Dept. of Energy Proposes New Rule to Support Baseload Resources. How Will FERC Respond and Is This Good Policy?

October 5, 2017

A recent movement within the electricity sector focuses on the potential threat of intermittent renewable resources rapidly tying into the grid. Renewable resources, like solar and wind, are considered “intermittent” because electric power flow from these resources is subject to potentially significant variations throughout the day, the week, and the year. Imagine a partly cloudy day in Arizona: shade from clouds passing over a solar farm may cause huge swings of power within mere seconds. This is just one example of the many difficulties arising from fueling power with the natural elements.
The key issue of this intermittency relates to how we use our power. No matter what time of day, when Americans flip a light switch, power is expected instantly. In response, many—most notably Secretary of the Department of Energy (DOE), Rick Perry—are calling for an increased appreciation and valuation for baseload resources. These “baseload” resources are essentially “non-intermittent” resources, like coal and nuclear, and it is argued they provide greater reliability and resiliency for the grid. Fuel from baseload resources is a lot easier to call on in times of need, as opposed to relying on natural elements like the wind and sun.

Promotion of baseload resources is one of the chief goals for DOE Secretary Perry and the recently appointed Chairman of the Federal Energy Regulatory Commission (FERC), Neil Chatterjee who recently stated that he “believe[s] baseload power should be recognized as an essential part of the fuel mix.”

Secretary Perry has been especially active on this issue and released a highly anticipated staff report on baseload and reliability in August. Now, just this past Thursday, Secretary Perry and the DOE published a Notice of Proposed Rulemaking (NOPR) for a “Grid Resiliency Pricing Rule.”
The DOE staff used the report as evidence and support for the Grid Resiliency Pricing Rule. This proposed rule directs FERC to oversee its implementation and includes a separate letter addressed to Chairman Chatterjee and the Commissioners. In this letter, Secretary Perry directs FERC to “expeditiously” enact this baseload-protecting rule and claims failure to do so “would be unjust, unreasonable, and contrary to public interest.” Specifically, Secretary Perry urges FERC to take action before the winter heating season begins, expressing concerns for the prospect of another event like the 2014 Polar Vortex.
However, there will be a number of barriers to the implementation of the proposed Grid Resiliency Pricing Rule. First, FERC may now finally have a quorum, but Commissioner Chatterjee has already stated that he is hesitant to move forward on any major rules before they have the other two commissioner vacancies filled. Furthermore, FERC is an independent agency under no obligation to act, and Commissioners have a history of taking their independent role seriously. Former FERC Chairman Jon Wellinghoff stated he would “set [the NOPR] over to the side someplace under a pile of papers” and that he “wouldn’t even consider or entertain” Secretary Perry’s requests. And perhaps most importantly, even if FERC wanted to meet Secretary Perry’s exhortation for a sixty-day implementation, they probably could not do so. The proposed rule’s definition for a “reasonable rate” to “fully compensate[] for the benefits [of baseload] . . . including reliability, resiliency, and on-site fuel assurance” is unworkably vague and provides little detail. Ari Peskoe of Harvard Law School’s Environmental Policy Initiative believes, at best, the DOE’s NOPR could be “a prompt for comments” and “could [not] form the basis of a final rule,” which means FERC will likely be required to start from scratch.
In addition to questions of willingness and feasibility of the proposed rule’s implementation, doubts loom with regard to Secretary Perry and the DOE’s true motivations. The supporting DOE baseload staff report itself was under intense scrutiny and a subject of much controversy. Many believed the results of the study were pre-ordained to favor baseload coal and nuclear baseload plants over intermittent renewable plants. In July, a DOE staff member—likely worried about the same—leaked a draft copy of the report, which stated that renewables were not a threat and the grid is “more reliable today due to better planning, market discipline, and better operating rules and standards.” Some argue the final report that followed can operate more like a Rorschach test, from which readers can read their own preferred interpretations. The final report’s third general finding on wholesale electricity markets provides the best latching-on point for propping up baseload resources: “Markets need further work to address grid resilience . . . [and to compensate] reliability- and resilience-enhancing resource attributes.”
Finally, there are disagreements as to whether traditional, on-site fuel baseload resources truly are any more reliable than distributed energy renewables, like rooftop solar. The final DOE staff report itself praised the increased generation diversity that renewables have introduced to the grid and also concluded that grid and electricity markets are working properly. Furthermore, when disaster hits, one could imagine renewables, like rooftop solar, providing more reliability and support to electric consumers in need. In regards to the devastation wrought by Hurricane Maria upon Puerto Rico, Michael O’Boyle of America’s Power Plan highlights that the “grid went down completely and won’t be back for months.” “Fuel on-hand” will only help “large buildings with backup diesel generators.” “Rooftop solar and batteries, on the other hand, would have allowed communities to recover and retain essential services.”