U.S. Department of Energy Undersecretary Mark Menezes confirmed the department was considering a proposal for grid operators to buy power from at-risk coal and nuclear generation facilities to stave off plant retirements, using the national security rationale given in a memo on the proposal leaked last week.
Speaking on June 5 at an annual conference of the U.S. Energy Information Administration in Washington, D.C., Menezes cast the threat of coal and nuclear retirements as a dark spot on the bright energy future of the U.S.
Power plants relying on the most secure fuels "are retiring at an alarming rate that if unchecked will threaten our ability to recover from intentional acts and natural disasters," Menezes said. He lamented a historic shift "away from diverse fuel-secure resources to a growing dependence on pipeline-dependent and intermittent resources."
The DOE for months has touted the benefits of on-site fuel supplies, inherent to coal and nuclear facilities, as critical to grid reliability and resilience.
Federal Energy Regulatory Commission Chairman Kevin McIntyre, who spoke the same day at the EIA conference, suggested the DOE proposal could be implemented through contract-type arrangements or could come before the commission as a ratemaking case.
Menezes backed the themes developed in a draft memo prepared for White House National Security Council consideration that offered a rationale for the DOE to use emergency authorities under Section 202(c) of the Federal Power Act and the Defense Production Act. The memo referred to a plan that would require grid operators to buy energy and capacity from designated facilities for two years to prevent retirements. White House spokeswoman Sarah Sanders said June 1 that President Donald Trump directed Energy Secretary Rick Perry "to prepare immediate steps to stop the loss of these resources, and looks forward to his recommendations."
Menezes confirmed the draft that appeared June 1 was a leaked DOE document. The DOE is still working out details and considering the approach in the memo as "one of the options" to address baseload retirements and fuel security issues, he told reporters. The process involves other agencies as well, Menezes said. Even after the White House statement, Menezes said there was no set deadline in which to act. The greatest obstacles are technical aspects, he said.
"We want to make sure that whatever we do works and is upheld by courts," he said.
Lifeline could take form of settlements, rate cases
A FERC proceeding is underway, aimed at bolstering grid resilience that is also considering the question of whether certain generators and generation attributes are vital to the bulk electric system's ability to withstand and bounce back from disruptions.
At the EIA conference, McIntyre steered clear of taking an up or down position on the approach laid out in the DOE memo. He stressed that the decision to invoke emergency authority lies squarely with the secretary of energy. "The fact that it's invoked only rarely doesn't render it any less valid to be invoked," he added.
Whether FERC could be completely sidestepped by the DOE stopgap measure remains a question, but it is a possibility, McIntyre said.
Speaking specifically to the use of Federal Power Act Section 202(c), McIntyre said the "law contemplates that the entity to be compensated under the directive is to work out or attempt to work out arrangements in a contract-type format with the entity that would be providing the compensation."
The FERC chairman told reporters that there were "different scenarios" that would not require any FERC involvement, or it could come to the commission "almost in a settlement fashion" that would be subject to an "easier … fair and reasonable" standard. But if grid operators and generators are unable to come to agreement on compensation, the matter could come to FERC as a rate case, subject to FERC's more stringent "just and reasonable" standard, he added.
FERC has been handling rate proceedings for decades, and "in a sense, it would almost be bread and butter" for the commission, McIntyre said. Getting "the dollars and cents right" would be the tricky part, McIntyre said, but he was confident the commission's "talented staff" could rise to the challenge.
Concerns over wholesale market impacts
Asked how the commission would mitigate the potential price suppressive and other adverse impacts such out-of-market action could have on the wholesale power markets under FERC's jurisdiction, McIntyre said FERC could approach it in "a number of different ways" while sticking to its mandate of ensuring just and reasonable rates.
The memo drew criticism from a large slice of the energy sector, with some suggesting it could undermine wholesale power markets.
Menezes offered that the wholesale markets "have not been mandated" by Congress. "They are voluntary," he said. "They are created by FERC and approved by FERC. It is important for the [regional transmission organizations] to keep their states happy. If the states are not happy with the RTOs in which they participate, then the RTOs won't exist."
Menezes suggested state policies promoting renewable energy have "inverted the price stack" in wholesale markets in unexpected ways, to the detriment of coal and nuclear facilities.
Making his case for DOE market intervention, Menezes described cyberattacks as a constant threat and emphasized the downsides of losing the civilian nuclear fleet. He also asked the audience to consider the notion that China is rising as a global power in nuclear engineering without the limits of laws that might encourage nonproliferation and the use of the technology only for peaceful purposes.
"Imagine a world where the U.S. sits on the sidelines while other countries can dictate what other countries can do with their nuclear fuel," he said. "Think about that for a few minutes."
