‘What’s the Cost of Freedom?’
By Michael Brooks and Rich Heidorn Jr.
WASHINGTON — Energy Secretary Rick Perry on Thursday defended his call for price supports for struggling coal and nuclear plants, telling the House Energy Subcommittee “these resources must be revived, not reviled.”
Perry also pushed back on criticism that his Notice of Proposed Rulemaking, which called for “full recovery” of the plants’ costs, would undermine competitive markets.
Republicans largely expressed support for the rule. But Perry did little to counter allegations that his action was motivated by President Trump’s campaign promises to help the coal industry — repeatedly sidestepping Democrats’ questions about the costs of his proposal and the evidence supporting the need for 90 days of on-site fuel. He also contradicted himself on whether the NOPR was a command to FERC or an invitation to “start a conversation.”
“The base reason that we asked for this … is that, for years, this has been kicked down the road,” Perry said of the NOPR, published in the Federal Register on Tuesday.
The proposal would require FERC-jurisdictional RTOs and ISOs with capacity markets and day-ahead and real-time energy markets to ensure full cost recovery for any generation that is capable of providing “essential energy and ancillary services” and has a 90-day fuel supply on site “enabling it to operate during an emergency, extreme weather conditions, or a natural or man-made disaster.” Units subject to cost-of-service rate regulation would be excluded.
Essential services include voltage support, frequency services, operating reserves and reactive power. Just and reasonable rates for such generators would cover “its fully allocated costs and a fair return on equity,” including operating and fuel expenses and the costs of capital and debt, the NOPR said.
Rep. Bobby Rush (D-Ill.), ranking member of the subcommittee, asked how Perry reached the conclusions in the NOPR, given that FERC and NERC have said that the grid is reliable. In an apparent reference to the NOPR, FERC Commissioner Robert Powelson promised in an Oct. 4 speech “not to destroy” the markets, leading Commissioner Cheryl LaFleur to tweet, “Great message!”
“I respect the FERC members’ views,” Perry said. “I think their picture is one that is a snapshot in time. … What I think one of my roles is is to think outside of the box.”
The grid is normally resilient during “blue sky” days, he said, and his support for an “all of the above” generation mix was proven during his time overseeing wind growth as governor of Texas. “But the wind does not always blow. The sun doesn’t always shine. The gas pipelines — they can’t guarantee every day that that supply is going to be there.”
“It seems to me what you’re saying is, ‘Well my gut feeling has more of a priority … rather than what these experts have said,’” Rush responded.
While no Republican on the subcommittee criticized the proposal — and many offered their support and praise for Perry — party leadership did not tip its hand.
“While I reserve judgment on the policy solutions, the fact that the secretary stepped in to this complicated debate reflects the current need to have a broader conversation about the functioning of the nation’s electricity markets,” subcommittee Chair Fred Upton (R-Mich.) said in his opening statement.
Rep. Greg Walden (R-Ore.), chair of the full Energy and Commerce Committee, made no mention of the NOPR in his opening remarks, instead focusing on the Department of Energy’s budget.
Perry said he was attempting to counter subsidies that have benefited renewables at the expense of coal and nuclear. “There is no such thing as a free market in the energy industry,” he said multiple times. “Government’s picking winners and losers every day by regulations … and I’m at least honest enough to say it.” He pointed to state utility commissions, policies such as renewable portfolio standards, and Texas’ own Competitive Retail Energy Zones as evidence.
Rep. Gene Green (D-Texas) pushed back on this, pointing to the retail choice offered in his state and the uncoupling of generators from utilities.
“Gene, you know me, I’m all about that competition,” Perry said. “That’s what we did … we deregulated that market and that competition came. But the idea is, we had an administration before that had their thumb on the scale. I think you’ll agree, [former President Barack Obama] liked green energy, and that’s where the subsidization came.”
Rep. Paul Tonko (D-N.Y.) pointed out that the production and investment tax credits for solar and wind resources, respectively, were passed by a Republican-controlled Congress.
Not Supported by DOE Study
Rep. Frank Pallone (D-N.J.), ranking member of the full committee, said the NOPR was not supported by the grid study the department released in August. He asked Perry what analyses the department or its national labs had done to support the proposal.
Perry did not respond to the question, instead challenging Pallone’s premise. The grid study, he said, didn’t address “with specificity the events I’m concerned about,” he said, citing the 2014 polar vortex. In fact, the report had about 17 references to “extreme weather” or the polar vortex. (See Perry Grid Study Seeks to Aid Coal, Nuclear Generation.)
Perry also sparred with Rep. Michael Doyle (D-Pa.), who said the committee had held eight hearings on markets and reliability. “We’ve actually been having the conversation you claimed to be starting,” he said.
“This has been discussed for a long time, as you rightfully said,” Perry conceded. But he said it was now time for action.
“Our RTO made that adjustment” after the polar vortex, Doyle said, referring to PJM’s Capacity Performance rules, which increased the penalties and bonuses for capacity resources during grid emergencies. “We feel pretty confident with our capacity in Pennsylvania.”
“‘Pretty confident’ is not going to get it [done],” Perry shot back.
Tonko asked if Perry considered consumer costs in developing the NOPR.
“What’s the cost of freedom?” Perry responded. “What does it cost to build a system that keeps America free? I’m not sure I want to put that straight out onto the free market.”
Directive or Conversation?
Perry said the NOPR was intended to “kick-start a national discussion about resiliency and about the reliability of the grid.” Noting the vociferous opposition his proposal provoked, he chuckled, “And best I can tell, we were pretty successful in doing that. … We’re having this conversation now that we really haven’t had in this country.” (See Consumer Advocates Slam Perry NOPR, RTOs, FERC.)
Indeed, at least 50 companies, regulatory agencies and trade groups have intervened or made comments in the docket FERC opened to respond to the NOPR (RM18-1).
Doyle pressed Perry on discrepancies between the NOPR, which repeatedly says FERC “must” act, and the secretary’s repeated references to starting a “conversation.”
“Is it a directive to FERC to do this or a conversation?” Doyle asked.
“Both,” Perry said.
“So, it’s a directive then?” Doyle asked.
“My words are what my words are. I don’t back off from them,” Perry said.
“It can’t be both,” Doyle protested. “So, which one is it?”
“Well actually it is both. It can be both. We can have a conversation and I think [FERC] must move. I think they must act. We’ve kicked this can down the road as long as we need to.”
Perry seemed to acknowledge multiple times that FERC would not be obligated to follow such a directive. Legal experts have said that Perry has no power to make FERC, an independent agency, provide the relief he is seeking. (See FERC’s Independence to be Tested by DOE NOPR.)
Rep. David McKinley (R-W.Va.), who said he was “100% behind” the NOPR, asked if “FERC were to follow through with your missive, don’t you think we’d have a better outcome” than what happened during the polar vortex?
“Well I do, but I mean, that’s why we’re having this conversation here,” Perry answered, saying he wanted to hear from both sides of the issue.
Rep. Kathy Castor (D-Fla.) also said the NOPR conflicted with the findings of the grid study and said it would cost consumers and businesses billions. “There is just no rational basis for this new FERC rule that you’re trying to move through as quickly as possible,” she said.
“If the request … the NOPR to FERC is what you say it is, [FERC] won’t go forward with it,” Perry responded.
When asked by Doyle if he had considered any better alternatives to the NOPR, Perry answered, “I don’t have any idea whether there are any better options. That’s one of the reasons we wanted to have this conversation is to bring those up and discuss them.
“I’m not saying that my letter to FERC is the be-all-end-all, but it’s obviously been very successful in getting the conversation going.”