Quantcast
Energy
iStock

The Obscure Federal Agency That Soon Could Raise Your Electric Bill: 5 Questions Answered on FERC

By Joshua D. Rhodes

Editor's note: On or before Dec. 11, the Federal Energy Regulatory Commission (FERC) is expected to take action on a controversial proposal by Energy Sec. Rick Perry that seeks to prevent noncompetitive coal and nuclear power plants from retiring prematurely. Depending on how such a rule is structured, analyses have estimated that it could cost ratepayers in affected regions up to several billion dollars yearly. Energy scholar Joshua Rhodes explains what FERC is and why it has so much power over energy markets and (indirectly) the prices consumers pay.


Why is this proposal so controversial?

Sec. Perry has asserted that "the resiliency of the electric grid is threatened by the premature retirements of ... fuel-secure traditional baseload resources." While exact details are not known, the rule Perry has proposed would "make whole" electric generators that can store 90 days of fuel on-site.

This means that even if those plants cannot make money in their respective markets (because other generators can provide electricity more cheaply), they will receive extra payments from the grid operator to recover their operating costs and provide a "fair" return on equity to plant owners. According to FERC Chair Neil Chatterjee, the extra money to keep those plants running will come from electricity customers in the affected areas.

Perry's rationale is that by storing 90 days' worth of fuel on-site, these plants make the power system more reliable, because they can run even if emergencies or disasters affect other fuel sources such as natural gas pipelines. Therefore, they should receive support that enables them to keep operating.

However, because this policy would benefit only coal and nuclear power plants—the only types that store fuel on-site—it has been interpreted as an excuse to subsidize plants that are struggling to compete. No shortage of ink has been spilled on this proposal, most of it very critical.

As governor of Texas, Rick Perry argued that markets should guide energy choices, Now, as secretary of energy, he asserts that governments routinely pick technology winners and losers. USDOE

The counterview is that our electricity system is changing. The average U.S. coal plant is 45 years old, which is near the end of its expected operating life, and the average age of our nuclear fleet is 37 years old.

Some experts point to an analysis by the Rhodium Group that shows fuel supply to be responsible for only 0.00007 percent of electricity disruptions. Opponents of Perry's proposal argue that other available options, such as wind and solar power, are cheaper and cleaner than coal, and will produce power at more stable prices.

Moreover, under the Federal Power Act, FERC is not supposed to favor one form of generation over another. The Heritage Foundation, a conservative think tank, has called the proposal "a massive subsidy." Other critics say the way to promote reliability and resilience in a competitive energy market is to create a new market for that service and let everyone bid to supply it.

What does FERC do?

FERC is an independent federal agency that regulates rates for cross-state transmission of our main energy sources: oil, natural gas and electricity. It also is responsible for reviewing siting for natural gas pipelines; creating and enforcing reliability standards for interstate electricity transmission networks; and monitoring and investigating energy markets. Most local aspects of the energy system, such as retail sales and billing, are typically overseen by state public utility commissions.

FERC also produces market reports, predictions and analyses of issues such as expected wholesale energy prices and the changing mix of power plants that supply our electricity. It has the power both to create and to enforce rules governing energy markets under its purview.

Who serves on the commission, and how are they chosen?

At full strength FERC has five commissioners, who are appointed by the president and approved by the Senate for five-year terms. It is designed to be a bipartisan independent agency, so no more than three commissioners can be from the same political party, and each commissioner has an equal vote in regulatory matters.

FERC and its commissioners are not overseen by the Department of Energy, but DOE can participate in its deliberations as a third party and can propose rules for the commission to consider.

Don't states also regulate electricity prices?

FERC regulates interstate wholesale electricity markets, in which electricity crosses state lines. Retail prices, which are what most customers see on their bills, are regulated at the state level. Retail prices are set differently in different parts of the U.S., and sometimes even within states. However, FERC's wholesale pricing rules ultimately shape the prices that retail electricity suppliers are allowed to charge consumers.

For fully regulated areas, such as the Southeast, rates are proposed by utilities and then must gain approval from the state's public utility commission. Some states have deregulated their electricity markets and allow customers to choose their power provider. In these areas, providers have more latitude to set their own rates, but the assumption is that market competition will keep rates low.

An Energy Department study on grid reliability, released in August, concluded that coal and nuclear power plants are struggling because they are being undercut by cheap natural gas and renewable energy and low growth in electricity demand. It also noted that "merchant" plants—those that compete based on price in deregulated states—accounted for a majority of recent early retirements. DOE's proposal is limited to such plants, mainly in the Northeast and Midwest.

Most generating capacity added since 2002 has been natural gas or renewable, while most retirements have been coal, nuclear and older natural gas plants. EIA

If FERC issues a rule that would subsidize coal and nuclear plants, can opponents do anything about it?

Opponents' main recourse would be to sue in federal court. No lawsuits have been announced yet, and none is likely to be filed until FERC issues a decision. But a joint letter opposed to the proposal from a group of strange bedfellows, including the American Council on Renewable Energy, the American Petroleum Institute, the American Wind Energy Association and the Interstate Natural Gas Association of America, signals that resistance could be significant.

Joshua D. Rhodes, Ph.D. is a Research Fellow at the Energy Institute and the Webber Energy Group at the University of Texas at Austin.

Reposted with permission from our media associate The Conversation.

Show Comments ()
Sponsored
A warming climate and expanding industrial fishing threaten the Antarctic Ocean and its iconic creatures such as penguins. Antarctica Bound / Flickr

Campaign to Create World's Largest Sanctuary in Antarctic Ocean Gains Momentum

Greenpeace's ship Arctic Sunrise is on its way to Antarctica, where the crew on board will be the first humans ever to visit the seafloor in the Weddell Sea.

The three-month expedition will aim to further the case for a massive ocean sanctuary.

Keep reading... Show less
Nearly all dairy cows live in factory farms, which make up 99 percent of farms, and they spend their lives almost entirely indoors. Shutterstock

Don't Be Fooled by These 5 Misleading Dairy Ads

By Rachel Krantz

For most of my life, I genuinely believed the false advertising used to sell dairy. When I learned the truth—that nearly all cows used for dairy are kept inside, locked up, forcibly inseminated, and hooked up to painful milking machines—I was heartbroken. How had I never put two and two together: that for humans to consume cow's milk, mother cows must have their calves taken?

I had been duped by dairy brands, whose misleading ads have never been regulated, despite truth-in-advertising laws. This discrepancy prompted a 2003 lawsuit involving the "Happy Cows" campaign, but the case was thrown out over a technicality. "The state's false advertising law simply doesn't apply to the government," explained Mercy For Animals lawyer Rachel Faulkner. The 'Happy Cow' ads were run by the California Milk Advisory Board, a marketing arm of the California Food and Agriculture Department.

Keep reading... Show less
Popular
Seed Phytonutrients' bottles on display at Ecologic's factory in Manteca, California. David Elliott

The Story Behind the Beauty Industry’s Most Eco-Friendly Packaging

By Annie Tomlin

Here's a sobering fact: The average American generates 4.4 pounds of trash daily, a whopping 30 percent of it packaging. Some people might read that statistic and vow to be stricter about recycling. Julie Corbett took things a tad further.

Keep reading... Show less
Health

New Film Deftly Indicts Public Health Regulators

By Katie O'Reilly

It started with a text from Mom. In January 2014, documentarian Cullen Hoback received word from his mother that a chemical spill had left 300,000 West Virginians living in a swath of coal country known as "Chemical Valley"—so dubbed because it houses the nation's largest concentration of chemical plants—with foul-smelling drinking water. The source was a rusting tank owned by a chemical company with the you-can't-make-this-stuff-up name of Freedom Industries, and the substance leaking into Chemical Valley's waterways was MCHM, a detergent from coal.

Keep reading... Show less
Sponsored
Popular
Philip Rozenski / iStock

America Needs a Plastics Intervention. Now’s the Time.

By Jeff Turrentine

Deep in our hearts, we know that the global addiction to plastic is wholly unsustainable. It's why so many of us make a real effort to significantly curtail our use of plastic bottles and bags, clamshell packaging, straws, disposable utensils and the like.

Keep reading... Show less

Iranian Tanker Leaves Massive Oil Slick, Worries Mount Over Environmental Damage

Experts have expressed concern about the potential environmental aftermath of a stricken Iranian oil tanker that exploded and sank in the East China Sea on Sunday.

The Sanchi—carrying 150,000 tons, or nearly 1 million barrels, of condensate oil—collided with the CF Crystal on Jan 6. The tanker caught fire and burned for more than a week before sinking. Iranian officials said all 32 crew members on the tanker were killed.

Keep reading... Show less
Sponsored

Norway Is Banning Fur Farming

By Conor Sneyd

Norway is introducing a total ban on fur farming, according to a statement released by the Norwegian animal rights organization NOAH this weekend. The country is currently home to 300 fur farms, which breed and kill 700,000 minks and 110,000 foxes every year, so this is truly a massive victory for animals.

Keep reading... Show less
China Plus News / Facebook

‘I’m Freezing and Shaking’: China’s Winter Heating Crisis, Mapped

By Emma Howard

While people in Beijing enjoyed the benefits of a record air pollution drop this winter, those in the provinces were left unable to keep warm, cook or sleep for lack of heating.

Reports on the heating crisis that was triggered by the government's anti-pollution drive have largely focused on the areas surrounding Beijing, but mapping of social media data by Unearthed now shows that people were complaining of the cold more than 1,000 kilometers (approximately 621 miles) away.

Keep reading... Show less
Sponsored

mail-copy

The best of EcoWatch, right in your inbox. Sign up for our email newsletter!