On Wednesday, August 23rd, the Department of Energy (DOE) issued its Staff Report to the Secretary on Electricity Markets and Reliability. The report, undertaken at the direction of DOE Secretary Rick Perry, is the result of a months-long effort by DOE staff to assess the reliability and resilience of the electric grid.
Key findings from the report include:
- Wholesale electric markets are currently functioning as designed—to ensure reliability and minimize the short-term costs of wholesale electricity—despite pressures from flat demand growth, federal and state policy interventions, and the massive economic shift in the relative economics of natural gas compared to other fuels.
- The recent emergence of natural gas as a top electricity generation resource, coupled with increased wind and solar penetration, flat electricity demand growth, and a host of regulations, mandates, and subsidies at the state and federal levels have negatively impacted traditional baseload generation, particularly coal and nuclear power plants.
- Although Americans and their elected representatives value the various benefits specific power plants offer, such as jobs, community economic development, low emissions, local tax payments, resilience, energy security, or the national security benefits associated with a nuclear industrial base, these benefits largely are not recognized or compensated by wholesale electricity markets, resulting in state and private efforts to retain established baseload generators and incentivize the development of wind and solar generation.
In addition, the report offers several policy recommendations, including:
- Wholesale markets: FERC should expedite its efforts with states, Regional Transmission Operators (RTOs), Independent System Operators (ISOs), and other stakeholders to improve energy price formation in centrally-organized wholesale electricity markets.
- Valuation of Essential Reliability Services (ERS): Where feasible and within its statutory authority, FERC should study and make recommendations regarding efforts to require valuation of new and existing ERS by creating fuel-neutral markets and/or regulatory mechanisms that compensate grid participants for services that are necessary to support reliable grid operations. Pricing mechanisms or regulations should be fuel and technology neutral and centered on the reliability services provided. DOE should provide technical and policy support that strengthen and accelerate these efforts.
- Bulk Power System resilience: DOE should support utility, grid operator, and consumer efforts to enhance system resilience. Transmission planning entities should conduct periodic disaster-preparedness exercises involving electric utilities, regional offices of federal agencies, and state agencies. The North American Electric Reliability Corporation should consider adding resilience components to its mission statement and develop a program to work with its member utilities to broaden their use of emerging ways to better incorporate resilience. RTOs and ISOs should further define criteria for resilience, identify how to include resilience in business practices, and examine resilience-related impacts of their resource mix.
- Support federal and regional approaches to electricity workforce development and transition assistance: In partnership with other agencies and the private sector, DOE should facilitate programs and regional approaches for electricity sector workforce development.
- Hydropower: Encourage FERC to revisit the current licensing and relicensing process and minimize regulatory burden, particularly for small projects and pumped storage.
- Nuclear Power: Encourage the Nuclear Regulatory Commission to ensure the safety of existing and new nuclear facilities without unnecessarily adding to the operating costs and economic uncertainty of nuclear energy. Revisit nuclear safety rules under a risk-based approach.
- Coal Generation: Encourage the Environmental Protection Agency to allow coal-fired power plants to improve efficiency and reliability without triggering new regulatory approvals and associated costs. In a regulatory environment that would allow for improvement of the existing fleet, DOE should pursue a targeted research and development portfolio aiming at increasing efficiency.
- Electric-gas coordination: Utilities, states, FERC, and DOE should support increased coordination between the electric and natural gas industries to address potential reliability and resilience concerns associated with organizational and infrastructure differences. DOE and FERC should support well-functioning commodity markets for natural gas by expeditiously processing liquefied natural gas export and cross-border natural gas pipeline applications.