Energy Secretary Rick Perry took sweeping steps on Friday to buttress a pair of financially-strapped nuclear plants under construction and redefine how coal and nuclear plants are compensated for the electricity they provide — a move that, if agreed to by independent federal energy regulators, could tilt some of the nation’s complex power markets away from renewables and natural gas.
Perry announced the Energy Department would provide $3.7 billion in loan guarantees to three Georgia utilities struggling to complete a pair of nuclear reactors at the Alvin W. Vogtle generating plant. These loan guarantees come on top of $8.3 billion in loans the department has already given to the project, but they still might fall short of what will be required to complete the costly reactors.
The nuclear project has been running far over-budget and behind schedule, and the utilities have been scrambling to come up with financing after the main engineering company, Westinghouse, declared bankruptcy earlier this year.
The nuclear industry has urged the federal government to help, saying the AP1000 reactors are part of a new generation of nuclear plants. “I believe the future of nuclear energy in the United States is bright and look forward to expanding American leadership in innovative nuclear technologies,” Perry said. He noted the project had created approximately 6,000 construction jobs and, if completed, would create about 800 permanent jobs.
The aid for Vogtle partners would be issued by the Energy Department’s loan guarantee program, which President Trump’s 2018 budget proposal would abolish.
“They certainly have courage to contradict their convictions,” said Henry Sokolski, executive director of the Non-Proliferation Policy Education Center and a longtime critic of federal energy loan guarantees.
Many Republicans have criticized the Energy Department’s loan guarantees, often citing a loan given to Solyndra, a photovoltaic panel manufacturer that went bankrupt. Defenders of the program say the loan guarantee program’s failure rate is well below the level Congress anticipated when it created the program.
“First it’s losing solar programs. Now it’s losing nuclear programs. When are we going to stop subsidizing losers?” Sokolski said.
The new loan guarantees would provide $1.67 billion to Georgia Power, a subsidiary of Southern Co.; $1.6 billion to Oglethorpe Power Corp.; and $415 million to three subsidiaries of the Municipal Electric Authority of Georgia.
Critics of the loan guarantees say the construction of the Vogtle reactors is risky and there is a strong possibility the loans will not be repaid. The Georgia Public Service Commission must review the utilities’ financial plans and construction progress regularly because the utilities have already been passing along costs to consumers.
“Department of Energy officials should be exercising more caution now, with billions of taxpayer dollars already on the line for the ill-fated nuclear reactor project. Instead, they’ve doubled down on a bad decision,” said Ryan Alexander, the president of Taxpayers for Common Sense, in a statement.
Perry also moved Friday to help nuclear and coal plants competing in regional electricity markets. Citing his department’s recent, contested study about the workings of the electric grid, Perry asked the independent Federal Energy Regulatory Commission, or FERC, to adopt new regulations that would ensure coal and nuclear plants that add to the grid’s reliability can “[recover] fully allocated costs and thereby continue to provide the energy security on which our nation relies.”
Perry’s letter to FERC, and the proposed regulation, argue these so-called “baseload” plants provide critical stability and reliability to the electric grid and should be compensated accordingly. They cite not only the department’s recent grid study, but also the recent hurricane disasters afflicting the United States and power outages during the 2014 Polar Vortex event.
“What’s most significant about this is that we’ve been working on these issues for the better part of the last 3-plus years, even longer — and what the Secretary has done is said, enough talk, we need to actually act,” said Matt Crozat, the senior director for policy development at the Nuclear Energy Institute, which hailed both of Perry’s moves Friday. “And so what this is going to do is drive to some conclusion what a policy action is going to be.”
FERC has 60 days to decide what action to take, and there is no guarantee the independent agency will go along with Perry’s request. Trump has recently appointed people to key posts at the agency — and the commission’s new chairman, Neil Chatterjee, has already signaled he could be receptive to the move.
“I believe baseload power should be recognized as an essential part of the fuel mix,” Chatterjee said in an August FERC podcast. “I believe that generation, including our existing coal and nuclear fleet, need to be properly compensated to recognize the value they provide to the system.”
“For years, FERC has been relatively fuel-neutral, instead focusing on broader and successful approaches to reliability,” said Dan Reicher, executive director of the Steyer-Taylor Center for Energy Policy and Finance at Stanford, and former chief of staff and an assistant secretary in the Department of Energy. “The question is whether that era has ended and we’ll now see different commissioners representing different fuel camps.”
If FERC agrees with Perry, and if it decides coal and nuclear are more reliable, the result could potentially mean reducing the use of solar, wind and natural gas by key grid operators in favor of coal and nuclear — which would be compensated in a way that would help prevent more plant closures. Half a dozen reactors have shut down since 2007 and half a dozen more are scheduled to close in the next nine years, according to the Energy Information Administration. The number of operating reactors has dropped from 104 to 99.
Some environmental groups and defenders of renewable energy quickly attacked the proposed regulation as a way of imposing government mandates on the working of energy markets and reducing competition.
“I think this is the most significant electricity policy action in 20 years,” said Rob Gramlich, who works for renewable energy clients through his consulting firm Grid Strategies LLC, and previously served as an adviser to FERC commissioner Pat Wood.
Gramlich argued if FERC goes in this direction, then grid operators are “going to pay for resources they don’t necessarily need. So they’re going to charge homes and businesses more than they otherwise would. And they’re going to use relatively more coal and nuclear relative to gas, wind and solar.”
Mark Kresowik, a deputy regional director for the northeast with the Sierra Club, said he thought that if FERC actually adopted the proposed policy, it would lead to lawsuits or even states dropping out of certain regional electricity markets that would be affected, which primarily lie in the Northeast, Mid-Atlantic and Midwest.
“Instead of coal and nuclear plants having to compete against cheaper, cleaner sources, customers would be forced to pay for unnecessary plants,” Kresowik said. “Frankly, I think that states that currently compete and use the markets would leave. I certainly would expect states to walk away from organized markets. It would be the end of competitive markets in the United States of America. That’s not even an exaggeration.”
However, Richard Powell, who runs the conservative ClearPath Foundation and praised Perry’s request, said “if you do allow a lot of these generators to go down, rates are also going to go up, because we’re going to take a lot of capacity offline, which is going to mean power supply is scarcer.” ClearPath is backed by wealthy North Carolina businessman Jay Faison.
Other groups, such as those representing the nuclear and coal industries, also hailed the move Friday.
“We commend Secretary Perry for initiating a rulemaking by FERC that will finally value the on-site fuel security provided by the coal fleet,” said Paul Bailey, the president and chief executive of the American Council for Clean Coal Electricity, whose members include the nation’s largest coal mining companies, coal-intensive utilities and coal-carrying railroads. “The coal fleet has large stockpiles of coal that help to ensure grid resilience and reliability. We look forward to working with FERC and grid operators to quickly adopt long overdue market reforms that value the coal fleet.”
Dino Grandoni contributed to this report.
