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FERC Commissioners Agree: No Grid Emergency Exists to Justify Coal, Nuclear Bailout

by added on 12 June 2018, Comments Off on FERC Commissioners Agree: No Grid Emergency Exists to Justify Coal, Nuclear Bailout , posted in Grid Edge, Regulation & Policy, Utilities, Energy, Nuclear, Fossil Fuels, Policy, News,

Members of the U.S. Senate’s energy committee may be split over the Trump administration’s plan to force Americans to buy power from uncompetitive coal and nuclear power plants — even if support is largely limited to senators representing coal states. 

But none of the five members of the Federal Energy Regulatory Commission agree that the country’s power grid faces a dire enough emergency to justify a Trump Administration plan to invoke national security to save the plants.

On Tuesday, the Senate Energy and Natural Resources Committee met to discuss FERC priorities. Much of the discussion was centered on an Energy Department proposal that doesn’t officially exist yet — a plan to use DOE’s authority under the Defense Production Act of 1950 and the Federal Power Act to direct system operators “to purchase or arrange the purchase of electric energy or electric generation capacity from a designated list of Subject Generation Facilities (SGFs)” deemed essential to national security. 

The leaked memo that revealed the plan has drawn a firestorm of opposition from every facet of the energy industry — except coal and nuclear power groups and utilities heavily invested in those two technologies. 

Critics say the move could add tens of billions of dollars to consumer energy bills and drive more competitive technologies out of the market, while doing nothing to improve the grid’s ability to withstand and respond to storms, cyberattacks and other major disruptions. That’s the view of Sen. Maria Cantwell, (D-WA), who brought up “the big elephant in the room” during the hearing.

“I just find this whole thing almost mind-boggling in its policy elements, that someone would be throwing this down on FERC,” she told the commissioners, citing the legal problems with DOE's use of the Federal Power Act and Defense Production Act, as well as the policy implications. The plan constitutes “a threat to your oversight and independence,” she said, given that it could direct FERC to adjudicate the likely contentious contracts it envisions forming between money-losing plants and the utilities that would be forced to buy their power.

Cantwell called the plan a political payback coal industry players like Murray Energy, which last year wrote a proposal for using emergency authority to keep FirstEnergy coal-fired power plants running for two years. That proposal closely matched DOE’s failed attempt last year to get FERC to provide out-of-market payments to coal and nuclear plants with at least 90 days of fuel on site.

FERC voted unanimously to reject that plan in January, finding that it didn’t meet the key legal threshold of offering “just and reasonable” changes to how it regulates markets. FERC commissioners reiterated that point in Tuesday’s hearing, and noted that they intend to apply that standard to any new plan that emerges from DOE.

And when Sen. Martin Heinrich, (D-NM), asked them point-blank if they could answer "yes" to whether the country was facing a national security emergency due to current power plant retirement trends, all five commissioners remained silent — a tacit consensus that none agree with the core contention of DOE's plan. 

“To date I believe we’ve successfully managed the transition in the resource mix without compromising grid reliability and resilience, and I believe we can continue to successfully manage this transition,” Cheryl LaFleur, a Democrat appointed by the Obama Administration, said. "This is not a problem to be solved, unless reliability is compromised." 

Commissioner Richard Glick, a Democrat appointed by Trump, reiterated that mid-Atlantic grid operator PJM, home of the majority of the power plants likely to be bailed out by the DOE plan, said it does not face future grid reliability emergencies.

He also noted that Chris Crane, CEO of Exelon, said last week that coal and nuclear retirements do not constitute a grid emergency — although Exelon quickly walked back that statement to reflect a more wait-and-see attitude to whatever proposal emerges from DOE. 

Commissioner Ron Powelson, a Republican appointed by Trump, added that energy sector bankruptcies happen with some regularity without loss of service or widespread blackouts, citing the recent reorganization of Texas-based Energy Future Holdings as an example. Much of the lobbying for DOE’s plan has come from FirstEnergy, which declared bankruptcy for its coal and nuclear fleet, and is a buyer of much of Murray Energy’s coal. 

“I’m a little bit concerned about the narrative that’s being put out there” that this is an emergency, Powelson said. 

Skepticism wasn’t limited to Democrats. Senator Lisa Murkowski, the Alaska Republican who chairs the committee, noted that, “It seem that the retirements in my view have not reached the point where the quality of electric service has been visibly compromised. Are you confident that this situation will persist?”

FERC Chairman Kevin McIntyre, along with commissioners LaFleur, Powelson and Glick, said yes, while Chatterjee said that “quality has not yet been affected to date,” though he added that “I think it’s important that we and our partners in federal government remain vigilant.” 

FERC has launched a grid resilience docket to examine how well prepared grid operators are for natural or manmade disruptions. Several commissioners noted that market-based solutions, tailored for each grid operator’s unique regional needs, are the best way to go about solving any problems that do emerge from that process. 

Senator Cantwell also questioned the idea that the threat of cyberattacks against natural gas pipelines constitute a reason for relying on coal and nuclear power plants for backup, as the DOE memo suggested. "I’m very well aware of where these cyber attacks are coming from — and some of them have been in our power plants. The issue is that cyberattacks could disrupt any type" of resource, she said. That's a view echoed by cybersecrity experts on this new argument from the Trump administration about its bailout plan. 

Senator John Barrasso (R-WY), took the side of DOE’s proposal in Tuesday’s hearing. Barrasso noted that New England’s grid operators faced significant shortages of natural gas during the “bomb cyclone” cold snap this winter, and relied on coal-fired power that might not be there in future years. 

Senator Joe Manchin (D-WV) asked FERC commissioners about their views on DOE’s authority, and by extension President Trump’s authority, to make the emergency declarations contemplated in the leaked memo. 

McIntyre replied that, “under the roles assigned to the Secretary [of Energy] by Congress, it is up to the Secretary to determine if the conditions exist” to justify a market intervention on national security grounds. This matches the view McIntyre presented at a conference last week, when he told reporters that DOE’s plan might not need to meet FERC's "just and reasonable" standards, and could instead be subject to "effectively an easier standard” in a process “that would not involve a rate proceeding before the FERC.” 

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