Politics

Plan to Boost Coal and Nuclear Could Cost Consumers

Should consumers pay more so coal and nuclear plants can survive?

Energy Secretary Rick Perry testifies during the House Energy and Commerce Committee hearing Oct. 12. (Bill Clark/CQ Roll Call)

For years, federal regulation of the electric grid has focused on keeping prices low and competition stiff. But that could change with a recent proposal from the Trump administration to put more emphasis on what it calls resiliency.

According to Energy Secretary Rick Perry, the electric grid is more resilient — able to bounce back from disasters of the natural and man-made variety — when it has plenty of so-called baseload power that can run 24/7, with or without sunshine or wind and regardless of supply snags.

Coal and nuclear fit that bill, according to Perry, and its providers should be rewarded with regulations that guarantee they can recover their costs and make a profit — even if higher electric rates are the result.

“In plain English, fuel security is valuable — to families, businesses, and national security,” Perry said at an Oct. 12 congressional hearing.

Electric market rules overseen by the Federal Energy Regulatory Commission should be swiftly and comprehensively overhauled to “make sure that fuel-secure generation is valued for what it is worth to our nation — not forced into early retirement,” he told a House Energy and Commerce subcommittee.

Opponents of the proposal called it a thinly veiled attempt to prop up the administration’s favored energy sources — coal and nuclear power — at consumers’ expense.

Rep. Frank Pallone Jr. of New Jersey, the top Democrat on the Energy and Commerce panel, urged caution, saying consumer preferences, state policies, technology and economic trends all favor the “positive developments” of renewable resources over traditional fossil and nuclear power.

“I would not want to see this committee reversing course,” he said.

A strange place

The proposal puts Perry, President Donald Trump and even some Republican lawmakers in a strange place, given their free-market rhetoric: they’re advocating government controls in a largely competitive marketplace to prop up technologies that have been losing ground to lower-cost competitors.

One goal, they say, is to rebalance an electric marketplace made unfair to coal and nuclear power by the Obama administration’s support for renewable energy.

Another is to assure the grid can hum day and night, in good weather and bad. Such resiliency is threatened by the “premature retirements” of power plants that can already withstand major natural or man-made disruptions, Energy Department officials said in making the proposal.

Those plants “are indispensable for the reliability and resiliency of our electric grid,” according to language in the proposal sent to FERC — but research suggests otherwise.

The DOE acknowledged in a recent study that the grid is quite reliable today, even as the power mix shifts to include more renewable technologies and natural gas.

And with emerging technology like large-scale batteries that can store electricity from solar and wind farms for later use, the modern grid is likely to become even more reliable.

As for resiliency — the ability of the electric grid to bounce back after a hurricane or even a man-made disaster — that is mainly a product of the grid that distributes the juice, not the power plants that make it.

“We do not currently have anything approaching a reliability or resilience emergency,” a group of owners of unregulated power plants said in opposition to Perry’s proposal.

Thumbs on the scale

In its proposed rule-making, the DOE urged FERC to consider adopting measures such as market tariffs to ensure that owners of so-called baseload power plants are compensated for keeping them available during peak demand times and emergencies.

The proposal — which requires such plants to have a 90-day fuel stockpile on-site to qualify for the pricing help, precluding solar, wind and most gas-fired power plants — has earned praise and condemnation from the obvious places.

 

The nuclear and coal industry heralded it as a needed adjustment for a market that may have left older technologies behind.

Meanwhile, an unlikely alliance of renewable trade groups and the oil and gas lobby described the rule as counterproductive to market competition. The policy is “one of the most significant proposed rules in decades,” they wrote in an Oct. 2 filing to FERC.  

For Perry and Republicans supporting the plan, it represents a correction to the Obama administration’s market interventions to curb carbon emissions.

Rep. Kevin Cramer, a North Dakota Republican, told Perry during a committee hearing that a review was “entirely appropriate.”

“In fact, I find it rather offensive that some people suggest you’re putting the thumb on the scale when the reality is you are just rebalancing the scale,” Cramer said. 

Public Citizen’s Tyson Slocum, director of the left-leaning group’s energy program, describes the resiliency proposal as far more radical than the Obama-era Clean Power Plan, with a potentially larger impact.

“This is a consumer-funded bailout of these uneconomic units,” Slocum says.

The problem with thumbs and rebalancing scales, of course, is that everyone wants the balance pushed in their favor.

The Industrial Energy Consumers of America, which represents major energy-consuming manufacturers, said in an October letter to congressional energy leaders that Perry’s idea “would force U.S. manufacturers to pay billions of dollars in subsidies to the owners of uneconomic and obsolete coal and nuclear power plants.”

It also offered arguments that Republicans are normally quick to embrace, describing the proposal as “anti-competitive” to wholesale electricity markets and likely to increase the price of electricity.

The refrain has been echoed by other free-market energy groups. The Institute for Energy Research, an early backer of the Trump candidacy, noted that while the proposal addresses a valid concern for grid watchers, the proposed solution could destroy electric markets.

“Like using a sledgehammer to swat a fly, this rule would end up causing enormous destruction even if it also managed to provide more resilient baseload capacity,” IER’s Kenny Stein wrote in a blog post.

The plan could also leave consumers on the hook for an additional $14 billion in expenses at 100 plants, based on a Sierra Club analysis of 2016 maintenance and operation costs.

“Perry is essentially demanding America’s manufacturers, small businesses and families pay what will likely be billions in higher bills to hedge funds and big banks that made a bad bet on coal, to bail out uneconomic power plants that can’t compete in the market anymore,” said Mary Anne Hitt, director of the Sierra Club’s Beyond Coal campaign.

ORANGE, TX - SEPTEMBER 07: Electrical workers restore wires in Orange as Texas slowly moves toward recovery from the devastation of Hurricane Harvey on September 7, 2017 in Orange, Texas. Almost a week after Hurricane Harvey ravaged parts of the state, some neighborhoods still remained flooded and without electricity. While downtown Houston is returning to business, thousands continue to live in shelters, hotels and other accommodations as they contemplate their future. (Photo by Spencer Platt/Getty Images)
Electrical workers restore wires in Orange, Texas, as the state slowly moves toward recovery from the devastation of Hurricane Harvey in September. (Spencer Platt/Getty Images)

Market forces

While that analysis is reliant on speculative and hypothetical costs, the price tag has raised concerns for many Democratic lawmakers. When pressed by Rep. Kathy Castor about the potential billions in costs of the proposal, Perry assured the Florida congresswoman the intention is not to raise costs.

“If the request to FERC is what you say it is, they won’t go forward with it,” Perry said.

To that end, Perry has hedged that his proposal was more “conversation starter” than “directive” to FERC, leaving room for the commission to go in a different direction with the resiliency and reliability issue than what he put forward.

Originally enabled by the Energy Policy Act of 1992 and subsequent FERC orders, wholesale competitive electric markets were created by lawmakers to induce competition and lower electric prices at a time when the country was starving for energy resources.

At the time of its enactment, President George Bush called the legislation a “landmark” provision that furthered competition in the electricity market and that would result in lower prices and ensure adequate supplies.

And it has largely achieved those aims. The average retail price of electricity, adjusted for inflation, has fallen from 16 cents per kilowatt, including taxes, in 1992 to approximately 10 cents per kilowatt in 2016.

“Wholesale competition worked as intended, driving inefficient, high-cost generation out of the market,” said energy consultant Alison Silverstein, an original co-author of DOE’s grid reliability study, in an opinion piece for the trade publication UtilityDive.

While the markets may be working as intended, federal interventions along with an influx of cheap natural gas freed by the past decade’s fracking boom haven’t helped coal and nuclear plants.

An IHS Markit report in September commissioned by the Edison Electric Institute, the Nuclear Energy Institute and the U.S. Chamber of Commerce, which all support nuclear and coal power, concluded that the shrinking share of nuclear and coal in the nation’s electric mix could cause a decline of GDP equal to $158 billion and a reduction of $845 of disposable income per household annually, among other harrowing economic pitfalls.

“The study supports a balanced and diverse energy mix that includes both traditional and renewable energy sources, and finds that a less diverse mix would raise electricity prices and have significant economic and workforce impacts,” said EEI’s Phil Moeller, an executive vice president of business operations and regulatory affairs.

A combination of federal and state subsidies and mandates for specific technologies has increased the presence of renewables in the marketplace beyond a level associated with a “reliable, resilient and efficient” supply of electricity, the report claimed.

DOE’s recent grid reliability report reached a similar conclusion on federal and state subsidies that benefit renewable energy, although the chief reason for premature shutdowns of nuclear and coal plants, the department said, was due not to regulation but to the influx of cheap natural gas — a byproduct of the nation’s fracking boom.

Weather worries

The Obama administration also raised concerns about the future of grid resiliency, especially in the face of increasing severe weather events that could result in power outages, causing billions of dollars’ worth of damage and economic losses.

 

Officials determined that an estimated 679 outages caused by weather events from 2003 to 2012 cost the U.S. economy an inflation-adjusted annual average of $18 billion to $33 billion, according to an August 2013 report prepared by the White House’s Council of Economic Advisers and the DOE’s Office of Electricity Delivery and Energy Reliability. 

“Continued investment in grid modernization and resilience will mitigate these costs over time — saving the economy billions of dollars and reducing the hardship experienced by millions of Americans when extreme weather strikes,” the report concluded.

That concern was expressed in the Obama administration’s Quadrennial Energy Review, a two-part comprehensive analysis of the nation’s electric generation and distribution systems.

But the Obama report found the chief threats to grid resiliency were extreme weather events — and that in 90 percent of the cases in which weather events disrupted power, the cause was damage to the distribution system, not to power plants.

Perry cites a single specific weather event to defend the need for his plan: the 2014 polar vortex that brought a weeklong deep freeze to much of the Midwest and East Coast. The vortex, a mass of arctic air, set at least 49 new record low temperatures across North America, resulting in two of the highest electricity demand days ever faced by the grid.

That demand, along with some operating capacity taken offline due to natural gas shortages and weather-related maintenance concerns, pushed operators to the brink of rolling brownouts.

“When the polar vortex came into the Northeast back in 2014, and that event occurred  . . .  I don’t think any of you want to have to stand up in front of your constituents and explain to people why the decision had to be on turning our lights on or keeping our families warm,” Perry told the Energy and Commerce subcommittee.

While natural gas shortages played a significant role, the major reason for a loss of capacity during the polar vortex, according to a report by the North American Electric Reliability Corporation, was the effect the extreme cold had on generating equipment — something affecting a host of technologies, including frozen coal piles. Of the approximately 19,500 megawatt of capacity lost due to cold weather conditions, over 17,700 megawatts were due to frozen equipment, according to the NERC report.

But Perry’s argument becomes a little murkier in the aftermath of the devastating hurricanes that slammed the Gulf coast this year.

The power produced throughout the storm came from a diversity of sources, giving advocates for any power source ammunition to back their technology as resilient.

In Houston, NRG Energy, an operator of a host of power plants in the region, was forced to switch two of its generating units from coal-fired to natural-gas-fired after biblical levels of rain from Hurricane Harvey saturated the unit’s on-site coal pile, making the fuel almost impossible to move and burn. That switch marked the first time the unit has used natural gas since 2009, the company said.

At the same time, NRG Energy’s nuclear unit about 60 miles south of the city remained operational, despite calls from anti-nuclear groups to pause operations for fear of a Fukushima-like disaster.

“When we had Hurricane Harvey coming in, a lot of our problems were there but the nuclear power plant southwest of Houston stayed and continued producing electricity,” Texas Democratic Rep. Gene Green said during a recent hearing. “That’s why we need all the above and have a market that has many different sources.”

Florida Power & Light decided to partially shut down reactors at its two nuclear plants on the Atlantic side of the state as a precaution against the impacts of Hurricane Irma. The utility had announced before the storm it might shut down all of its nuclear reactors should the hurricane maintain its feared Category 5 status as it approached the stations.

And that gets at part of the danger of relying on weather-event anecdotes as the primary driver of a reliability argument: there is a resiliency story for every power source.

“There is almost nothing a nuclear and coal plant can do that a modern natural-gas power plant can’t do, with the possible exception of providing power at the end of a congested gas pipeline during an extreme cold snap,” said University of California, Davis economics professor James Bushnell in a blog post for the Energy Institute at UC’s Haas School of Business.

“This fuel reliability story, calling upon anecdotes from the 2014 polar vortex, provides pretty much the entire basis for calling coal and nuclear more reliable.”  

 

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