How the Trump Administration Could Pre-Empt State Policies to Shore Up Baseload Power

Many Republicans have long championed states’ rights and decried federal interference at the local level. So it may come as a surprise that the Trump administration is considering actions to pre-empt state policies in order to shore up baseload energy resources.

“The boot is on the other foot,” said Energy Secretary Rick Perry, the former governor of Texas and a self-proclaimed states’ rights advocate, speaking at the Bloomberg New Energy Finance (BNEF) Summit last week in New York. “Are there issues that are so important to the national security of this country that the federal government can intervene on the regulatory side? I’ll suggest there are.”

During his speech, Perry stated that grid experts have raised concerns in recent years about “the erosion of critical baseload resources,” specifically with respect to how they’re dispatched and compensated. The problem, he said, stems from “politically driven policies driven primarily by a hostility to coal.”

These concerns are what prompted Perry to order a DOE study on the extent to which wholesale market structures, federal policies, energy mandates and tax subsidies are forcing the premature retirement of baseload power plants and affecting long-term grid reliability.

“It is not reasonable to rely exclusively on fossil fuels, and it is not feasible to rely exclusively on renewables,” said Perry. “So we’re working to find the right balance, so we have a diverse supply of energy that is clean and affordable, and a grid that is safe and reliable.”

It is well within the DOE’s purview to assess the state of the U.S. electric grid, particularly at a time of dramatic change. What’s disconcerting to many onlookers is that the review appears to be framed as an attempt to prop up coal and nuclear energy resources at the expense of renewables like wind and solar. Following Perry’s talk last week, there’s also concern that the DOE could use the study’s findings to justify weakening state-level renewable energy policies -- something baseload energy providers have previously attempted.

Sources said that such a move from the Trump administration would be hypocritical and almost unthinkable. “But who knows!” said one clean energy stakeholder, who asked not to be named because the details are still murky. “There is a huge amount of erratic policymaking going on. This is not a normal administration. [...] This is not how it’s done. It’s really hard to predict or give the benefit of doubt.”

Could national security trump state laws?

To get a better sense of what Secretary Perry was getting at, it’s worth taking a close look at his discussion with Ethan Zindler, head of the Americas at BNEF, on how the Trump administration plans to respond to policies believed to be undermining baseload energy resources.

Zindler: Many of the policies that affect what is the priority, what gets dispatched and how markets work, are determined at a state and a local level. When you talk about politically driven policies, are you talking about state policies, and is that something you, at the federal level, are looking to in some way influence or interfere with?

Perry: I think that is a conversation that will occur over the course of the next few years. […] I was a very strong proponent as a governor of the 10th Amendment. “Thank you very much; We know how to run Texas -- we don’t need you in Washington.” The shoe, or the boot, is on the other foot now.

The reason I say that is: Are there issues that are so important to the national security of this country that the federal government can intervene on the regulatory side? I’ll suggest there are. Being able to have and make sure we’re able to maintain a baseload on our grid is of national security.

Perry specifically cited the need to shore up the nuclear energy industry, not only as a source of baseload power, but also because the U.S. needs to maintain nuclear energy expertise and manufacturing capability for military purposes. The U.S. has pulled back from nuclear energy over the past 30 years, and "in doing that, the development of our weapons side is also affected,” Perry said. He continued:

Perry: There is a conversation, there is a discussion -- some of it obviously very classified -- that will be occurring as we going forward to make sure that we have the decisions, made by Congress in a lot of these cases, to protect the security interests of America and that states and local entities do in fact get pre-empted with some of those decisions.

Zindler: So there’s the potential for pre-emption of state laws?

Perry: Well, it’s already there is some cases, so I think the conversation needs to happen so that the local governors and legislators, mayors and city councilmen and -women understand what’s at stake here when it comes to making sure that our energy security is substantial, protected.

Zindler: I think that’s probably something that would send shudders through a number of people who have built projects under certain state regulations expecting those to be what their projects come to fruition under.

Perry: I don’t think in that case you would see a tightening. If I’m building a project, my bet is the local restrictions are going to be tighter. And in some cases, maybe they were put tighter to influence the outcome. Making sure that we have thought through how we’re going to secure this country’s energy future is a conversation that’s going to be had over the course of the next few years.

The energy secretary did not say how exactly the federal government would pre-empt state and local policies in the name of national security, so much remains unclear about Perry’s comments. However, there are some levers the government could pull.

Tools in the federal government toolkit

For one thing, DOE has authority under Section 202 of the Federal Power Act to use emergency authority to effectively take control of power plants. In 2005, the DOE used this authority to require Mirant Corporation’s Potomac River generating station to comply with reliability standards for the central Washington, D.C. area. So it’s possible Section 202 could be used again.

The Fast Act signed by President Obama in 2015 also gives the DOE increased authority in case of a “grid security emergency,” which could include a reliability disruption. Section 215A could affect “any owner, user, or operator” of critical electric infrastructure in the U.S., even those not typically overseen by the Federal Energy Regulatory Commission (FERC). DOE’s expanded authority also extends to the North American Electric Reliability Corporation (NERC) and Regional Entities. So perhaps this authority offers another means.

The DOE could also work with FERC to influence how baseload energy resources are treated in wholesale markets, which is the subject of a FERC technical conference that took place this week. As we’ve reported, the nuclear industry is hoping that wholesale market reforms will reward nuclear plants for the clean and reliable energy benefits they generate. New wholesale market payments would throw the ailing nuclear industry a lifeline, and could help achieve U.S. decarbonization objectives, which have prompted a robust debate. While it’s hard to imagine under Republican leadership, enacting a price on carbon is widely believed to be the best market fix.

As Perry mentioned, ensuring baseload reliability could also involve Congress. As a part of the North American Energy Security and Infrastructure Act of 2015, House members sought to require that electric utilities adopt or modify policies to ensure that “reliable generation” is included in utilities’ integrated resource plans. HR 8, as it’s known, ultimately passed in both chambers in May 2016, but differences between the House and Senate versions were never resolved. It’s possible the Trump administration could work with Congress to introduce new reliability requirements that are difficult or impossible for renewable resources to meet.

So, theoretically, there are ways for the federal government to use its power to override state-level policies in support of baseload resources. The question comes back to: Why? Are reliability issues facing the U.S. electric grid really approaching emergency status? Or, as some fear, is this a veiled attempt at scaling back states’ renewable energy policies?

A "very dangerous" proposition

The Energy Department’s 60-day study on baseload resources could shed some light on where this discussion is going, and whether or not there’s anything for renewable energy advocates to worry about. The intention behind conducting such a study is very telling, said Brandon Hurlbut, co-founder at Boundary Stone Partners and former chief of staff at the DOE under Secretary Steven Chu.

“Doing a government study in the policymaking process can be a lot like polling in the political process,” he said, in GTM’s ongoing energy policy video series. “Sometimes you do a poll to really know the answer to guide internal decisions and you don’t release that poll, and sometimes you do a poll where you’ve asked the questions a certain way to justify an action.”

If the desired action is to use federal government power to pre-empt state policies, “then we’re talking about a totally different game that I think would be very dangerous,” he said.

Hurlbut added that the National Renewable Energy Laboratory has already conducted several studies on the implications of high renewable energy generation levels. One report found that commercially available renewable energy technology, in combination with a more flexible electric system, “is more than adequate” to reliably supply 80 percent of total U.S. electricity generation in 2050.

The Massachusetts Institute of Technology, the International Energy Agency and the California ISO have also conducted reports on renewable energy integration. NERC is also required to conduct annual, in-depth grid reliability assessments.

“The reliability issues are real; they are there,” said Patrick Currier, co-founder of S2C Pacific and former energy counsel to the House Committee on Energy & Commerce. “But a lot of them are more localized issues, and you wouldn’t know [they exist] unless you studied them the way NERC does, and is required to.”

If the concern is tied to cybersecurity, studies (like this one from Sandia National Labs) have found that there are issues with the integration of distributed energy resources and the traditional electric grid. However, cybersecurity is a concern across the electricity industry, not just for distributed resources. And if the integration of distributed resources is managed well, there’s evidence a more decentralized grid would enhance national security, because it prevents a single grid failure “from cascading into a catastrophe,” according to former CIA Director James Woolsey.

DOE accused of bolstering special interests

On Monday, Ranking Member of the Senate Energy and Natural Resources Committee Maria Cantwell (D-Wash.) and a handful of other committee Democrats wrote a letter to Secretary Perry expressing concern over the DOE study. Lawmakers took issue with the fact that Perry has given the task to his Chief of Staff Brian McCormack, who has pushed back against net metering for rooftop solar, and political appointee Travis Fisher, who previously worked for the free-market Institute for Energy Research and American Energy Alliance.

“Mr. Secretary, the notion that a 60-day review conducted by ideologues associated with a Koch Brothers-affiliated think tank should supplant research and analysis conducted by the world’s foremost scientists and engineers would be a grave disservice to American taxpayers,” the Democratic lawmakers wrote.

“We fear that the Department is instead embarking on an initiative aimed at bolstering the views of a group of special interests seeking to resurrect electric generation technologies that can no longer successfully compete on their own,” the letter states. The lawmakers added that Perry’s home state of Texas is a testament to how renewable energy can enhance fuel diversity, reduce energy prices, and improve grid reliability.

Advanced Energy Economy (AEE), the American Wind Energy Association and the Solar Energy Industries Association also wrote a letter to Secretary Perry this week, in which they welcomed the DOE’s examination of the U.S. electric power system, but stressed that the growth in wind and solar power are neither causing grid reliability issues, nor putting coal and nuclear out of business. “Numerous studies have conclusively demonstrated that low natural gas prices and stagnant load growth are the principal factors behind the retirements in coal and nuclear plants,” the letter states.

The industry groups also asked that the DOE study “follow standard practice and be conducted in an open and transparent manner,” noting that it is “customary” for agencies developing reports that designed to inform policymaking allow public comment on a draft, prior to the report being finalized. Perry requested the baseload study on April 14, and the report is due 60 days from April 19.

“As an industry, we want to provide information on how states like Texas, Perry’s home state, are integrating advanced energy resources while maintaining reliability, and provide an opportunity for grid experts like [regional transmission organizations] and utilities to weigh on this as well,” said Arvin Ganesan, AEE’s vice president of federal policy.

Asked whether or not he sees the DOE report as a political tool being used to justify federal interference in state-level policies, he said, “We’re not focused on hypotheticals of what this could result in; we’re focused on this first step being as rigorous as possible and including as much hard data and information as possible.”

Political motivations aside, nuclear and coal plant owners see the DOE study as an opportunity. On FirstEnergy’s first-quarter earnings call, utility CEO Chuck Jones said he has been in contact with the Trump administration and that market reforms will be critical to keeping coal and nuclear plants from shuttering, The Plain Dealer reports.

"If their position is to keep these plants from closing, they will have to make sure there are financial incentives to keep them operating," said Jones.

"Renewables are killing, they are just killing"

GTM contacted Travis Fisher to clarify what’s driving the DOE to pursue the baseload energy resources study, but he could not be reached by the time of publication. The Institute for Energy Research also dismissed a request for comment on grid reliability issues.

Fisher, who has seven years of experience as an economist at FERC, wrote in 2015 that claims that renewable energy resources can entirely displace traditional baseload resources are disingenuous. Entities like Apple, Google and the Super Bowl that claim to be 100 percent renewable are connected to the U.S. electric grid, which is nowhere near 100 percent renewable. Rather, it’s more than 80 percent powered by coal, natural gas and nuclear.

“And there’s good reason for that -- these technologies offer low-cost, reliable power when and where it is needed,” Fisher wrote.

It’s a fair point. Even in California, the friendliest renewable energy market in the nation, a proposal to mandate 100 percent renewable energy has raised legitimate concerns about overgeneration, grid upgrades and affordability. But that doesn’t mean California and other markets can’t safely get to very high renewable energy penetration levels, or that the federal government must step in to act on a state’s behalf.

Michael Picker, president of the California Public Utilities Commission, said at a Los Angeles Business Council event last week that the state is proving, in the real world, that wind and solar do not undermine reliability and security. They are, however, affecting baseload power, he said.

“Excess renewables are killing coal,” said Picker. Renewable energy is “reshaping state regulatory strategies and electric markets in the West,” and that’s largely because utilities are making the decision to take advantage of these new, competitive resources, he said. As a result, California doesn’t need the kind of baseload power plants that were built in the early 2000s; it really needs peaker plants.

“We’re closing about 8,500 megawatts of gas baseload, building maybe 5 gigawatts of peakers,” he said. “This is a reshaping, and it’s all happening because renewables are killing, they are just killing.”

The upcoming solar eclipse will be a prime opportunity for California to show that a grid with a strong renewable energy mix can withstand extreme variability, he added. On August 21, the Golden State is expected to suddenly lose around 6,000 megawatts of power as solar generation goes offline. “We can deal with that...without dragging baseload power plants out of retirement,” said Picker.

The commissioner called on electricity sector stakeholders to engage and help the state manage the eclipse in order “to send a message to Rick Perry telling him not to worry about California.”