Coal Age

MAY 2018

Coal Age Magazine - For more than 100 years, Coal Age has been the magazine that readers can trust for guidance and insight on this important industry.

Issue link:

Contents of this Issue


Page 49 of 51

48 May 2018 legally speaking Coal's Importance to Grid Resilience, National Security May Warrant DOE/FERC Action to Save It by ali nelson and linda walsh The Department of Energy (DOE) Sec- retary Rick Perry's attempt to pass reg- ulations that would help the coal indus- try was rejected by the Federal Energy Regulatory Commission (FERC) in Jan- uary, but it appears more is in the works. Grid Resiliency Pricing Rule Secretary Perry had issued a notice of proposed rulemaking for a "Grid Resil- iency Pricing Rule" that directed FERC to issue a final rule requiring devel- opment of rules establishing whole- sale electricity rates for "fuel-secure" generation units. The rule would have allowed eligible generation units to fully recover their costs, as long as the units provided essentially energy and reliability services to the grid and maintained a 90-day fuel supply on site to protect against supply disrup- tions caused by emergencies, extreme weather, and natural or made disasters. Although the text of the rule itself did not specify the source of fuel that would benefit, the 90-day fuel sup- ply requirement imposed a practical limitation on the rule's applicability to coal and nuclear plants only, given that natural gas plants and renewable sources do not or cannot store their fuel on-site. Perry's intent to benefit the coal and nuclear industry is also clear from the justification for the rule laid out in the notice. However, FERC found in January that the proposed rulemaking did not satisfy the requirement to show that the existing rates were not "just and reasonable" and that a cost-of-service rate was necessary. In addition, it not- ed that the proposed rulemaking had failed to establish that the proposed change would not be unduly discrim- inatory or preferential, and noted that the on-site supply requirement "would appear to permit only certain resourc- es to be eligible for the rate, thereby ex- cluding other resources that may have resilience attributes." Federal Power Act 'Must-run' Orders In addition, the DOE may have author- ity under Section 202(c) of the Federal Power Act to take action that benefits the coal industry. Under that section, FERC has the authority "to require by order such … generation … as in its judgment will best meet the emergency and serve the public interest." That sec- tion applies during any war "or when- ever [FERC] determines that an emer- gency exists by reason of … a shortage of electric energy or of facilities for the generation or transmission of electric energy." Although Assistant DOE Sec- retary Bruce Walker has commented that the DOE "would never use [Section 202(c)] to stave off an economic issue," the section has been used to ensure compliance with reliability needs and standards, and Perry clearly views coal plants as contributing to reliability. In recent comments to the U.S. House of Representatives Subcommittee on En- ergy, Perry argued that "If you do not have sufficient coal and nuclear plants, the day is coming … that the national security of this country is jeopardized." FirstEnergy asked DOE to issue an emergency order under Section 202(c) in late March, prior to filing bank- ruptcy, to require baseload coal-fired generators to enter contracts with the PJM regional transmission organiza- tion to generate and deliver electrici- ty "to maintain fuel diversity and grid dependability and resiliency" and to require PJM to pay any qualifying fa- cilities just and reasonable cost-based rates to allow full-cost recovery "or as otherwise necessary to ensure contin- ued operations." Coal-fired generation in the regional would benefit signifi- cantly from DOE's entry of the request- ed order. What's Happening Now – And Why You Should Care Although FERC terminated the proceed- ing to consider DOE's Grid Resiliency Pricing Rule, it emphasized the impor- tance of resilience to the grid and direct- ed regional market operators to provide information on whether additional ac- tion is needed to ensure resilience of the grid. FERC has invited interested enti- ties to file comments on grid resilience. At the request of various energy associa- tions, FERC extended the comment pe- riod to May 9. Submission of comments from coal suppliers and associations regarding the need for FERC action may tip the scales on what FERC decides to do next. Comments regarding planned retirements, economic viability, and fuel-supply-chain disruptions during shortages may be particularly helpful since those issues were focal points of Perry's proposed rulemaking. In addition, the DOE is taking com- ments on the scope of its authority under Section 202(c). The request for comments does not specifically ref- erence FirstEnergy's request, but any responses submitted to the DOE will undoubtedly inform how it responds. Comments regarding why ordering generation from coal-fired units is needed to address reliability needs may help convince the DOE to take ac- tion benefitting FirstEnergy and other coal-fired generators alike. Ali Nelson and Linda Walsh are senior counsel with Husch Blackwell LLP.

Articles in this issue

Links on this page

Archives of this issue

view archives of Coal Age - MAY 2018