FERC’s Powelson cautions on use of 1950 law to help coal

Source: Rod Kuckro, E&E News reporter • Posted: Friday, May 4, 2018

A top federal energy regulator is warning against the use of a 1950 wartime law as a way to subsidize the continued operation of coal and nuclear plants that are unable to make money in today’s electricity markets.

Robert Powelson, a member of the Federal Energy Regulatory Commission, said yesterday that invoking the Defense Production Act “would lead to the unwinding of competitive markets in this country.”

The Department of Energy is weighing use of the law, enacted during the Korean War to ensure the U.S. industrial base could meet the needs of the American war effort, as a way to respond to an urgent request for help from some power plant owners, most notably Ohio-based FirstEnergy Corp. (Climatewire, April 20).

Using the law to save uneconomical coal and nuclear plants “would be the greatest federal moral hazard we’ve seen in years and something that would be the wrong direction for us to venture down,” Powelson said after delivering remarks at an event on PJM Interconnection energy and environment issues sponsored by the Great Plains Institute and the Nicholas Institute.

FirstEnergy Solutions Corp., the generation subsidiary of FirstEnergy, has said it plans to close three nuclear plants in Ohio and Pennsylvania in the next three years. They are within PJM, the nation’s largest regional electric grid that provides power to 65 million people in all or parts of 13 states and the District of Columbia.

The company has asked DOE for an emergency order to keep the nuclear facilities operating, as well as its struggling coal plants.

But PJM said Monday its system can withstand the planned closures of the three nuclear plants without affecting reliability (E&E News PM, April 30).

The Defense Production Act gives the president broad powers to require businesses to prioritize contracts for materials deemed vital to national security. It was later used during the California energy crisis, when the government compelled natural gas suppliers to fulfill contracts with the then-ailing Pacific Gas and Electric Co.

The law was amended in 2009 to limit its use to scenarios where a scarce material is essential to national defense or to instances where national defense requirements cannot be fulfilled without disrupting civilian markets.

PJM has opposed another potential pathway for the federal government to help specific plants, in the form of a request from FirstEnergy to DOE to issue an emergency order under Section 202(c) of the Federal Power Act. That request remains under review by DOE.

Energy Secretary Rick Perry has been pushing for action, either by FERC or DOE, to compensate coal and nuclear for the “fuel security” they provide to the grid and the resilience and reliability attributes that on-site fuel supplies offer.

Powelson as ‘guardian’ of the market

Powelson, a Republican named to FERC by President Trump in May 2017, relishes the role he has carved out on the five-member commission.

He once served as the chairman of the Pennsylvania Public Utility Commission and as president of the National Association of Regulatory Utility Commissioners, where issues touching on the nation’s evolving electricity markets like PJM were top of mind for state regulators.

“I happen to be at FERC as the historian and the guardian of those markets. And I will not compromise in my approach to dealing with these markets,” Powelson said in his remarks, decrying unnamed “others” who are “putting their thumb on the scale to try to pick winners and losers in the market.”

He credited PJM CEO Andy Ott for wanting to have a conversation about fuel security. “This is not about reliability. PJM has strong reliability metrics. You want to help people at the DOE with that, I’d be glad to set that conversation up,” Powelson quipped.

“We’ve gotten caught up in political rhetoric, and we haven’t looked at the ways these markets can address these issues,” he said.

He urged a “holistic approach to the markets,” which means “not picking winners and losers, not creating moral hazards in these markets and having a serious conversation about the value of certain resources and their attributes.”

“[But] what it’s not about is creating subsidies for uneconomic resources that ratepayers are going to have to pay for again after restructuring,” he said, referring to an era several decades ago during which some states, such as Pennsylvania, redesigned their electricity markets, which included setting up competitive markets for power plants.

He apologized for the “fire and brimstone” tone of his remarks, while scolding “some in the room who don’t remember the tenets and the history behind electric restructuring,” where competition among forms of power generation was supposed to lead to lower prices for customers.

And that promise has borne out, he said, noting that in PJM last year wholesale electricity prices were the lowest since the grid organization was founded in 1999. He credited abundant natural gas and the continuing decline in the cost of renewable generation such as wind and solar.

“Old, inefficient power plants need to retire. OK? You can’t have a market when you’re sending the wrong price signal to people that need to enter and exit.”

He cited data that 32,000 megawatts of generation has retired or is planning to retire between 2011 and 2020.

“The majority — 77.3 percent — are coal-fired steam units whose average age is 54 years,” he said. “No one in the C-suite of a company is looking to do a boiler retrofit on a 54-year-old asset.”