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Perry stirs gas versus coal fight

US energy secretary's subsidy plan gets a roasting

The US' natural gas producers have protested strongly against Rick Perry's proposed Grid Resiliency Pricing Rule, to help prop up struggling coal and nuclear power plants.

The rule, which Perry has urged the Federal Energy Regulatory Commission (Ferc) to implement, would subsidise any power plant with stores of 90 days of fuel on site, ostensibly to bolster the reliability of North America's power grid. Since gas-fired plants rely on supply piped in as needed, and the wind and sun can't be stored, the benefits from the proposed rule would flow to coal and nuclear plants. It is the latest manoeuver in the Trump administration's fight to prop up America's coal industry.

In the past 10 years, coal's share of the power mix has fallen from more than 50% a decade ago to around 30% today. Close to a fifth of America's coal plants, many of which were built in the 1970s and earlier, have closed down since 2002 and another 5% are slated to be shuttered by 2020. Nuclear's share of the generation mix has held relatively steady at about a fifth, but a wave of proposed new projects have faltered and 7% of the aging fleet is due to close by the end of this decade.

Natural gas and renewables have snapped up the market share. Nearly all new power generation capacity built over the past decade has been gas, wind or solar.

Market forces

Trump blames environmental regulations for coal's declines. The truth is the market has been transformed by cheap natural gas, unleashed from the nation's shale fields, and falling costs for wind and solar capacity, with anti-pollution rules playing a marginal role. Compensating coal and nuclear facilities for storing fuel onsite isn't likely to spur any new constructions, but it could help some previously uncompetitive plants stay open.

While the oil and gas business has been broadly supportive of the Trump administration's energy agenda, the proposed grid reliability rule has pitted gas directly against coal and the administration.

This week was the deadline for companies to submit comments to Ferc on the rule, and the gas industry flooded the regulator with its objections.

ExxonMobil, the nation's largest gas producer, wrote: "the proposal would increase costs for consumers, discriminate against natural gas (as well as other power generation sources), and unravel the competitive market structure that Ferc has promoted for two decades".

The supermajor also argued that the underpinning rationale for the rule, that onsite fuel storage merits subsidy because it is more reliable in emergency situations than natural gas, is flawed. "Reliability and resiliency was soundly demonstrated by the natural gas system's steadfast performance during Hurricanes Harvey and Irma, when generation powered by other fuels with on-site inventory sometimes faltered."

During Hurricane Harvey in September, some coal-fired generation had to be curtailed because the plant's stockpile of coal was flooded and too saturated to use. Backers of the proposal point to 2014's "Polar Vortex", when the northeast and much of the country was gripped by freezing temperatures, to bolster its claims. During that extreme weather event, gas-fired generation struggled to meet demand, partly because plant and pipeline equipment froze up. However, coal hardly fared better. A number of coal plants also had to be shut in, and many onsite coal piles were frozen over. 

'What is the cost of freedom?'

Devon Energy, an independent producer, pointed out that a recent report from Perry's own Energy Department (DoE) and the North American Electric Reliability Corporation (Nerc), a non-profit group charged by Ferc to oversee grid reliability, found that there is no actual immediate threat to the grid's resiliency. "This assertion is surprising due to recently published reports on reliability by both Nerc and DoE that contradict DoE's assertion," Devon's vice president for natural gas marketing Michael Dionisio wrote. In other words, the rule is a solution in search of a problem.

A raft of other companies and industry groups, representing both the gas and renewables sectors, also lobbied their complaints over the rules, broadly arguing that there is little evidence to back up Perry's claim that there is an impending threat to the reliability of the grid and that the administration was simply trying to tilt the market towards its favoured businesses.

Ferc faces a compressed timeline to decide on the proposed rule, with Perry's Energy Department pushing for implementation before this winter.

A major outstanding question is how much exactly the new rule would cost ratepayers, who would ultimately pay for it. At a recent hearing at the House subcommittee on energy, Perry deflected the question, arguing, "I think you take cost into account. But what is the cost of freedom? What does it cost to build a system to keep America free? I am not sure I want to just put that straight out on the free market."

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