Questions Every Governor Should Ask About the Department of Energy’s Grid Study
On April 14, 2017, Secretary Rick Perry directed the U.S. Department of Energy (DOE) to study the electricity grid and the role of “baseload power.” In his brief memorandum, Perry questioned the security and reliability of the nation’s power system, asserted that baseload power “is necessary” to its operation, and made sweeping claims about the effect of federal policies on U.S. electricity markets. With the grid study’s release drawing near, governors have a crucial role in understanding the impacts of Perry’s grid study on their states’ electricity systems and markets, utility commissions, public health and clean air, and jobs. Asking the following questions will help clarify what to expect from the grid study.
What is ‘baseload power,’ and is it actually necessary to my state’s electric grid?
Baseload power refers to the minimum amount of electricity needed to meet customer demand and by extension to the continuous operation of power plants at high utilization rates for that purpose. Because customers use different amounts of electricity at different times, the variation in demand fluctuates from time intervals as short as one second or as long as a seasonal change, but with large systems such as the U.S. electricity grid, customers are using some amount of power at all times. Many power plants—whether coal, nuclear, hydroelectric, or natural gas—were designed to run all-out to cover that demand, but market competition from natural gas generation and the increase in renewable sources such as wind and solar have made other power sources and grid management models more attractive.
Secretary Perry’s assertion that baseload power is “necessary” seems out of sync with grid operators across the country. The PJM Interconnection, which manages the electric grid in several mid-Atlantic and Midwestern states, conducted an analysis of fuel types that indicated the potential to operate the grid reliably with higher amounts of natural gas, wind, and solar resources than currently exist. Similarly, the Southwest Power Pool, an interconnection that manages the grid in 14 states, set a record 52.1 percent penetration of wind generation on February 12, with no sign of grid disruption or reliability concern. Baseload power resources have had and will continue to have an important role in the electric grid, but other generation sources are joining their ranks and replacing them. Two recent reports responded to the announcement of Perry’s grid study and conclude that market forces—such as low demand growth for electricity and low natural gas prices—and new generation resources have contributed significantly to the changing U.S. electric grid but do not harm its reliability and actually present new opportunities for flexibility, efficiency, and other grid services.
How would Perry’s grid study affect my state’s utility commissioners?
One of the most important decisions that a governor makes is to appoint qualified people to lead their state’s public utility commission, the body charged with overseeing the electric market so that it provides consumers with reliable services at just and reasonable rates. The U.S. electricity system is divided into a wholesale market and transmission grid—over which the Federal Energy Regulatory Commission (FERC) has jurisdiction—and state-level retail markets and local distribution grids, over which state utility commissions have jurisdiction. Despite this separation at the federal and state levels, a growing number of technologies and practices are challenging conventional thinking and enabling greater customer choice and interaction with the electricity markets, as well as increased operability, efficiency, and reliability throughout the grid; lower carbon pollution; and the integration of new-generation resources across the system.
Secretary Perry’s own department just completed a comprehensive study of these topics. In that study, the DOE found that some of these technologies offer increasing flexibility for grid management and that risks to reliability arose primarily from extreme weather events. In the DOE’s discussion of appropriately paying for the various services that different generation technologies provide to the transmission or distribution grids, it recommended increased cooperation between the federal government and state utility commissions to harmonize the treatment of resources in the wholesale and retail markets.
Rather than take that collaborative approach, however, Secretary Perry’s grid study focuses on the federal level, and his recent public comments raise questions about how aggressive the policy recommendations may become regarding intervention into state regulatory and market activities. When Perry suggested there are “issues that are so important to the national security of this country that the federal government can intervene on the regulatory side,” he opened a can of worms that implicates the independence of the FERC and the separation of federal and state authorities at the utility commission level. Only in cases of blackout-level emergency and cyber or physical attacks does federal law enable either the DOE or the FERC to expand their authorities over state grid operations and regulators. Governors should stand guard, ask questions—particularly regarding any emergency declaration—and ensure that they retain their authority and protect the authorities of their appointed state regulators and the independent grid operators managing the power system.
How could Perry’s grid study affect my state’s clean energy markets and job growth?
Each state has a different mix of electricity generation resources, and in the past few decades, several have implemented policies that reshape those mixes—from using efficiency and renewable portfolio standards to require a certain amount of those types of generation or state tax incentives for the mixes, to instituting net metering policies that provide additional incentives for clean energy installation. Through these policies and others, wind-rich states such as Iowa and solar-rich states such as Nevada have enabled their renewable energy markets to grow rapidly, helping lower the cost of clean energy technologies, and have done so without compromising reliability. These states’ congressional delegations have already cautioned Secretary Perry against the potential for negative impacts from his grid study. Similarly, electric utilities have taken advantage of the low cost of natural gas to install new generation that has lower upfront costs and that is one of a number of technologies entering the electric grid offering more flexible operations than coal or nuclear power.
If Secretary Perry’s grid study recommends interventions that support “baseload power” over clean energy sources in state-level regulations, the setting of standards, or incentives, the impact on clean energy growth could undermine what is currently a $9.4 billion U.S. market. For states that have invested in clean energy and energy efficiency, those interventions could stymie current job growth in clean energy industries, which has reached more than 470,000 workers in solar and wind energy and approximately 2.2 million in energy efficiency. Depending on your state’s energy mix, jobs related to each electricity generation type could be affected, including employment up the supply chain, but Perry’s argument for baseload power obscures ongoing competition between natural gas and other resources. The impacts of Perry’s grid study could be wide-ranging and more unpredictable than his initial memorandum suggests, and state leaders need to be armed with information about its impacts on their authority and their state’s electric grid, generation mix, and related jobs.
Would Perry’s grid study affect my state’s clean air and public health protections?
Governors should take note: Any of Secretary Perry’s policy recommendations that prop up new or existing coal-fired power plants will harm clean air and public health. While the DOE conducts its grid study, other members of the Trump administration, including U.S. Environmental Protection Agency Administrator Scott Pruitt, have acted to undermine clean air protections. If Perry’s grid study recommends continuing or increasing the amount of coal-fired generation and Administrator Pruitt weakens or stalls clean air protections at those power plants, communities may face ongoing or increasing risks from the long list of air pollution caused by burning coal.
Secretary Perry’s forthcoming electricity grid study will likely stir debate over the roles of coal, nuclear, natural gas, and renewable generation technologies—including whether the grid can operate reliably as it changes. Governors and their state utility commissions stand exposed to its potential impacts on grid operations, regulatory authority, energy policymaking, job creation, and clean energy markets. Asking these questions will help clarify the intent and impact of the DOE grid study for issues central to each state’s energy system, environment, and economy.
Luke H. Bassett is the associate director of domestic energy policy at the Center for American Progress.
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Associate Director, Domestic Energy and Environment Policy