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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The Trump administration's controversial plan to keep uneconomic coal and nuclear power plants running is unnecessary, unprecedented, possibly illegal, and could drive utility bills up by billions of dollars per year. Or it could be the far-sighted policy breakthrough that preserves U.S. energy security and national security, while keeping the lights on and the air conditioners humming during the next two summers.
A lot could depend on whether there are power emergencies this summer--and whether you work for coal or nuclear interests, or oil, natural gas, renewable energy or environmental organizations.
The energy industry has been split following a leaked internal document, first reported May 31 in Bloomberg, that indicated the Trump administration was considering never-before-used powers to keep uneconomic coal and nuclear power plants open. Under the plan, the federal government could intervene in electricity markets and force grid operators and utilities to purchase electricity from coal and nuclear power plants that are unable to compete with gas, wind and solar plants.
The 41-page draft document, dated May 29, proposed invoking Section 202 of the Federal Power Act (FPA), as well as a section of a Cold War-era law, the Defense Production Act of 1950 (DPA), to force grid organizations and utilities to purchase power from uneconomic coal and nuclear plants, because those plants are an essential part of the energy infrastructure that is vital to U.S. national security.
Section 202 of the FPA allows the federal government to keep certain power plants open for brief periods of time during natural disasters. The DPA was used by President Harry Truman to impose price controls on the steel industry during the Korean War. President Truman claimed rising steel prices were hampering the nation's ability to fight the war.
If adopted, the plan would direct grid operators to buy power from coal and nuclear plants for two years to ensure grid reliability, promote the national defense and maximize domestic energy supplies, according to news reports. During that two-year period, a study would be conducted to determine the role that power plants with secure, 90-day onsite supplies of fuel play in keeping the electric grid reliable and resilient. Typically, coal and nuclear plants are the only type of generators that have that much fuel onsite.
In a June 1 statement, the White House said the proposal is based on the president's belief that "keeping America's energy grid and infrastructure strong and secure protects our national security, public safety, and economy from intentional attacks and natural disasters. ... Impending retirements of fuel-secure power facilities are leading to a rapid depletion of a critical part of our nation's energy mix and impacting the resilience of our power grid."
The PJM Interconnection (Valley Forge, Pennsylvania), the nation's largest grid operator, said its market is operating efficiently, and there is no need for federal government intervention. "There is no need for any such drastic action," PJM tweeted shortly after the Bloomberg report. "Any federal intervention in the market to order customers to buy electricity from specific power plants would be damaging to the markets and therefore costly to consumers." PJM manages a grid system delivering electricity to about 65 million customers in 13 states and the District of Columbia.
"Our analysis of the recently announced planned deactivations of certain nuclear plants has determined that there is no immediate threat to system reliability," the group continued.
PJM added its most recent auction results saw an increase in the amount of coal resources that cleared the market, along with a diverse mix of natural gas generation, nuclear generation, renewable resources, demand response and energy efficiency. "The PJM electrical grid is more reliable than ever, with 23% reserve margins and billions of dollars of new investment. All of this is occurring while emissions are decreasing and wholesale prices are at historic lows."
The Federal Energy Regulatory Commission (FERC), an independent branch within the U.S. Department of Energy (DoE) (Washington, D.C.), earlier this year unanimously rejected an earlier plan by the administration to keep these plants open. FERC has jurisdiction over wholesale electricity markets. For more on that, see January 9, 2018, article - FERC Rejects Awarding Subsidies to Coal and Nuclear Units.
A variety of interests have lined up with PJM, including oil and gas companies, competitive generators, renewable energy companies, economists and environmental organizations. The owners of some uneconomic coal plants, including the Navajo Generating Station, a 2,250-megawatt (MW), coal-fired plant near the Grand Canyon, are similarly nonplussed by the Trump proposal. The plant's owners voted to close the plant by yearend 2019 because it was uneconomic with other forms of electric generation. For more on that, see April 3, 2017, article - Coal-Fired Power Takes Another Hit as Owners Decide to Close Navajo Generating Station. When contacted late last week about the Trump proposal, a spokesman for Salt River Project (SRP), the plant's operator, was unable to comment.
On the other side, Trump's proposed rescue is supported by Murray Energy Corporation (St. Clairsville, Ohio), a coal company with close ties to President Trump, mining and nuclear power groups and a few coal-burning utilities. The most prominent of those utilities in FirstEnergy Corporation (NYSE:FE) (Akron, Ohio) and its subsidiary FirstEnergy Solutions (FES) (Akron, Ohio), which is one of Murray Energy's largest customers. Citing the financial burden of uneconomic coal and nuclear plants, FES filed for Chapter 11 bankruptcy protection March 31. For more on that, see April 6, 2018, article - Investors Yawn after FirstEnergy Unit Files Chapter 11, Plans to Close Four Nuclear Units.
In a statement, the National Mining Association (NMA) (Washington, D.C.), said this: "We are supportive of action that values the important role that coal plays in powering our country. Without action, we may pass a reliability and resiliency crisis point of no return. We need a plan to preserve the reliable, affordable energy that continues to slip away each day, and it is encouraging that this administration is taking the issue seriously."
Contacted by Industrial Info, a spokesperson for FirstEnergy said, "We've not yet seen any official plans or details, so I can't speculate on how any action from Washington might impact" one of their coal-fired power plants slated for closure.
The Nuclear Energy Institute (NEI) (Washington, D.C.) commended the Trump administration plans. In a June 7 statement, NEI President and Chief Executive Officer Maria Korsnick welcomed the administration for considering options available to recognize U.S. nuclear power plants as national security assets and retain their operation.
Chris Crane, chief executive at Exelon (NYSE:EXC) (Chicago, Illinois), the nation's largest operator of nuclear units, seems to want to have it both ways. In the NEI's June 7 statement, Crane seemed to praise the administration's efforts, saying, "We have an administration that we greatly appreciate now that recognizes that this is an under-analyzed situation. And if we don't focus on resiliency and national security, we can end up in a very dire situation." The "this" the administration recognizes, Crane said, is "to make sure the units are adequately compensated but the resiliency review from the unintended consequences of driving plants out of the stack that we need for reliability."
However, Crane later appeared to back away from the administration's embrace of emergency powers to compel grid operators and utilities to buy power from uneconomic power plants. "We would much prefer a market fix that is based off of a design basis that says, 'Here's your vulnerability and here's what plants should be compensated at,' " Crane told industry news organization Utility Dive.
Crane said he "appreciates the administration's focus," but Exelon has not lobbied the federal government for such action. "Not emergency action," Crane said of Exelon's policy focus. "We've been pushing for more market design support from DOE and through the markets. It's hard to declare an emergency in PJM when you have a high (22%) reserve margin," he said.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
A lot could depend on whether there are power emergencies this summer--and whether you work for coal or nuclear interests, or oil, natural gas, renewable energy or environmental organizations.
The energy industry has been split following a leaked internal document, first reported May 31 in Bloomberg, that indicated the Trump administration was considering never-before-used powers to keep uneconomic coal and nuclear power plants open. Under the plan, the federal government could intervene in electricity markets and force grid operators and utilities to purchase electricity from coal and nuclear power plants that are unable to compete with gas, wind and solar plants.
The 41-page draft document, dated May 29, proposed invoking Section 202 of the Federal Power Act (FPA), as well as a section of a Cold War-era law, the Defense Production Act of 1950 (DPA), to force grid organizations and utilities to purchase power from uneconomic coal and nuclear plants, because those plants are an essential part of the energy infrastructure that is vital to U.S. national security.
Section 202 of the FPA allows the federal government to keep certain power plants open for brief periods of time during natural disasters. The DPA was used by President Harry Truman to impose price controls on the steel industry during the Korean War. President Truman claimed rising steel prices were hampering the nation's ability to fight the war.
If adopted, the plan would direct grid operators to buy power from coal and nuclear plants for two years to ensure grid reliability, promote the national defense and maximize domestic energy supplies, according to news reports. During that two-year period, a study would be conducted to determine the role that power plants with secure, 90-day onsite supplies of fuel play in keeping the electric grid reliable and resilient. Typically, coal and nuclear plants are the only type of generators that have that much fuel onsite.
In a June 1 statement, the White House said the proposal is based on the president's belief that "keeping America's energy grid and infrastructure strong and secure protects our national security, public safety, and economy from intentional attacks and natural disasters. ... Impending retirements of fuel-secure power facilities are leading to a rapid depletion of a critical part of our nation's energy mix and impacting the resilience of our power grid."
The PJM Interconnection (Valley Forge, Pennsylvania), the nation's largest grid operator, said its market is operating efficiently, and there is no need for federal government intervention. "There is no need for any such drastic action," PJM tweeted shortly after the Bloomberg report. "Any federal intervention in the market to order customers to buy electricity from specific power plants would be damaging to the markets and therefore costly to consumers." PJM manages a grid system delivering electricity to about 65 million customers in 13 states and the District of Columbia.
"Our analysis of the recently announced planned deactivations of certain nuclear plants has determined that there is no immediate threat to system reliability," the group continued.
PJM added its most recent auction results saw an increase in the amount of coal resources that cleared the market, along with a diverse mix of natural gas generation, nuclear generation, renewable resources, demand response and energy efficiency. "The PJM electrical grid is more reliable than ever, with 23% reserve margins and billions of dollars of new investment. All of this is occurring while emissions are decreasing and wholesale prices are at historic lows."
The Federal Energy Regulatory Commission (FERC), an independent branch within the U.S. Department of Energy (DoE) (Washington, D.C.), earlier this year unanimously rejected an earlier plan by the administration to keep these plants open. FERC has jurisdiction over wholesale electricity markets. For more on that, see January 9, 2018, article - FERC Rejects Awarding Subsidies to Coal and Nuclear Units.
A variety of interests have lined up with PJM, including oil and gas companies, competitive generators, renewable energy companies, economists and environmental organizations. The owners of some uneconomic coal plants, including the Navajo Generating Station, a 2,250-megawatt (MW), coal-fired plant near the Grand Canyon, are similarly nonplussed by the Trump proposal. The plant's owners voted to close the plant by yearend 2019 because it was uneconomic with other forms of electric generation. For more on that, see April 3, 2017, article - Coal-Fired Power Takes Another Hit as Owners Decide to Close Navajo Generating Station. When contacted late last week about the Trump proposal, a spokesman for Salt River Project (SRP), the plant's operator, was unable to comment.
On the other side, Trump's proposed rescue is supported by Murray Energy Corporation (St. Clairsville, Ohio), a coal company with close ties to President Trump, mining and nuclear power groups and a few coal-burning utilities. The most prominent of those utilities in FirstEnergy Corporation (NYSE:FE) (Akron, Ohio) and its subsidiary FirstEnergy Solutions (FES) (Akron, Ohio), which is one of Murray Energy's largest customers. Citing the financial burden of uneconomic coal and nuclear plants, FES filed for Chapter 11 bankruptcy protection March 31. For more on that, see April 6, 2018, article - Investors Yawn after FirstEnergy Unit Files Chapter 11, Plans to Close Four Nuclear Units.
In a statement, the National Mining Association (NMA) (Washington, D.C.), said this: "We are supportive of action that values the important role that coal plays in powering our country. Without action, we may pass a reliability and resiliency crisis point of no return. We need a plan to preserve the reliable, affordable energy that continues to slip away each day, and it is encouraging that this administration is taking the issue seriously."
Contacted by Industrial Info, a spokesperson for FirstEnergy said, "We've not yet seen any official plans or details, so I can't speculate on how any action from Washington might impact" one of their coal-fired power plants slated for closure.
The Nuclear Energy Institute (NEI) (Washington, D.C.) commended the Trump administration plans. In a June 7 statement, NEI President and Chief Executive Officer Maria Korsnick welcomed the administration for considering options available to recognize U.S. nuclear power plants as national security assets and retain their operation.
Chris Crane, chief executive at Exelon (NYSE:EXC) (Chicago, Illinois), the nation's largest operator of nuclear units, seems to want to have it both ways. In the NEI's June 7 statement, Crane seemed to praise the administration's efforts, saying, "We have an administration that we greatly appreciate now that recognizes that this is an under-analyzed situation. And if we don't focus on resiliency and national security, we can end up in a very dire situation." The "this" the administration recognizes, Crane said, is "to make sure the units are adequately compensated but the resiliency review from the unintended consequences of driving plants out of the stack that we need for reliability."
However, Crane later appeared to back away from the administration's embrace of emergency powers to compel grid operators and utilities to buy power from uneconomic power plants. "We would much prefer a market fix that is based off of a design basis that says, 'Here's your vulnerability and here's what plants should be compensated at,' " Crane told industry news organization Utility Dive.
Crane said he "appreciates the administration's focus," but Exelon has not lobbied the federal government for such action. "Not emergency action," Crane said of Exelon's policy focus. "We've been pushing for more market design support from DOE and through the markets. It's hard to declare an emergency in PJM when you have a high (22%) reserve margin," he said.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
