By Rich Heidorn Jr.
The coal industry’s hopes were boosted in April when Energy Secretary Rick Perry called for a report on what he said were risks to grid reliability caused by the retirement of “baseload” coal power plants. Both coal supporters and opponents saw Perry’s April 14 memo as a means for President Trump to deliver on his promise to “save” the industry.
But the study released Wednesday didn’t support several of the premises Perry laid out, nor did it provide the unambiguous case for coal that partisans on both sides expected. (See related story, Perry Grid Study Seeks to Aid Coal, Nuclear Generation.)
The report came the day after the Associated Press reported that the Trump administration had rebuffed the industry’s request to declare an emergency that would have allowed Perry to keep threatened coal plants running. (See related story, Despite Promise to Save Coal, Trump Rebuffs Emergency Call.)
In a blog post Monday, National Mining Association spokesman Luke Popovich praised the report’s recommendations on valuing on-site fuel supplies and pressed for what he called a “more forceful, vigilant role for FERC in overseeing and managing the grid” as “constructive and necessary.” He acknowledged, however, that the recommendations “weren’t revolutionary or bold.”
Popovich also praised the call for changing EPA’s New Source Review rule on coal plants, which the report said “discourages rather than encourages installation of CO2 emission control equipment and investments in efficiency.”
But because implementing such a change would likely require amending the Clean Air Act — no small task — it is unlikely to provide relief any time soon.
“Hurricane Harvey will likely have a bigger impact on the energy grid than this vanilla report,” Popovich concluded.
Much is at stake. The Department of Energy said a net 36 GW of coal capacity retired between 2002 and 2016, about 12% of total coal capacity. Coal mining company Murray Energy says 24 coal fired plants are scheduled to close over the next year.
Ensuring a Place for Coal?
The best hope for the coal industry may be that FERC could adopt the report’s recommendation that it lean on RTOs to begin valuing on-site fuel storage as a measure of “resiliency.” At least one FERC commissioner, acting Chair Neil Chatterjee, has indicated he is receptive.
In a podcast interview posted Aug. 14, Chatterjee said one of his primary goals is supporting coal, the favored fuel in his home state of Kentucky — also the home of his former boss, Senate Majority Leader Mitch McConnell.
“Baseload power … including our existing coal and nuclear fleet, need to be properly compensated to recognize the value they provide to the system,” Chatterjee said, citing their value to “resilience and reliability.”
“I’m a Kentucky native,” he continued. “I’ve seen firsthand throughout my life how important a contribution coal makes to an affordable and reliable electric system. Last year, coal provided over 80% … of the electricity in Kentucky. As a nation, we need to ensure that coal, along with gas and renewables, continue to be part of our diverse fuel mix.”
Chatterjee, the acting chairman pending the confirmation of fellow Republican Kevin McIntyre, did not elaborate on how he intended to accomplish his goal in the interview.
His comments suggest the commission could be entering a new, more contentious environment. FERC policy until now has been — in the words of former Commissioner Philip Moeller — “fuel neutral but not reliability neutral.”
“Chatterjee comes out for coal and nukes specifically. [Fellow Republican Commissioner Robert] Powelson has been a great friend and promoter of gas. [Democratic nominee Richard] Glick could be called a renewables advocate,” observed one former senior FERC official who asked not to be named. “For the first time we could have FERC fuel wars.”
FERC did not immediately return a request for comment on Chatterjee’s remarks.
“All the fingers seem to be pointing, rightfully, at FERC,” Paul Bailey, CEO of the American Coalition for Clean Coal Electricity (ACCCE), told the Washington Examiner last week. “I think most people understand the need for speed; the question is whether this whole system with FERC and the grid operators, and technical conferences, are set up to move these things quickly.” Bailey declined an interview request from RTO Insider.
“I think it’s all going to come from what time frame FERC gives these grid operators,” Michelle Bloodworth, ACCE’s chief operating officer, told the Examiner. “If they kind of say, ‘well, OK, we’ll let you talk to your stakeholders,’ then I’d say they would take years.”
Bloodworth said the group hopes FERC will act as it did following the 2014 polar vortex, when it ordered grid operators to report within 90 days on their efforts to ensure generators have adequate fuel. (See NERC Optimistic on Winter Prep as FERC Seeks Assurances on Fuel.)
Facts Don’t Support Perry Thesis
The department’s 187-page report failed to support the claim in Perry’s memo that generation diversity has declined (it is actually more diverse than ever, the report said) or that renewable power was largely to blame for coal and nuclear plants’ financial problems (renewables were identified as a secondary factor, far less important than competition from cheap natural gas).
Nor did the report provide evidence that coal plant retirements have caused threats to grid reliability. It noted that NERC’s most recent State of Reliability report concluded “bulk power system reliability remained … adequate” in 2016, repeating the group’s findings from 2013–2015.
Perry’s contention that “baseload power is necessary to a well-functioning electric grid” was also undermined by the study, which quoted NERC CEO Gerry Cauley as saying “resource flexibility is needed to supplement and offset the variable characteristics of solar and wind generation.”
However, Cauley also noted the need for replacing “essential reliability services, such as frequency and voltage support, [and] ramping capability,” lost with the retirement of conventional generation.
In a blog post, John Moore, director of the Natural Resources Defenses Council’s Sustainable FERC Project, and NRDC attorney Miles Farmer said the study “grasps for any possible rationale to support outdated, expensive and highly polluting coal plants, but fundamentally fails to come up with concrete reasons to do so.”
“The report is disjointed, making misguided recommendations to relax environmental rules and saddle customers with extra costs that are largely unconnected to and unsupported by the report’s findings,” they said. “In short, while we believe customers should pay less and get cleaner energy, Trump and the coal industry want customers to pay more and get dirtier energy.”
Defining ‘Resilience’
The report continues attempts by coal and nuclear supporters to identify a new attribute — resilience — in addition to traditional measures of reliability. Where reliability is reflected in loss-of-load events — commonly seeking no more than one outage day every 10 years — resiliency refers to the ability to respond to supply disruptions caused by catastrophic weather or cyberattacks.
ACCCE said before the report that it hoped the department would “explain the distinction between reliability and resilience; call for resilience analysis and the establishment of uniform resilience criteria.”
“The DOE study should identify attributes that strengthen grid resilience (e.g., on-site fuel supplies, firm fuel contracts, and black start capability) and attributes that can diminish grid resilience (e.g., just-in-time fuel delivery, fuel storage disruptions, pipeline outages, interruptible fuel contracts and over-reliance on any one fuel type.)”
Supporters say coal should receive compensation for having 60 to 90 days of fuel at plant sites; operators of nuclear plants, which refuel every 18 to 24 months, have made similar claims. (See related story, Nuclear Industry Seeks PPAs, FERC, RTO Action After DOE Grid Study.)
Most natural gas generators, in contrast, have little storage on site and rely on just-in-time pipeline deliveries.
ACCCE said one-quarter of the natural gas burned by generators in the nation’s largest power pools in 2016 was delivered under interruptible contracts, which allow pipelines to cancel them with little or no notice. Interruptible gas use was highest in NYISO (61%) and ISO-NE (57%), the group said.
The American Gas Association, which represents distribution utilities, insists the gas transmission and distribution system is “inherently resilient” compared to other energy delivery systems.
“Natural gas systems are far more resilient in the face of extreme weather events because natural gas pipelines are predominantly underground and more protected from the elements,” AGA President Dave McCurdy said in response to the report last week. “Our natural gas infrastructure also has the advantage of built-in redundancy of interconnections for receipt and delivery of natural gas.”
The study noted that during the 2014 polar vortex, many natural gas-fired generators with non-firm gas contracts had their fuel supplies curtailed while others were unable to operate because the cold caused fuel to gel and some pipelines to freeze. But it also notes that “many coal plants could not operate due to conveyor belts and coal piles freezing.” Nuclear generators, it said, fared best during the cold spell, recording an average capacity factor of 95%.
Fuel Diversity not a Panacea
The American Petroleum Institute released a report in June that argued it is not fuel diversity, but the presence of “reliability attributes,” that policymakers should seek for the good of the grid. The study, done for API by The Brattle Group, concluded that gas-fired generation is “relatively advantaged” in all but one of the 12 attributes it identified, failing only on storage capability. (See NG Lobby Goes on Offensive vs Coal, Nukes.)
API said the report was not intended to pre-empt the DOE study but “to push back against” state policies that seek to maintain coal and nuclear plants “at any cost.”
In March, PJM issued a study concluding it could maintain adequate reliability with a generation fleet almost entirely composed of natural gas units, but that a capacity mix of more than 20% of solar would unacceptably increase the LOLE risk. (See PJM: Increased Gas Won’t Hurt Reliability, Too Much Solar Will.)
Nevertheless, in June, it issued a report proposing to allow nuclear and coal plants needed for reliability to set clearing prices based on their marginal costs. (See PJM Making Moves to Preserve Market Integrity.)
Despite Promise to Save Coal, Trump Rebuffs Emergency Call
On Aug. 4, coal magnate Robert Murray wrote an impassioned letter to a White House aide. Merchant generator FirstEnergy Solutions is “on the verge” of a bankruptcy filing that would force the company to immediately close its coal-fired generators, he wrote. “Their bankruptcy will force Murray Energy Corp. into immediate bankruptcy, promptly terminating our 6,500 coal mining jobs” and leaving the company unable to make $140 million in debt payments due between September and December.
In a later message, Murray said, “these bankruptcies would have a cascading effect which would decimate the states of Ohio, West Virginia and Pennsylvania, all of which voted overwhelmingly for President Trump.”
During the presidential campaign, Trump famously donned a miner’s helmet and promised to save the industry.
Nevertheless, the Associated Press reported Aug. 22, the Department of Energy rejected Murray’s plea that it use its emergency powers under the Federal Power Act to order a two-year moratorium on the closing of coal-fired generators.
The AP obtained letters in which Murray claimed Trump had promised to take the emergency action. The letters said Trump made his commitment in private conversations with executives from Murray and FES, one of the coal mining company’s biggest customers. The CEOs of mining companies Peabody Energy and Alliance Resource Partners also had called for an emergency declaration.
The White House declined to say whether Trump had promised to act, but a spokeswoman told the AP that the White House was helping the industry in other ways. “Whether through repealing the Clean Power Plan and the ‘Waters of the U.S. Rule,’ removing the U.S. from the Paris Climate Agreement, or signing legislation to overturn rules and policies designed to stop coal mining, President Trump continues to fight for miners every day,” she said. Trump also signed legislation in February reversing an Obama administration rule to protect streams from coal mining waste.
Section 202(c) of the Federal Power Act allows the energy secretary to order power plants to operate for reliability reasons during emergencies.
The section has been used infrequently, notably during the Western Energy Crisis in 2000 and after Hurricane Katrina in 2005.
But attorneys for Latham & Watkins observed that the Energy Department “has interpreted its potential application broadly,” defining as an emergency “an unexpected inadequate supply of electric energy” and “regulatory action which prohibits the use of certain electric power supply facilities.”
In April, the department invoked 202(c) as a so-called “reliability safety valve” to keep the Grand River Dam Authority’s Grand River Energy Center Unit 1 running despite its failure to meet the requirements of EPA’s Mercury and Air Toxics Standards (MATS). GRDA had planned to replace Unit 1 with power from MATS-compliant Units 2 and 3, but Unit 2 was idled by a lightning strike and construction on Unit 3 was delayed by flooding. The order authorized GRDA to operate Unit 1 as needed to provide reactive power support until replacement generation capacity is available around the Grand River.
In June, the department used 202(c) again to authorize Dominion Energy Virginia to operate Yorktown Units 1 and 2 when PJM determines they are needed for reliability. The order stems from Dominion’s difficulty in gaining approval for a 500-kV transmission line across the James River. (See DOE Approves Emergency Dispatch of Yorktown Units.)
The Energy Department’s grid study included use of the emergency declaration among the report’s recommendations for “further research.”
FirstEnergy: No Bankruptcy Decision Until Mid-2018
Last November, FirstEnergy announced its plan to exit competitive generation. (See FirstEnergy Wants out of Competitive Generation.)
But the company on Monday denied Murray’s claim that a bankruptcy filing for FES is imminent.
“Bankruptcy of FirstEnergy Solutions, the company’s competitive subsidiary that owns the power plants, is one of the possibilities under consideration, but no decisions have been made at this time,” said FirstEnergy spokeswoman Jennifer Young. “We have previously indicated we expect to complete the strategic review by mid-2018.”
She said the company’s “strategic review” is exploring options, including “the possible sale of some competitive gas and hydro assets; legislative efforts to move some competitive assets to regulated or regulated-like constructs; seeking a solution for nuclear units that recognizes their environmental benefits; the sale of other generating assets; or additional deactivations.”
