U.S. Department of Energy Secretary Rick Perry, second from right, joined the West Virginia congressional delegation for a visit to a West Virginia power plant in July, where he touted the importance of baseload power as "common sense." A few weeks later, he would release a grid study that he would use to justify a proposed rule that could boost coal and nuclear generators.
Source: S&P Global Market Intelligence
The latest pro-coal policy move by the Trump administration has riled energy market players but could benefit key supporters of the presidency.
U.S. Department of Energy Secretary Rick Perry called on the Federal Energy Regulatory Commission to issue a rule that would ensure costs are covered for "fuel-secure" power plants. While the move seemed aimed broadly at the coal and nuclear sectors, it actually may have a somewhat narrow effect on the nation's coal fleet.
The way Perry's request was structured, most of the coal plants eligible to benefit from the proposed rule are in the PJM Interconnection, where three producers — Murray Energy Corp., Alliance Resource Partners LP and Peabody Energy Corp. — delivered a combined 42% of the market's coal in 2016, according to a recent S&P Global Market Intelligence analysis.
Peabody cheered Perry's proposal as a "good first step" in preserving the reliable baseload generation and to "begin leveling the playing field in a fuel-neutral manner."
"The administration clearly recognizes that reducing coal from the baseload mix and forcing too much reliance on renewables creates reliability issues and drives up costs," a Peabody spokesperson said.
Alliance President and CEO Joseph Craft and Murray Energy CEO Robert Murray were both prolific supporters of Trump's campaign. Both also have attended White House events and offered public support for the administration's actions.
However, while the request's short deadline indicates an urgency to act, of the power plants that purchased coal in the PJM in 2016, only four have received regulatory approvals to retire coal plants between 2017 and 2021, according to SNL Energy data. Two of those plants, B.L. England and Yorktown, have already been granted reliability must-run agreements from PJM to keep the plants ready to run if needed.
The other two, J.M. Stuart and Killen Station, are multiowner power plants supplied by coal mines with ownership including Alliance and Murray Energy. Ownership of both plants have reached an agreement with the Sierra Club that would retire the coal plants by June 2018.
While the proposal seems unlikely to reverse any of those looming retirements, the analysis does not include power plants that have indicated plans to retire but have not received certain regulatory approval for retirement plans.
A different approach to a failed effort?
The proposal could end up being an alternative route to saving a set of FirstEnergy Corp. power plants.
Documents obtained by the Associated Press showed Murray Energy, a major supplier to the power plants, pressed Energy officials to declare a state of emergency for grid reliability that would allow the plants to operate without complying with environmental regulations in order to maintain system reliability. The DOE considered the action, which was backed by the White House, but ultimately decided it lacked the authority to do so.
Several energy experts told S&P Global Market Intelligence the DOE had little choice but to reject the request based on current procedures and legal concerns.
Murray Energy has continued a push to declare an emergency on the grid that would boost coal producers and has insisted DOE could successfully do so. Murray Energy and FirstEnergy both cheered Perry's move to urge FERC to consider the proposed rule just weeks after media reports showed Murray Energy had suggested it could face bankruptcy without the relief it was seeking.
Murray Energy called the proposal the "single greatest action that has been taken, in decades, to support low-cost, reliable power in the United States."
Asked whether Murray CEO Robert Murray continues to have conversations with the president and his administration and input on policy, Murray Energy said they are "unable to comment on any of our communications with President Trump or his administration." Speaking to a group in West Virginia in September 2016 after saying he had met multiple times with Trump, Murray had suggested he would have the president's ear.
"I'm one of his energy guys," Murray said at the time. "What do you think I'm going to tell him? I already have."
The DOE announcement drew condemnation from the natural gas industry, renewable energy companies, regulators and other entities that criticized the proposal as antithetical to free market principles of energy generation.
"The DOE's proposed rulemaking is neither technically nor procedurally sound and has political fingerprints all over it," said Devin Hartman, electric policy manager of the free market think tank R Street Institute, in a statement. "Strikingly, the proposal contradicts the department's technical report from August, indicating the thinking behind the proposal bypassed that of the department's own technical experts."
Bruce Nilles, senior campaign director of the Sierra Club's Beyond Coal campaign, said he hoped the proposal would not only be unsuccessful but also backfire for proponents of coal.
"In the long term it will do significant damage and will backfire because they're having to concede coal is not competitive," Nilles said. "Here, they are conceding: 'We can't compete.' That is just a 180-degree act of desperation."
Utilities still retiring plants
Many of the 30 entities with official approval to retire coal plants did not respond to questions for this story. Among those who did respond, none suggested the proposal would change their plans.
IDACORP Inc. spokesman Brad Bowlin said the utility was still evaluating the proposal, but in regard to the proposed shutdown of coal units in the near future, they "do not anticipate this proposal will impact those plans. "
"In general, we do support the idea that the plants referenced in the request are baseload plants and should be treated differently," Bowlin said. "Is this exactly the right approach? It's too early to tell."
Berkshire Hathaway Energy said the rulemaking is potentially significant for the energy industry, and more time is needed to consider possible effects of the proposal.
"Pricing solutions should also consider impacts to customers," Berkshire spokeswoman Jessi Strawn said. "If implemented, the DOE ruling may result in higher-than-market driven pricing and ultimately increase costs for customers."
Nick Meyer, a spokesman for NiSource Inc., said while the utility supports cost-effective reliability measures, plans to retire two of the units at its Bailly coal plant by May 2018 are continuing as planned. Joseph Barrios, a spokesman for Fortis Inc. subsidiary Tucson Electric Power Co., said that while 70% of Tucson Electric Power's generation comes from coal, it is on track to retire 500 MW of coal resources in a bid to diversify its resource portfolio.
Many of the power plants scheduled for retirement are not subject to cost-of-service regulation or operate outside of applicable regional markets, which would preclude them from benefits under Perry's proposal. Barrios said Tucson Electric Power supports maintaining a diverse mix of generating resources but will continue to expand renewable energy and natural gas generation.
Perry's effort could also fail to materialize.
Ari Peskoe, senior fellow in electricity law at Harvard Law School, told S&P Global Market Intelligence that the move was "surprisingly aggressive" and the first time the Trump administration went beyond undoing the legacy of the Obama administration and proactively worked to boost the coal sector.
"Unfortunately for the coal interests, the proposal reflects no understanding of how electricity markets operate, is poorly constructed, and is being unnecessarily rushed through the FERC rulemaking process," Peskoe said. "I can't think of any FERC rule in the past 20 years that has been more broadly condemned by power sector interests, former FERC commissioners, lawmakers, industry analysts, and academics."
FERC's new chairman, Neil Chatterjee, has pledged to "adamantly enforce" FERC's independence. And his colleague and fellow newcomer, commissioner Robert Powelson, on Oct. 4 stressed that "FERC does not do politics. We don't do energy politics." Powelson was also surprisingly frank about his view of the DOE proposed rule, saying he would not support a rule that undoes organized competitive markets and would leave FERC if forced to do so.