By Darius Dixon and Eric Wolff

January 9, 2018 - Federal energy regulators on Monday rejected Energy Secretary Rick Perry’s proposal to prop up struggling coal and nuclear power plants, a major defeat for the former Texas governor and the coal companies that have urged the Trump administration to help them.

Energy Secretary Rick Perry has embraced the controversial effort wholeheartedly.

Photo by Associated Press

Perry had ordered the Federal Energy Regulatory Commission to act by this week to guarantee financial payments to the plants that could be facing retirement because of the rise of natural gas and renewable energy, a strategy that many critics said would undermine the power markets the regulator has spent decades building.

But in a 5-0 decision announced Monday, FERC formally axed Perry’s proposal and instead ordered the nation’s regional grid operators to submit information about their ability to judge "naturally occurring and man-made threats" to their systems within 60 days. That order essentially puts off any action until at least April, if the agency decides to implement any measures at all.

In a statement, Perry said he was pleased his proposal had sparked a national debate, and said he looked forward to the agency's probe into "the marketplace distortions that are putting the long-term resiliency of our electric grid at risk."

But FERC Commissioner Cheryl LaFleur criticized Perry's effort for failing to show the grid was in danger, and merely trying to "freeze yesterday's resources in place indefinitely."

"I believe the Commission should continue to focus its efforts not on slowing the transition from the past but on easing the transition to the future," she wrote.

And green groups were relieved, with the Sierra Club's Mary Anne Hitt, head of its "Beyond Coal" campaign, praising FERC's decision and saying the whole process was "a comically orchestrated ploy by unscrupulous coal and nuclear executives to handicap their competition because they were foolish enough to think that American electricity customers wanted their dirty, expensive power plants when cheaper, cleaner alternatives are available."

Analysts have said the rule proposed by the Energy Department would have its biggest impact on the PJM power grid that stretches across 13 states from the Midwest to the East Coast, and would be a boon to Murray Energy, a coal mining firm run by Bob Murray, a major Trump backer who has met frequently with Perry and Trump.

DOE's proposal was its latest bid to help "baseload" power sources like coal and nuclear that provide around-the-clock electricity but can't adapt quickly to changes in demand like natural gas power plants can. While coal-fired power plants provided half the nation's electricity a decade ago, the surge in natural gas output has made that fuel the industry's favorite for new power plants. Weak demand for power has also put coal at a disadvantage, since the older, less-efficient plants are not as economic as newer natural gas turbines, and renewables like wind power have gotten cheaper.

FirstEnergy Corp, an Ohio-based utility whose struggling power plant subsidiary is a major customer of Murray's, said it was disappointed in FERC's rejection.

"Without timely action, more of these facilities will close prematurely, jeopardizing the ability to provide clean, reliable and affordable power to customers while harming economies across the region," it said in a statement.

Perry has embraced the controversial effort wholeheartedly and top DOE officials pressed their case at public events, conferences with skeptical state utility regulators, and to pro-market conservative groups.

At a House Energy and Commerce Committee hearing in October, Perry dismissed concerns that his plan would cost consumers several billion dollars a year. “What’s the cost of freedom? What does it cost to build a system to keep America free?” he said, contending that the power grid's vulnerabilities posed a threat to national security.

In a September letter to FERC calling for it to act quickly, Perry wrote that "the resiliency of the electric grid is threatened by the premature retirements of these fuel-secure traditional baseload resources." And he said FERC's power markets had failed to take into account the need for keeping coal and nuclear power plants on the system.

But in its Tuesday order, FERC said the feedback it received from grid operators on the Perry proposal "do not point to any past or planned generator retirements that may be a threat to grid resilience."

The effort to support coal power plants has been a central theme for Perry in his first year at DOE. Less than two months after being sworn in, he directed agency staff to conduct a review of federal policies affecting the electric grid, and to probe what "regulatory burdens ... are responsible for forcing the premature retirement of baseload power plants.”

However, that study, released in August and following pleas from Murray for DOE to use the agency's emergency power to order the firm's coal customers to keep running, delivered a conclusion energy experts had long known: Cheap, abundant natural gas was the primary driver of changes in the U.S. electricity sector.

That DOE report had urged FERC to expedite efforts figure out policies to address state programs that favored technologies such as nuclear power, and to update how power producers are paid in regional electricity markets.

But about a month later, Perry submitted his "grid resiliency pricing rule," a proposal that, if enacted, would cover the costs of power plants that keep a 90-day fuel supply on-site and directed FERC to take "final action" by Dec. 11. McIntyre, who was sworn in in early December, requested an extension through Jan. 10.

Monday's order says in addition to the information requested from the power grid operators, it will accept comments from other parties for 30 days after the grid operators' filing deadline.

Democratic Commissioners Cheryl LaFleur and Rich Glick, as well as Republican Commissioner Neil Chatterjee, each issued separate statements explaining their decision to support the order. Kevin McIntyre, a Republican appointed by President Donald Trump, chairs FERC.