Perry's DOE orders massive coal subsidy

This happened on Friday but with other stuff going on, I hadn't gotten around to posting about it. It's about my industry and might sound like inside baseball, but I thought it worth a thread because (1) it's another dumb thing from this Administration and (2) it could increase electricity prices for half the country to pay for the luxury of polluting the air. Everybody should be interested in that.

Here's an article on it: http://www.utilitydive.com/news/upd...r-baseload-generators-in-new-ferc-rul/506137/

Here's the cliff notes. Back in the spring, Rick Perry ordered a study conducted about the threat of subsidized renewables to baseload nuclear and coal generators' profits, saying if they go out of business we will lose generation diversity, the grid will become less "resilient" (which is different from reliable and speaks more to its ability to bear and recover from catastrophe) and could become an issue of national security. DOE Staff did the study and found there was essentially no problem with reliability or resilience and moreover it was not renewables challenging the profitability of coal and nuclear but low gas prices. That was in August.

Last week, DOE issued an Order for FERC to do a rulemaking to pay extra compensation to power plants that keep a 90 days supply of fuel on-site. That will generally apply to coal and nuclear. Gas plants don't usually have storage, but even the ones that do don't generally have 90 days' worth. Of course, renewables won't (though I wonder now how hydro dams would be treated...). It only applies to merchant generators (not regulated utilities that own their own gen) in organized wholesale markets regulated by FERC. So, that means essentially, New England, New York, Mid-Atlantic, Midwest, and California. Texas isn't regulated by FERC, so we escape.

The mechanism DOE specifies is full cost recovery, which is basically how regulated utilities work. Not to get too wonky about it, but it is essentially a threat to our organized competitive wholesale energy markets because it throws this big price regulation bomb into the middle of a dynamically pricing market. Pretty much everyone in the industry is in a tizzy about it except a handful of companies that mine coal or are overweight on coal merchant generation. The implications are many. It looks like a handout of hundred of millions of dollars to coal companies at the cost of billions of dollars of value destruction to everyone else. Customers in these regions will now pay more for the same electricity so that the giant piles of coal can be financially recognized. It'll keep coal plants built in the 60s (and long paid for) running longer, so we can continue to pollute. The evolution to a more nimble and distributed energy infrastructure will be slowed, ironically hurting our resilience. Republicans, formerly the party of capitalism and free markets, have thrown in for command economies that think government bureaucrats are better at pricing value than the markets. And Rick Perry earns all the disdain this bbs has already heaped upon him.

The good news is that though FERC has to do something with this Order, it does not have to implement it. They are an independent agency. However, most of the commissioners just got appointed by Trump, so they'll have a hard time just saying no.

 

This is not even about global warming. This is about paying subsidies to run a 21st century economy on a 1950s-era technology that is dirty, inefficient, out-of-the-money, and obsolete. Don't even worry about the carbon emissions. Worry about unfettered and efficient markets that would be damaged, the extra costs foisted on consumers for no good reason at all, the grid resiliency this change is supposedly protecting.

The logic of burning coal all this time was, "yeah it's dirty, but the dirty stuff is cheaper to burn so we'll do that and save money and grow the economy." That logic is gone. It's not cheaper to burn anymore, even if you took away CPP and MATS. If it's not cheap, what good is it? And why would you pay extra and say this old coal plant is worth more to society than this modern, nimble, cost-efficient gas turbine because it has a big freaking heap of coal in the backyard? You're not in the industry, so I'll make the counterargument for you: "what if the pipeline system gets screwed up, like during the polar vortex, and the gas turbines can't get fuel, the coal plants will be able to produce from the coal yard." To which the retort is, "what about when the coal plants froze up during that same polar vortex? And what if the coal can't burn because the coal yard was flooded, like during Harvey." The proper answer to that is, "that's why we need fuel diversity, coal and gas and nukes and maybe a little renewable." The real, real answer to all of this is this: we are going to get real resiliency by having a distributed generation infrastructure such that the loss of any individual generator will be easily replaced by others on the grid. There is some exciting stuff happening in energy right now -- smart meters, smart grids, microgrids, distributed solar, fuel cells, batteries, smart water heaters, markets -- and Perry ignores how the industry is actually tackling concerns of the modern energy economy and goes back to the damn stone age.

 

On this I agree. Actually, I still blame Perry. But, yes it's partly a manifestation of the lobbying power of a handful of coal mining and generation companies. But, it's not just the lobbying. It's the voter doing this to himself. Trump said he'd save those Midwest coal jobs, and Perry's doing his level best to keep Trump's word to ensure reelection in 2020. Each obsolete coal plant employs hundreds and hundreds of people. You can run a gas turbine with a couple dozen. Same if you look at coal mines vs gas wells. So that's a lot of jobs we're talking about, and each job is linked to a vote. And while it'd be cheaper to give every one of those coal-related workers a million dollars to walk away from his job, we will instead spend much more to perpetuate the life he used to know so that Trump can get credit for saving coal and that Ohio voter will pull the lever for him. This is the result of the fight for the rural Midwest white voter. So, when Murray Energy or FirstEnergy comes to Perry, offers a bunch of help for his or Trump's next campaign, and says "you should have the consumer pay extra or else we'll go bankrupt and lay off all these workers" Perry is actually inclined to listen. Solar can't bring the votes that coal can; neither can gas.

 

I know other people don't take this as hard as me, but I had to post this article from RTO Insider which is just brutal.

https://www.rtoinsider.com/ferc-baseload-power-energy-department-doe-76332/

Some highlights:

For context, we spend about $380 billion annually on electricity. So, that's essentially a 23% hike for the nation.

 

Awareness is probably enough. The industry is lambasting it pretty hard because it's a pretty bad idea, and hastily executed to boot. In normal times, I would say the idea is so bad that the industry would kill it, but my wife tells me I had to stop predicting that calamity won't happen after dismissing the chance that Trump could be president. Let us say at least that the Order has a steep hill to climb. Two FERC commissioners are slated to be confirmed soon. I expect democratic senators will ask them their thoughts on this Order, so it might make the papers again. It is up to FERC to make or not make the changes. 1 of the 5 commissioners is a holdover, the other 4 are Trump appointees. But, while they might have political ambitions they are all people from the energy industry (and not political hacks like Perry) and experienced enough to understand the implications of what's being proposed. I am hoping FERC either says no, delays so long we get a new President, or at least changes the execution enough to be not so damaging. Probably no matter what at this point, lawsuits will abound. If FERC does the rulemaking, all the gas generators and renewables will sue for making economic generation unable to bid into the market (we might even see a snowball effect where shut-out generation will build some storage to qualify for the cost recovery scheme); if they don't do the rulemaking, coal will sue FERC for not adequately responding to DOE's NOPR.

The most important thing may be to continue to make fun of Rick Perry. Sad thing is I had hope he'd be one of the more sane voices in the Trump Admin.