Conservative energy policy experts are worried a new Trump administration policy proposal to compensate coal and nuclear power plants for stockpiling fuel could have significant consequences for some of his most ardent supporters.
Namely, propping up coal and nuclear power plants could hurt natural gas-producing states that supported President Donald Trump in the 2016 election.
“I’m not sure anyone has thought about the consequences of the proposed DOE rule for natural gas producers, pipelines, and customers,” Mike McKenna, a Republican strategist specializing in energy policy, told The Daily Caller News Foundation.
Energy Secretary Rick Perry recently asked the Federal Energy Regulatory Commission (FERC) to “fully price generation resources” that make the grid more reliable. The policy proposal would help coal and nuclear plants recover the costs of maintaining fuel supplies on-site.
Perry’s plan would somehow compensate power plants that keep 90 days worth of fuel on-site, which includes nuclear plants and most coal plants could likely meet it. Green energy sources and natural gas-fired plants wouldn’t meet that threshold.
While there’s merit to electricity pricing reforms, critics say Perry’s current proposal poses risks to the natural gas industry by propping up troubled coal and nuclear power plants.
“That’s been one of the big questions raised about it,” Tony Clark, a former FERC commissioner who was appointed by former President George W. Bush, told TheDCNF.
FERC doesn’t have to adopt the policy. Perry has the authority to propose new rules, but FERC is an independent commission and doesn’t have to agree. It’s unclear if FERC will adopt the policy or something similar.
Experts fear the policy, or a similar one, could cause major distortions in existing power markets.
The policy could “blow up the power market” by shifting from competitive pricing to nationwide resource planning, much like what public utilities do on the state level, Clark said.
“The devil is in the details,” he said.
The oil and natural gas industry criticized Perry’s plan. They were joined by green energy trade groups that don’t want to see their marginal cost advantage undercut.
However, the brunt of the blow would fall on natural gas, which doesn’t enjoy production subsidies and state mandates that protect solar and wind power companies.
“The tight margins of natural gas” means “subsidization of its competitors will result in the cancellation of pipelines, reduced production from the Marcellus and the Utica, including associated production of oil,” McKenna said.
Trump won the majority of votes in all five top natural gas-producing states during the 2016 election, including Pennsylvania.
Pennsylvania would be hard hit reduced demand for natural gas. The state was a key swing state in the last election that went Democrat in the previous six presidential elections. Trump won a narrow victory in the state, earning roughly 40,000 more votes than Clinton.
Likewise, West Virginia also sits atop the Marcellus shale. The state has also benefited from rising natural gas production, especially with coal production expected to decline. Trump won nearly 69 percent of the vote in West Virginia last election.
It could mean “the death of the idea of a natural gas storage hub and attendant crackers and chemical plants that have the potential to bring tens of thousands of jobs and increased prosperity to the Appalachian region,” he told TheDCNF.
Would It Even Work?
Perry sent his proposal to FERC about a week ago, and was met with applause by coal and nuclear power plant operators.
Coal plant operators have long pushed for electricity market reforms of this nature. Operators say the stability and emergency fuel they supply to the grid is not properly valued in power markets.
“The coal fleet has large stockpiles of coal that help to ensure grid resilience and reliability,” Paul Bailey, president of the American Coalition for Clean Coal Electricity (ACCCE), said in a statement. “We look forward to working with FERC and grid operators to quickly adopt long overdue market reforms that value the coal fleet.”
Bailey and others often point to the 2014 Polar Vortex event that put the eastern U.S. in a deep freeze, forcing natural gas pipelines and power plants offline.
A recent analysis by PJM, the Mid-Atlantic grid market, found they “needs significant coal-fired generating capacity to ensure the grid is resilient against at least one of many possible” Polar Vortex-like events, Bailey wrote.
However, Perry’s proposal is vague on some details, including how power plants should be compensated for stockpiling fuel.
“It doesn’t lay out an actual mechanism to compensate them,” Clark said.
Despite some vagueness, the plan does focus on certain types of power markets. Perry’s plan targets more competitive, merchant power markets where companies compete to sell their electricity.
Clark said markets in Pennsylvania, New York and most of New England would fall under that umbrella. New York power companies are already dealing with state subsidies to keep upstate nuclear power plants running.
The oil and gas industry led a legal challenge to New York handing nearly $500 million in subsidies to nuclear plants this year. The coalition feared the nuclear subsidies would distort power markets and raise energy costs for residents.
A federal judge dismissed the lawsuit in October. A similar legal and political fight is playing out in Illinois where lawmakers also voted to subsidize uneconomic nuclear plants.
“It could take that problem and make it exponentially more problematic,” Clark said.
A Conservative Solution?
Conservatives have worried that heavy-handed government intervention in the Obama administration played a role in forcing coal plants to shut down across the country.
Experts say natural gas prices played the biggest role, but Environmental Protection Agency (EPA) rules contributed as well. For example, one of EPA’s most expensive rules went into effect in 2015 — a record year for coal-fired plant retirements.
Conservative groups see merit to electricity market reforms, but are skeptical more government intervention into the economy will be beneficial.
“If the administration wants to make the electricity grid more reliable, competitive and responsive to natural disasters, we need less regulation, certainly not more of it,” Nick Loris, an energy economist at the conservative Heritage Foundation, told TheDCNF.
“Reducing the regulatory burdens may distort price signals will help achieve DOE’s desired outcome of a more responsive, resilient grid, but at much lower cost,” he said.
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