October 3, 2017 Read More →

U.S. Proposal to Subsidize Fading Coal and Nuclear Plants Seen by Wall Street Analysts as Unlikely to Materialize


A U.S. Department of Energy proposal calling on the Federal Energy Regulatory Commission to ensure full cost recovery for certain nuclear and coal-fired assets drew skepticism from Wall Street, which characterized the proposal as vague and at odds with the nature of competitive power markets.

The DOE on Sept. 29 directed FERC to issue a final rule requiring grid operators to allow full cost recovery for generators with at least a 90-day fuel supply on site and not subject to cost-of-service regulation to fully recover their costs. While FERC does not have to comply with the DOE’s request, the agency has been taking a measured look at scenarios where baseload assets are compensated for reliability attributes.

But Wall Street was largely dismissive of the likelihood carte blanche subsidization would be offered to certain coal and nuclear assets that have experienced weaker margins amid heightened politicization. More broadly, analysts characterized the DOE’s proposal as a referendum on wholesale markets with the potential to undermine market structures built in recent decades.

“The DOE proposed rule, to provide deregulated coal & nuclear plants with ‘full recovery of costs,’ will in our view not be implemented by FERC because it would bring an end to competitive power markets, is not clearly needed to ensure grid reliability & resiliency, and would be very expensive,” Morgan Stanley analysts said Oct. 2.

“Effectively re-regulating a major portion of the currently de-regulated organized markets via a cost-of-service system would presumably render any existing discernable market pricing mechanisms irrelevant,” J.P. Morgan Securities analysts said Sept. 29, noting the added uncertainty to state nuclear subsidies programs in New York and Illinois, for example.

More: ($) Wall Street views DOE grid proposal as anti-competitive

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