The U.S. coal power industry has been declining, thanks to the abundant availability of cheap natural gas, falling prices of solar and wind power, and the clear global imperative to reduce carbon dioxide emissions. The Trump administration has long promised to fight that so-called “war on coal.” Several weeks ago the U.S. Department of Energy, led by Secretary Rick Perry, offered up an aggressive salvo: The nation’s power grid, the DoE said, would become vulnerable if more coal-fired power plants closed down. Therefore, the government should prop up the market for power facilities that offer a theoretical boost to stability—coal, along with nuclear plants.
Action could begin soon, which could result in higher consumer prices for electricity and unhealthy pollution emissions from power plants. And progress toward a more climate-friendly energy system would take a hit.
Perry started to exploit the largely nonexistent crisis of electric grid reliability with a controversial DoE study he commissioned in April. Although it did not conclude the grid is in any danger due to decreasing coal power or increasing power from renewable energy sources, Perry seized on some fuzzy language about “support[ing] reliable grid operations” to push forward. His notion was that coal and nuclear power have to be strengthened so the electricity transmission system can withstand and recover from shocks due to major weather events or other catastrophes.
Perry and the DoE issued a Notice of Proposed Rulemaking (pdf), or NOPR, which, if enacted, would dramatically alter the power sector. The NOPR requests that the Federal Energy Regulatory Commission (FERC)—an independent agency that regulates electricity transmission—require utility companies to pay not just for the electricity they buy from power plant companies and supply to consumers, but also for the fixed costs associated with power plants that keep 90 days of fuel on site. That sort of “cost recovery,” as it is called, would be largely unprecedented.
In reality those plants are coal and nuclear installations, because wind and solar power plants do not consume fuel. Natural gas plants would not meet the 90-day requirement either, because they get their fuel via pipeline instead of storing it on site. The stratagem is that by allowing full “cost recovery” for those plants, the government is helping to keep them economically viable whereas normal market forces might have led to their closure. The 90-day number is apparently arbitrary.
Critics say such a move would upend energy markets, and that the electric grid is strong enough without what amounts to a massive subsidy for coal and nuclear power. Yet they acknowledge the measure, or more likely some variation on it, could actually be enacted. “We do not expect FERC to reject this proposal outright,” says Christine Tezak, managing director of research for ClearView Energy Partners, an energy research and analysis firm. “We expect the FERC to take it seriously, if not literally.” Although it might not follow the word-for-word policy proposal, it might still consider the message and take some sort of action.
The fundamental argument supporting the NOPR is that baseload power generation—the predictable type of generation provided by coal and nuclear plants—does not get the credit it deserves, in terms of its value and the profits it generates. Because of that, the argument goes, coal plants are retiring at rates that might be dangerous to grid stability. Allowing the coal plants to recover some of that expense from utilities—which could pass that cost on to the consumer in the form of rate increases—would in theory restore something closer to the real value of those plants. But some experts think such an allowance would come at too great a cost, ultimately paid by consumers. Former FERC chairman John Wellinghoff says the rule would “blow the markets up.” Former Energy Secretary Ernest Moniz has also pointed out carbon emissions should be considered as a more central part of any such equation than resiliency.
Tezak largely agrees that the proposal is extreme, as written. If adopted, she says, it would “disrupt” the entire system of how electricity is managed around the country. “That is not an overstatement of fact,” she says. Wind, solar and natural gas would suddenly face an uphill economic battle to compete.
There is little evidence such a radical change is needed for resiliency against bad weather events or other calamities. Perry’s proposal focused on the 2014 polar vortex in the Arctic, which sent extreme cold plunging down into the U.S. and produced high electricity demand; the DoE is arguing power plants with fuel on site would serve as a bulwark against such events.
Experts point out a flaw in this argument, however: Massive amounts of coal power itself were actually forced offline due to equipment problems, likely related to the extreme cold, an issue not solved by the on-site fuel requirements. PJM Interconnection, a regional transmission organization that coordinates movement of electricity around a large chunk of the country, noted in their May 2014 report that wind power offered more than its expected share to the grid during the extreme cold event. It “had a positive impact on supply and contributed to PJM’s ability to maintain reliability.”
Even though this insight makes it difficult to see the proposal as anything other than a subsidy for particular industries, Tezak says there is at least a reasonable question behind it. “This resiliency thing that DoE wants compensated has never been defined before, by any metric,” she says. “We don’t have a yardstick for resiliency.” Asking electricity regulators to more carefully study this issue, then, and perhaps arrive at some measure of how much baseload generation really is required for resiliency, is not wholly unreasonable. This is undermined by the NOPR, however, which calls for a decision on a remarkably complicated, previously unaddressed question within a 60-day public comment period that ends November 24. FERC’s decision is required by December 11.
Tezak says she expects FERC to seriously consider the proposal, but that it is very unlikely to actually implement the measure as written. FERC is an independent federal agency; its rules on electricity and energy are not approved or reviewed by Congress or the executive branch but can be reviewed in federal courts. Still, Tezak says, “I do not think it is, or ever has been, completely immune to politics.” FERC could take the spirit of the NOPR—that baseload power deserves more credit—and implement a rule with slightly different details.
In fact, she thinks the proposal was not necessarily intended to go through in its original form. “If DoE really wanted to break the markets, they could have been so much more prescriptive,” she says. “They threw it over the transom. They said, ‘pay attention to this, and no putting it off.’ They want action.”