New FERC Chairman Kevin McIntyre was sworn-in Thursday and his first official act was to request a 30-day delay of a FERC decision on DOE’s rarely-used Section 403 Notice of Proposed Rulemaking to compensate coal and nuclear power generators for reliability.
Under acting Chairman Neil Chatterjee, FERC was on track to make an interim decision on December 11 according to DOE’s accelerated timetable. But as we forecasted in an October 24 client note, FERC is now seeking to delay a decision due to late confirmations and very recent swearing-ins of two new commissioners, including the chairman.
Officially, McIntyre is requesting that Secretary of Energy Rick Perry agree to a delay of the FERC decision but Perry is almost certain to grant the request. Additionally, FERC is not required to abide by DOE’s timetable or even take action on DOE’s request. All Section 403 of the Department of Energy Act does is to allow DOE to offer a proposed rulemaking for FERC’s consideration. A copy of the FERC Chairman’s letter to Secretary Perry is available here.
The new deadline for FERC to act would be January 10, 2018.
DOE’s proposed rule would provide “full recovery of costs” in wholesale power markets flowing to generators who maintain 90 days worth of fuel on site (ie reliability). It would also require power market operators to “establish just and reasonable rate tariffs for the recovery of costs and a fair rate of return.”
As we said in our October 24 client note, we believe FERC is open to the DOE proposed rule but will likely take longer than the prescribed 60 days or even the now 30 day extension to implement a similar policy. We also believe FERC would be moving in a similar direction even without the DOE nudge so while any final action may not look like what DOE proposed, it will likely provide some form of compensation for grid reliability.
However, we believe it will take longer than even the additional 30 days for new FERC Chairman McInytre to develop a consensus among his fellow Republican Commissioners on a final decision. This is mainly because FERC Commissioner Rob Powelson is not on board with DOE’s desired rule and stated in public remarks this fall that he “did not sign up to blow up markets.” While Powelson’s comments are being viewed by some as a big obstacle, we think he is willing to be constructive and work with his fellow commissioners on the issue.
As a result, we think the timeline for such final FERC action on the DOE proposal will be further extended until the spring.
It is also worth noting that we also expect DOE to continue to use Section 403 authority to propose other rules to FERC. At the Hedgeye Energy Conference on October 11, Deputy Secretary Dan Brouillette acknowledged the rarely used Section 403 authority but added that DOE plans to use it “many times again in the future” as well as other extraordinary authority to prod FERC on both electricity and other issues.
