U.S. Energy Regulator Says Coal More Reliable Than Natural Gas

(Bloomberg) -- The regulator charged with implementing Energy Secretary Rick Perry’s plan to keep coal plants online has something in common with the former Texas governor: Both men believe that coal and nuclear power are more reliable than other energy sources.

Coal and nuclear “are firm, non-interruptible fuel sources” that are more resilient to extreme-weather events than fuels which must be obtained off site such as natural gas, Neil Chatterjee, the chairman of the Federal Energy Regulatory Commission, told Bloomberg reporters during a roundtable discussion Friday in Washington.

The comments may put him at odds with the organizations that he regulates as FERC evaluates Perry’s proposal. Chatterjee said the commission will act on it by Dec. 11. 

Perry’s plan aims to change the way energy is priced so that plants with 90-day supplies of on-site fuel can fully recover their costs and better compete in wholesale power markets. It asserts that such plants are more resilient during extreme weather such as during a deep winter freeze in early 2014 that’s often referred to as the polar vortex and that the retirements of those facilities is harming grid reliability.

But regional grid operators that stand to be most affected by the Energy Department plan dispute that, and even some coal generators have urged the commission to take a “fuel-neutral” approach as it moves forward. A wide array of energy groups and companies oppose the plan.

Fuel Security

Any action the commission takes will be fuel neutral, legally defensible and won’t distort power markets, Chatterjee said Friday. But he also emphasized the importance of fuel security, saying he wants to make sure that “current market pressures don’t inadvertently prematurely retire plants that we need down the road.”

PJM Interconnection LLC, the largest U.S. grid operator and the one that stands to be most affected by the proposal, maintains coal steam outages “were the largest outage category” during the 2014 polar vortex as “many coal plants could not operate due to conveyor belts and coal piles freezing,” according to PJM comments filed Monday with FERC.

Chatterjee downplayed those accounts Friday, saying that cold-weather failures of coal plants “are individual anomalies” while failures of natural gas supply “are categorical.”

Political Pressures

Chatterjee, who served for almost eight years as a policy aide to Senate Majority Leader Mitch McConnell, stressed the importance of safeguarding certain plants from future shifts in energy policy that could affect the power mix.

If anti-fossil fuel activists are successful in electing leaders who want to curb natural gas production, “that is going to have a market impact,” he said, adding that Obama-era environmental regulations had a lasting effect on the coal sector.

“These are all things that we have to factor in, and why we have to be very very careful in how we evaluate not only the short-term but the long-term implications of the policy decision we make,” he said.

In the short-term, markets can rely on tools such as setting payments that keep plants running when grid managers decide they’re necessary to ensure reliability, Chatterjee said. Longer term, the options are less clear, he said. 

Adopting Perry’s proposal “is only one of many options available to us,” he said. “We’ll also look to other avenues that could potentially assess the same question without taking that particular approach.”

To contact the reporter on this story: Catherine Traywick in Washington at ctraywick@bloomberg.net.

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Margot Habiby, Stephen Cunningham

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