Energy Secretary Rick Perry is asking the federal agency that oversees the U.S. grid to issue a new rule to restructure electricity markets to fully compensate power plants for the reliability they provide.
Perry sent his policy proposal to the Federal Energy Regulatory Commission (FERC) on Friday. The letter asks FERC to create an electricity pricing regime that allows power plants to recover the costs of providing baseload power. It will likely be seen as a lifeline to coal and nuclear power plants.
“A diverse mix of power generation resources, including those with on-site reserves, is essential to the reliable delivery of electricity—particularly in times of supply stress such as recent natural disasters,” Perry said in a statement.
“My proposal will strengthen American energy security by ensuring adequate reserve resource supply and I look forward to the Commission acting swiftly on it,” Perry said.
Hundreds of coal-fired generators have shut down in the past few years, and many more are slated to close in the near future. Energy analysts say cheap natural gas prices, coupled with environmental regulations, have encouraged utilities to move away from coal and nuclear energy.
The rapid pace of coal plant closures have sparked some concerns over grid reliability, especially in light of the growing reliance on wind and solar power — both of which are variable energy sources.
Perry’s rule asks FERC to allow power plants that improve grid reliability to recoup costs for things like, “reliable capacity, resilient generation, frequency and voltage support” and “on-site fuel inventory,” according to the policy proposal.
Wholesale electricity prices vary from day to day and reflect a power plant’s marginal cost of generating energy. That means wind and solar power have a distinct advantage over fossil fuels, since it costs them virtually nothing to produce an extra unit of power.
In this environment, it doesn’t pay to provide baseload power or keep enough fuel on-site in case of emergencies of natural disasters.
Environmentalists have criticized such policy proposals in the past. Eco-groups and green energy supporters argue baseload power is an antiquated idea that ignores the rapidly changing character of the grid.
The Energy Department’s recently-released assessment of the electric grid found green sources, like wind and solar, weren’t harming grid reliability — though the report did urge regulators to look at how they price energy.
FERC Chairman Neil Chatterjee has already promised to look into ways to “properly compensate” power plants for factors they can’t recuperate in electricity markets.
“I believe that generation, including our existing coal and nuclear fleet, need to be properly compensated to recognize the value they provide to the system,” Chatterjee said in an August video interview.
If FERC adopts Perry’s proposal it could be one of the biggest reforms to electricity markets in decades, said Travis Kavulla, vice chairman of the Montana Public Service Commission.
If @FERC actually adopted this rule, it’d be the largest change to electricity regulation in decades 1/N https://t.co/qFDysniQUN
— Travis Kavulla (@TKavulla) September 29, 2017
Kavulla seemed skeptical of the policy.
Instead, this reform is sort of the @ENERGY equivalent of the Oprah “you get a car, and you get a car. And you? A car!” approach. N/N
— Travis Kavulla (@TKavulla) September 29, 2017
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