By Mark Watson and Annie Siebert

August 17, 2017 - The support of the acting chairman of the US Federal Energy Regulatory Commission for ensuring coal and nuclear generation are "properly compensated" may have seemed chilling for the gas- and renewables-heavy independent power producer business model, but industry observers expressed confidence in the sector's future Wednesday.

In a FERC podcast Monday, Neil Chatterjee, who was just sworn in last week as acting FERC chairman, said, "I believe that generation sources, including our existing coal and nuclear fleet, need to be properly compensated to recognize the value they provide to the system."

States have increasingly taken steps to protect certain assets in their energy portfolios from retirement for economic reasons, at times straddling the line of state and federal jurisdiction and triggering debate at the commission over how to integrate the development of state generation policies with the operation of wholesale power markets.

Chatterjee is a former energy policy adviser to Senate Majority Leader Mitch McConnell, a Republican representing Kentucky, where coal provides more than 80% of the state's electricity. On Thursday, West Virginia Governor Jim Justice said President Donald Trump is "really interested" in an idea to pay power plants to buy Appalachian coal.

As for nuclear power, Illinois and New York have established zero-emissions credits to provide billions of dollars in subsidies to nuclear plants that might otherwise have to shut down. That idea has been floated in other states, such as Ohio, Pennsylvania and Connecticut.

"Subsidies for a few types of resources, whether on the demand or supply side, undercut the efficiency of the wholesale market, which is not the same as having fuel costs, for example, reflect their social cost and not just their private costs," said Frank Felder, director of the Rutgers University Center for Energy, Economic and Environmental Policy. "These out-of-market payments dilute the efficiency signal of wholesale prices."

The Electric Power Supply Association is among the litigants fighting nuclear subsidy efforts, but John Shelk, EPSA president and CEO, did not see Chatterjee's comments as favoring one generation method over another.

"To his credit, when read in full he clearly and correctly stated that the power grid will continue to rely on a mix of fuels, including natural gas, coal, nuclear and renewables," Shelk said in an email Wednesday. "Physics and economics require that all types of generation, by fuel, technology, capacity factor and ownership type, be considered together and properly compensated -- that is how markets work and reliability is maintained. Independent power producer assets are critical to the power grid."

Today's low power prices and weak demand -- and prospects for more of the same -- "create a very challenging market for all resources, and EPSA looks forward to working with the Commission on policies like energy price formation reforms, which improve the market for all participants consistent with the Federal Power Act," Shelk said.

Chatterjee on Monday said he was "very confident" in FERC's ability to work through a backlog of pipeline approvals, but in an email Wednesday, Felder said, "Approval of more natural gas pipelines by the FERC will only make the viability of coal and nuclear worse, requiring even more subsidies, so the Administration is making the problem worse not better."

"The decline in the US coal industry is due primarily to productivity improvements in coal mining and the significant reduction in natural gas prices caused by fracking, although environmental regulations have played a role," Felder said. "Instead of further subsidizing coal plants, the money should be used to provide for early retirement of older coal miners and used to assist the transition of other coal miners to related industries such as natural gas, renewable resources and utilities."

Matthew Cordaro, former Midcontinent Independent System Operator CEO, said FERC's new acting chairman "is advocating a measured and appropriate role for FERC to help promote nuclear and coal as part of a diversified fuel mix, which is in the national interest."

"More than anything, Commissioner Chatterjee is signaling that FERC will not interfere in those programs, at least where it does not already have jurisdiction and clear reason for doing so," Cordaro said in an email Wednesday. "There is a long way to go before these programs, assuming they are widely adopted, significantly interfere with the independent power producer model, something which the vast majority of states and the federal government do not want to see happen."

Felder acknowledged that "a case can be made" for limiting nuclear retirements, but a price on greenhouse gases would be more efficient, and "No such case can be made for coal."