Few entities have expressed approval of the Trump administration’s plan that includes a directive for system operators to buy or arrange purchase of energy or capacity from designated “fuel secure” power plants for two years until the Department of Energy (DOE) can address “grid security” challenges.
The 41-page draft memo dated May 29—which was presumably authored by the DOE—defines “fuel-secure” capacity as a unit that has “many days or weeks of fuel available on site.” This includes coal, nuclear, hydropower, and certain kinds of liquid fuel or dual-fuel natural gas units.
But the balance has shifted away from “fuel secure” resources toward a growing dependence on pipeline-dependent units—units with “little or no onsite storage, which depend on ‘just-in-time’ supply chains”—and intermittent resources, such as wind and solar, the memo claims. While it acknowledges that “no single disruption effectively could compromise the whole generation fuel supply chain,” it claims that the loss of “fuel secure” electric generation resources is a tipping point.
On June 1, the day Bloomberg broke the news and published the memo—and the White House confirmed a directive to the DOE to stem impending retirements of fuel-secure power facilities—reactions from an assortment of energy, legal, and regulatory groups were rife with anger and fear. Industry groups pointed to the government’s “short-sighted,” “unnecessary,” and “inappropriate” federal intervention into well-functioning power markets, lambasting its claims that an energy emergency exists, and strongly condemning the plan’s likely long-wearing effects, which include higher energy costs for consumers, and uncertainty for new market entrants.
Coal, Nuclear See Gains in a Tough Fight
Among the plan’s backers, predictably, were groups that represent coal and nuclear generators. The American Coalition for Clean Coal Electricity (ACCCE)—an organization that represents the nation’s coal generation fleet, not the coal industry, as is commonly assumed—said it was “pleased” that the administration is taking steps to help ensure that the nation’s grid is resilient and reliable.
ACCCE President and CEO Paul Bailey, who in March acknowledged that a third of the coal fleet has retired or will be retired “for good reason,” said in a June 1 statement to POWER that the loss of fuel-secure generation, and especially coal plants, “pose an increasing threat to the power grid, as well as to national security.” The ACCCE will work with the administration and other policymakers on both “near-term and longer-term measures to ensure that the grid is not threatened by the loss of even more fuel-secure resources,” he said.
In a June 2 statement to POWER, Maria Korsnick, president and CEO of the Nuclear Energy Institute (NEI), also commended the administration for considering options available to retain the operation of the U.S. nuclear fleet as national security assets.
The draft memo claims that nuclear plants have been as “hard-hit” as coal generation. Between 2002 and 2016, 531 coal generating units, representing 59 GW of generation capacity, retired from the U.S. generating fleet. Since 1990, the U.S. has lost 15 nuclear generation units, it says, including 4.7 GW of nuclear capacity—4.7% of the U.S. total that went offline between 2013 to 2016.
The draft memo, however, is sprinkled with critical factual blanks that the DOE presumably intends to fill to support its claims. These include empty footnote citations attached to claims such as: “Analysts have predicted that as much as half of the remaining nuclear fleet is ‘under water’.”
Nuclear Is Buoyed by State and Now Federal Support
While the NEI did not comment on the specific economics of the nuclear fleet its members own, Korsnick noted that the nuclear industry group has “repeatedly warned of the need to stem the tide of the early retirement of nuclear units whose function is irreplaceable in a resilient and reliable grid.”
In April, Korsnick unveiled a four-prong strategy aimed at policymakers, seeking to provide a framework to help them understand the impact of their decisions to allow nuclear units to retire prematurely for economic reasons. The nuclear lobby has since made major gains.
On May 23, New Jersey’s Gov. Phil Murphy signed a bill that establishes a zero-emissions certificate (ZEC) program that will prop up PSEG’s Salem and Hope Creek nuclear plants. The state joins New York and Illinois, which passed laws subsidizing ailing nuclear facilities in 2016, and Connecticut, whose governor last year signed a bill allowing Dominion’s Millstone plant to participate in its clean energy procurement process. And last week, in a pivotal and underreported move, the U.S Department of Justice and the Federal Energy Regulatory Commission (FERC) backed Illinois’ nuclear subsidy program, arguing in an amicus brief that its ZECs—which would provide out-of-market payments for carbon-free nuclear power—does not preempt federal statute.
Still, for Korsnick, a key concern remains: “Once a nuclear power plant closes, it begins decommissioning and will not be reopened,” she said. “This finality is why it is critically important to preserve the fuel security offered by nuclear plants under threat of premature closure. This fuel security is an essential element of national security.” Korsnick noted that nuclear energy provides 20% of U.S. power. “Something must be done now to adequately value all that America’s nuclear power plants deliver,” she said.
Power Company Responses Trickle In
The Electric Power Supply Association—the group whose members include independent power producers (IPP), and which has fiercely opposed state intervention in wholesale markets—issued a statement on June 1, noting “economic consequences” will be profound for power suppliers and consumers. The group pointed out, in stark contrast to the NEI’s statement, that “This proposed federal action is a bell that cannot be called back once it is rung. Forever more suppliers and consumers will be at the whim of the fuel preferences of whoever happens to be in office.”
Among power companies that expressed approval of the Trump administration’s move was Akron, Ohio–headquartered FirstEnergy Corp.—a company whose bankrupt competitive arm FirstEnergy Solutions (FES) on March 29 filed an application with the DOE urging the agency to direct certain coal and nuclear generators in PJM Interconnection to buy or arrange for energy, capacity, and ancillary services to maintain grid reliability. FirstEnergy Corp. CEO Charles Jones told POWER in a June 5 statement that he continues to believe that baseload coal and nuclear help maintain system resiliency and national security while also playing an “irreplaceable role” in the regional economy. “The company has advocated for solutions that recognize the critical attributes coal and nuclear plants provide because preserving these vital facilities is the right thing to do for the industry, the electric grid and our customers. I am pleased that the federal government is also recognizing this issue,” he said.
FES, which has its own board of directors that is independent from FirstEnergy Corp.’s and makes the subsidiary’s decisions pertaining to plant closures, bankruptcy issues, and filing of the Section 202(c) request, told POWER in a separate statement on June 5 that it welcomed Trump’s “support and his recognition of the critical role that our plants play in the security and resilience of the nation’s electrical system.”
Don Moul, president of FES Generation Companies and Chief Nuclear Officer, added: “We look forward to reviewing Secretary Perry’s order when it is issued. While this marks an important first step, until timing and details of the order are clear, additional support at the state level will be necessary to protect the jobs in Ohio and Pennsylvania.”
NRG Energy, which has sought to remain competitive in power markets increasingly characterized by disruptions by accelerating its transition from a pure IPP model to a more simplified customer-driven integrated power model that favors its retail businesses, also reacted. On Monday, NRG spokesman David Gaier said: “NRG’s view remains unchanged—the organized, competitive power markets remain the best way to ensure reliability and resiliency of the grid while protecting the interests of ratepayers. There’s clearly no threat of crisis in the bulk power system and invoking the Defense Production Act for unprofitable generating plants will only harm consumers.”
‘Hypocrisy from the Left’
Over the weekend, a number of think-tanks and research groups also published their takes on the unprecedented measure in the name of national security.
In a blog post for non-profit public policy research organization R Street, Electricity Policy Manager Devin Hartman lambasted the effort as “nothing to do with national security and everything to do with political optics.” A key point Hartman stressed is that the draft memo admits the grid is reliable, but that reliability in the “conventional sense is not sufficient” as the grid must be resilient and secure. “Grid resilience has certainly become the topic du jour, and a flood of work on the topic has surfaced in the past year. But the administration’s rationale directly contradicts this body of evidence and its intervention has made economists’ fears come true,” he wrote.
Hartman argued—citing a May 2018 paper released by Rob Gramlich, Michael Goggin and Alison Silverstein (who was the technical lead of the DOE’s 2017 controversial study on grid reliability)—that the recent surge of distributed generation, especially behind the meter, has been pivotal for resiliency. The paper highlighted that more than 90% of service outages occur from distribution-level problems. “The study also examined the relative values of measures to improve grid resilience, finding that coal and nuclear subsidies have very low value, while over two dozen measures have far higher value. Read another way, if grid resilience is actually a matter of national security, the Trump administration is asleep at the wheel.”
Conservative think tank The Heritage Group in an op-ed in The Hill was even harsher: “The Department of Energy’s current scheme to subsidize coal and nuclear plants is yet another attempt to promote politically preferred energy technology under the guise of national security.” Rachel Zissimos, a policy analyst specializing in national security at the group, and Katie Tubb, a policy analyst for Heritage’s Roe Institute for Economic Policy Studies, added that the “national security card” gives politicians and special interests “a free pass from political debate and taxpayer oversight.” A more appropriate course of action “is to address the decades of bad federal policies that have put these plants in jeopardy,” they said.
Thomas J. Pyle, president of the Institute on Energy Research, expanded on that point, noting that “Government constantly intervenes and disrupts free markets in the energy sector. These interventions include renewable portfolio mandates, federal tax credits for wind and solar, state credit regimes for nuclear power plants, just to name a few.” He continued, “Before we think about more government interventions, I propose we reduce those government interventions that already distort and damage the market.”
Responding to the strong reaction from the renewables groups, Pyle noted it was “most entertaining” that “the outcry from the wind, solar and environmental special interest groups on this issue is a perfect example of the absolute hypocrisy from the left.
“They gladly accept government actions that favor wind, solar or other alternative sources, but complain when the government steps in to tip the scales towards reliable energy like coal and nuclear generation.”
—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)