A draft memo circulated by the Trump administration before the National Security Council reportedly urges federal action to force grid operators to buy power from uneconomic coal and nuclear plants.
Bloomberg on May 31 pointed to the existence of the 41-page memo, which it said was dated May 29 and distributed Thursday. The memo reportedly outlines plans for a directive by the Department of Energy (DOE) under Section 202(c) of the Federal Power Act (FPA) to “direct the operators to purchase electricity or electric generation capacity from at-risk facilities,” the news outlet said. It is unclear for whom the memo was drafted, or when the plan it reportedly outlines will be implemented. POWER has reached out to the DOE for comment.
An Extraordinary Emergency
Section 202(c) gives the energy secretary extraordinary authority to order temporary connections of facilities and generation, delivery, interchange, or transmission of power to mitigate a power emergency, such as a shortage. But the DOE has only issued emergency orders under the FPA at least seven times before—mostly during active energy crises, such as in California in 2000; in Long Island in 2002; during the well-known Northeast blackout of August 2003; and during Hurricanes Rita and Ike in 2005 and 2008. Last April, however, the DOE issued a first-of-its-kind emergency order to keep open a plant slated for shutdown under the Mercury and Air Toxics Standards and secure reliability in Oklahoma.
On March 29, FirstEnergy Corp.’s bankrupt competitive arm FirstEnergy Solutions (FES) filed an application with the DOE urging the agency to “find that an emergency condition exists” in PJM Interconnection’s footprint that requires immediate intervention by the energy secretary in the form of a Section 202 (c) order. The order should direct “certain existing nuclear and coal-fired generators in PJM … to enter into contracts and all necessary arrangements with PJM, on a plant-by-plant basis, to generate, deliver, interchange, and transmit electric energy, capacity, and ancillary services as needed to maintain the stability of the electric grid,” it said.
While the DOE hasn’t publicly rejected the application, it continues to seek ways to keep uneconomic baseload generation from retiring. In September 2017, the agency proposed its “Grid Resiliency Pricing Rule,” directing the Federal Energy Regulatory Commission (FERC)—an independent regulatory government agency that is officially organized as part of the DOE—to exercise its authority under sections 205 and 206 of the FPA and require that independent system operators (ISOs) and regional transmission organizations (RTOs) “establish just and reasonable rates for wholesale electricity sales” for power plants that show “reliability and resiliency attributes.” FERC rejected the DOE’s rule on January 8, however, initiating instead a new proceeding that will examine the resilience of the bulk power system.
A More Recent Tactic: The Defense Production Act
This past April, meanwhile, coal and nuclear generators who were supportive of the DOE’s controversial proposal called on the Trump administration to use a Cold War-era law—the Defense Production Act—to subsidize uneconomic baseload plants to secure grid security. The 68-year-law passed by Congress during the Korean War has historically been reserved for use during military operations and major national emergencies, such as the California gas crisis. Energy Secretary Rick Perry told the House Committee on Science, Space and Technology on May 9 that the DOE is “looking very closely at” the law as a way to secure the nation’s energy grid.
“That’s approaching this from an economic standpoint and I think … it’s about the national security of our country, of keeping our plants, all of them, online, being able to deliver energy” in an emergency, he told the committee.
But that measure, too, was heavily criticized. On May 10, a bilateral and bipartisan coalition of American industry associations submitted a legal analysis to the DOE stressing that the Defense Production Act does not contain authority to provide above-market pricing to power plants. The trade groups—which include the Advanced Energy Economy, the American Petroleum Institute, the American Wind Energy Association, the Electric Power Supply Association, the Interstate Natural Gas Association of America, and the Natural Gas Supply Association—also urged the DOE to reject FES’s petition under Section 202(c) and noted that Section 215A of the FPA authorizes only temporary measures in response to grid security emergencies.
David Spence, an energy law professor at the University of Texas at Austin, told the WashingtonPost in early May: “One can’t really use this wartime authority to subsidize coal and nuclear with a straight face. And I say that as someone who believes that keeping nuclear power plants open is good policy.”
A Federal Fog
Where FERC stands on the issue of propping up uneconomic baseload power plants for reliability is also murky. The regulatory body has traditionally opposed intervention in wholesale markets. In January, as it rejected the DOE’s grid pricing rule, it said it has taken steps with regard to reliability and other matters that have helped to address the resilience of the bulk power system. However, it added: “The Commission recognizes that it must remain vigilant with respect to resilience challenges, because affordable and reliable electricity is vital to the country’s economic and national security.”
On Tuesday, in a move that surprised industry observers, FERC told the U.S. 7th Circuit Court of Appeals that Illinois’ nuclear subsidy program does not preempt federal statute, siding with the state and Exelon Corp. in a contentious legal fight that has divided the power sector.
According to Bloomberg, the memo makes a case for action, arguing that a lapse in reliability would affect national security, and federal intervention is necessary. Under the plan, the DOE would reportedly direct grid operators to buy power from designated facilities for two years “to forestall any future actions toward retirement, decommissioning or deactivation,” the news outlet reported. The planned action will serve as a “prudent stop-gap measure” while the DOE addresses the nation’s “grid security challenges” in a two-year-long study.
—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)
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