ALERT: Coal and nuclear energy industries threatened by the economics of natural gas want subsidies from taxpayers, joining renewables advocates and everyone else.
DOE just rolled out a Notice of Proposed Rulemaking (NOPR) with FERC that amounts to requiring subsidies for nuclear plants and coal plants. This would be a sea change in how competitive electricity markets work. Some would say the proposal scraps competitive wholesale electricity markets.
The proposed rule would provide for “accurately pric[ing] generation resources necessary to maintain reliability and resiliency.” There would be “recovery of costs of fuel-secure generation units frequently relied upon to make our grid reliable and resilient.”
The proposed rule applies to wholesale generating units that have a 90-day fuel supply on site—that means nuclear units and coal units (hydro units also could qualify). They are the only units with a 90-day fuel supply on site. Such units would be guaranteed “full recovery of costs” and a “fair rate of return”—courtesy of ratepayers of course. What is a “fair rate of return”? Critics would say that it’s as much as the recipients of the largesse can get from consumers.
To be precise, the DOE “NOPR” is really not a proposed Rule itself but, if enacted by FERC, would require FERC to require RTOs and grid operators to establish rate tariffs that ensure such units recover their costs and earn a fair profit.
This is no question that this would be the biggest change to the competitive wholesale electricity market operations since we have had competitive markets. This is terrible news for natural gas producers or developers of natural gas generating plants and consumers who will foot the bill.
This proposal would leave clean, economical natural gas generation in the cold. Natural gas generation would be left to actually have to compete to earn their “full recovery of costs” and a “fair rate of return”. Moreover, natural gas generation would be competing against folks that have government guaranteed cost recovery and profits, courtesy of ratepayers. Some will view this as the evaporation of the energy cost savings that have driven the new American manufacturing renaissance into the the balance sheets of older uneconomical power plants.
It will be important for participants in the natural gas sector, producers and generators, as well as consumer groups and others to participate actively and smartly in this NOPR process. Strategic building of the comment record will be critical to their cause. They must act very quickly. The DOE says that FERC must act on this NOPR within 60 days after it is published in the Federal Register. If that cannot happen then DOE says FERC should issue the Rule as an Interim Final Rule adopting the DOE proposal, effective immediately, with provision for later modifications after consideration of public comments. Either way, hope is not a plan in this case and natural gas sector participants and others should be involved on this rule making.
Mike Krancer and Keith Naughton are Principals and Co-Founders of Silent Majority Strategies LLC, an energy focused communications, permitting strategy and messaging strategy firm active in the Appalachian Basin on a variety of state and federal messaging, permitting and regulatory matters.