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Leaked memo lays out Trump administration proposal to aid at-risk coal, nuclear units

Washington (Platts)--1 Jun 2018 446 pm EDT/2046 GMT


In a sign that the US Department of Energy's plan to throw a lifeline to struggling coal and nuclear power plants could be advancing, the National Security Council was expected to discuss the matter at a Friday meeting, according to a report.

A 40-page draft memo, first obtained by Bloomberg, was circulated ahead of that meeting. It suggests the department would use emergency authority under the Federal Power Act and Defense Production Act to direct grid operators to buy power or capacity from at-risk facilities.

The draft memo from DOE takes the stance that while renewable energy and natural gas have their share of benefits, increased reliance on them "comes at the expense of fuel security and resilience," which the document defines as the grid's ability to withstand and recover from major disruptions, be it adversarial attacks or natural disasters.

In line with Energy Secretary Rick Perry's narrative that staving off further coal and nuclear retirements is a national security imperative, the draft memo contends that resources with secure on-site fuel supplies "are essential to support the nation's defense facilities, critical energy infrastructure and other critical infrastructure."

While natural gas pipeline infrastructure is characterized as "indispensable," the draft memo still takes aim at gas-fired generation as "a major point of vulnerability in our critical energy infrastructure" as opposed to the fuel-secure capacity of coal, nuclear, hydro and dual-fuel units.

The draft memo asserts that "federal action is necessary to stop the further premature retirements of fuel-secure generation capacity" while DOE and other entities embark on further study of "national security needs and additional measures to safeguard the nation's electric grid and natural gas pipeline infrastructure from current threats."


TRUMP ORDERS PERRY TO STOP FUTURE COAL, NUCLEAR CLOSURES


A Friday statement from White House Press Secretary Sarah Sanders also expressed President Donald Trump's belief that "keeping America's energy grid and infrastructure strong and secure protects our national security, public safety and economy from intentional attacks and natural disasters."

"Unfortunately, impending retirements of fuel-secure power facilities are leading to a rapid depletion of a critical part of our nation's energy mix, and impacting the resilience of our power grid," Sanders said. "President Trump has directed Secretary of Energy Rick Perry to prepare immediate steps to stop the loss of these resources, and looks forward to his recommendations."

The leaked document lays out "a temporary stop-gap measure" in which DOE would exercise "its DPA and FPA authority by directing system operators, for a period of 24 months, to purchase or arrange the purchase of electric energy or electric generation capacity from a designated list of subject generation facilities (SGFs) sufficient to forestall any further actions toward retirement during the pendency of DOE's order."

A "Strategic Electric Generation Reserve" would also be created under the order "to promote the national defense and maximize domestic energy supplies," the draft memo said.

As the document is a draft labeled "not for further distribution," it's unclear whether DOE is moving forward with such an order, or if the draft memo was just teeing up a potential path forward.

DOE did not respond to requests for comment.

Perry confirmed during congressional testimony last month that DOE was weighing its options for aiding coal and nuclear plants for national security purposes, including reviews of the DPA and FPA Section 202(c).

Those reviews followed FERC's rejection of Perry's notice of proposed rulemaking that directed the commission to put market rules in place that would have guaranteed full cost recovery and a return on investment for generators that maintain 90-day on-site fuel supplies. FERC instead launched a fresh review (AD18-7) of grid resilience to determine if commission action was warranted in this area. That proceeding is ongoing.


MEMO POINTS TO DOE'S NATIONAL SECURITY RESPONSIBILITIES


In defense of prompt, alternative action by the department, the draft memo speaks of DOE's position on the NSC and its responsibility, under statute and executive order, to respond to energy supply disruptions and any threats to grid reliability and resilience.

FPA Section 202(c) grants the secretary of energy authority to decide an emergency exists related to a sudden increase in electricity demand, a shortage of power, or other reasons, and to issue orders to address that emergency.

The DPA, enacted in 1950 during the Korean War to ensure the availability of critical materials and resources for the US national defense, allows the secretary of energy, through a presidential delegation, to require contracts or allocations of materials and services to maximize domestic energy supplies.

Maria Korsnick, president and CEO of the Nuclear Energy Institute, applauded Friday the administration's effort to retain nuclear facilities as national security assets though she admitted to not having seen the details of the reported proposal.

"Once a nuclear power plant closes, it begins decommissioning and will not be reopened. This finality is why it is critically important to preserve the fuel security offered by nuclear plants under threat of premature closure," Korsnick said. "This fuel security is an essential element of national security."


LARGE SWATH OF ENERGY INDUSTRY OPPOSES DOE INTERVENTION


But the use of either statute to prevent coal and nuclear retirements has been looked at with skepticism by Washington insiders and been blasted by most of the power sector outside of those with coal and nuclear interests.

A common argument among opponents is that coal and nuclear units are not infallible during stresses on the system, and that transmission and distribution issues are more often the culprit when resilience issues arise, not generation or fuel supply concerns.

The Natural Gas Supply Association said the stopgap measure laid out in the draft memo was "a terrible idea on multiple levels."

NGSA President and CEO Dena Wiggins said "this misguided attempt to artificially resuscitate a specific set of aging and uneconomic power plants will do far more harm than good," including raising costs and undermining competitive power markets.

Wiggins said the group expected to mount a "significant legal challenge" if the effort moved forward.

A number of other trade groups representing energy efficiency, electric storage, natural gas, oil, solar, wind and electricity consumers also chimed in to criticize the draft memo and its proposed actions.

PJM Interconnection has previously said it faces no immediate threat to reliability from recently announced nuclear retirements. In a statement Friday, the grid operator argued that "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."

PJM pointed to its 2012-22 capacity auction results as proof of there being "no need for any such drastic action."

That auction saw an 83% hike in the price generators will receive, and cleared a diverse mix of coal, nuclear, gas, renewable and other sources, PJM said.

--Jasmin Melvin, jasmin.melvin@spglobal.com

--Edited by Valarie Jackson, newsdesk@spglobal.com




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