FERC commissioners defend competitive markets amid coal and nuclear struggles
Members of Congress this week reminded the chairman of the Federal Energy Regulatory Commission (FERC) just how stubborn and complicated an issue he has on his hands with the threatened closure of uncompetitive coal and nuclear power plants across the nation.
During a hearing of the House Energy and Commerce Committee attended by all five FERC commissioners, members repeatedly asked FERC Chairman Kevin McIntyre if the commission would act to keep the plants alive and prevent the loss of thousands of jobs while lower-cost natural gas and renewable energy generators flood the market.
“We have to look at this and ask ourselves the question whether those coal-fired generating resources are contributing grid resilience attributes in a way that cries out to be compensated at levels higher than they currently are receiving in the marketplace,” he told Rep. Larry Bucshon (R-IN). “If the answer to that question is yes then I think we have to address the very difficult question of what is it appropriate for us to do about that.”
“The question is completely legitimate,” McIntyre added. “This is broader than just grid resilience. There are economic issues here in play, as well, so we understand how important the issue is.”
Bucshon said all of Indiana’s coal mines and most of the state’s coal-fired electric generating plants are in his district and that 39 coal-fired plants already had retired in the state. “I’m concerned that if we don’t act soon, more coal plants will continue to retire prematurely, leaving my constituents and my state without reliable energy and many at risk of losing their jobs,” he said.
The exchange occurred as the newly reconstituted commission presented the agency’s fiscal year 2019 budget priorities to the House Energy and Commerce Subcommittee on Energy. It was the first time all five commissioners appeared in front of the oversight panel since 2015 and since they rejected a Trump administration effort to rescue the struggling plants earlier this year.
Tuesday’s hearing showed that FERC, in some ways, has become a victim of its own success. And it showed that for some members of Congress, market competition is fine in theory until it does what it is intended to do. They didn’t expect casualties as an unintended consequence.
The commissioners found themselves having to defend one of the agency’s most significant achievements, the opening up to competition of an industry that, for a century, had been walled off, its monopoly participants protected from the challenges of the market.
For two decades, FERC has carefully cultivated open and competitive wholesale power markets in the United States, an expansion that continues today. The success of those markets, achieved much like in the telecommunications industry, is driven by policy and an expansion of new technologies, which have driven down prices and increased consumer choices. It has been a feat recognized and studied by nations around the globe.
But now, because of the pain that will accompany mass economic dislocation in communities across the nation with the retirement of increasingly obsolete technology, the value of that success is being called into question.
Rep. David McKinley (R-WV) said the 1.3-gigawatt Pleasants Power Station is scheduled to close in his home state, which will result in the loss of hundreds of utility and mining jobs and a severe cut in local tax revenue.
“I think we have more of a responsibility to look at this thing holistically rather than just an ideological fight against what we think is a free market,” he said. McKinley asked McIntyre if the nation has a free market in energy.
“We do not have a perfect market system in energy, that is certain,” McIntyre said.
Commissioner Robert Powelson agreed. “These are not pure markets,” he said.
McKinley urged the commissioners to consider more than just maintaining open markets in guiding their decisions.
“Look seriously at the bigger picture, what we’re going to do to communities like Pleasants County, West Virginia – a 30 percent overnight loss of tax revenue,” he said. “How are they supposed to meet their education demands, their health care?”
The issue peaked in 2017 when Secretary of Energy Rick Perry asked the commission to allow a special subsidy for power plants that keep 90 days of fuel on site. He said the power prices those plants receive should reflect the reliability and resilience they provide the electric system, the full value they contribute to keeping the lights on. Closing many of those tried-and-true plants would put the nation’s electric grid at risk, he said.
In January, the commission rejected the proposal, saying there was no evidence of such risk. But the commission opened a new docket in which it has asked the nation’s regional transmission system operators if there are any steps needed to improve grid “resilience,” the ability of the system to endure and recover from disruption. The commission is still collecting comments on the subject.
States have sought to intervene on behalf of the plants, supporting subsides to help keep the plants alive. They compare their facilities to wind and solar generators, which halt when the sun goes behind the clouds or the wind stops blowing, and natural gas plants, whose fuel needs to be shipped in by pipeline.
Open market supporters argue that propping up uncompetitive power plants interferes with the market and states’ efforts to intervene intrudes on FERC’s jurisdiction.
Commissioner Powelson, a former public utility commissioner in Pennsylvania, was firm in his view.
“My drawing the line in the sand is how it impacts the wholesale power markets,” he said. “Once we surrender that flag, we’re out of business. We’ve got to protect the sanctity of those organized markets.”
He responded to questions from Rep. Adam Kinzinger (R-IL) whose home state has created subsidies that benefit two nuclear plants.
To allow those plants to participate in the market, Powelson said, customers paid a competitive transition charge enabling the plant’s owners to recover their “stranded costs,” the investments the owners were assured they could recover as a protected monopoly but were unlikely to recover in a competitive market.
“Theoretically, your constituents are being asked to do another stranded cost for those assets,” Powelson told Kinzinger. “So, if I’m a gas operator or I’m an emerging technology in the market, I’m not getting any type of backstop for my resource. And I could be clean and efficient and resilient.”
One of FERC’s challenges is balancing state and federal jurisdictions. The commissioners repeatedly sought to assure representatives they respected states’ rights.
“You’ve gone directly to one of the trickiest areas that we deal with, Congressman,” McIntyre said to Rep. John Shimkus (R-IL). “States have their valid role in making policy choices as to energy resources that are preferred by that state. And they reflect that through their legal decision making.”
“We have an obligation at the FERC level to ensure that the electricity generated by those resources that makes its way onto our grid, is sold at rates that are just and reasonable,” the chairman added.
As technology evolves and prices continue to fall, the market for coal and nuclear power looks even more challenging. The proliferation of energy storage, which includes utility-scale batteries, is likely to make wind and solar generators even more competitive.
Batteries will be able to store electricity produced at off-peak hours when power prices are low and the wind is blowing or the sun is shining. Those batteries can then be discharged to the grid during peak usage hours at higher prices, regardless of the wind or sun. Batteries can ease the intermittent nature of renewables, which until now has been one of their drawbacks.
Commissioner Richard Glick said the agency in February voted unanimously to lower barriers for storage and allow it to participate in the wholesale markets.
“We are in the midst of dramatic transformation in the ways Americans produce and consume energy. This revolution has the potential to substantially improve our energy efficiency, reduce emissions, grow the economy and create millions of new jobs,” he said. “Storage technologies such as batteries and pumped hydro have potential to play a leading role in the transition to the electricity system of the future,” Glick said.
“As the cost of energy storage continues to decline, these resources are poised to become a bigger part of the generation mix, leading to the development of a more robust grid that can, among other things, help to accommodate the ever-increasing demand for clean renewable resources from states, corporations and residential consumers.”
The cost of using lithium-ion battery storage is less than a quarter of what it was at the start of the decade, Glick said. As a result, the nation’s installed energy storage capacity is expected to increase by 750 percent in five years.
“The Commission’s action to reduce barriers to energy storage resources’ participation in wholesale markets will help to further this remarkable trajectory, all the while reducing consumer energy bills,” he said.
