Environment & Energy Report

Energy Bid to Support Coal, Nuke Plants Called Illegal

Oct. 24, 2017, 6:39 PMUpdated: Oct. 25, 2017, 3:03 PM

An Energy Department proposal aimed at subsidizing coal and nuclear plants would violate the Federal Power Act and the Administrative Procedure Act, regional grid operators, a group of 10 state attorneys general, and legal experts say.

The proposal didn’t provide sufficient evidence for the Federal Energy Regulatory Commission to justify changing rates or tariffs based on an existing practice that is “unjust, unreasonable, unduly discriminatory or preferential,” the mandate for FERC in the Federal Power Act, the groups said, urging FERC to reject the proposal. The law requires FERC to ensure that rates are just and reasonable for consumers.

The legal objections were among hundreds of comments—mainly opposed to the proposal—filed Oct. 23 and 24 at the end of FERC’s expedited three-week comment period.

Opposition has come from oil and natural gas giants, including Exxon Mobil Corp. and Devon Energy Corp., as well as free-market think tanks Institute for Energy Research and R Street Institute, consumer advocacy groups, and environmental organizations. Supporters included the Nuclear Energy Institute and the coal mining company Murray Energy Corp.

In late September, the Energy Department directed FERC to act in 60 days to consider a proposal that would allow generators with a 90-day supply of fuel on site—coal and nuclear facilities—to receive cost-of-service payments that would cover their operating costs.

The lack of evidence of unjust and unreasonable rates “makes it difficult for the Commission to craft a solid final rule that satisfies the Commission’s mandate to ensure just and reasonable rates while avoiding opportunities for manipulation and the potential for parties to assert discrimination claims,” seven members of the ISO/RTO Council said in their Oct. 23 comment. The council represents large regional transmission organizations that run the country’s electric grid, including PJM Interconnection LLC, ISO New England Inc., and New York Independent System Operator Inc.

The Energy Department doesn’t propose that rates currently are unjust and unreasonable, and therefore FERC can’t order a change unless there is such an explicit finding, Ari Peskoe, a senior fellow in electricity law at Harvard Law School, told Bloomberg Environment Oct. 24.

“The proposal has these amorphous, vague statements about a lack of resiliency pricing, but it fails to define what that means, and FERC has never used it in the context of wholesale rates,” he said.

FirstEnergy’s Support

One of the strongest supporters of the proposal—an investor-owned utility that potentially would benefit from it—is FirstEnergy Service Co., a subsidiary of Akron, Ohio-based FirstEnergy Corp., which operates six coal plants and three nuclear plants in Ohio, West Virginia and Pennsylvania.

FirstEnergy asked FERC to take action because “current rates, terms, and conditions of RTO/ISO tariffs are unjust and unreasonable insofar as they fail to provide just and reasonable compensation to fuel-secure, resilient, generators for the value that they provide to the grid and to consumers of electricity.”

The utility pointed to the growing number of coal and nuclear plants that have announced retirement due to difficulty participating in the competitive energy markets against historically low natural gas prices.

“This finding would be neither novel nor unprecedented, and the Commission has a substantial factual record that supports that finding,” according to comments filed by William Scherman, a partner at Gibson Dunn & Crutcher and former general counsel at FERC, on behalf of FirstEnergy.

“It seems to me that the only defenders of this proposal are the ones who stand to benefit from it,” Joel Eisen, an energy law professor at University of Richmond School of Law, told Bloomberg Environment Oct. 24.

Administrative Procedure Act

The 10 state attorneys general said the expedited time frame for the comments and the directive for rulemaking violated the Administrative Procedure Act (APA). The proposal failed to provide the public with adequate notice or reasonable time for meaningful input, and it failed to explain or provide record support for drastic regulatory changes, the group, which included attorneys general from California, Massachusetts, and Illinois, said in its Oct. 23 comments.

“The DOE doesn’t justify why it needs such a rapid timeline that violates executive orders on how fast comments are supposed to come in proposed rulemakings,” Miles Farmer, a clean energy attorney at the Natural Resources Defense Council, told Bloomberg Environment Oct. 24.

Farmer said that the APA requires the public to have a “meaningful opportunity to comment,” but he said the public can’t do so when the Energy Department “didn’t explain its rationale for the proposal in the detailed manner required by law. He said the department also didn’t explain any of the mechanics of how payments to eligible generators would work.

Next Steps at FERC

FERC now has until Dec. 11 to act on the Energy Department’s proposal. FERC Chairman Neil Chatterjee has said its options include issuing an advance notice of proposed rulemaking, issuing a proposed rulemaking superseding the Energy Department proposal, issuing a denial of the proposal, issuing a final rule, extending the public comment period, convening a technical conference, and issuing a notice of inquiry.

Chatterjee has described his goal as landing in the center of a Venn diagram with three overlapping circles—valuing reliability attributes, maintaining markets, and following the law.

“We’re looking to find a way to perhaps correct deficiencies that aren’t properly valuing the attributes of some of these assets, in a legally defensible manner that doesn’t blow up markets,” he said two weeks ago.

FERC Commissioner Robert Powelson has come out strongly in favor of maintaining markets and not picking fuel winners and losers. “There’s a genuine commitment to do no harm to markets,” Powelson told Bloomberg Environment in an Oct. 23 interview.

“We do not, as an agency, pick the generation resource mix in the bulk power system. The markets drive those outcomes,” Powelson added.

Separately, the third FERC commissioner, Cheryl LaFleur, also has promised “not to destroy” the markets. She said that the commission would consider all comments as it decides how to move forward.

In a statement Oct. 24, Department of Energy press secretary Shaylyn Hynes said the proposal “has jumpstarted a long overdue conversation about grid resiliency. We are still reviewing comments, but it is clear that there is a significant amount of support for the Secretary’s proposal. It is worth noting that even some critics of the proposal acknowledge there is a problem and that FERC needs to act to address pricing in the electric markets.”

(Fixing identification in last paragraph to note that Shaylyn Hynes is a Department of Energy press secretary. )

To contact the reporter on this story: Rebecca Kern in Washington at rkern@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

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