Halting coal and nuclear retirements

Author: Keith Martin Publication | June 5, 2018

Coal and nuclear power plant retirements may be halted for two years under an order that the US Department of Energy appears to be moving closer to issuing.

A 40-page memo that the department sent the National Security Council on May 31 ahead of a meeting leaked immediately, despite a header warning that that memo was “privileged and confidential,” subject to “attorney-client privilege” and “not for further distribution.” The National Security Council is a committee of cabinet secretaries and other top administration officials involved in defense and foreign policy issues that is supported by a White House staff. The group meets at the White House.

According to the memo, the Department of Energy is considering ordering US grid operators to buy electricity or capacity from a list of designated coal, nuclear and some oil-fired power plants for the next 24 months at high enough prices to dissuade the owners of the power plants from retiring them.

The memo calls these “fuel-secure” power plants.

It says the step is needed because the shift to more gas-fired power generation makes the United States “increasingly dependent on natural gas pipelines, which represent a major point of vulnerability . . . due to the limits of protection available to thousands of miles of pipeline networks.”

The memo suggests that owners of coal and nuclear plants outside organized markets would be ordered to continue operating “according to their existing or recent contractual arrangements” with utilities. It also suggests the Department of Energy is setting up a “strategic electric generation reserve,” but provides no details about what it is or how it would work.

The memo has the feel of an effort to justify a result that the US President promised to coal miners during the 2016 election campaign rather than an honest effort to deal with the problem of security of the power grid.

The basic flaw in the argument is that if gas-fired power plants are vulnerable and coal and nuclear are secure because they can store large amounts of fuel, then why are not wind and solar even more secure because wind and sunlight do not need to be stored and cannot be blocked. If vulnerability of fuel or electricity supply were truly the issue, then should the government not also be considering adding storage, creating redundancy through micro-grids and promoting distributed generation? There is no suggestion in the memo that these topics were even considered.

US agencies are already in the process of making an inventory of critical infrastructure as a consequence of a FAST Act (Fixing America’s Surface Transportation Act) that was enacted during the Obama administration in 2015. The memo says the Department of Energy needs another two years to complete the analysis the FAST Act requires of it. The orders are a “temporary stop-gap measure to prevent further permanent loss of the fuel-secure electric generation capacity” until it can complete the analysis.

The White House press office released a statement on June 1 that the President “has directed Secretary of Energy Rick Perry to prepare immediate steps to stop the loss of these resources.”

Perry proposes to use a 1950 statute called the Defense Production Act enacted to help the country mobilize for the Korean War and also section 202(c) of the Federal Power Act as possible legal bases for the orders.

The Defense Production Act authorizes the federal government to require businesses to sign contracts or fulfill orders that it considers necessary for national defense. The 1950 law also gave the president the ability to requisition or redirect resources and services where they would be best deployed to support the war effort, impose wage and price controls, settle labor disputes, and limit consumer and real estate demands on financial resources that were needed for the war effort. The law was used in the 1980s as a basis for the Department of Defense to provide seed money to support development of various new technologies and materials and was reportedly invoked in 2011 to force telecoms companies to share details about some equipment with the government.

Section 202(c) of the Federal Power Act gives the Department of Energy authority to act after a sudden increase in demand for electricity or shortage of generating or transmission facilities. The department is authorized to issue orders requiring “temporary connections of facilities and such generation, delivery, interchange or transmission of electric energy” as in the department’s judgment “best meet the emergency and serve the public interest.”

It is not clear to what extent any orders might bog down in the courts. In January, the Federal Energy Regulatory Commission unanimously rejected a proposal by the US energy secretary to order grid operators effectively to dispatch coal and nuclear power plants that maintain at least a 90-day onsite fuel supply ahead of other generators at high enough prices to keep them in business. FERC instead launched a review of US grid resiliency that is still in process. PJM Interconnection, which operates parts of the US electricity grid from the mid-Atlantic states as far west as Illinois, rejected the notion that there is a problem with grid resiliency and said there is no emergency.

The move to justify administration actions from supporting coal to imposing blanket tariffs on steel and aluminum imports and possibly also autos, including against longstanding US allies like Canada, Mexico and the European Union, on national security grounds could have broader implications. For example, CFIUS, an interagency committee, reviews proposed foreign takeovers of US companies for potential harm to US national security. A broadening of what is considered a US national security interest and consistent application by the administration could affect inbound investment.


Contacts

Keith Martin

Keith Martin

Washington, DC