NARUC panelists debate value, attributes of baseload electricity

Published on November 17, 2017 by Kim Riley

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BALTIMORE — The need for traditional sources of baseload electricity remained a controversial topic during a Nov. 14 panel discussion at the National Association of Regulatory Utility Commissioners (NARUC) annual meeting held here.

The issue revolves around the U.S. Department of Energy’s (DOE) Sept. 29 notice of proposed rulemaking (NPRM), which directs the Federal Energy Regulatory Commission (FERC) to provide full cost recovery to coal and nuclear plants that keep 90 days of fuel supply onsite. The DOE’s proposed Grid Resiliency Pricing Rule would provide them support to cover the costs of retiring their coal and nuclear baseload generators.

The rulemaking proceeding aims to help improve the nation’s grid resilience, DOE said, and “protect the American people from energy outages expected to result from the loss of this fuel-secure generation.”

While FERC has been directed by DOE to “accurately price generation resources necessary to maintain reliability and resiliency,” because it is an independent federal agency, FERC doesn’t have to adopt the DOE’s plan, panelists said, though it will need to address it, likely in its own future NPRM.

“It’s anyone’s best guess where FERC will go on this,” said panel moderator Ellen Nowak, chairwoman of the Wisconsin Public Service Commission (PSC).

The scenario sets up a controversial and challenging situation.

On one hand, according to NARUC, there are observers who say coal and nuclear — which generate roughly half of the nation’s electricity — can ensure grid reliability and resiliency and provide fuel diversity. On the other hand, there are observers who call baseload antiquated and they have challenged the need to modify the rules or the wholesale market.

But what isn’t in dispute, according to NARUC, is the vast amount of traditional baseload generating capacity that has been retired, with much more being planned for shut down. That subsequently begs the questions: What’s the future of coal and nuclear? And, more precisely, how does the value of resiliency and reliability get valued, should it be valued and how?

Panel participants had diverse viewpoints in answering those questions.

Chief among them was Kathleen Barron, senior vice president for competitive market policy at Exelon Corp., a Fortune 100 energy company that has six utilities delivering electricity and natural gas to roughly 10 million customers across Delaware, the District of Columbia, Illinois, Maryland, New Jersey and Pennsylvania.

Barron, who supports zero-emission credits for nuclear plants, said that when considering the DOE’s proposal, FERC should work toward implementing policies that ensure fuel-secure electricity sources receive appropriate compensation for the positive attributes they bring to the grid.

“What we should be worried about is pretty comprehensive,” Barron said during the NARUC panel. “First, FERC should ask: Do we have the right marketplace? And at the same time, they should not take any steps that would interfere with what states have already done.”

It’s important for FERC to recognize the need for wholesale market reforms, Barron said, and to fairly value baseload power generators providing reliable 24/7 electricity. This includes nuclear power plants, she added, which in some states have two years’ worth of on-site fuel reserves, enabling their resiliency to weather-related problems and other disruptions and providing customers with a zero-carbon power source.

And before FERC makes any definitive pricing mechanism decisions, more information is needed, said Barron, who also suggested there be an evaluation of the costs required to keep such on-site reserves.
Paul Bailey, president and CEO of the American Coalition for Clean Coal Electricity, agreed that the DOE’s action is a major step toward achieving long-overdue wholesale electricity market reforms.

Bailey explained that the U.S. coal fleet is comprised of 1,004 individual generating units located at 377 power plants that represent a total of 262,000 megawatts (MW) of electric generating capacity. About 60,000 MW of coal-fueled generating capacity (20 percent of the coal fleet) had retired by the end of 2016 and another 41,000 MW have announced plans to retire, he said.

“In total, these retirements represent one-third of the nation’s coal fleet, which is still projected to supply about 30 percent of U.S. electricity this year and in 2018,” he said.

And despite almost two-thirds of the coal fleet serving wholesale electricity markets, the contributions it makes to grid reliability and resilience aren’t being properly valued in these wholesale markets, Bailey said, and that’s contributing to coal retirements.

The coal fleet provides many attributes that help ensure the reliability and resilience of the electric grid, including the on-site fuel supplies, which Bailey said average 73 to 82 days, but have gone as high as 100 days.

“Without this fuel security, the electric grid is less reliable and less resilient,” he said.

Generally, coal and nuclear operators support the DOE proposal because any baseload generators facing retirement will be allowed to stay online, a move they like because there are plants being forced to close that still have life left in them, they say.

But detractors think otherwise and say DOE’s plan will increase consumer costs and pollution while offering no additional resilience.

Steve Herling, vice president of planning at regional transmission organization PJM, which coordinates wholesale electricity movements in all or parts of 13 states and Washington, D.C., said that FERC might first define or clarify resilience “using a more holistic approach” compared to DOE’s plan.

For instance, he said the PJM plan takes such an approach and includes recommendations for how the value of subject matters, such as market design, flexibility service products, oversupply conditions and internalizing emissions costs, should be handled by policymakers, resource planners and system operators.

“The approach we put forth is focused on attributes, not fuel,” Herling said, noting that PJM’s fuel mix is ideal being one-third gas, one-third coal and one-third nuclear and wind. “And these attributes can ensure reliability.”

Herling said this is a multifaceted problem that includes a range of related issues to be dealt with for FERC to act on the DOE proposal. For instance, in addition to natural disasters and other threats to the grid, “now we have to also consider the bad actor who wants to do damage in a very concentrated way,” Herling said.

“We have to be able to recover when bad things happen,” Herling said in supporting a move past baseload to a more flexible grid. Basically, he said, enabling a wider range of resources will provide more flexibility to the grid and make it more resilient.

But Herling remained realistic.

“We’ll be talking about this for a few more years,” he said. “There’s going to be resiliency issues left on the table that will have to be dealt with.”

The 60-day clock for FERC to act on the DOE’s proposal runs out at the end of the month.