New DOE Order Aiming to Save Coal Plants Could Impact Wholesale Markets

 The Department of Energy (DOE) recently issued an order using a rarely-used section of law that would require the Federal Energy Regulatory Commission (FERC) to issue a final rule requiring “fair and full compensation” for baseload power plants, such as large coal and nuclear.  Under this type of order, plants that have 90 days’ worth of fuel stored on-site would qualify for full compensation.  This would allow these plants to continue to compete in the wholesale markets, even though their profits have been squeezed by cheaper natural gas and renewables. 

What is the timeline for implementation of the order?

The DOE issued their order on Sept. 29, 2017, which required the FERC to issue an interim or final order 60 days from publication of the notice of public rulemaking (NOPR).  On October 2, 2017, FERC issued the NOPR in Docket RM18-1, and a broad number of industry association have filed a motion to delay the time set out by the DOE in this order.

What is the DOE’s purpose for initiating this order?

While the DOE has recently issued a report discussing grid reliability and resiliency, the DOE order was quite unexpected by most industry observers.  According to Sec. of Energy, Rick Perry, in a letter to the energy commission, “ensuring a reliable and resilient electric supply and corresponding supply chain are vital to national security." He referenced a recent DOE report that emphasized the importance of baseload plants that are capable of running around the clock.

What are opponents of this order saying?

Some experts contend that the DOE’s references contain a mixture of old facts and undefined expectations and that the order contradicts the DOE’s own report released earlier this year.  The North American Energy Regulatory Council (NERC) and regional transmission operators (RTOs) are responsible for ensuring resource adequacy in wholesale markets, regulated by the FERC.  The DOE order indicates that reliability and grid resiliency are threatened and that immediate action is required, although most RTOs have made significant changes over the years to ensure reliability–including major changes following the Polar Vortex in 2014. 

Is Direct Energy Business involved in this regulatory proceeding?

Direct Energy Business is focused on ensuring that the final rules are in the best interest of our customers–and that our customers can continue to design their energy future.  Any requirement to pay for old or obsolete power plants should be viewed with a skeptical eye, as this likely will not help efforts to build new infrastructure or help customers meet their unique energy needs.  Our Government & Regulatory Affairs team is working each day in the stakeholder process to make sure that if this rule goes into place, that our customers are not negatively impacted. 

There is already significant pressure on FERC to slow down its process and to consider all of the facts and stakeholder feedback.  Direct Energy Business plans to continue to engage in the discourse, along with other stakeholders, to affect an outcome that provides customer value, while keeping our power grid safe, reliable and affordable. 

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