ENERGY POLICY

'Polar vortex' fuels political whirlwind

This winter's deep freeze, also known as the "polar vortex," continued to fuel energy debates in the Senate yesterday as conversation about grid reliability spilled into fretting over the closure of large baseload coal and nuclear plants across the country.

"We're setting ourselves up for a major reliability crisis," warned Sen. Joe Manchin, a Democrat from coal-heavy West Virginia.

During a hearing in the Energy and Natural Resources Committee, Manchin peppered regulators, grid overseers, energy companies and interest groups with questions about looming U.S. EPA rules and coal plant closures -- an issue that system planners have already said is a point of concern in some regions.

Sen. Rob Portman (R-Ohio) pushed Cheryl LaFleur, the acting chairwoman of the Federal Energy Regulatory Commission, for assurances that the commission is keeping a close eye on grid reliability in 2016, when U.S. EPA's landmark mercury and air toxics standards take effect.

Although LaFleur said FERC is providing comments to EPA, Portman said he wants to agency to do more, including modeling grid stability to prevent brownouts and blackouts. "We've gone through a tough winter, admittedly; we really stressed the system," Portman said. "We're at a point where we need your input on the front end."

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FERC Commissioner Philip Moeller said the country is undergoing an unprecedented energy shift in a very short time frame and a more "formal review" -- one that includes FERC, EPA and nongovernment entities -- is needed to analyze plant retirements and additional transmission that may be needed.

Moeller also said grid operators in the Midwest are struggling to gauge whether they will have sufficient capacity to handle peak weather during the next five years. The Midcontinent Independent System Operator Inc.'s footprint is expected to face a deficit of 2 gigawatts in the summer of 2016, a figure that has been revised downward from 6 GW, Moeller said.

The question of whether the markets are allowing baseload coal and nuclear plants to be pushed out again surfaced at yesterday's hearing -- a slowly emerging theme at FERC meetings and technical conferences.

Cheryl Roberto, who leads the Environmental Defense Fund's Clean Energy Program, warned against attributing the challenges that coal-fired generation faces either solely or largely to new environmental standards. A surge of cheap gas, low demand for electricity and the rising cost of coal are all reasons for plant closures, she said, adding that nuclear plants are also facing stiff competition from cheap gas.

"These trends started well before EPA issued its new air pollution rules," she said.

But what Roberto characterized as a slow evolution was cast as a market malfunction by industry officials.

Nicholas Akins, president and CEO of Ohio-based American Electric Power Company Inc., said the markets are broken and failing to attract capital for a new mix of energy resources as the grid becomes increasingly reliant on natural gas and pushes out baseload power sources. The markets need to be fixed by January 2015, he added. AEP, notably, is slated to retire more than 6,500 megawatts of coal-fired generation -- mostly in mid-2015 -- and will not add new capacity in the near term, Akins said.

Akins pointed to January's deep freeze as a warning signal.

"A month ago, I made headlines when I said 89 percent of the generation that AEP will be retiring in 2015 was called upon to meet electricity demand in January. That is a fact," he said. "The weather events experienced this winter provided an early warning about serious issues with electric supply and reliability. This country did not just dodge a bullet -- we dodged a cannonball."

Akins pointed to a host of nuclear plants that have recently announced early retirements, including the Kewaunee plant in Wisconsin and the Vermont Yankee plant in New England, and to Exelon's recent announcement that it would consider closing efficient nuclear plants that are no longer profitable by the year's end.

Akins' comments aligned with those of Exelon Generation President and CEO Kenneth Cornew at a Platts conference in Nevada this week. There, Cornew said competitive market rules and state and federal energy policies have failed to keep pace with an influx of cheap gas, rapid expansion of renewables, "smart grid" development, behind-the-meter technologies and low demand growth.

And Akins also pointed to the polar vortex, noting that grid operators in early January were struggling to keep up with demand amid a series of cold snaps across much of the East Coast -- a challenge aligned with a number of large gas plants unable to access fuel. During that time, he said, reactors with 18 to 24 months of fuel on-site kept running.

"The extreme cold highlighted for many what Exelon has known all along -- that a diverse fleet of generation that includes high-performing baseload power plants that have firm fuel, such as nuclear, is critical to grid reliability," Cornew said.

Michael Kormos, executive vice president for operations for PJM Interconnection, said after the hearing that grid operators are cognizant of the retirements and the grid's growing reliance on gas and are asking whether it may be appropriate to put firm fuel requirements on certain units -- a standard that would be easy for a nuclear or coal unit to comply with.

"That will be the question going forward ... during the winter months, do we need to assure that we have a set of units, of capacity, that has firm fuel commitments?" Kormos said. "What we realize on the gas side is that while they could, they don't necessarily have that."

If such a step is needed, Kormos said grid operators may need to identify what resources would fit under this category -- especially during winter months -- and whether to pay them a higher premium.

"Nuclear may very well fall under that category," he said, as would coal, natural gas with firm contracts and year-round demand response. "I think the debated question is if we need it. We may have enough [firm capacity] as it is."

Asked about the issue of reliability gaining more political attention, Kormos said that's not his desire.

"My hope is that everyone can stay above the fray," he said. "We're talking about reliability."

Twitter: @HMNorthey | Email: hnorthey@eenews.net

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