Coal and Nuclear Plant Bailout Would Be Unjustified Use of DOE's Emergency Authority
It's no secret that the Trump administration and coal companies have drawn a bullseye on reversing coal's declining fortunes in wholesale electricity markets, where competition and inexpensive natural gas have driven coal's market share down from 50 percent in 1990 to about 30 percent today. Feeling bullish about their prospects in a sympathetic administration, owners of coal and nuclear plants have tried to extract subsidies to prevent what they view as premature retirements of large power plants.
This January, the Federal Energy Regulatory Commission (FERC) rejected the most overt bailout grab, a proposed rule originating from the Department of Energy (DOE) under an unusual process provided for in section 403 of the DOE Act. That proposal would have allowed plants that can store 90 days of fuel onsite (principally coal and nuclear plants) to recover all their costs – not normally the case in wholesale electricity markets that sell at market prices – on the theory that they are indispensable to keeping the grid operating reliably. FERC rejected the DOE notice of proposed rulemaking (NOPR) for numerous reasons, including failure to develop a proper record that existing market prices are not "just and reasonable" under the Federal Power Act (FPA).
The NOPR's …
As expected, yesterday the Solicitor General filed a petition for certiorari to the Supreme Court in FERC v. Electric Power Supply Association, asking the Supreme Court to review a May 23, 2014 decision from a divided panel of the D.C. Circuit that invalidated FERC’s Order 745.
Order 745 directs Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) to establish rules that compensate demand response resources at the wholesale market price—the same rate that electric power suppliers receive for selling electricity. A group of organizations affiliated with generators of electricity sued FERC, alleging that Order 745 had overstepped the agency’s authority. A majority of the D.C. Circuit panel (Brown, Silberman) agreed, holding that Order 745 exceeds FERC’s jurisdiction over wholesale electricity markets under the Federal Power Act, 16 U.S.C. § 824. The panel majority reasoned that, because demand response involves …
Last Friday (May 23), in Electric Power Supply Association v. FERC, a D.C. Circuit panel split 2-1 and vacated Order 745, a Federal Energy Regulatory Commission (FERC) rule designed to promote “demand response” (DR). DR is a rapidly growing and valuable means of reducing electricity demand, thereby benefiting consumers and the environment. It is also an important part of the Smart Grid, in which smart meters and devices that communicate with one another and energy service providers can further promote these goals. Indeed, former FERC Chairman Jon Wellinghoff has called DR the Smart Grid’s “killer app.”
The case tested a question of near first impression about the Smart Grid: which level of government regulates it? For now, the D.C. Circuit has held squarely for the states, concluding that DR regulation is a matter of exclusive state jurisdiction. If the decision stands, it will have …
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