FERC Rejects Department Of Energy's Bid For Coal, Nuclear Subsidies

Author:Mr Joseph Donovan
Profession:Holland & Knight
 
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Joseph Donovan is a Partner for Holland & Knight's Washington, D.C. office

HIGHLIGHTS:

The Federal Energy Regulatory Commission (FERC) has voted to terminate a Notice of Proposed Rulemaking stemming from Department of Energy (DOE) Secretary Rick Perry's September 2017 proposal to initiate new pricing rules. The proposed rules sought to allow certain generation units in competitive wholesale power markets to recover costs for power plants with at least 90 days' supply of fuel on hand - reserves that generally apply only to coal and nuclear generation plants. In unanimously rejecting the proposal, FERC held that DOE hasn't created a record demonstrating that the existing market rules for regional transmission organizations (RTOs) and independent system operators (ISOs) are "unjust and unreasonable" under Section 206 of the Federal Power Act. After months of speculation impacted by lack of quorum, delayed confirmations, new commissioners and replacing an interim chairman, the Federal Energy Regulatory Commission (FERC, or Commission) voted on Jan. 8, 2018, to terminate a Notice of Proposed Rulemaking stemming from Department of Energy (DOE) Secretary Rick Perry's Sept. 29, 2017, proposal to initiate new pricing rules. The proposed rule sought to allow certain generation units in competitive wholesale power markets to recover costs for power plants with at least 90 days' supply of fuel on hand - reserves that generally apply only to coal and nuclear generation plants.

DOE argued in its proposed rule under Section 403 of the Department of Energy Organization Act that the price changes were needed to prevent immediate dangers to grid resiliency caused by the rising number of retiring coal and nuclear power plants in the competitive markets.1 The proposed rule directed FERC to consider requiring certain regional transmission organizations (RTOs) and independent system operators (ISOs) to establish a tariff mechanism providing for: 1) the purchase of energy from an eligible "reliability and resilience resource;" and 2) the recovery of costs and a return on equity for such resources (i.e., a "resilience rate"). The Proposed Rule stated that eligible reliability and resilience resources must be: 1) located in an RTO/ISO with an energy and capacity market; 2) be able to provide essential reliability services; and 3) have a 90-day fuel supply on-site.

In unanimously rejecting this proposal, the Commission held that DOE hasn't created a record demonstrating...

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