Breaking Down the Opposition to DOE’s Emergency Coal and Nuclear Bailout Plan
Why DOE’s unprecedented energy market intervention is facing unprecedented pushback — and what opponents could do to stop it.
Jeff St. John
June 01, 2018
Opponents say the plan threatens to undermine the very foundation of competitive markets.
It’s hard to overstate how negative the reactions have been to Friday’s news that the Trump Administration is directing the Energy Department to find ways to force Americans to buy power from failing coal and nuclear plants in the name of national security.
But in the face of this unprecedented plan being revealed in a leaked document — and the White House confirming Trump’s order to direct Energy Secretary Rick Perry to “prepare immediate steps to stop the loss of these resources” — it’s worth compiling the long list of evidence on why it’s a bad idea, and what opponents are doing to try to stop it.
We’ve covered the fundamentals of the leaked memo, which refers to an as-yet unseen order. That order would exercise DOE's authority under the Defense Production Act of 1950 and the Federal Power Act to direct system operators “to purchase or arrange the purchase of electric energy or electric generation capacity from a designated list of Subject Generation Facilities (SGFs).”
While this list of SGFs appears nowhere in the document, it’s clearly linked to what the DOE and White House are now calling “fuel-secure facilities.” These are the same nuclear and coal-fired power plants with 90 days of fuel on-site that DOE singled out in its failed attempt to get the Federal Energy Regulatory Commission to change its regulations to provide them out-of-market payments.
And while the leaked document doesn’t lay out any data on the costs of this proposed market intervention, DOE’s original proposal to FERC could have added as much as $11 billion per year in additional costs to energy consumers, according to an analysis by Energy Innovation and the Climate Policy Initiative.
And of those payments, more than 80 percent of the coal subsidies would go to just five companies — NRG, Dynegy, AEP, Talen Energy, and most notably, FirstEnergy, the company that originally asked DOE for an emergency intervention shortly before declaring bankruptcy for its coal and nuclear generation business in March.
“The Trump administration would have customers shoulder billions of dollars in costs to support a withering industry that has failed to remain competitive with the abundance of new natural gas, cheap renewable resources, flat demand growth, and growing energy efficiency,” Robbie Orvis, policy director at Energy Innovation, wrote in a Friday statement. “What’s being discussed here is disgraceful and threatens to undermine the very foundation of competitive electricity markets.”
A blow to market certainty and investor confidence
If anything, the policies laid out in the leaked memo could lead to even larger costs passed on to consumers, Gregory Wetstone, CEO of American Council on Renewable Energy (ACORE), said in a Friday interview. DOE’s NOPR would only have applied to power plants within the territory of independent system operators (ISOs) and regional transmission organizations (RTOs).
But the new directive would allow power plants on the SGF list outside of RTO/ISO territories to continue operating under existing arrangements with load-serving entities, which means “we could be looking at a measure that has an impact on electricity prices for all Americans,” he said. Of course, without the SGF list referred to in the leaked memo, those impacts are impossible to calculate at present, he said.
“It becomes almost reminiscent of how investors might view an unstable country, where they’re concerned about the government intervening, and not having a marketplace with integrity. The repercussions from that are going to be very negative toward reliability and resilience. You need those investments to keep modernizing the grid.”
Still no proof that closing power plants = national emergency
As for the purported threat to national security caused by closing coal and nuclear plants, those arguments from DOE have been undermined by evidence from its own grid reliability study released last year, as well as by grid operators across the country. The vast majority of grid outages are caused at the distribution and transmission grid network, and almost none are caused by lack of fuel supplies. And coal-fired power plants are subject to the same weather-related outages, such as frozen or flooded fuel piles, that cause problems for natural gas delivery.
Mid-Atlantic grid operator PJM, home to most of the power plants that would be guaranteed payments under the plan, took the unusual step of issuing a statement on DOE’s potential “market intervention,” even though it had not received any notification from DOE about it.
PJM’s statement laid out its studies that show no threat to grid reliability from coal and nuclear closures, and the fact that its current market regime has led to wholesale prices falling 40 percent from 2008 to 2017. It also noted that it’s following FERC’s directive, along with all other ISOs and RTOs, to examine and enhance its own system’s resilience to storms, cyberattacks and other grid disruptions.
PJM also noted that in its most recent capacity auction, coal power plants actually increased their participation, “along with a diverse mix of natural gas generation, nuclear generation, renewable resources, demand response and energy efficiency,” all while keeping reserve margins at 23 percent, far above what’s required to provide assurance of reliable power in times of grid stress.
The legal challenges to come
As to DOE’s legal power to circumvent traditional energy market policy-making, that’s under attack by the attorneys general of Massachusetts, Connecticut, Illinois, Maryland, North Carolina, Oregon, Rhode Island, Virginia, Washington, and the District of Columbia.
In a May objection to FirstEnergy’s emergency bailout request, they wrote that “FirstEnergy fails to identify any ‘emergency,’” making the requested section 202(c) order unlawful. It would also “undermine competitive regional power markets, burden customers with excessive costs, undercut state energy laws and policies, and exacerbate pollution and public health harms.”
The challenge with DOE’s new directive is that it combines three laws in a novel way to assert its authority, Ari Peskoe, director of the Electricity Law Initiative at Harvard University, said. Those laws are the Defense Production Act, the Federal Power Act, and the “Fixing Americas Surface Transportation,” or FAST Act of 2015, which included law on designating critical infrastructure for the power sector that has become part of the FPA.
“Implicitly, DOE concedes there’s no single law that allows it to do what it wants to do,” Peskoe said. “There’s no law on the books that allows DOE to bail out specific plants for economic reasons,” so “they’re truing to cobble together these provisions.” But because the legal justification has not been tested in court, it’s hard to say how a legal challenge in federal court would be adjudicated, he said.
Complicating matters for those seeking to sue to stop any DOE plan that emerges is its temporary nature, he said. DOE is seeking to impose its contracts for 24 months as a stop-gap measure, the memo noted. To stop them, opponents would have to convince a judge to issue a stay to prevent whatever contracts are called for from being put in place, and “that’s not something courts are willing to grant often,” he said.
The other venue for opponents is at FERC, which will need to be involved in DOE’s proposal to force ISOs and RTOs to “purchase or arrange the purchase” of energy from its listed power plants to assure they stay open.
“We don’t know what FERC’s role in this is going to be,” since DOE’s underling order has not been made public, he said. But “there’s no doubt that these contracts will be for wholesale power, and that comes under FERC’s jurisdiction. What is that process going to look like at FERC? That’s one line of attack for opponents of this.”
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