When Energy Secretary Rick Perry testified before the House Energy and Commerce Committee last month, much of the discussion focused on the Department of Energy’s new directive aimed at enhancing the power grid’s reliability. The secretary repeatedly returned to a single event to justify the rationale behind the directive – the 2014 extreme cold weather caused by the southward shift of the North Polar Vortex.
The gist of his argument was simple and, outwardly at least, intuitive. Those few days of extreme cold across the Atlantic seaboard demonstrated the need to change the way electricity markets operate in order to ensure the resiliency of the grid. The way to accomplish this, Perry argued, is to subsidize the costs of power-generation sources with the ability to store 90 days of fuel on-site so as to prevent supply disruptions.
The details behind the proposal suggest that the true objective here is a political one. Specifically, to prevent the closure of the only technologies that can realistically store that much fuel on site – coal-fired power plants and nuclear facilities.
Market forces have caused many of these plants – particularly in the Northeast and Mid-Atlantic – to become increasingly uneconomic to operate and as a result there have been numerous closures. In Secretary Perry’s mind the closures constitute a grave risk to the reliability of the grid system.
The problem is that the proposed rule fundamentally mischaracterizes the power disruptions related to the Polar Vortex, in order to make the case that having a three-month fuel supply onsite would have prevented the outages.
The facts, analysis and data from the period all suggest otherwise.
It’s worthwhile to provide some context on the wave of frigid air that descended on the northcentral and eastern parts of the United States in 2014. During the Polar Vortex, much of the country faced extreme cold of the kind it hadn’t experienced for years, with the average temperature on Jan. 6, 2014 – the height of the event – sinking as low as 17 degrees. The last time the national average fell below 18 degrees was Jan. 13, 1997.
During the prolonged cold front, some natural gas-fired power plants did not have the required fuel to operate. Some coal-fired facilities froze – both the power plants themselves and their on-site coal piles. Some fuel-oil plants weren’t able to operate because liquid feedstocks would gel and clog valves or trucks couldn’t reach facilities to deliver fuel. In other cases, the cold weather and precipitation brought down power lines.
This is a long way of saying that regardless of fuel source, there are some inescapable limitations on our energy delivery system when Mother Nature wants to unleash her full fury.
But it’s also important to note that some natural gas-powered facilities that didn’t come online during the cold snap weren’t scheduled to be deployed in the first place and relied on what’s known as “interruptible contracts.”
The other type of contact is known as a “firm contract.” During the Polar Vortex, virtually every utility that had a “firm contract” for natural gas received their deliveries. Those with interruptible contacts, as well as other power plants whose design limited their ability to operate in such low temperatures, weren’t available to supply power to the gird.
A similar situation played out in the aftermath of Hurricane Harvey earlier this year. Some Texas power plants had to switch from coal to natural gas when their due coal piles became waterlogged. In preparation for landfall of Hurricane Irma, a Florida utility shuttered both of the state’s nuclear plants out of safety concerns.
When asked about the switch from coal to natural gas following Hurricane Harvey, Secretary Perry told members of the Energy and Commerce Committee that industry would learn from the experience and ensure coal piles would be adequately sheltered in the future. In fact, many grid operators have already learned lessons from 2014.
A case in point, PJM Interconnection, the regional grid operator in 13 states and the District of Columbia, developed a “capacity performance” proposal. The plan, approved by The Federal Energy Regulatory Commission (FERC), is designed to improve reliability by requiring electric generators commit to providing 700 hours of non-emergency operations over the course of a year, and have the ability to operate for 16 hours per day for three consecutive days, among other requirements. Power producers who receive capacity payments and don’t meet those requirements are fined heavily and held accountable.
Market-driven solutions – like those that have already been developed in the wake of the Polar Vortex – should guide our nation’s energy policies.
If Secretary Perry’s goal is to enhance the reliability and resiliency of our nation’s power system, he should follow the lead of PJM and other regional operators, and develop rules that are fuel-agnostic and consumer-focused.
Coal and nuclear are important sources of affordable and abundant energy. But they – and every power plant – should compete on playing field without government officials tipping the scales in favor of a particular source with subsidies that increase prices for consumers.
Openness, transparency and greater competition in America’s power markets are the policies that will best foster innovation and investment, and ultimately create benefits for consumers and manufactures alike.