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Insights

October 2, 2017

DOE Proposes Landmark Rules to Better Compensate Baseload Generation Resources

By Steven Shparber

Overview

In an action likely to shake the nation’s electricity sector, on September 29, 2017, the Department of Energy (“DOE”) proposed a rule (the “Proposed Rule”) directing the Federal Energy Regulatory Commission (“FERC”) to establish rules allowing for generation resources providing “grid reliability and resiliency” that are located in FERC-approved Regional Transmission Organizations and Independent System Operators (“RTOs/ISOs”) to fully recover their costs and earn a fair rate of return.  The move has the potential to be a landmark event for the country’s competitive wholesale power markets.  The Proposed Rule is widely viewed as being beneficial to coal and nuclear resources, but is set to be heavily opposed by natural gas, renewable energy, and environmental interests.  

Background

As discussed in the Proposed Rule, the Polar Vortex of January 2014, which was a band of unusually cold weather that affected a large part of the eastern United States, challenged the resiliency of the nation’s electric grid.  The Polar Vortex created record high demands for electricity during the winter season, and greatly stressed the operation of the bulk power system in PJM  due to the fact that many generators could not operate during the extreme cold weather.  While there were fortunately no large scale interruptions in electric service during the Polar Vortex, the event caused many energy industry stakeholders and policymakers to more closely examine the resiliency of the nation’s electric grid, and explore the question of how resiliency is valued in the nation’s competitive wholesale power markets administered by RTOs/ISOs.