Coal plant bailout back on tap as Perry, coal interests reportedly derail FERC nomination

Source: By Gavin Bade, Utility Dive • Posted: Thursday, March 21, 2019

After months of lying dormant,  discussion about a plant bailout in Washington this week may indicate the White House is preparing another effort to save retiring generators.

Last year, FERC rejected the administration’s first attempt to provide cost recovery to at-risk coal and nuclear plants. The National Security Council then crafted a memo that advocated using DOE’s emergency authority or the executive branch’s wartime powers to keep plants online, but that strategy reportedly stalled at the White House over legal concerns.

The new CEA report revisits a central idea from that memo — a “strategic generation reserve” that would keep older coal and nuclear plants in service.

“The entire portfolio of generation assets in the United States could be eligible to be part of a reserve, with different strategic weights placed on various types of generation — for example, nuclear or coal-fired generation might provide greater resilience benefits and therefore be preferentially selected into the reserve,” the report reads.

The report, however, contains few details about how the program would be structured or funded, and appears to undercut its case for a strategic reserve.

Citing Energy Information Administration data, the report says there is “some evidence” that fuel supply problems can lead to outages, but then acknowledges that the vast majority of power disruptions come from other issues.

“In 2017, the EIA reported 94 major disturbances or unusual occurrences in the electricity supply system affecting a total of 17.1 gigawatts of capacity,” it reads. “Fuel supply deficiency accounted for 6 percent of these events and 1.2 percent of the total lost capacity.”

Depending on how the White House structures an eventual plant bailout, FERC may need to be involved to set rates paid to the retained generators.

This week, bailout backers reportedly scored a victory in derailing the FERC nomination process of David Hill, the executive vice president and general counsel at NRG.

Hill, a former Department of Energy official in the George W. Bush administration, has been vocal in his opposition to the White House’s plant bailout plans.

“[I]f you really wanted to do something that values reliability and resilience, you do it with something that is fuel neutral and attribute based,” Hill said in 2017, according to the Washington Examiner. “We are not against or for any particular generation source. We are for whatever generation serves the needs of customers at the lowest cost.”

Politico reports that Perry teamed up with coal companies Murray Energy and Alliance Resources to convince the president not to nominate Hill. In his place, Perry is pushing Trump to tap Smitherman to the federal board, according to multiple outlets.

Smitherman was a steadfast supporter of coal and other fossil fuels as chair of the Public Utilities Commission of Texas and the Railroad Commission, which oversees oil and gas production. Since then he has publicly doubted the scientific consensus on climate change when he ran for Texas Attorney General in 2014.

Smitherman has also championed deregulated electricity market and competitive transmission siting in Texas. Last month, he wrote an op-ed for Utility Dive advocating reform of FERC Order 1000, which governs transmission construction.

“[T]he competitive electric transmission provisions of Order 1000 face a number of roadblocks to more widespread implementation nationwide,” Smitherman wrote. “Order 1000 should be expanded and implemented consistently so more consumers can enjoy the benefits of innovative solutions and cost containment.”

Top image credit: House E&C

Brief

By

Published

June 1, 2018

Dive Brief:

  • The Trump administration is planning to bail out coal and nuclear plants at risk of closure under the authority of two seldom-used federal laws, according to a memo made public Friday.
  • Under the plan, the federal government would purchase electricity or generation capacity from the plants for two years using its power under Section 202 of the Federal Power Act and the Cold War-era Defense Production Act. Bloomberg first reported on the memo Thursday night.
  • It remains unclear whether President Trump has signed off on the 41-page memo, but critics say guaranteeing revenue for a large number of uneconomic generators could unravel wholesale power markets. The Federal Energy Regulatory Commission rejected a similar bailout proposal from the White House earlier this year.

Dive Insight:

If approved by the president, the Trump administration’s plan to buy power from struggling coal and nuclear generators would be an unprecedented federal intervention in wholesale power markets.

The plan calls for direct purchases of electricity or capacity from a list of specific coal and nuclear plants, as well as the establishment of a new “Strategic Electric Generation Reserve,” to promote national security.

DOE argues the aging coal and nuclear plants are essential to national security because they, unlike natural gas plants, store fuel onsite. “Federal action is necessary to stop the further premature retirements of fuel-secure generation capacity,” the memo reads.

The plant bailout would buy time for a new Department of Energy study on the vulnerabilities of the nation’s electric grid, with the memo labeling the move a “prudent stop-gap measure.”

DOE published a similar study last summer on the reliability of the nation’s power system, but it concluded that electric reliability is not immediately at risk. The agency then proposed a similar bailout for coal and nukes at FERC, claiming they are essential for the resilience of the power grid, or the ability to recover from outages.

FERC unanimously rejected that plan in January, saying DOE did not prove the electric system is at risk, nor that saving coal and nuclear plants would improve grid reliability. The regulators opened a new investigation into grid resilience that is ongoing at the commission.

Coal and nuclear interests, however, worry that the FERC investigation will take too long, even if it concludes some plants need to be kept online. Generator FirstEnergy in March petitioned DOE to use its Section 202 emergency authority to save its fleet of struggling plants.

DOE has not yet responded to that request, but legal experts told Bloomberg that combining Section 202 action with the Defense Production Act (DPA) could help the plan stand up to legal challenges.

Section 202 of the FPA is typically used to keep generators online in times of emergency, like a natural disaster, while the DPA allows the Secretary of Energy to nationalize parts of the power sector during wartime. Labeling the at-risk plants as national security assets would likely make it more difficult for courts to throw out the plan.

Even so, any attempt to keep the aging coal and nuclear plants online would likely attract a raft of legal challenges. In May, the attorneys general from 10 states and a broad coalition of renewable energy and natural gas interests all wrote to DOE, urging it to reject the FirstEnergy request and not attempt to apply the DPA.

“[A]s broad as it is, the Defense Production Act is not broad enough to do what the supporters of these uneconomic power plants would like,” the energy companies wrote. “The Defense Production Act does not allow the government to set prices. Nor does it allow the government to force market participants to buy products or services they do not wish to buy.”

Critics of DOE’s bailout proposals argue there is no grid emergency to justify keeping coal and nuclear plants online. The PJM Interconnection, where most of the at-risk plants operate, has said repeatedly that the reliability and resilience of its power mix are not at risk in the short term, as has the North American Electric Reliability Corporation (NERC), the federal entity responsible for power reliability.

PJM also opened a fuel security investigation last month, stressing that it, too, is not at risk today.

“We don’t think there’s an emergency today,” PJM CEO Andy Ott told Utility Dive. “We said that very bluntly and very publicly.”

DOE, however, has argued NERC and grid operators may not have “the visibility or the proper information to determine if something is a national security issue.”

“NERC and the RTOs are responsible to run systems reliability and they have visibility of certain things,” Assistant Secretary Bruce Walker told Utility Dive last month. “You might well imagine that with the various intelligence agencies we have throughout the federal government as well as the DOD and a host of others that we have different information and different responsibilities, which are clear, than the RTOs and NERC.”

If DOE enacts its plan, it could threaten the functioning of wholesale power markets like those operated by PJM. When the agency floated its original bailout proposal to FERC, former regulators and grid experts told Utility Dive that providing cost recovery to so many generators could “blow up” wholesale power markets. DOE’s current plan could go further than that earlier request, which only targeted PJM.

It is unclear if or when the bailout memo will be finalized by the White House. Cabinet officials are set to review it at Friday’s meeting of the National Security Council, Bloomberg reports.