New Coal Power Subsidy Proposal: Implications for the West

Desperate to shore up aging and uneconomic coal-fired power plants, US Department of Energy Secretary Rick Perry has asked the Federal Energy Regulatory Commission (FERC) to guarantee some plants’ cost recovery and reduce the flow of revenues to cleaner competitors. This bailout and new attack on clean energy from the Trump Administration is wrongheaded to the core but, as proposed, it would not affect the western power grid.

Why is that? First, and most important, Perry’s proposed rule would only benefit coal (and nuclear) plants that do not recover their costs under state or local utility rate regulation, but instead have opted to earn all their revenues from wholesale power markets regulated by the Federal Energy Regulatory Commission (FERC). Such plants are relatively common in some parts of the nation, but Western states without exception (including California) have chosen a different path. Here, state and local utility regulators oversee cost recovery for most power generation, including all the coal and nuclear plants now operating across the West.

Moreover, since releasing the proposed rule, DOE made a last-minute change that limits its coverage to generators operating in regions that have FERC-regulated “capacity markets;” there are none in the west.  These specialized power markets are used by some transmission operators (particularly in the Northeast) to create additional earnings opportunities for generators that provide reliability benefits to their grids; here again, western states have opted for alternative mechanisms, like long-term contracts between utilities and generators, which are under state and local regulatory oversight. 

If California’s grid operator expands, would the answer change?

As efforts continue to coordinate westwide electric system operations across what are now 38 separate “balancing authorities,” the Perry proposal has led some to question whether enhanced grid integration creates risk of increased interference in state energy policy by federal regulators. If California’s grid operator were to expand its operations into other states (which would need their utility regulators’ consent), would it risk being coerced into paying subsidies to coal and nuclear power plants in those states?

The answer is clearly “No.”

The Perry proposal is preposterous on multiple grounds and unlikely to succeed, as my colleague Miles Farmer has argued extensively. But let’s assume, in contravention of decades of history and precedent at FERC, that the agency simply approves the DOE proposal and agrees to gross distortions of the very wholesale power markets it is sworn to protect. The West would still be unaffected, because our grid has no FERC-regulated capacity markets and no coal or nuclear plants that could qualify for the new subsidies.  Integrating the western grid is important from cost, pollution and reliability perspectives, and vital to decarbonizing the economy. The economic and environmental case for enhanced western grid integration only grows stronger as the clean energy transition continues, adding more clean energy that could replace dirty power if allowed to compete on equal terms across a larger region. And as the Yale Environmental Law Clinic concluded in a recent analysis, enhanced grid integration would open no new paths to intrusive FERC regulation, and in fact could help avert it by making what is now a fully FERC-regulated “California” grid operator into a less tempting target with a multi-state constituency.

Secretary Perry’s desperate search for new ways to prop up coal plants in no way undermines that conclusion, or reduces the need to integrate the western grid. 

About the Authors

Ralph Cavanagh

Codirector, Energy program

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