Can of Worms


Energy Department NOPR Forcing Difficult Conversations

Fortnightly Magazine - December 2017

You're evidently a reader of Public Utilities Fortnightly. So, it's pretty likely you know about the Energy Department's notice of proposed rulemaking.

Referring to the DOE Act's section 403, the Forrestal Building — its most prominent occupants that is — proposed a grid resiliency pricing rule. The uproar from the NOPR, pronounced No Purr, is now the subject of a highly contentious FERC proceeding.

If FERC accepts the proposal, organized markets would reform pricing to reward a power plant with a substantial supply of fuel on-site. Some coal-fired and nuclear plants would benefit, in PJM particularly.

Initial comments and reply comments have now been submitted. There were very many. The animated comments and offline debates in conferences and hallways across the continent have captivated our world of utility regulation and policy.

By December 11, likely on that day, FERC will ... Well, actually, it's rather difficult to predict what FERC will do. Though we hear predictions almost hourly now.

If the NOPR has accomplished anything, it's opened a can of worms.

For starters, what is resilience? What makes the grid not resilient? What makes it resilient?

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We're all dedicated to the constant provision of electricity to the public. Bad weather and bad people can interrupt supply continuity. When bad weather and people act, and when it takes days or weeks to react and restore electric service, the effects on our electric-centric society are catastrophic. Just look at Puerto Rico post-Hurricane Maria.

Parties to the proceeding are warring over whether preventing certain plants from retiring — those with a substantial supply of fuel on-site — makes the grid resilient. Clearly it does in certain scenarios. Clearly it doesn't in other scenarios. It comes down to the relative likelihood of scenarios, a boring observation I know.

Parties to the proceeding are also warring over whether paying extra to prevent these plants from retiring violates "the market" of organized markets, rendering it biased and thereby economically inefficient. But the market, such as it is, is of our making. It rewards some qualities of market participants. It doesn't reward other qualities, like low or zero air emissions. Or like the ability to sustain operations through adverse conditions or the actions of adversaries.

A tweak of the market could reward - or more richly reward — some quality. And in so doing less richly reward other qualities. The combination of a market's carrots and sticks is not inviolable. The recipe can be varied.

But would this be wise? Depends of course on what qualities we want rewarded and not rewarded.

Some comments criticize change itself. They rightfully point out that change creates market uncertainties and risk. If FERC changes the market once, they can do it again, and again, and again.

Though, FERC has hardly treated the market as sacrosanct. It seems like the only constant in the market over two decades is change. Consider the countless iterations on the pricing of ancillary services, and of capacity, and of energy itself.

The market we created surely rewards the production of energy. The emphasis on energy has produced extraordinary efficiencies. No one disputes this. Where sentiment divides? On the rewards for the production of capacity and the resultant efficiencies or inefficiencies.

Do we get sufficient capacity? Do we get an efficient mix of capacity? Disputes on these questions are rife.

Who came up with the phrase "all of the above?" A politician no doubt. It's obviously more desirable to have a diverse mix of generating capacity than a homogeneous fleet. Yet we've already decided to do without oil-fired plants (with rare exceptions). We've already decided to decrease the role of hydroelectric plants. Some countries have decided to drive the role of coal-fired plants to zero. Some have decided to do the same with nuclear plants.

Is the U.S. moving to a mix of, ultimately, gas-fired, wind and solar plants? That is the trend. Just look at new plant openings and old plant retirements in recent years.

Would this lack of diversity be too undesirable and unacceptable? Such dependence on gas particularly is downright scary for those who lived through the days of gas price volatility. Due to the shale gas revolution, those days are gone forever? Let's hope.

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Personally, I'm attracted to the commentary that argues resilience is crucial to our society. And then argues we should address each major threat proportionately.

The threat to critical substations from cyber-attacks? Let's shore up our ability to rapidly replace damaged substations. The threat to critical lines from vicious storms? Let's reinforce them with hardier poles. The threat to critical infrastructure like military bases from outages of all kinds? Let's increase redundancy with microgrids.

As for coal-fired and nuclear plants, should unintended peculiarities in market pricing compel retirements of valuable plants? Especially zero-emission nukes?

Maybe we should start our thinking with the capacity mix we want to have in place in 2030. For all purposes, resilience included. Then we can work back to the capacity mix we're driving towards through our present market price structure, sans a mod, and with one.