Why bailouts won’t make the electric grid more resilient

Why bailouts won’t make the electric grid more resilient
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Over the past year, the Trump administration has repeatedly looked for ways to provide financial support to politically favored but financially struggling coal and nuclear power plants. In an attempt to justify ratepayer-funded bailouts, the administration has invoked alarm around the concept of “electric system resilience.” Most recently, it has claimed that the closing of these (unprofitable) plants could leave critical customers like military bases without power in the event of a hurricane, cyberattack, or other major disruption.

But these bailout proposals wouldn’t truly protect customers from damaging electricity outages. Policymakers interested in serious, evidence-based resilience improvements already have the tools they need to act—including metrics for measuring resilience, a framework for evaluating improvements, and legal authorities to implement changes (we analyze these issues in a recent report).

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A thorough look at the issues surrounding grid resilience reveals that coal and nuclear bailouts are little more than political posturing, while genuine resilience policy improvements are attainable.

The Trump administration’s proposals are predicated on the idea that coal and nuclear units possess “fuel security” attributes — that these resources are not dependent on natural gas pipelines, which could be at some risk of cyberattack. However, policy designed to measure and compensate resources for pre-determined attributes like on-site fuel supply is misguided. Attribute-based measures of resilience are subjective, creating risk that improvements to a given attribute will not translate into measurable or predictable improvements to the system.

There are no well-established studies showing that increasing the availability of generators with “fuel security” attributes will enhance the resilience of the electric system. The vast majority of outages do not result from fuel-supply disruptions, but rather from disruptions to transmission and distribution networks. Keeping certain power plants from retiring will do little to address these problems. In addition, a focus on specific attributes rather than system-wide outcomes can be misleading. For example, a system that is perfectly hardened against physical storm damage but lacks regular maintenance of overgrown vegetation would still be fragile, while a system with a moderate amount of each might be quite resilient. 

The administration instead should measure resilience based on performance — that is, how much an action will reduce the consequences of a damaging event such as a hurricane or cyberattack. Policymakers can focus on metrics such as the economic value of outages or the costs to replace infrastructure.

By myopically focusing on a single electric-system component (fuel disruption) and a single threat (cyberattack), the administration risks exposing the grid to other threats and ignoring improvements that could be more consequential. And even if bailing out coal and nuclear plants reduced the consequences of a pipeline cyberattack, those older plants may be equally or more exposed to a direct cyberattack or other threats. For example, deepening dependence on coal and nuclear resources may, in fact, reduce resilience to extreme heat or cold, hurricanes, or floods.

There is a better way to evaluate grid-resilience improvements. Policymakers can quantify and monetize the benefits of an improvement, such as the reduction in expected consequences of a shock, as well as the costs (including both investment costs and indirect costs). They can then select the option where the benefits most exceed the costs.

Tools are available to rigorously conduct such analyses. But the administration has not, to date, done so. Independent analyses suggest coal and nuclear bailouts would have substantial costs, including $20 billion to $70 billion over two years in increased costs to customers and $4 billion to $9 billion in environmental damage. No study shows expected benefits commensurate with such costs. 

If robust analyses identify cost-beneficial resilience improvements, states and the federal government can use a host of legal authorities to craft appropriate policy. The primary focus should be on helping states that are responsible for the distribution system where most disruption occurs. The federal government, and in particular the Federal Energy Regulatory Commission or “FERC,” has authority to implement policy that can help the grid avoid, manage, respond to, and recover from disruption, including by encouraging beneficial transmission investment and setting minimum standards for operations, planning and coordination. FERC is also investigating whether to change electricity market rules in an attempt to improve the resilience attributes of the generation system, but such significant rule changes can be costly and the benefits aren’t yet well established. FERC should exercise this authority carefully, if at all.

But the administration is not waiting for FERC to evaluate any of these rational options. Instead, the Department of Energy is contemplating the use of “emergency” authorities that would forgo markets, fail to balance costs and benefits, and address only a small part of the resilience puzzle. This approach is not necessary or appropriate to meet the longer-term grid resilience challenges we face.

Instead of moving forward with an ill-considered bailout of specific generators, the Trump administration should slow down and let the regulators, grid operators, and electric utilities that are truly interested in resilience take the lead. These actors are well equipped to undertake robust, evidence-based analysis; smart investments; and sustained and deliberate coordination and planning. Only then will the nation wisely spend its resources to prepare the electric system against future shocks.

Burcin Unel, Ph.D., is the energy policy director at the Institute for Policy Integrity at New York University School of Law, where Avi Zevin is an attorney. They are the authors of the recent report, “Toward Resilience: Defining, Measuring, and Monetizing Resilience in the Electricity System.”