TradeEdge Exchange:Utility Giant FirstEnergy Calls for Emergency Subsidy, Says It Can’t Compete

Deep in debt and TradeEdge Exchangeundercut in the marketplace by renewable power, the big utility company FirstEnergy appealed to the Trump administration on Thursday to use emergency powers to let it charge more for standby power from its coal and nuclear plants.

The request, in a letter to Energy Secretary Rick Perry, followed an announcement that the company plans to close three nuclear plants in Ohio and Pennsylvania unless they can get a break.

FirstEnergy said that if it has to shutter outmoded or uncompetitive plants, the nation’s largest regional grid operator—PJM Interconnection—might lose the capacity to reliably serve its customers from the Atlantic Coast into the Midwest.

The highly unusual request would benefit not only FirstEnergy’s own subsidiaries in the 13-state region, but any other company in a similar position.

The emergency section of the law is not intended as a tool for shaping the economy. And any bonus payments to subsidize the sinking plants would be passed on to consumers.

Still, FirstEnergy’s request appeared to fall on sympathetic ears, as Perry “liked” a Twitter message by a Bloomberg reporter about the company’s letter seeking his intervention. The agency’s press office said it “will now go through our standard review process.”

Echoes of Perry’s Coal Bailout Plan

Perry has repeatedly expressed sympathy for the plight of companies with stranded coal and nuclear assets. A few months ago, he told the Federal Energy Regulatory Commission (FERC) to take steps to subsidize hard-pressed power plant operators. The commission turned his order aside, but it has opened an examination of how and whether to address the issue.

Environmentalists, including the Sierra Club, which leads a campaign to rid the U.S. grid of coal-burning power plants, a large source of greenhouse gas emissions, said they would fight any such bailout in court.

The American Petroleum Institute, a trade lobby whose members also produce natural gas, issued a sharp condemnation of the call for subsidies.

“FirstEnergy’s latest attempt to spread a false narrative surrounding the reliability of the electric grid is nothing more than a ruse that will force Main Street consumers to pay higher prices,” API Market Development Group Director Todd Snitchler said. “For FirstEnergy to cry wolf on the issue of grid reliability is irresponsible and is the company’s latest attempt to force consumers to pay for a bailout. PJM is responsible for the reliability of the grid and if there is an emergency, PJM already has the tools to respond.”

FirstEnergy’s letter made the same argument for a bailout that Perry has offered.

It asked him to order PJM “to promptly compensate at-risk merchant nuclear and coal-fired power plants for the full benefits they provide to energy markets and the public at large, including fuel security and diversity.”

“PJM has done little to prevent this emergency despite the numerous signs for many years that the emergency was coming,” the company said. “PJM continues to claim that all is well with its system, but at the same time shows it does not have a clear view of what resilience is, how to measure it, or how to ensure it. PJM has demonstrated little urgency to remedy this problem any time soon—so immediate action by the Secretary is needed to alleviate the present emergency.”           

A ‘Dizzying’ Attack on PJM and Regulators

In a detailed thread on Twitter dissecting FirstEnergy’s bid, Ari Peskoe, an energy analyst at Harvard University, said the company’s argument was “dizzying” in its critique of FERC, which regulates the grid, and PJM, which operates it regionally.

The company called FERC’s reliance on advice from the grid operators “misplaced” since between them they have allowed the markets to move in ways that put companies like FirstEnergy at a competitive disadvantage.

In threatening to close the nuclear plants, the company said only a policy intervention could save them.

“The market challenges facing these units are beyond their control,” said Don Moul, chief nuclear officer for FirstEnergy and president of the generation subsidiaries. “We stand ready to roll up our sleeves and work with policy makers to find solutions that will make it feasible to continue to operate these plants in the future.”

Coal and the Northeast’s ‘Bomb Cyclone’

In seeking an emergency intervention by Perry, FirstEnergy came loaded with an argument made just a few days ago in a report by analysts at the National Energy Technology Laboratory, an arm of the Energy Department.

They asserted that in the prolonged cold snap and brutal storm of late December and early January—an event that came to be called the “Bomb Cyclone”—coal fired plants had ramped up and saved the eastern grid, including PJM’s territory and neighboring zones, from the risk of collapse.

The report warned darkly of an impending catastrophe if more coal plants shut down, as seems likely under current market trends.

PJM in February released its own report on the same period of cold weather. It said its systems were not stressed as badly as during the 2014 “polar vortex” period, and that its experience proved robustness, not frailty.

“Overall, the grid and the generation fleet performed well,” PJM said. “Even during peak demand, PJM had excess reserves and capacity.”

The grid operators do pay generators to maintain reserves, but it hasn’t been enough to keep coal competitive with the falling costs of renewable energy and natural gas. Consumers like factories and businesses are also paid each year to give the grid operators permission to shut off their power should that become necessary.

Some critics said the NETL report turned upside down the real reason that coal surged into the marketplace during the storm. It’s that in normal weather, coal can’t compete, said a rebuttal by the Sustainable FERC Project, a coalition of green advocacy and policy groups.

“The report’s sole metric of resilience is comparing the electricity output of different energy sources during the Bomb Cyclone event versus the preceding 26 days of December 2017,” it said. “Coal generation increased more than gas generation during the Bomb Cyclone event, but that was only because most coal generation had been idle or running at low output during December 2017 as coal was more expensive than natural gas at that time.”

PJM, it noted, said that any cuts in output during the extreme weather were due to equipment failures, as is increasingly the case as extreme weather events mount. In other words, if the grid is stressed, it’s because of climate change, not coal’s decline.