The House Energy and Commerce Committee’s energy subcommittee hearing on oversight of the Federal Energy Regulatory Commission today was a yawner. That’s about what could be expected, particularly as the commission continues to be largely hamstrung by a lack of a full complement of five commissioners, and a subcommittee whose members were mostly interested in hometown issues.
But outgoing Commissioner Cheryl LaFleur, by far the most senior member of the commission (her nine years on the commission exceeds the three other current members by a factor of four), raised the only interesting topic at the hearing. Unfortunately, it was contained in her pre-filed written testimony, barely mentioned in her five-minute opening statement, and drew no attention during the hearing.
LaFleur, whose term ends this month but could continue if White House is unable to come up with a nomination to replace her, said she is concerned with the way, under today’s market conditions where wholesale markets now account for two-thirds of the electricity in the U.S., that power gets priced and dispatched.
She said, “A fundamental shift in how we procure and pay for energy is underway.” Traditionally, she said, electricity has been priced based on volume. You pay for what you consume, based on the marginal costs of generation. That was because the commodity cost of fuel was the major driver in generation. That meant that baseload generation was cheapest source of power and peaking power the most costly and expensive.
That’s changed, said LaFleur: “With persistently low natural gas prices, zero marginal cost renewable resources, and distributed energy resources changing the shape of load curves, the traditional cost structures that supported resources may no longer provide appropriate compensation.” She cited the California “duck curve,” where so much solar in the middle of the day distorts markets, harming gas-fired capacity and causing large hydro to “spill water rather than generating electricity at a loss.” She added, “This trend is now starting to appear in other regions around the county.”
LaFleur, an Obama appointee, has long been the most far-seeing of the FERC commissioners. In part, that’s because she has been on the firing line of the electricity transformation. She is the only current commissioner with actual industry experience since the transformation of the former Federal Power Commission into the FERC in 1977. She wrote, “The nation’s more dynamic resource mix presents opportunities for significant customer benefits, but also presents new challenges. I believe that we can and must meet these challenges, rather than trying to preserve the mix of the past.”
That’s a direct shot at the Trump administration, and many states, who are trying to save economically failing coal and nuclear generation. While they are trying to keep jobs and local taxes flowing from the legacy generating plants, they are consciously avoiding the signs competitive markets are sending.
She notes that the market operators “are considering new ways of paying for power, with a focus on service rather than volume. This change is visible in the energy and ancillary services markets, with services such as flexible ramping products, new forms of reserves, and a greater attention to essential reliability services.”
LaFleur will be missed.
— Kennedy Maize