American Oil and Gas Reporter - January 2018 - 120

winter electric demand for heating threatened the Midwest's power distribution
system, would upend the nation's electric
transmission system. As utilities retire
coal- and nuclear-powered generation facilities, DOE warned those units would
be unavailable for the next unseasonably
cold winter.
The NOPR sets a 60-day comment
period that ended Nov. 24. The final rule
is scheduled to go into effect 30 days
after it is published. In the Federal Register
notice, Secretary of Energy Rick Perry
asks FERC to issue the rule as proposed
as an interim final rule, effective immediately, with provisions for modifying it
after public comments are considered.
The proposed directive calls for the
Federal Energy Regulatory Commission
to impose rules on independent system
operators (ISOs) and regional transmission
organizations (RTOs) to "ensure certain
reliability and resilience attributes of electric generation resources are fully valued."
Market changes are chiefly responsible
for the decline in fuel-secure power generation, DOE says, pointing out the 37
gigawatts of coal plant retirements from
2010 to 2015, and the proposed shuttering
by 2020 of 34.4 gw from nuclear, coal
and natural gas sources.
When evaluating rate structures and
the cost recovery for generating units,
the NOPR directs FERC to place higher
values on generating facilities that can
store 90 days of fuel on site: coal and nuclear units. According to media reports,
the directive requests FERC, an independent agency that regulates electricity
transmission, to require utility companies
to pay the fixed costs associated with
keeping that 90-day supply on site.
The 2014 Polar Vortex event brought
a band of very cold weather to much of
the eastern and central United States,
creating record-high winter peak electric
and natural gas demand for heating, DOE
describes. According to the agency, while
the area's RTO struggled to meet electricity
demand because a significant amount of
generation was unavailable, it was able
to call on facilities scheduled for retirement. DOE says one utility deployed 89
percent of its coal units scheduled for
closure, with another calling on 75 percent
of to-be-retired facilities.
"Using these retiring units enabled utilities to meet customer demand during a
period when already limited natural gas
resources were diverted from electricity
production to meet residential heating
needs. Once retired, these units will not be
available for the next unseasonably cold
winter," DOE cautions, adding nuclear
generation plants in the affected region
provided 95 percent of their average capacity.

Resiliency
In its comments, IPAA asserts resiliency-DOE's justification for the proposal-is ill-defined and the lack of it unproven. Instead, IPAA says, the NOPR
relies on the following narrative:
* Coal and nuclear resources increasingly have been losers in the wholesale
markets;
* ISO/RTO markets don't adequately
value having sufficient supplies on site,
leaving power grid reliability at risk
during extreme weather events, such as
the 2014 Polar Vortex; and
* Full cost of service payments are
needed to prevent "early retirement" of
resources with 90 days of on-site fuel
supplies in regions with energy and capacity markets.
IPAA asserts the NOPR is deficient
because it fails to provide substantial evidence to support the latter two items,
the linchpins of its proposed regulatory
action. "There is no evidence demonstrating the RTOs/ISOs need to subsidize
resources with 90 days of on-site fuel in
order to maintain reliable service during
severe weather events or otherwise, and
indeed there is substantial evidence showing that electric systems that lack, or are
transitioning to lesser reliance on, coal
and nuclear resources are nonetheless
operated in a manner that is both reliable
and resilient," it writes.
According to IPAA's comments, outages
caused by fuel supply disruptions to generators appear to be virtually nonexistent,
with one analysis showing fuel supply
emergencies responsible for 0.00007 percent of customer-hours lost to outages
between 2012 and 2016, when 32 percent
of U.S. coal-fired power plants and 6 percent of its nuclear generating units were
retired. Those four years also saw two of
the coldest winters in the past 30 years,
including the 2014 Polar Vortex, IPAA
points out.
"The vast majority of electric service
disruptions in the United States are related
to distribution or transmission outages,
not unscheduled generation outages," IPAA
says. "And virtually all of the customerhours that were lost because of fuel supply
disruptions between 2012 and 2016 were
related to a single incident involving one
coal plant in northern Minnesota."
The evidence suggests DOE's NOPR
is a transparent attempt to prop up uneconomic power generation that is unable to
compete, primarily because of low natural
gas prices, IPAA says, adding the Federal
Power Act holds FERC to a higher standard. Before it can exercise its statutory
authority, the commission first must determine that the RTO/ISO tariff provisions

120 THE AMERICAN OIL & GAS REPORTER

are unjust and unreasonable. IPAA's comments say the NOPR fails to identify or
articulate any tariff problem, while the
need for greater resiliency purportedly
provided by resources with a 90-day onsite supply is not supported.
The Federal Power Act also requires
FERC to demonstrate that revised tariffs
are just and reasonable if deficiencies
are identified. IPAA says the NOPR also
fails this test.
"Even if there was a need to incentivize
resiliency in the targeted markets (a supposition that is not supported by the evidence cited in the DOE NOPR), the proposed solution-full cost of service payments to eligible resources with 90 days
of on-site fuel-leaves key questions unresolved about the basis for an on-site
fuel preference, why other generating resources that provide resiliency benefits
should not also receive payments, the
cost of such payments, how such costs
would be allocated to customers, and
how the payments would impact price
formation in the organized markets,"
IPAA's comments pose.
Policy Shortcomings
DOE's approach also is flawed because the NOPR fails to provide basic
principles and essential details necessary
to allow for reasonable evaluations on
how payments under the proposed rule
would be implemented, IPAA says. According to the association, the proposed
rule is unclear about whether added
compensation is to be provided by
changes to energy market rules, the creation of new ancillary service products,
changes to capacity market structures,
or new out-of-market payments.
"Addressing these concerns is simply
not possible within the 60-day window
for FERC final action imposed by the
DOE NOPR, particularly given the lack
of factual support and details about resulting market reforms contained in the
DOE NOPR itself," IPAA says. "Any attempt to adopt the DOE NOPR's ill-defined and potentially market-altering reforms in this time frame would almost
certainly fall short of administrative law
requirements."
IPAA points out that the Administrative
Procedure Act obligates agencies to provide interested parties a reasonable opportunity to participate in the rule-making
process. NOPRs must provide not only
adequate time for comments, but also
give sufficient factual detail and rationale
for the rule to all for meaningful public
comments, it states.
DOE's rule making fails both requirements, IPAA's comments aver, allowing
only 13 days from the NOPR's publication



American Oil and Gas Reporter - January 2018

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Contents
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