The Trump Administration has responded to continued retirements of coal and nuclear units by proposing policies intended to prevent any further retirements of the traditional “baseload” fleet, under the premise that such retirements impair grid reliability, “resilience” and, more recently, national security. The first attempt at imposing a policy designed to deter retirements occurred when the U.S. Department of Energy (DOE) proposed a rule for Federal Energy Regulatory Commission (FERC) consideration in October 2017. That proposal, which would have required cost-of-service based payments to merchant coal and nuclear plants in certain Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) regions, was unanimously rejected by the FERC in January 2018. The FERC decided instead to examine the premise of grid resilience in greater depth at a regional level.
The second major policy attempt was described in a May 31, 2018 article by Bloomberg Energy, which revealed a draft memorandum (“Draft Memo”) by the DOE that outlined a proposal to prevent retirement of certain generation plants (“Subject Generation Facilities” or SGFs) that might, according to the DOE, affect grid resilience in all regions of the U.S. (i.e., not only RTOs). Although the Draft Memo did not disclose the identity of the SGFs, or describe specific implementation mechanisms, the stated intent was to prevent any retirements of “fuel secure” generating capacity (primarily coal and nuclear units) in the near term. The policy would require system operators and load-serving entities to purchase energy and/or capacity from designated SGF plants for a period of two years. The day after the release of this Draft Memo, President Trump directed the Secretary of Energy to “prepare immediate steps” to stop coal and nuclear plants from retiring.
This Report discusses some of the policy design issues that the Draft Memo raises and presents a range of illustrative estimates of the potential direct cost of implementing a program of mandated purchases to prevent or deter coal and nuclear retirements. In this preliminary analysis, we do not assess the extent of likely negative impact on competitive markets nor address the magnitude, if any, of potential benefits.