October 16, 2018 by Gillian Giannetti, Staff Attorney
Recent media reports suggest that the White House has tabled its plan to bail out costly coal and nuclear plants. While this would be an encouraging development for consumers and the nation’s energy markets, it is far too soon to let down our guard.
This is already round three in this saga. In April 2017, Department of Energy (DOE) Secretary Rick Perry called for the agency to study grid resilience and reliability, only to have the study show that the grid has become more reliable in the last 15 years notwithstanding coal and nuclear retirements. Then in January 2018, the Federal Energy Regulatory Commission (FERC) unanimously rejected a DOE proposal to subsidize so-called “fuel secure” resources. FERC’s rejection led to FirstEnergy Solutions’ (FES) desperate and illegal plea for payments to keep its uneconomic plants afloat, which led to DOE’s leaked memo supporting a potentially even broader proposal. So, while welcome news, these latest reports will not calm the fire. They will almost certainly embolden bailout proponents to place even more pressure on an administration that’s prone to change its mind.
Here’s why it shouldn’t.
A bailout would cost consumers billions…
Cost estimates for a bailout vary due to what it could entail, but everyone agrees that it would cost taxpayers and utility consumers billions of dollars. A pro-coal trade group pegged the bailout at $4 billion a year. Brattle Group estimated it could cost consumers between $9.7 and $17.2 billion annually. DOE’s leaked memo proposed a bailout of two years, putting the estimated cost at up to $35 billion total, roughly equal to the entire budget for the state of New Jersey. Brattle further estimated that if power plant owners were granted a profit in addition to payments for their operating losses, the bailout could cost as much as $70 billion, or approximately the same cost as the damage caused by Superstorm Sandy.
… without any resilience and reliability benefits…
To justify the exorbitant expense, bailout proponents typically point to coal and nuclear facilities’ on-site fuel reserves as evidence of their resilience and reliability. As we’ve noted before, fuel supply isn’t an indicator of resilience and reliability, because it isn’t the cause of the problem: fuel supply outages account for only .00007 percent of lost customer electric service hours.
What causes outages is severe weather, which mostly affects local power lines. But when storms affect power plants, Mother Nature is fuel-neutral. For example, during Hurricane Florence, Duke Energy shut down two of its nuclear reactors on September 13 and, due to heavy flooding, had to wait until September 20 to begin its substantive restoration activities. Heavy rain also led to the release of over 2,000 cubic yards of coal ash. The storm also affected 1 gigawatt (GW) of solar power. While crews were able to get most of it back up and running within a couple days, flooding also slowed these repairs.
Storms damage electricity grids. Period.
Since having an on-site fuel supply doesn’t stop outages, we should instead focus on things that do. There are many simpler and cheaper actions that would improve reliability and the customer experience – including actions as straightforward as more tree-trimming along local power lines.
Further, many of the targeted plants are simply unnecessary. This month, PJM – the nation’s largest grid operator – concluded that FES can safely close its remaining coal-fired power plants in Ohio and Pennsylvania without hurting the grid’s reliability. This is in addition to FES’s nuclear plant closures, which PJM determined in April also wouldn’t affect the grid’s reliability. This is because there is already an abundance of capacity in the region. PJM’s reserve (or excess power) margin is 29.1 percent, which is nearly twice its target margin of 16.1 percent.
… or national security benefits…
Proponents also argue that a bailout of uneconomic coal and nuclear plants would protect the grid against national security threats. This is largely a gambit to garner political support, and the national security voices challenging this narrative continue to mount. For example, former Secretary of the Navy Ray Mabus wrote in late August that the causes of power outages on military bases are the same as the ones for the civilian grid; notably, fuel supply does not cause military outages. As such, the same customer-focused solutions that would improve the civilian grid would enhance the resilience and reliability of the military grid.
Vice Admiral Dennis McGinn (USN, Ret.) added in September that a bailout might actually hurt national security by diverting funds that could be used to pay for the $100 billion in equipment maintenance and repairs required on military electricity infrastructure. Telecommunications expert Dr. Roslyn Layton further outlined that a bailout could lead to “disastrous” cybersecurity consequences by failing to follow industry threat prevention best practices.
… and we have no time or money to waste.
As noted by the recent Intergovernmental Panel on Climate Change report, we are facing a monumental climate crisis. The time is now to invest in innovative solutions to limit greenhouse gas emissions, as well as to finance system improvements and regulatory policies that encourage the adoption of renewable fuel sources. This includes policies that help to fully integrate distributed (locally generated) energy resources, like rooftop solar, into the electric grid. Policies that seek to prop up old and uneconomic (and, in the case of coal, massively polluting) facilities do nothing to help us achieve our imminent climate objectives.
So while it’s welcome news that the administration may be abandoning its bailout plans, this is not a time to rest. Instead, now is the time to reengage and, to quote former FERC Commissioner Pat Wood, get back to “real things that matter.”