Perry’s DOE Study Has Little Power to Shape the Grid
Anticipation is building in advance of the release of a study ordered by Department of Energy (DOE) Secretary Rick Perry to examine “critical issues central to protecting the long-term reliability of the electric grid.” It is more likely to end with a fizzle than a bang, however, because not only did a leaked draft conclude that renewable energy isn’t undermining the grid, the reality is that DOE has limited legal authority over grid reliability.
Perry’s directions for the study telegraphed a desire to prop up coal and blame renewable energy for imagined reliability issues, but the leaked draft concludes that "the grid is in good shape despite the retirement of many baseload power plants,” and “significantly higher levels of renewable energy can be integrated without any compromise of system reliability.” However, according to a DOE spokesperson, the study is “evolving,” so whether these conclusions make the final cut is anyone's guess. Meanwhile, allies of Donald Trump have sought to minimize the study’s overall importance.
While it would be foolhardy for Perry to reject the conclusions of DOE's expert staff (which are backed by robust data and numerous studies), officials would be right to temper expectations about the final version’s immediate relevance to regulating the grid because DOE is not the primary agency responsible for grid reliability. That duty falls on the Federal Energy Regulatory Commission (FERC), the North American Electric Reliability Corporation (NERC), regional grid operators, utilities, and other entities. DOE can use its bully pulpit to prompt discussion of important issues facing the power sector, but those conversations are occurring anyway in the normal course of the operation and management of the grid.
Although DOE has authority to order power plants to operate to maintain grid reliability during unforeseen grid emergencies, its exercise of this authority based on a broad grid review would clearly be inappropriate. Therefore, any use of the final study should be rightly limited, at most, to prompting further analysis, rather than as a basis for any substantive regulatory action.
DOE’s powers over grid reliability
Section 202 of the Federal Power Act outlines specific narrow circumstances where the DOE may order continued operation of specific power plants to serve the public interest. It limits these powers to “war” and “emergenc[ies],” which DOE’s regulations make clear are confined to “unexpected inadequate supply of electric energy,” such as would be caused by “the unexpected outage of facilities” from events like “weather conditions” or “acts of God.” (emphasis added).
The steady and inexorable decline of coal-fired power plants across the country caused by the inability to compete with cheaper natural gas, renewables, and flat consumer demand simply does not fall into this category. NERC and FERC have made clear that supplies are adequate in regions across the country (their most recent assessments are here and here).
Beyond Section 202 of the Federal Power Act, DOE’s grid powers are chiefly advisory and procedural. The DOE Organization Act, which divided authority between FERC and DOE, leaves FERC with sole responsibility for major areas like overseeing regional energy markets, while allowing both DOE and FERC to do things like carry out investigations and hold hearings about matters affecting the grid. While the DOE Organization Act does empower DOE to make rules in certain very limited areas, DOE is required to refer rules to FERC where they involve FERC’s authority under the Federal Power Act. And NERC is responsible in most instances for developing grid reliability standards, subject to FERC oversight. In other words, FERC and NERC are the top dogs on grid reliability, and DOE plays a support role with analysis. (FERC is an independent agency housed within DOE, but in practice they function as separate agencies.)
How this applies to Perry’s study
The upshot of all of this is that DOE can and should play a positive supportive role through studies of grid reliability, while avoiding any sweeping regulatory actions in this area. Unfortunately, the DOE began this discussion on the faulty premise that “baseload” electricity supply is necessary for a well-functioning grid. (While “baseload” is a somewhat ambiguous term, it has historically been used to refer to large coal and nuclear plants.) Contrary to the study’s framing, having “baseload” in the supply mix is not necessary to keep the lights on. The CEO of New England’s grid operator recently explained, for example, that “[c]oal is largely irrelevant in New England,” so the suggestion that it’s needed to maintain resilience “just doesn’t compute.” As The Brattle Group, a global economics consulting firm, noted in a recent report commissioned by NRDC, referring to “‘baseload’ generation is no longer helpful for purposes of planning and operating today’s electricity system.”
This anachronistic framework is leading to some confusion in the leaked draft. It includes an awkward section, for example, suggesting a technology neutral definition of “baseload” without ever explaining why focusing on it is important or helpful. As Brattle’s report explains, the focus of grid planners and operators should be on grid services like energy delivery, frequency regulation, and ramping capability (defined in a technology-neutral manner), not on outdated categorizations of plants according to whether they are “baseload,” “intermediate” or “peaking.”
Nonetheless, there is still time to channel the study in a productive direction, should Perry and his staff seize the opportunity to do so. For example, by retaining some of the leaked draft’s conclusions, Perry could force the coal industry to confront hard truths, like: (1) the grid is more reliable than ever even as coal-fired generators are retiring; (2) it’s possible to construct a reliable system without any “baseload,” as is happening now; (3) low natural gas prices, not renewables, are the biggest driver of coal retirements nationwide; and (4) renewables are being dependably integrated into the system while providing valuable reliability services.
It would be a shame if Perry were to delete the draft report’s sound conclusions at the behest of the coal industry or others. Given the unanimity of grid experts on these questions, it will not be credible to suggest the conclusions could be eliminated through the natural give-and-take of revisions by different DOE branches. Fortunately, DOE serves merely in an advisory role in most areas of grid operations, so even if the final report omits these conclusions, it should not have any direct and immediate impacts.