January 9, 2018 by Miles Farmer, Clean Energy Attorney, & John Moore, Director, Sustainable FERC Project
The Federal Energy Regulatory Commission (FERC) has rejected U.S. Department of Energy (DOE) Secretary Rick Perry’s transparent attempt to needlessly funnel billions of electricity customer dollars to the owners of old and expensive coal and nuclear plants. In a major victory for consumers, the environment, and facts, the five members of the agency regulating the nation’s interstate electricity grids unanimously dismissed a proposal from Perry to insulate coal and nuclear plants from competition in several of the regional electricity markets it oversees.
Perry’s plan (described in greater detail here and here), was sent to FERC after extensive lobbying from coal industry insiders. Perry justified his proposal to favor coal and nuclear power plants over other electricity resources based on the patently false theory that plants with 90 days of onsite fuel supply (coal and nuclear) are necessary to support the electricity system’s “resilience.” (While Perry did not bother to define the term, resilience has been used to describe the power system’s ability to withstand and reduce the magnitude and duration of disruptions caused by events like extreme weather.)
But as NRDC and others pointed out (comments submitted to FERC with other environmental advocates are here, here, and here), the evidence demonstrates no link between the proportion of system supply served by coal and nuclear and system outages, which are nearly always caused by problems like downed power lines that prevent grid operators from sending electricity to our homes and businesses, rather than by an inadequate supply of generation. Last week’s cold spell, where generation reserves were plentiful despite extreme weather, further proved this.
At the same time, because the proposal would have sent extra subsidies to huge amounts of polluting coal and nuclear generation, the projected human and financial costs were enormous. For example, Resources for the Future, a nonprofit research institution, calculated that the policy could have contributed to as many as 27,000 premature deaths, at a total net cost of $263 billion. With regard to electricity bills alone, Energy Innovation LLC and the Climate Policy Initiative found the proposal might cost customers up to $11.8 billion annually. Others put the number even higher.
In a stinging rebuke of Perry’s facts-free attempt at regulating, all five FERC commissioners (four of whom are Trump administration appointees) rejected his proposal, holding that it was illegal not only because there was no evidence demonstrating that “resilience” wasn’t already being adequately priced into the electricity markets, but also because he failed to show that his proposals would be fair to customers. In so concluding, the independent agency joined the overwhelming criticism of most energy industry professionals. A bipartisan group of former FERC commissioners had even taken the extraordinary step of writing a letter to the Commission stating that Perry’s proposal “would be a significant step backward from the Commission’s long and bipartisan evolution to transparent, open, competitive wholesale markets” and “would instead disrupt decades of substantial investment made in the modern electric power system, raise costs for customers, and do so in a manner directly counter to the Commission’s long experience.”
FERC stood firm in the face of unsubstantiated claims from Perry and the coal industry that urgent action was necessary to prevent a reliability crisis. The agency drew, upon abundant evidence we and others submitted to FERC demonstrating otherwise. Even a leaked draft of a grid study commissioned by Perry last April concluded that the system is more reliable than ever.
What is resilience?
FERC rejected Perry’s proposal in its entirety, “terminating” the regulatory process through which it was being considered, and used the occasion to order a more rational, deliberate, and evidence-based examination of grid resilience. As my colleague Jennie Chen argued, such an inquiry should begin with a definition of “resilience” and an assessment of what regulators are already doing to ensure it. FERC agreed, suggesting a definition based on findings of the National Infrastructure Advisory Council: “The ability to withstand and reduce the magnitude and/or duration of disruptive events, which includes the capability to anticipate, absorb, adapt to, and/or rapidly recover from such an event.” FERC requested comments from grid operators on its proposed definition, as well as a description of existing rules and practices addressing resilience.
FERC’s examination could yield system improvements if the agency follows where the facts lead in an unbiased manner. At the same time, despite evidence that coal and nuclear play no meaningful role in system resilience, danger remains that FERC’s examination could be improperly conflated with the debate surrounding the shuttering of aged, unneeded, and financially struggling coal and nuclear plants across the country, or that other proposals to save coal will continue to crop up as Trump seems determined to reward coal companies by any means necessary. Perry’s “resilience” proposal came on the heels of his similar unsupported declaration (now thoroughly debunked) that “baseload” energy (a term often used to describe the operating pattern of coal and nuclear plants) is “necessary to a well-functioning grid.” (That would be news to California, for example, whose grid is operating just fine with virtually no coal and only one nuclear plant that’s scheduled to close.)
What will coal and nuclear interests do now?
Coal and nuclear industry comments to FERC on Perry’s now-failed proposal provide clues of what they plan next. They suggested, for example, that coal and nuclear are necessary to serve as a solution to a “black sky” event caused by a crippling of the nation’s natural gas pipeline infrastructure. Fortunately, FERC’s decision rejected Perry’s proposal not only due to its total lack of evidence, but also because it violated a key tenet of the Federal Power Act (the law governing FERC’s regulation of electricity), which dictates that FERC may not exercise preferential treatment in favor of some market participants over others. Clean resources, like energy efficiency, real-time changes in customer electricity use enabled by smart electricity meters, wind, solar, and energy storage are all able to serve as effective solutions to possible pipeline failures, for example. So were FERC to develop solutions to respond to such an event, it could not legally exclude these resources and focus only on coal and nuclear, as did Perry’s proposal.
While we can breathe a sigh of relief now that FERC has rejected Perry’s radical plan, threats remain. The good news is that FERC has demonstrated its ability to act independently from the Trump administration, and to consider facts and evidence in a more reasonable manner than that currently being displayed by other more politically influenced agencies.
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.