Trump’s cash-for-coal plan rewards political base

Source: Benjamin Storrow, E&E News reporter • Posted: Thursday, October 5, 2017

The Trump administration has placed former President Obama’s proposed carbon regulations on ice, lifted a moratorium on new federal coal leases and scrapped a rule seeking to prevent runoff from coal mines, all in the name of restoring the former king of America’s power sector to its throne.

But none of those moves comes as close to fulfilling the president’s campaign promise to revive the coal industry as the Department of Energy’s proposal to provide financial assurances to struggling coal and nuclear plants.

The DOE plan represents the administration’s most consequential incursion yet into the electricity market, power sector observers say, and follows a clamor from coal interests to stem the tide of plant closures nationwide.

“I think what’s happened to date has been real marginal changes,” said Joe Aldina, who directs coal research at S&P Global Platts’ PIRA Energy Group. “Some of those things, like stream protection rule, might have increased costs to some miners. The moratorium was a long-term problem. This gets to dispatch economics.”

He added, “This could be a big change in the economics of certain coal plants.”

Under the plan, coal and nuclear facilities operating in organized markets would receive payments in exchange for storing 90 days of fuel on-site. That would represent a boost to coal mining companies, Aldina said, noting that coal plants now generally maintain 75 days of reserves.

Administration officials argue that such guarantees are necessary to ensure the resilience of the electric grid, particularly in extreme weather events like the polar vortex of 2014. Scientists are divided on whether severe cold streaks are exacerbated by climate change (Climatewire, Sept. 22).

Whether the Federal Energy Regulatory Commission, the often overlooked agency charged with regulating organized power markets, will sign off on the plan remains an open question. Some observers contend that the proposal represents a drastic departure from FERC’s long-standing commitment to competitive markets and say it threatens to thrust a commission with a technocratic reputation into the boiling pot of partisan politics.

“It will be a test of how far the new majority will go to try and accommodate the secretary’s intent and still come up with a market,” said Susan Tierney, a managing partner at the Analysis Group and former DOE assistant secretary for policy.

Tierney called DOE’s proposal “very cynical,” saying it looks more like an attempt to aid coal than to address a real problem with the grid.

“This is being done in the name of resiliency,” she said. “Resiliency is not a technology-specific construct; it’s really how do you bounce back. You don’t bounce back with baseload; you bounce back with plants that can start up quickly.”

A mere 0.0007 percent of the electrical outages in the United States during the last five years were due to fuel supply problems, according to an analysis of federal data released by the Rhodium Group yesterday.

The lack of fuel-related outages is evidence of the proposal’s true intent, said John Larsen, who oversees utilities research at the think tank.

“This is the clearest effort I’ve seen from this administration to date to follow through on its coal promise,” Larsen said.

The coal industry has mounted a concerted campaign to slow the rate of power plant retirements. About 12 percent of the U.S. coal fleet was shuttered between 2002 and 2016, according to DOE. Another 4 percent of American coal capacity has already been scheduled to be retired through 2020, though some industry estimates are higher.

In August, the CEO of the largest publicly traded coal company in the United States called for a two-year moratorium on coal closures.

“If we are to preserve the nation’s enormous advantage of baseload generation from coal, then together we have to change the way we think and the way we do business,” Peabody Energy CEO Glenn Kellow said in a presentation to the American Coal Council. “We not only need to change the playbook … we need to change the entire game.”

The company praised DOE’s proposal, saying it will ensure that organized markets recognize the benefits of on-site fuel supplies at coal plants.

The stakes are especially high in the PJM Interconnection, the nation’s largest organized market. Cheap natural gas prices have prompted a series of retirements in the 13-state system, which runs from Illinois in the west to Pennsylvania and Virginia in the east.

Low prices have hammered coal-heavy power companies like Akron, Ohio-based FirstEnergy Corp., which is attempting to exit the power generation business (Energywire, July 31).

FirstEnergy CEO Chuck Jones as been particularly vocal about the damage of baseload plant closures, calling them a threat to national security. Politico reported in August that Jones and mining magnate Robert Murray, CEO of Murray Energy Corp., met with Trump in an attempt to obtain a DOE designation that would stave off the closure of several FirstEnergy coal plants.

The attempt ultimately proved unsuccessful, but Jones hailed the department’s most recent proposal, saying in a statement that it would correct “faulty market conditions” and preserve baseload power plants.

Events like the polar vortex speak to the need to keep coal plants in operation, said Paul Bailey, CEO of the American Coalition for Clean Coal Electricity, a trade group. PJM would need to preserve its coal fleet at its present size in order to manage another polar vortex, he said. He dismissed arguments that concerns over the grid’s resilience are overblown, pointing to a PJM report that found reliability benchmarks suffered as coal and nuclear retirements rose.

The report also found that coal and nuclear retirements coincided with improvements in flexibility and response times.

“This is a way to maintain grid resilience by preventing premature retirement of fuel-secure baseload sources,” Bailey said.