During the confirmation hearing for Ron Binz on Tuesday, Senator Wyden noted, on several occasions, that FERC has no authority to regulate coal. He is right in the strictest sense of the word, but the Senator knows (or should know) that there are multiple ways that FERC affects the coal industry. He also knows that this FERC – under the leadership of Binz’s mentor Jon Wellinghoff — has used all of them to damage coal.
As of today, we are looking at coal power plants retirements in the neighborhood of 50,000 megawatts and climbing. The current chairman dismissed estimates from his own staff that placed the retirement numbers at around 80,000 megawatts, preferring instead to confirm and ratify EPA’s comical low estimate of 7,000 megawatts. So the first thing a FERC chairman can do for the coal industry is to tell the truth among the magnitude of the problem. Wellinghoff has not done that; Binz will not do that.
Many have noted that the retirements are the result of price and dispatch pressure brought about by low natural gas prices. That is, of course, why less coal is being dispatched. But the plants are being shut because of the costs associated with EPA regulations. Here, too, FERC plays an important role. Because the market rules in the Midwest approved by FERC (and in some instances suggested by FERC) only allow generators to be certain that they can sell their power in one-year increments, it is very difficult for generators to make the capital investments needed to meet environmental regulations.
In short, if you can’t be sure that you can spread the costs over multiple years, you really can’t make the necessary investments. This is not a hypothetical problem. In closing their Hatfield’s Ferry and Mitchell power plants in Pennsylvania, First Energy explicitly noted the role of market rules as an important component of the decision.
The cost driver is the environmental regulation for sure, but with appropriate market rules, generators could meet those costs and stay open. Under Jon Wellinghoff, FERC has not changed those rules; it will not under Ron Binz.
On a similar note, a competent and engaged FERC chairman could help avoid shutdowns for at least some of these plants by embracing a more energetic Reliability-Must Run (RMR) policy, which designates some plants as essential for grid reliability and operation. Wellinghoff has not done that; Binz will not do that.
What does the other side of the ledger look like? In States with capacity markets (half the states in the union), new renewables and demand response are treated differently and much better that traditional sources of energy in capacity markets. Under market rules approved by FERC (and again, in many instances suggested by FERC), baseload power plants have been subject to the strictest sort of scrutiny. Ask Governors Cuomo in New York, O’Malley in Maryland, and Christie in New Jersey, all of who have had FERC-approved market rules used against them as they try to build new power plants.
How about transmission? The newly minted Order 1000 is a direct intervention into the resource planning processes of States. Ostensibly directed at transmission, it is just a matter of time before FERC begins to creep towards conversations about what sorts of generation states are pursuing. Leave that ambition aside for a moment. The harder and more immediate reality is that the Order is expressly intended to provide advantages to renewables (and by extension, disadvantages to affordable and reliable energy – namely coal and that eventual “dead end” natural gas).
In rolling out the rule, Chairman Wellinghoff specifically noted that the new order should particularly benefit wind- and solar-energy projects, which are often located in remote places that are poorly served by existing interstate transmission lines. Again, this action damages coal relative to other energy sources. Wellinghoff created it; Binz will continue it.
Take a look at the FERC website. The top four initiatives listed – demand response, Order 1000, integration of renewables, and smart grid – are all pointed at moving away from affordable and reliable energy production.
Finally, there is FERC as the source of expertise on energy issues in the Administration. Chairman Wellinghoff has for years pointed out that we no longer need baseload power plants. His handpicked successor has noted that after 2035 natural gas is a dead-end. Their mutual sponsor, Senator Reid, has pointed out repeatedly that coal makes us sick. What sort of advice do you think these three give to other federal agencies?
The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.
