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Federal Regulators Criticize Energy Rule for Distorting Markets

Oct. 5, 2017, 7:27 PMUpdated: Oct. 5, 2017, 9:37 PM

Two of the three members of the Federal Energy Regulatory Commission have publicly criticized an Energy Department proposal that aims to subsidize nuclear and coal plants in the wholesale markets, suggesting it could “destroy” the markets.

“We will not destroy the marketplace,” Robert Powelson, a Republican member of the Federal Energy Regulatory Commission, said in a speech at the Organization of PJM States’ annual meeting in Arlington, Va., on Oct. 4. Powelson’s office confirmed the statement.

Democratic FERC Commissioner Cheryl LaFleur supported Powelson’s comment, saying in an Oct. 4 tweet, “Great message!”

Powelson and LaFleur’s comments are the first public reactions from FERC members to the Energy Department proposal and its potential effect on the wholesale energy markets, which FERC oversees. FERC Chairman Neil Chatterjee (R) has not publicly commented on the proposal.

Market Challenges

The Sept. 28 Energy Department proposal directed FERC to address market challenges facing coal and nuclear plants. The proposal would allow generators with a 90-day supply of fuel on site—which would include coal and nuclear facilities—to recover their operating costs at “a fair rate of return.”

“FERC does not do politics. We don’t do energy politics,” Powelson said at the meeting, which was first reported by SNL.

When it comes to politics, some congressional Republicans have weighed in against the DOE proposal, too.

“I really trust the free market. If a power source will survive the market, that’s what the people should get,” Rep. Pete Olson (R-Texas) told Bloomberg BNA Oct. 5. “This is sort of picking winners and losers, saying, ‘I’m going to pick coal and nuclear.’ That’s not what’s good for the consumer.”

William Nelson, a Bloomberg New Energy Finance wholesale power analyst, told Bloomberg BNA Oct. 5 that the comments from the two commissioners were “the rational response that I think most people expected.”

“FERC historically has taken a pro-market, slow-and-steady, apolitical approach to any potential rulemaking.” So, he added, “This was the probable and likely outcome that they would meet this with a form of skepticism that suggests that the sky’s not going to fall.”

FERC has set an expedited public comment deadline of Oct. 23 on the proposal. The independent agency published a list of questions on Oct. 4 that it suggested could be addressed in comments, including questions about eligibility requirements and how the proposal would be implemented.

The Energy Department gave FERC 60 days to act—a time period that will not begin until a notice is published by the department in the Federal Register.

The Energy Department “determined that FERC must reform the markets to address system resilience and long-term grid reliability,” Maria Korsnick, the Nuclear Energy Institute’s president and CEO, told a panel of the House Energy and Commerce Committee Oct. 3. “I cannot overstate the need for FERC and the [regional transmission organizations] to expeditiously implement … DOE’s recommendations.”

Not Good for Consumers

But consumer advocates in the wholesale energy markets who testified in at an Oct. 5 House hearing all opposed the proposal and fast track for it.

“We are dead set against this proposal,” John Hughes, president and CEO of the Electricity Consumers Resource Council, which represents industrial manufacturers that are large consumers of electricity, said at the hearing, which the Energy and Commerce Committee held on consumer perspectives on improving electricity markets.

“We believe that it will destroy the [regional transmission organization] and [independent system operator] markets, if not destroy the competition in those markets,” he said. “The attempt here is to create a big ATM machine for uneconomic, obsolete coal and nuclear markets.”

Hughes estimated that out-of-market subsidies proposed in the Energy Department’s rule would lead to increased costs to consumers ranging from $800 million to $3.8 billion a year.

Bloomberg New Energy Finance’s Nelson also said consumers would face increased costs.

“If you impose another constraint on market and force out-of-market subsidies, in 99 percent of cases, you end up with higher costs overall,” he said.

“Intuitively, if we’re keeping uneconomic units online, then it’s going to cost more for consumers,” he added.

(Updated to include Bloomberg analyst reaction and consumer groups' reactions to DOE proposal.)

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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