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Coal exec throws his weight behind a new proposal after Rick Perry’s bailout fails

New pricing scheme could benefit coal and nuclear plants.

CREDIT: Luke Sharrett/Bloomberg via Getty Images
CREDIT: Luke Sharrett/Bloomberg via Getty Images

One week after federal regulators rejected Energy Secretary Rick Perry’s plan to prop up coal and nuclear plants at the expense of natural gas and renewable energy generation, a coal industry executive threw his support behind a separate proposal by the nation’s largest electric grid operator that could force customers to pay more to support coal-fired and nuclear power plants.

Energy analysts are noting similarities between the failed Department of Energy (DOE) grid resilience proposal and a new pricing plan that the PJM Interconnection — which oversees electric transmission lines in 13 states plus the District of Columbia — wants to implement. The PJM proposal, released in November 2017, would boost revenue for generators, including coal and nuclear plants, by raising the overall energy price in its multi-state market.

Murray Energy Corp. chief executive Robert Murray told Bloomberg News that PJM’s proposal “certainly sounds like it’s in the same direction” as Perry’s proposal, which Murray strongly supported. Murray also urged President Donald Trump to fire four of the five commissioners who rejected Perry’s plan to help coal and nuclear power plants.

The four members “defaulted” on their duties by refusing to support the plan, Murray said. Commissioner Neil Chatterjee, the fifth member of FERC who also voted to reject the plan, should not be fired because he was “overwhelmed” by the other four, according to Murray.

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The Sierra Club emphasized Perry’s plan was only “the tip of the iceberg” in the fossil fuel industry’s bailout efforts. “There are still numerous proposals making their way through state legislatures, public utility commissions, electric market operators, and Congress that will unfairly prop up fossil fuel plants that can’t compete in America’s modern energy markets,” Mary Anne Hitt, director of Sierra Club’s Beyond Coal campaign, wrote in an op-ed published Tuesday in The Hill.

Even though it would not provide subsidies or guaranteed profits, PJM’s proposal would make changes to its pricing system for generation that are “designed to prop up dirty, uneconomic, inflexible coal and nuclear generators at the expense of ratepayers,” Justin Vickers, a staff attorney at the Environmental Law and Policy Center, said in an interview with Midwest Energy News.

Perry’s proposal would have subsidized coal and nuclear plants in the name of making the grid more resilient during times of high demand or emergency. In a unanimous vote, though, FERC rejected the idea after it drew criticism from a wide array of industry stakeholders as well as environmental groups.

PJM’s proposal would not result in subsidies for coal and nuclear plants. Rather, it would raise customers’ costs across the region in an effort to provide above-market prices to inflexible generating units such as coal and nuclear units, according to critics.

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Stu Bresler, PJM senior vice president of operations and markets, said on a conference call last year that the “proposal is not designed to protect any particular fuel resource,” and that customers would benefit from improved market transparency and operational efficiency. The net impact of the proposed changes is estimated to be an increase in total costs of between 2 percent and 5 percent, according to PJM.

In his proposal, Perry was trying to interject a non-market-based type of compensation into competitive regions of the country, which many analysts believed “would have been the end of competitive markets” if FERC had approved it, Christina Simeone, a director at the Kleinman Center for Energy Policy at the University of Pennsylvania, told ThinkProgress.

PJM’s proposal, on the other hand, would raise energy market prices for all generators in the market, “which is one reason why economically struggling nuclear and coal plants may like this proposal,” she said.

PJM already has about 24 percent more electricity capacity in reserve than the region is expected to need. By increasing prices in its region, PJM would keep inefficient coal and nuclear plants running and could provide incentives to developers to bring more generation online, exacerbating the oversupply problem.

Rob Altenburg, director of the Energy Center at the environmental group PennFuture, said PJM’s proposed pricing reform would distort the market, without which older, inflexible coal and nuclear plants plants would simply be retired. The growing supply of gas-fired power generation in the region is replacing aging coal and nuclear plants when they retire, signaling that there’s no issue over maintaining grid reliability, Altenburg told StateImpact Pennsylvania.

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“Some believe PJM’s price formation proposal is needed to send more accurate pricing signals to energy resources that are now operating in this very low natural gas price environment,” Simeone said. “Others believe the proposal is a more technical way [than the Perry proposal] to increase revenues to generators like these struggling coal and nuclear units.”

The dramatic decline in natural gas prices over the past 10 years has challenged a lot of the original assumptions that went into PJM’s design of its energy pricing mechanisms. When natural gas prices were higher, coal and nuclear plants were able to compete with the gas-fired power plants. If PJM succeeds in implementing its proposal, “changing the rules of the road now will benefit a lot of these struggling generators,” Simeone said.