James Van Nostrand: Coal and nuclear folly

University of West Virginia

President Donald Trump recently ordered Energy Secretary Rick Perry to take “immediate steps” to stop the closure of coal and nuclear power plants. According to a draft memo that surfaced the same day, the administration is considering creation of a Strategic Electric Generation Reserve to purchase electricity from coal and nuclear plants for two years.

Both proposals, which have garnered little support, are premised on such power plants being essential to national security. If implemented, the government would be activating emergency powers rarely tapped before for any purpose.

Based on four decades of experience with utility regulation, I can see why these proposals have caused controversy, as they reflect a lack of unerstanding of the way utility markets work.

To be sure, our coal and nuclear industries are in trouble.

The share of U.S. power derived from coal has fallen from about one-half in 2000 to less than one-third in 2017. Despite Trump’s full-throated support for coal, roughly 12 gigawatts of additional coal-fired capacity is slated for retirement in 2018. According to the Sierra Club, 36 coal plants have been retired just since Trump was elected, and 30 more are headed in that direction.

The share of power generated by nuclear reactors has been holding steady since 2000. But it’s about to begin sliding.

More than 1 in 10 of the nation’s nuclear reactors are candidates for decommissioning by 2025. Only two large-scale replacement reactors are currently under construction, and they promise to cost far more than originally estimated.

But are experts worried about any electricity shortages or outages between now and 2025? No, as other alternatives — notably gas, wind and solar — are poised to keep filling the gaps.

When the Energy Department assessed whether the ongoing wave of coal and nuclear plant retirements threatened grid reliability, it found no cause for alarm.

Disregarding the findings of its own study, the agency then proceeded to ask the Federal Energy Regulatory Commission, an independent agency known as FERC, for permission to begin subsidizing coal and nuclear to help keep them in the mix. But it got a unanimous turndown.

PJM Interconnection, the nation’s biggest grid operator, maintains the nation’s power supply is in no jeopardy. Thus, there is no reason to take the proposed actions.

The North American Reliability Corporation, the federal entity responsible for power reliability, has reached a similar conclusion. There is no emergency justifying this unprecedented intrusion into the power market, thus forcing taxpayers to pay a premium to keep coal and nuclear plants online.

But the Trump administration appears to be arguing that a provision known as Section 202(c) of the Federal Power Act and the Defense Production Act grants the secretary of energy the power to nationalize parts of the power sector during wartime or amid other emergencies. It appears to me the sole rationale for this new policy is as a way for Trump to keep his campaign promise to revive the ailing coal industry.

The nation’s regional power markets operate much like an auction to cover the constantly changing, hour-by-hour demand for electricity. Procedures vary, but typically, electricity producers “bid” into the market based on what it costs them to operate and dispatch the lowest-cost power available.

In many cases, the power generated by coal and nuclear power plants sells at prices too low to pay for operating costs. So the federal government is looking for ways to put its thumb on the scale.

Shareholders of the energy companies owning money-losing coal and nuclear plants stand to gain. Shareholders in companies not owning such facilities stand to lose, as do ratepayers, from the household level on up.

As a longtime lawyer and law professor, I can attest that there is no clear legal rationale for this kind of policy. I’d be shocked if it didn’t result in a wave of challenges.


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