Rule, crafted to subsidize nuclear- and coal-fired power generation in three wholesale power markets where other sources of generation are proving more economic.

On January 8, 2018 the Federal Energy Regulatory Commission (FERC), in a 5-0 decision, rejected the proposed Resiliency Pricing Rule.

Public comments are being solicited on the Grid Study; no deadline has been given.

History

In January, 2017 the DOE issued the second volume of its Quadrennial Energy Review (QER), finding that the “growing interconnectedness of the grid’s energy, communications, and data flows creates enormous opportunities” and risks. Moreover, as “distributed energy resources become more prevalent and sophisticated—from rooftop solar installations, to applications for managing building electricity usage—planners, system operators, and regulators must adapt to the need for an order of magnitude increase in the quantity and frequency of data to ensure the continuous balance of generation and load.” Demand response, storage, hydropower, and other flexible technologies can be used to “improve system reliability, reduce the need for capital investments to meet peak demand, reduce electricity market prices, and improve the integration of variable renewable energy resources.”

Trump Era

On April 14, 2017 DOE Secretary Perry ordered a staff study on electricity markets and grid reliability, including whether baseload resources are being adequately compensated for the power they generate.

On August 23, 2017 the Grid Study was released. It found that the grid benefits from flexible resources including, notably, natural gas plants, which can quickly respond to changes in demand by ramping up or down quickly. Coal plants, on the other hand, respond slowly to fluctuations in supply and demand, and nuclear plants run at nearly full capacity regardless of grid conditions. The low cost of natural gas gives plants using this fuel an economic advantage over plants using other fuels. While the study also found that renewables were not causing reliability problems, it suggested that coal and nuclear generators were being disadvantaged and that the closure of such “baseload” generators could lead to reliability challenges in the future.

On September 29, 2017 DOE proposed the “Grid Resiliency Pricing Rule,” invoking a rarely used authority that allows DOE to propose a rule under the Federal Power Act. If finalized, the rule would have required wholesale electricity market operators to amend their rules to provide for a special rate for generators that have a 90-day fuel supply and can meet other qualifications. The proposal was premised in part on statements in the DOE Grid Study that suggest wholesale markets do not adequately value “resource attributes that enhance reliability and resilience.” While ill-defined in the proposal, the special rate appeared to carve coal-fired and nuclear-powered generators out of the competitive market and provide them with a rate that guaranteed their profitability.

On January 8, 2018 the Federal Energy Regulatory Commission (FERC), in a 5-0 decision, rejected the proposed Resiliency Pricing Rule, saying i) that the record did not demonstrate that the three affected wholesale markets were in violation of the “just and reasonable” standard of the Federal Power Act and ii) that record also failed to show that the proposed subsidies would meet that standard. At the same time, FERC also asked each Regional Transmission Organization / Independent System Operator to address 18 questions about how it “currently evaluates the resilience of its system” and to evaluate 4 FERC-created “options to mitigate any risks to grid resilience,” noting that “a proper evaluation of grid resilience should not be limited” to fuel security.

For More Information

See Ari Peskoe’s tweets on the FERC decision and Jody Freeman and Joe Goffman’s New York Times op-ed on the then proposed Resiliency Pricing Rule. Also see Save EPA’s Opposing Subsidies for Coal and Nuclear Power Plants page.

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