A Bizarre Trump Administration Proposal

Energy Secretary Perry has announced an effort by the U.S. Department of Energy (USDOE) to win support from the Federal Energy Regulatory Agency (FERC) to establish a mandate that utilities must adopt fossil fuel generation to, in the words of the press release, "...requiring [FERC's] organized markets to develop and implement reforms that would fully price generation resources necessary to maintain the reliability and resiliency of our nation’s grid" [emphasis added]. See the press release here.

While ample evidence exists that as the fraction of intermittent renewables (i.e., solar and wind, but mostly wind) increases on a utility’s system, that does negatively impact a utility's reliability that is a state-level issue. As such, it is within the purview of the utility and its state regulatory apparatus to address such problems.

Additionally, such problems are well-known to both utilities and their state-level commissions. It's also true that corrective actions are also well known. They include ramping dispatchable generation, either up or down, as well as using demand response to manage loads. Utility-scale storage would also be an option, if it was economic.

One of the stranger parts of that press release is "...fully price generation resources..." The implication being that power prices do not capture this cost. What's strange is that FERC only has oversight of wholesale power markets, not retail power costs and prices. The press release appears to conflate one with the other. At the wholesale level, market clearing prices are spot prices determined by the purchase and sale of those power products. At the retail level, one on-going challenge that stakeholders grapple with working to assure that retail power rates include costs associated with services to maintain system reliability as the fraction of total system generation comprised of intermittent renewables rises.

FERC defines ancillary services as: "...those services necessary to support the transmission of electric power from seller to purchaser given the obligations of control areas and transmitting utilities within those control areas to maintain reliable operations of the interconnected transmission system." Transmission entities establish such prices. Traditionally, the generation side of the utility business has provided these services even though they are offered/required by its transmission business line. Since they are required as part of integrating intermittent renewables into the utility’s system, and FERC has regulatory oversight of transmission, the USDOE is using that hook as part of its effort to further undermine the adoption of intermittent renewable generation, primarily wind.

Needless to say, state legislatures and utility commissions, along with a long parade of stakeholders will not remain quiet. If FERC chooses to help prop up USDOE's back door effort to assist coal companies, expect a firestorm of opposition and litigation.

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