PJM CEO urges FERC to move on resilience as Trump coal bailout looms

Source: By Gavin Bade, Utility Dive • Posted: Monday, October 15, 2018

A market-based rule for grid resilience would be preferable to a federal bailout, the head of the nation’s largest wholesale power market told senators Thursday.

The CEO of the PJM Interconnection on Thursday called on the Federal Energy Regulatory Commission (FERC) to move ahead with its proceeding on grid resilience, telling a Senate hearing that a market-based rule would be preferable to a bailout for coal and nuclear plants planned by the White House.”We really need to move forward with some of these issues of paying resources for their reserve characteristics and paying them for their fuel security characteristics,” Andrew Ott, president and CEO of PJM, told the Senate Energy and Natural Resources Committee.

FERC opened a rulemaking docket on resilience in January when it rejected an earlier coal and nuclear plan from the Department of Energy (DOE), “but there’s been nothing since,” Ott said. The leader of the nation’s largest wholesale power market twice pushed the federal regulators to move on the issue.

“What we really need is leadership,” he told senators. “I think we know what to do.”

A rule from FERC would be more efficient than a coal and nuclear support plan being prepared by the White House that would subsidize individual plants on the grounds of national security, Ott told Utility Dive after the hearing.

“Targeting specific payments to specific resources is, in my opinion, a very inefficient answer,” he said. “The best thing is to define the characteristic and say ‘OK, I’ll pay for it’ and the best resource wins. That’s competition and that’s the best way to get it done.”

Movement on resilience could be easier once the Senate confirms FERC nominee Bernard McNamee, who will testify before the committee next Tuesday. Sen. Joe Manchin, D. W.Va., and Committee Chairman Lisa Murkowski, R-Ak., said they would meet with McNamee on Thursday, but had not yet decided how they would vote.

“Certainly having a full FERC probably will help move some things,” Ott said after the hearing. “Really my desire would be for FERC to get the message that we do need their assistance and any forum we can have that discussion in I will.”

Bailout looms

Ott’s exchanges with senators on Thursday highlight how the looming specter of a plant bailout from the White House is dominating energy conversations in Washington. The comments came during a committee hearing on blackstart, the ability to restart the grid after a widespread blackout.

Manchin, a steadfast coal supporter, asked Ott how PJM will maintain reliability with the retirement of multiple large coal and nuclear plants in the coming years.

Ott said that PJM and the North American Electricity Reliability Council have studied the proposed closures, finding they can “retire on schedule.” Over the longer term, plant retirements could make PJM’s system too reliant on natural gas generation, and the grid operator will release a fuel security study on Nov. 1 detailing those risks.

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Manchin responded that he is concerned about power reliability while PJM studies those issues. The senator this spring asked the White House to use the Defense Production Act (DPA), a Cold War era law, to nationalize essential coal and nuclear generators and keep them online for two years.

The DPA is one of two options the Trump administration is considering to support at-risk plants, according to a White House memo leaked in May. Ott said PJM would rather they stayed out of the issue entirely.

“The retirements in question have been announced for 2021-2022 timeframe,” Ott said. “Our analytics are looking at those timeframes and certainly we do have time, should we find a problem, to take action within our systems.”

“My offering would be, instead of the federal government stepping in, allow us to complete our analysis in the time given,” he said.

PJM and FERC’s work should focus on “defining what specific mechanisms we’re not paying for,” Ott said.

“In the energy market, I can tell you those are reserve type resources, potentially fuel security type dimensions,” he said after the hearing. “On the capacity side it’s again fuel security and resilience related items.”

Critical confirmation coming

Moving the resilience issue along may be easier once FERC has a full contingency of five regulators. The commission has had one vacancy since August when former Republican Commissioner Robert Powelson stepped down, allowing the two Democratic regulators to deadlock commission votes.

McNamee, the head of DOE’s policy office, helped roll out the White House’s ill-fated coal and nuclear bailout before FERC last year. Murkowski was critical of that plan at the hearing, but told reporters she would keep an open mind as to how McNamee would regulate at FERC.

“I think it’s important to recognize you have an individual who has worked and is working for the Department of Energy in a very specific and particular role,” she said. “Where he would be within the FERC is different so we’ll have an opportunity to have a conversation about that. I know my colleagues will have an opportunity for those discussions.”

Even so, Murkowski said she would rather see a market-based response to grid resilience issues than a bailout from the White House.

“I am more in the camp that says we don’t want to be the one that dictates, that mandates what those specific solutions are, whether it’s in response to what we were discussing today with blackstart or designing what our nation’s fuel sources should be,” she said.

Last week, Secretary of Energy Rick Perry said DOE had completed its work on the coal and nuclear bailout and that it is now at the White House for review.

Manchin said he knew nothing of the proposal’s status, but urged the Trump administration to move quickly.

“I’m trying to find the darn plan because I understand it’s gone from the Department of Energy over to the White House and I don’t know who in the White House would be sitting on it for whatever reason but it’s something very important to me and to West Virginia,” Manchin said.

Last week, the Washington Examiner reported that the White House may have put the proposal on the back burner due to opposition from conservative groups. Manchin said he would continue pushing the administration to keep retiring coal plants online, despite assurances from grid operators that reliability is not at risk.

“I am truly concerned about the reliability of the grid. They say they’re studying this and studying that and I see a lot of baseload plants coming offline,” he told Utility Dive outside the hearing. “I also want to know if their studies are so damn good, how come we’re paying higher prices than ever before when we’re producing more energy than we’ve ever produced?”

The Energy and Natural Resources Committee will hold a confirmation hearing for McNamee next Tuesday at 10 a.m.