President Trump, first SOTU:
We have ended the war on American energy â€” and we have ended the war on beautiful, clean coal.
The past tense is a nice touch. Like Napoleon returning to Paris from Egypt, he just declares that defeat is victory.
Candidate Donald Trump promised not only to stop the decline in coal mining jobs but to bring lost ones back. This wasnâ€™t a casual campaign lie, like support for LGBTQ rights, abandoned from the inauguration. Trump, Pence and Cabinet members repeated the promise after the election, for instance in May. The promise was critical to securing votes in rural counties in Pennsylvania. It was part of the wider narrative of support for the white American working class, which won him crucial defections from the Obama coalition in Michigan and Wisconsin. This was a central Trump commitment. How is it working out?
Not well. True, US coal production and jobs have ticked up in 2017:
(Data to January 5. The chart being from FRED, you can update it from here whenever you like.)
The increase came entirely from exports. French nuclear power stations had unexpected maintenance issues. Chinese planners miscalculated and shut down dozens of small coal mines ahead of the trend fall in consumption, which surprisingly ticked up too. These are just blips. The world trend in coal is steadily down, and imports are vulnerable everywhere.Â Continued export growth is most unlikely. US consumption, the only solid basis for American coal mining, fell by 2.6%.
The domestic prospects are even worse. In 2017, US utilities closed 8 GW of coal capacity and announced the retirement of 27Â coal plants over time.Â It takes roughly 6 GW of operating coal capacity to support a thousand mining jobs, so the annual rate of job loss should be around 2,000 at current rates, allowing for the fact that the high-cost, labour-intensive mines will go first.Â This will accelerate. The coal generating fleet (290 GW nameplate in 2016) is old. The mean weighted age is 40 years, a typical design life. Just carrying on is often not an option: it’s an expensive refit or closure. According to Lazards,
As LCOE values for alternative energy technologies continue to decline, in some scenarios the full-lifecycle costs of building and operating renewables-based projects have dropped below the operating costs alone of conventional generation technologies such as coal or nuclear.
This is already happening in Texas and Colorado. It doesn’t look as if coal closures will stay as low as 10 GW a year, or the industry survive 30 years. No US coal plant is safe for long, ergo no coal mine or mining job. This has nothing to do with the suspended CPP, a paper tiger, which basically put a diplomatic gloss on current economic trends.
So how is President Canuteâ€™s plan to stop the tide (endnote) going? Letâ€™s look at this through the lens of the recent FERC decision throwing out Perryâ€™s proposal for a coal and nuclear subsidy.
Perryâ€™s DoE sent a proposed regulation (â€œGrid Resiliency Pricing Ruleâ€), to FERC in October. This claimed, in dramatic language (my emphasis), that the rapid shutdown of coal generation, and the slower one of nuclear, created high risks to the â€œresilienceâ€ of the US bulk electricity supply (section II.I in fine):
Nevertheless, the fundamental challenge of maintaining a resilient electric grid has not been sufficiently addressed by the Commission or the ISOs and RTOs. The continued loss of fuel-secure generation must be stopped. These generation resources are necessary to maintain the resiliency of the electric grid. FERC must adopt rules requiring the Commission-approved ISOs and RTOs to reduce the chronic distortion of the markets that is threatening the resilience of the Nation’s electricity system.
The proposed solution was to guarantee cost recovery for generating plants with 90 daysâ€™ fuel on site, meaning coal and nuclear. The considerable extra cost would be recovered from consumers through higher electricity prices.
This was always going to be a hard sell. Telling an expert bureaucracy like FERC that they have been asleep at the wheel rarely goes down well. The proposal went against decades of FERC support for market liberalisation. It was opposed not only by wind and solar interests, but by the powerful natural gas lobby, by state regulators, regional transmission operators, and a clear majority of utilities. It would have been resented by electricity ratepayers and voters if it were ever adopted.
But there wasnâ€™t even a fight. The FERC response justifying the unanimous rejection of the proposal consists of just three paragraphs. Key extracts (my emphasis):
14. […] The FPA [Federal Power Act of 1920] is clear: […] there must first be a showing that the existing RTO/ISO tariffs are unjust, unreasonable, unduly discriminatory or preferential (21). Then, any remedy proposed under FPA section 206 must be shown to be just, reasonable, and not unduly discriminatory or preferential (22). For the reasons discussed below, the Proposed Rule did not satisfy those clear and fundamental legal requirements under section 206 of the FPA .Given those legal requirements, we have no choice but to terminate Docket No. RM18-1-000.
15. Neither the Proposed Rule nor the record in this proceeding has satisfied the threshold statutory requirement of demonstrating that the RTO/ISO tariffs are unjust and unreasonable. While some commenters allege grid resilience or reliability issues due to potential retirements of particular resources (23), we find that these assertions do not demonstrate the unjustness or unreasonableness of the existing RTO/ISO tariffs. In addition, the extensive comments submitted by the RTOs/ISOs do not point to any past or planned generator retirements that may be a threat to grid resilience (24). […]
16. Turning to the second prong of the section 206 analysis, we note that the Proposed Rule would allow all eligible resources to receive a cost-of-service rate regardless of need or cost to the system (26). The record, however, does not demonstrate that such an outcome would be just and reasonable (27). It also has not been shown that the remedy in the Proposed Rule would not be unduly discriminatory or preferential. (28) For example, the Proposed Ruleâ€™s on-site 90-day fuel supply requirement would appear to permit only certain resources to be eligible for the rate, thereby excluding other resources that may have resilience attributes.
Footnotes 21 and 27 also bear citation:
21. 16 U.S.C. Â§ 824e(a) (2012). See also, e.g, Emera Maine v. FERC, 854 F.3d 9, 25 (D.C. Cir. 2017) (â€œWithout a showing that the existing rate is unlawful, FERC has no authority to impose a new rate.â€); FirstEnergy Serv. Co. v. FERC, 758 F.3d 346, 353 (D.C. Cir. 2014) (â€œRegardless of whether it is charged with completing step two, proposing new just and reasonable rates, [petitioner] still must complete step one, demonstrating that PJMâ€™s existing rates are unjust and unreasonable.â€).
27. For example, the Proposed Rule proposes that RTOs/ISOs pay a cost-of-service rate to a resource that has a 90-day fuel supply on site to enable it to operate during an emergency, extreme weather conditions, or a natural or man-made disaster. However, neither the Proposed Rule nor the record demonstrate why the existence of an on-site 90-day fuel supply is a reasonable basis to find that rate to be just and reasonable and not unduly discriminatory or preferential. In addition, the Proposed Rule does not address the concern that an eligible resource located in a constrained area may not assist with the resilience of the bulk power system to warrant that rate.
The obvious reading of these paragraphs is as a rebuke: DoEâ€™s homework does not meet the threshold standard of applicable law. It confirms the analysis of Ari Peskoe, an environmental law scholar at Harvard:
[The NOPR] does not even propose that current rates are unjust and unreasonable. You couldnâ€™t correct that by just adding evidence in the record. That was a threshold deficiency that FERC couldnâ€™t correct.
There are other possible explanations for FERC’s decision: the commissioners are honest professionals who judged the proposal idiotic public policy; the commissioners are corrupt stooges of the gas industry; they were manipulated in a Deep State conspiracy by Democratic partisans (read: honest professionals) in the career bureaucracy. But Ockham’s Razor suggests we should accept FERC’s own statements at face value. Whatever their political sympathies, the commissioners saw Perry’s proposal as legally indefensible. And they would certainly have had to defend it in court.
To review, Perryâ€™s DoE:
1. proposed a radical change in policy based on an undefined new concept of â€œresilienceâ€. It offered no clear discussion how this differed from the traditional criterion of reliability. This was not hard â€“ FERC provided a definition in its response (paragraph 23). Basically, resilience is resistance to and rapid recovery from shocks. It is part of reliability, the other component of which is meeting peaks in demand without outages;
2. offered no legal argument why existing arrangements were unreasonable in the light of the FPA and case law;
3. offered no legal argument why the proposed arrangements were not discriminatory, which they prima facie would be, in the light of the FPA and case law;
4. offered no technical analysis or modelling justifying the claim that the US grid is becoming less resilient, beyond selective quotations from a NERC report raising a general concern (in fact the grid came through the recent cold weather much better than the Polar Vortex of 2014);
5. offered no technical analysis or modelling justifying the claim that 90-day onsite fuel storage is a critical requirement for resilience. This is particularly hard to show: bulk supply disruptions have been an insignificant proportion of outages in recent years; during the Polar Vortex several coal plants crashed because the coal piles froze; the gas pipeline network is quite resilient through its inbuilt storage capacity from pressure variations, and intrinsic islanding, in contrast to the highly connected electricity grid that must stay with a narrow voltage range at all times;
6. offered no economic analysis of the costs and benefits of the proposal beyond handwaving.
FERC has a Republican majority, and four of its members, including the chair, are Trump appointees. They would start with a prejudice in favour of a proposal reflecting a key priority of the Administration. But the proposal was prepared with such incompetence that they had no choice but to throw it out. See the concurring opinion of commissioner Neil Chatterjee, who is actually sympathetic to the subsidy.
What if the proposal had been professional? The policy reversal, the influence of the gas lobby, and the certainty of litigation from more than a few of the many other institutional players in the Rube Goldberg contraption called the US electricity market, would have made it problematic in any case. We donâ€™t know what would have happened â€“ but Perry made certain.
The FERC has kicked the can a long way down the road, calling for information and comments on dozens of questions, followed by a timewasting Grand DÃ©bat as the French call it. Meanwhile the coal closures will continue.
The promise to save coal jobs has been, remember, one of the defining shibboleths of the Trump campaign and Administration. Since a proposal for an explicit coal subsidy would be laughed out by the Tea Partiers in the GOP House caucus, the only possible plan was to make electricity consumers pay. And this dogâ€™s dinner was the best they could do. What was the White House doing? As far as I can make out, nothing. There certainly was no counterpart to the massive effort of Obamaâ€™s staff on ACA. Perry seems to have been left to his own devices and limited abilities.
Incompetence is also a defining feature of this Administration, a continuo to the harsh signature blare of bigotry. It starts with Trumpâ€™s own laziness, stupidity, lack of focus, and temper tantrums, and has spread down like mould in a house. You donâ€™t have to look hard to find other examples. Interiorâ€™s Ryan Zinke announced another unpopular new policy to open coastal waters to offshore oil and gas development. Then Governor Scott Walker of Florida, a vulnerable Republican, predictably complained â€“ and Zinke promptly gave him an exception. The AGs of California and New York must be rubbing their eyes in disbelief. The exception is blatantly based on considerations of party advantage, making the policy discriminatory and vulnerable in court. What was Zinke thinking?
Itâ€™s not much consolation to note that none of these people would have lasted long in Berlin or Moscow in the 1930s.
Cnut the Great ruled a short-lived empire including Denmark, Norway, and England until his death in 1035 AD. By all accounts he was a capable ruler. The ahistorical legend of the tides comes from a 12th-century English chronicler, Peter of Huntingdon.Â It was designed to illustrate Canuteâ€™s deference to the will and power of God, which Peterâ€™s successors contrasted to the hubris and flattery of his courtiers. See also â€œPotemkin villageâ€, a smear put about by the enemies of a vigorous and very effective satrap who founded several cities and created the Russian Black Sea Fleet.
American electricity supply does face a problem of reliability. The standard indicator of outages, SAIDI, is 10-12 minutes a year in Denmark and Germany. It’s typically over 200 in the USA, though nobody knows for sure â€“ a data problem which FERC should address. The outages do not come from the very reliable bulk supply system but from distribution, very often on rickety and vulnerable poles. If Americans want a more reliable supply, they will have to pay for widespread and expensive burial of cables. They should want it â€“ in Jacobsonâ€™s world, everything will be electrified, and reliability becomes as essential to a house as it is today for a hospital.
The title of this post is a lame riff on Tacitus’ brutal epigram on Servius Sulpicius Galba, a short-lived claimant to the imperial title in 68 AD, between Claudius and Vespasian: capax imperii nisi imperasset. “Capable of power if only he had not won it”. Latin epigrams aren’t easy, and Tacitus sets an impossible benchmark.