In an unprecedented move, and a surprise for the oil and natural gas industry, the Trump administration is reportedly planning to order the nation's grid operators to purchase electricity or power generation capacity from struggling coal and nuclear plants, citing national security.
According to a report initially by Bloomberg, a 41-page draft memo outlining plans by the Department of Energy (DOE) was to be circulated on Friday at a National Security Council meeting. DOE would reportedly use its authority under Section 202(c) of the Federal Power Act (FPA), as well as the Defense Production Act (DPA), to order grid operators to make the purchases.
The memo also calls for the creation of a Strategic Electric Generation Reserve (SEGR) "to promote the national defense and maximize domestic energy supplies." SEGR would allow DOE to "address the nation's grid security challenges" while a proposed order outlined in the memo was in effect.
Trade associations representing the oil and gas industry have adamantly opposed proposals to bail out uneconomic coal and nuclear plants, which have struggled to compete against natural gas. However, the president has been a vocal supporter of the coal industry since his campaign for the White House. DOE Secretary Rick Perry also had argued that a controversial notice of proposed rulemaking (NOPR) presented to FERC last September was a necessary bulwark to maintaining grid resiliency. The Federal Energy Regulatory Commission unanimously rejected the DOE NOPR in January.
CEO Dena Wiggins of the Natural Gas Supply Association (NGSA) called the possible Trump proposal "a terrible idea on multiple levels," and warned that the NGSA would file a lawsuit if it moves forward.
"It's an extreme measure and unprecedented, inappropriate use of the FPA, the DPA and other federal authorities intended for use only in immediate emergency situations such as sudden increases in demand or a shortage of electricity -- none of which are taking place in today's power markets," Wiggins said.
Wiggins said during the debate over the NOPR, officials with PJM Interconnection, one of the nation's largest electricity grid operators, told the Trump administration that there were no reliability issues within its service area to justify subsidies to coal and nuclear plants. Last October, PJM called on FERC to set aside the NOPR and instead focus on studying changes to the resource mix and its effects on regional transmission organizations.
"This misguided attempt to artificially resuscitate a specific set of aging and uneconomic power plants will do far more harm than good," Wiggins said. "It raises costs and undermines the very competitive power markets that have a long track record of delivering affordable power to customers."
The American Petroleum Institute (API) also weighed in against the proposal. "The administration's draft plan to provide government assistance to those coal and nuclear power plants that are struggling to be profitable under the guise of national security would be unprecedented and misguided," said API spokesman Todd Snitchler.
There is "no need for any such drastic action,” said PJM officials. “Our analysis of the recently announced planned deactivations of certain nuclear plants has determined that there is no immediate threat to system reliability. Markets have helped to establish a reliable grid with historically low prices. Any federal intervention in the market to order customers to buy electricity from specific power plants would be damaging to the markets and therefore costly to consumers."
Intervention by DOE is also a surprise move, in part, because Perry told a House panel in April that he thought new legislation from Congress, rather than the FPA, may be a more appropriate way to help keep uneconomic coal and nuclear power plants running.
Last year, PJM conducted an analysis that found its service area was not becoming too reliant on natural gas and renewables for power generation, even as more baseload coal-fired facilities are retired. The issue took on new urgency after two subsidiaries of FirstEnergy Corp. (FE) filed for bankruptcy protection in April, blaming prolific gas supplies in the Appalachian Basin for eroding profits. That prompted PJM to ask FERC for guidance on how competitive wholesale electricity markets should address state subsidies, which natural gas producers oppose, for faltering coal and nuclear power plants.
FE subsidiary FirstEnergy Solutions Corp. filed an application with DOE for relief under Section 202(c) of the FPA, which gives the DOE secretary the ability to address power emergencies. The NGSA and other energy sector stakeholders submitted a legal analysis to the DOE opposing the application.
News of a potential bailout to coal and nuclear generators capped the end of a bad week for oil and gas pipeline companies. On Thursday, the Trump administration announced that it would impose tariffs on steel and aluminum imports from Canada, Mexico and the European Union. All three allies immediately moved to retaliate, raising fears of an international trade war and more expensive specialty steel products used to manufacture oil and gas pipelines.