DOE’s Coal and Nuclear Bailout Proposal Should Be Rejected

miles-farmer-450October 23, 2017 by Miles Farmer, Clean Energy Attorney 

The Trump administration’s outrageous plan to prop up the sagging coal and nuclear industries would irreparably change how our electric system works, cost consumers billions of dollars annually, and dampen investment in more efficient, more flexible, and cleaner technologies, NRDC and others across the political spectrum are saying in official comments due today.

Department of Energy (DOE) Secretary Rick Perry asked the Federal Energy Regulatory Commission (FERC) to approve a proposal to bail out dirty and risky power plants to keep them running even when they aren’t needed and can’t compete with cheaper electricity from other sources. Today is the deadline for initial comments on the controversial proposal, which is moving forward on an absurdly fast (and NRDC believes illegal) 60-day timeline. (Here are our official comments, submitted together with Earthjustice, Environmental Defense Fund, Sierra Club, and other organizations. They include new analysis we commissioned, discussed below.)

Reactions from energy experts across the gamut of political interests have been near unanimous: it is perhaps the worst idea ever proposed for the nation’s electricity markets. In fact, a bipartisan group of former FERC commissioners took the unprecedented step of joining together to pan the proposal as a “significant step backward” that would “raise costs for customers, and do so in a manner directly counter to the Commission’s long experience.”

The basics of the proposal

The DOE is asking FERC, the agency in charge of overseeing the nation’s wholesale electricity markets, to give billions of dollars in subsidies to power plants that can store 90 days of fuel on site (i.e. coal and nuclear plants). After a last-minute change to the original proposal, the plan covers about one-fifth of the nation’s power supply, in regions where market competition determines whether a plant retires. (In other areas, regulators evaluate and oversee utility decisions to continue operating certain plants).

The DOE plan claims that funneling money to these plants will ensure reliable, resilient electric service. But it will do no such thing. As even DOE and other experts have explained, grid reliability has improved, not suffered, as coal and nuclear plants across the country retire due to low power prices caused by factors including low natural gas prices and lower electricity demand (thanks to energy efficiency and other factors).

DOE’s plan is driven by politics, not analysis

It’s clear that this proposal is driven by a singular focus from the Trump Administration to bail out the coal industry.

Letters made public by the Associated Press from Robert Murray (a coal supporter and major Trump donor) to the White House and the DOE state that Trump told Perry, with regard to a different illegal coal bailout proposal, “I want this done.” They also state that Trump told a senior cabinet official to “do whatever these two want him to do,” referring to the CEOs of FirstEnergy and Murray Coal.

The proposal to FERC appears targeted to benefit Murray Energy and First Energy, which has at least 40 generators that stand to gain from the proposal, more than almost any other market participant. It’s hard to tell at this point whether the nuclear industry had a similarly active role in it.

One of Rick Perry’s first major actions as Secretary was to declare, without evidence, that giant “baseload” resources are necessary to the reliability of the grid, directing his staff to investigate threats caused by their retirement (discussed here). These issues had been, and continue to be, extensively studied, discussed, and planned for. So when DOE’s own experts found no basis for propping up “baseload” resources, that should have been expected.

Despite those findings, Perry is still trying to force a bailout the coal industry. One of the lead authors of the DOE study, consultant Alison Silverstein, declared the plan “a dreadful policy proposal” with “immense cost implications for customers” but without clear benefits.

DOE’s proposal has no resiliency or reliability benefits

The argument that we need to prop up coal and nuclear power to shore up reliability doesn’t hold water. While Secretary Perry claims that coal and nuclear are needed because they store fuel on site, Rhodium Group, a research and analysis firm, quickly pointed out that over the past several years, only a tiny fraction of energy system outages (0.00007 percent to be exact) were related to fuel supply issues:

The real cause of grid reliability issues? Downed power lines and other transmission and distribution infrastructure issues, which were responsible for over 96 percent of outages.

NRDC and the Environmental Defense Fund just commissioned the Rhodium Group to expand on that initial analysis, by examining grid operating regions across the country to determine if there has been any relationship between the portion of a system’s coal and nuclear supply and grid reliability. The verdict? Nope.

If coal and nuclear generators made the system more reliable, one would expect that the frequency and duration of outages would be lower in regions with higher shares of these resources. As shown here, both the frequency and the duration of outages had no relationship to the portion of system supply served by coal and nuclear generators.

As Rhodium Group concludes, “increasing amounts of coal and nuclear generation on a utility’s system has no clear relationship with higher performance regarding reliability metrics.”

Furthermore, as we explain in our comments, DOE’s proposal threatens to create reliability problems. By design, the proposal supports aging, inflexible plants that are having trouble competing with newer, more efficient technologies and are among the slowest plants to return to service after outages caused by extreme weather or other factors. As plants exceed 30 years of age, rates of unexpected plant failure increase significantly. Our comments include new analysis by Synapse Energy Economics (commissioned by Earthjustice), which found that due to the aging coal fleet as well as changes in operating conditions and increased cycling, plaint failures for coal generators in PJM and MISO have increased over the past decade.

What about extreme weather? Coal and nuclear frequently have performance problems under such conditions. In preparation for hurricanes Irma and Andrew, several nuclear plants in Florida and Texas were taken offline. Hurricane Harvey flooded coal piles at a Texas facility, forcing it to switch to natural gas. During the 2014 Polar Vortex, stockpiled coal froze, knocking coal plants out of operation. The very events cited by DOE as forming part of the basis for its proposal provide no evidence that coal and nuclear resources make the grid more resilient or reliable.

The proposal would cost customers billions

While failing to improve reliability, this proposal would also lead to higher energy bills and more pollution, with utility customers paying the price. The vagueness of the proposed rule makes a rigorous cost analysis virtually impossible, but there is no doubt that favoring expensive and risky power over cleaner and safer sources of energy will cost consumers billions of dollars.

We conservatively estimate that the operating costs of eligible coal and nuclear resources under Perry’s proposal totaled over $14 billion in 2016. This gives a sense of the magnitude of gross costs that could be passed on to customers, before accounting for revenues some of the plants would otherwise be paid through existing markets.

Data compiled by SNL Energy

The energy and environmental firm Energy Innovation, performed a more detailed analysis that also examined the capital investments that many of these plants have made over the past decade (which appear to be eligible for compensation under the proposal), and that accounted for projected market revenues as well. They found the proposal could cost between $2.4 and $10.6 billion. Although the proposal is too vague to arrive at a definitive number, one thing is abundantly clear: the proposal would place an enormous burden on customers.

In addition, these cost estimates do not include the price of locking in decades of climate and air pollution from coal power, or the security and safety risks of nuclear power.

Furthermore, as the bipartisan group of former FERC commissioners explain, the proposal would “fundamentally distort” electricity markets in much of the country. Under the current system, regional authorities tell more expensive plants not to operate when there’s cheaper electricity available elsewhere. The proposal scrambles these mechanics, but is so vague that it doesn’t say precisely how things will work. Market chaos is a virtual inevitability were the proposal to be enacted, further driving up costs.

What happens next?

Given that there is no emergency, FERC should reject the proposal outright. Unless it rejects the proposal immediately, FERC should take more than 60 days to consider a proposal with such significant implications for consumers and the market. Let’s all recognize what this is, a costly bailout for coal and nuclear power that should be rejected.

The views expressed in this blog are those of the author, and do not necessarily represent the views of the Sustainable FERC Project or Natural Resources Defense Council.

Written by Miles Farmer