Energy and Environment Monitor

DOE to Order Procurement of Power from Coal and Nuclear Facilities for 2 Years to Prevent Immediate Shutdowns

June 11, 2018

By: Robert G. McLusky

Section 202(c) of the Federal Power Act [16 USC §824a(c)[1] allows the Department of Energy to determine that an emergency exists by reason of sudden increases in demand for electricity, a shortage of electric energy, of generation facility or of fuel; “or other causes.” After making that determination, DOE can require temporary connections with such generation as will best “meet the emergency and serve the public interest."  Since August of 2017, Murray Energy Corporation, a major producer of coal used for the generation of electricity, has urged the Trump administration to use Section 202 to preserve the merchant generation plants of First Energy, a major coal burning utility and customer of Murray Energy.  Murray argued that without such intervention, FirstEnergy would be forced into bankruptcy and forced to close its coal-fired plants, which in turn would result in the loss of many coal mining jobs.[2]

 

In April of 2017, Energy Secretary Perry requested that his staff examine electricity markets and reliability.  DOE completed its initial review in August of that year.  The report concluded that the primary drivers of coal plant reductions were the “advantaged economics of natural gas-fired generation” and three environmental programs (Mercury Air Toxics Standards; Clean Water §316(b) restrictions on cooling water intakes at power plants; and the coal residuals rule).  Following that report, the DOE issued a notice of proposed rulemaking directing FERC to consider a rule which would ensure cost recovery for generating units that added “resiliency” to the grid by having the capacity to store a 90-day fuel supply on site—a criterion that advantages coal and nuclear to the disadvantage of gas and renewables.  In January 2018, the five FERC commissioners rejected the proposed rule.

 

In March 2018, FirstEnergy sent its own request to the DOE under §202(c) of the Federal Power Act.  It requested that DOE “find that an emergency exists in the footprint of the PJM Interconnection (PJM)” and: “direct certain existing nuclear and coal fired generators in PJM” to “generate … and transmit energy … as needed to maintain the stability of the electric grid”; and direct PJM to compensate at-risk merchant nuclear and coal-fired plants for the full benefits they provided to energy markets and the public at large….”[3]  The letter did not specifically identify the plants for which the order was requested.  Instead, it listed all of the coal- and nuclear-fired plants in the PJM and stated that “only a subset of these plants would be subject to the requested Order.”  See FirstEnergy Letter, n. 5.  FirstEnergy did, however, include as a separate exhibit a listing of its nuclear and coal-fired generation facilities.  Id., Attachment D.

 

Now, according to reports by Bloomberg and others,[4] the DOE has drafted a plan for implementing requests to delay the retirement of coal and nuclear plants.[5]  The draft plan, relying on §202 of the Federal Power Act and the Defense Production Act of 1950, states that “to promote the national defense and maximize domestic energy supplies, federal action is necessary to stop the further premature retirements of fuel-secure generation capacity while DOE, in collaboration with other federal agencies, the States and private industry, further evaluates national security needs and additional measures to safeguard the Nations’ electric grid and natural gas pipeline infrastructure from current threats.”  Accordingly, for a period of 24 months, the paper reports that DOE will order system operators to purchase capacity from a designated list of generation facilities sufficient to forestall any further actions toward retirement, decommissioning or deactivation of such facilities…”