There’s a sudden change in the wind, and it isn’t spring.
In the space of a week, far-sighted officials at FERC, at the Department of Energy and in Congress have shifted attention away from saving First Energy’s plants to saving the grid’s reliability.
Under assault is the lazy assumption held by the “do-nothing” faction that what has worked just fine before the current convulsion in the utility industry will continue to work just fine after the deluge. Instead, the “do-something” faction argues that new policies beyond recent tinkering are needed for an industry that is changing before our eyes. The estimated 17,000-plus MW of coal-based power slated for retirement this year – not counting First Energy’s 1300 MW unit now for sale – is concentrating their minds as effectively as the hangman’s noose on a central question: What does the future hold at this pace of capacity destruction?
Answers differ. Both West Virginia’s senators last week called for a change in how coal plants are valued. Sen. Manchin’s tax credit for coal plant operations, together with his endorsement for the national security rationale invoked by Secretary Perry, showed that coal-state Democrats appreciate what’s at risk. Sen. Capito weighed in with a similar measure, a temporary tax credit to cover the operating and maintenance costs of existing plants.
More surprising was FERC chairman Kevin McIntyre’s sobering testimony before Congress last week. The issue before the commission, he implied, isn’t the loss of old coal plants but the loss of an entire source category. It isn’t one utility’s coal ships but the entire fleet that is sinking.
McIntyre didn’t identify an “imminent threat” to grid security, but questioned its relevance for a grid undergoing massive transition. The looming prospect of an entire energy industry and its supply chain vanishing is indeed “harmful to American interests,” said McIntyre, regardless of the factors behind its demise. The impact of low wholesale power prices, compounded by retirements from prior regulations, is therefore “very much in the scope” of FERC’s consideration of possible changes in market practices.
Critics cited Trump’s promises to save the coal industry as proof this is just bailout talk. They didn’t cite his predecessor’s promise to bankrupt the industry as a reason for an insurance policy to secure future grid reliability. Academic observers tut tutted use of emergency powers under the Defense Production Act to keep plants running. Heaven forfend, exclaimed Harvard’s Ari Peskoe, “That would extend the act far beyond what it’s ever been used before.” But neither did Congress ever think a law would be needed to protect an entire domestic energy sector from destruction by a sitting American president.
It’s one thing to euthanize some older, inefficient plants for an insignificant environmental benefit. It’s quite another to stand by idly and watch a sector that supplied half of the nation’s electricity disappear. That explains Deputy Energy Secretary Dan Brouillette’s promise at Columbia University last week to “approach this as a public policy matter, not as an economic emergency matter for one or two companies.”
Underscoring all this is a fundamental shift in energy policy. Last week both Secretary Perry and FERC Chairman McIntyre announced the return to the post-war “all of the above” approach. The federal government will no longer help energy sources it likes and hinder those it doesn’t.
Being conservative with energy sources makes sense in a market undergoing revolutionary change, where last year’s certainty of $30 oil crumbles before today’s $70 a barrel. That might explain why independent commissioners, administration officials and some members of Congress are willing to endure accusations of bail out. We just might thank them later.
- On April 25, 2018