Illegality of the coal bailout

GTM Jan 11, 2018 Why Rick Perry’s Coal-Friendly Market Intervention Was Legally Doomed. by JEFF ST. JOHN

DOE never met the basic legal requirements for enacting a major market change. But it did launch a valuable debate on the meaning of “resilience.”

One FERC commissioner called Perry’s proposal a “multibillion-dollar bailout.”

Legal experts have been saying for months that Energy Secretary Rick Perry’s plan to upend energy markets in order to prop up uncompetitive coal and nuclear power plants was destined to fail.

Monday’s unanimous dismissal by the Federal Energy Regulatory Commission — an independent agency with four of its five members appointed by President Trump — only confirmed that view.

But whatever its deficiencies (and there were many), the DOE’s notice of public rulemaking, or NOPR, has started the conversation about grid reliability and resilience that Perry told Congress he’d wanted it to spark. For starters, it provided a definition for grid “resilience” — a term often cited in DOE’s NOPR and supporting testimony, but never firmly defined.

“If you look at the order on Monday, I think FERC starts out by reiterating its preference, its policies, for promoting competition, and quickly then rejects the proposal as unjust and unreasonable,” said Ari Peskoe, senior fellow with Harvard Law School’s Environmental Law Program. “They don’t waste a lot of time on the proposal. I think they just view it as completely inconsistent with everything the commission has done over the past 20 years.”

Beyond that, however, FERC was more or less legally obligated to reject DOE’s highly unusual request for an intervention into how it runs the country’s interstate energy markets, he said. That’s primarily because it never made the case that current market regulations are “unjust, unreasonable, unduly discriminatory or preferential,” which is the bare legal threshold for changing them under Section 206 of the Federal Power Act. Nor did DOE prove that its intervention would be a “just and reasonable” alternative that didn’t discriminate or prefer one resource over another.

Peskoe and many other legal observers have noted these deficiencies since the NOPR was filed in late September. Back in October, Peskoe filed comments with FERC that argued that the “NOPR was dead on arrival. It was simply too bare-bones for FERC to make into a rule,” he said.

The NOPR’s first failing was one of omission: leaving out the key legal argument that could have allowed FERC to consider it as the basis of a new rule. The NOPR “does not even propose that current rates are unjust and unreasonable,” Peskoe said. “You couldn’t correct that by just adding evidence in the record. That was a threshold deficiency that FERC couldn’t correct.”

Robbie Orvis, policy design project manager at Energy Innovation, noted that DOE’s fundamental concept was that certain generators were delivering resiliency attributes that weren’t being compensated for under current regulations. “FERC didn’t think the record demonstrated that,” he said.

FERC also made clear that the NOPR failed the second test of offering a just and reasonable alternative to what’s in place today. That’s largely because it would have added billions of dollars in costs to energy consumers, while providing no appreciable benefit to the bulk power system during emergencies.

“There are two steps there — and the NOPR failed both of them,” said Peskoe. The National Association of Regulatory Utility Commissioners, or NARUC, weighed in with a similar assessment, congratulating the commission for “upholding the rule of law and taking the only appropriate actions under the circumstances.”

Commissioner Glick: “A multibillion-dollar bailout”

This legal failing allowed FERC to dismiss the NOPR without any further review. But in a set of separate statements, the two Democratic members of the commission weighed in with their own negative assessments, along with suggestions for a better definition of “resilience.”

Cheryl LaFleur, FERC’s sole remaining Obama appointee, said the NOPR “sought to freeze yesterday’s resources in place indefinitely, rather than adapting resilience to the resources that the market is selecting today or toward which it is trending in the future.” Market-based solutions are always preferable to cost-based solutions, which are seen as a last resort for the agency, she noted.

Richard Glick, a Democratic commissioner appointed by Trump, called the NOPR “a multibillion-dollar bailout targeted at coal and nuclear generating facilities,” and noted that the vast majority of grid outages are caused in the distribution and transmission system, making it a potential realm for study on the issue of resilience.

The DOE’s rather ham-handed attempt to bolster coal power plants through energy market intervention seems to have been motivated and guided by some key Trump administration coal industry backers. Photos show that Perry had a friendly meeting last year with coal company CEO Robert Murray, a Trump supporter who’d previously begged for emergency federal relief for the industry in the face of power plant retirements.

Most of the power plants that would be bailed out by the NOPR’s changes would be in the territory of mid-Atlantic grid operator PJM, including those owned by FirstEnergy, a big customer of Murray Energy. Sean Cunningham, executive director of DOE’s office of energy policy and systems analysis, and one of the voices supporting the NOPR, is a former FirstEnergy lobbyist.

The Sierra Club noted that its Freedom of Information Act request filed last summer led to the discovery of emails between DOE senior adviser Travis Fisher and Raymond Shepherd, a lobbyist for coal company Peabody Energy, who appears to have suggested the idea of making fuel stockpiles a key part of the NOPR’s argument.

A new docket to define “resilience”

Whatever the intention, the nine-month saga of Rick Perry’s inquiry into the “resilience” of the grid has at least provided some clarity around this ill-defined term.

Monday’s order from FERC closed the docket on the NOPR. But it also opened a new one, asking the country’s interstate grid operators to answer 18 questions about resilience — a term often used, but never defined, in DOE’s documents. To fix that problem, FERC provided the first clear, if open-ended, definition of the term:

The ability to withstand and reduce the magnitude and/or duration of disruptive events, which includes the capability to anticipate, absorb, adapt to, and/or rapidly recover from such an event.

“The first thing [FERC did] is remedy this glaring omission in the NOPR itself, this question of resilience. That’s a threshold requirement — if we’re going to talk about resilience, we ought to know what we’re talking about,” Peskoe said.

FERC has jurisdiction over the independent system operators (ISOs) and regional transmission organizations (RTOs) that manage the electricity transmission for about two-thirds of the country, and has ordered each of them to “submit information to the Commission on certain resilience issues and concerns identified herein, to enable us to examine holistically the resilience of the bulk power system.”

The questions start with basic fact-finding, such as “what are the primary risks to resilience in your region from both naturally occurring and man-made threats?” and “explain how you identify and plan for risks associated with high-impact, low-frequency events (e.g., physical and cyber attacks, accidents, extended fuel supply disruptions, or extreme weather events).” FERC asks the ISOs and RTOs for any studies into responding to these kinds of threats, along with how they’re modeled and assessed over time. FERC also asks respondents to “indicate whether the bulk power system is able to reasonably withstand a high-impact, low frequency event? If so, please describe any actions you have taken or are planning as mitigation, and whether additional actions are needed.”

As Orvis described it, the new docket calls on the nation’s ISOs and RTOs to find out “what is resilience, what does it mean to you, how is it different from other services that you have,” and “are there things that FERC can do yo help you go out and get enough resilience?”

Grid operators have 60 days to report back on their conclusions.