Secretary Perry's Narrow Directive to FERC

Contradicting the findings from the Department of Energy’s August 2017 Staff Report to the Secretary on Electricity Markets and Reliability that recent power market shifts are not sacrificing reliability, and contrary to FERC’s mandates to support just and reasonable rates in a non-discriminatory manner, Secretary Perry’s direction to FERC to take final action on a proposed Grid Resiliency Pricing Rule seeks to shield coal and nuclear plants from market forces by providing full cost recovery and a fair rate of return. This proposed directive is a considerable leap from the Quadrennial Energy Review finding that “grid reliability may require adjustments to market mechanisms that enable better valuation”[1] or the Staff Report’s call for “A continual comprehensive regional and national review … to determine how a portfolio of domestic energy resources can be developed to ensure grid reliability and resilience”[2].

While price formation is a legitimate agenda item, the debate needs to go beyond the narrow interpretation of resilience highlighted in the Secretary’s letter. While the Secretary emphasized 90-day fuel security and ancillary services, other considerations not mentioned include resilience to transmission disruptions and fuel diversity. And looking beyond resilience, there are other characteristics that potentially warrant compensation to support a reliable and well-functioning electric grid into the future, including resource flexibility. In particular, the ability of electric resources to respond quickly to real-time changes in power supply and demand will only become more important as intermittent energy resources such as solar and wind make up higher shares of electric supply. A full and fair evaluation of market pricing will consider the full range of attributes needed to support the electric grid, not just the ones highlighted in the NOPR.

Finally, we note that while the Secretary is fully within his authority to “propose rules, regulations, and statements of policy”, as an independent regulatory agency with its own legally required notice and comment procedures, FERC has “exclusive jurisdiction” over any such proposals. FERC must “consider and take final action” on any proposal made by the Secretary “in an expeditious manner in accordance with such reasonable time limits as may be set by the Secretary for the completion of action”.[3] However, and very importantly, FERC is not obligated to sign off on the Secretary’s proposal: FERC may concur, concur with recommended changes, or recommend that the rule not be adopted.[4]

We look forward to the coming debate and hope FERC will look broadly at the market adjustments that might be required to support resilience and flexibility, consistent with efficient market operations and fuel neutrality.

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[1] Quadrennial Energy Review: Transforming the Nation’s Electricity System: The second installment of the QER. January 2017. Pp 4-41.

[2] Quadrennial Energy Review: Transforming the Nation’s Electricity System: The second installment of the QER. January 2017. Pp 14.

[3] Department of Energy Organization Act, section 403. https://www.usbr.gov/power/legislation/doeorg.pdf

[4] 42 U.S. Code § 7174 (b) https://www.law.cornell.edu/uscode/text/42/7174