- Energy business community leaders have cautious optimism as the Trump Administration prepares to take office. A fracking expert is nominated to head the Energy Department.
- PJM’s capacity auction in July, at which costs soared, is still the object of discussion – and complaints to the FEC. But is it a market signal?
- NERC’s winter assessment finds risks for parts of the country as capacity fails to keep up with demand.
- A conference examines the trend of co-locating power generation resources and data centers.
- Natural gas is going to be needed for many years to keep the grid reliable, regulators and industry executives tell another conference.
- The demand for electricity is becoming highly concentrated, and eyes are looking at Texas.
- The battle over the Biden Administration’s LNG export license pause continues, with an important decision over a study looming.
As a New Administration Gets Ready to Take Office, There Is Cautious Optimism Among Advocates of Electricity Reliability and Affordability
The election of Donald Trump on Nov. 5 has spurred cautious optimism among industry leaders and analysts concerned about the reliability and affordability of power generated and distributed in the U.S. at a time of increased demand and constrained supply.
Sonia Patel reported for PowerMag.com:
Industry leaders are bracing for a pro-fossil fuel agenda that could redefine the regulatory landscape, particularly for coal, gas, and renewables. Among the anticipated shifts, power companies and trade groups see opportunities for streamlining permits and ramping up oil, gas, and liquefied natural gas (LNG) production, while concerns are mounting over the possible rollback of clean energy tax credits, restrictions on electric vehicle (EV) incentives, and the uncertain future of offshore wind projects.
Critical to Trump’s victory was Pennsylvania, the number-two state for natural gas production after Texas. The past comments of the Democratic candidate, Kamala Harris, in opposition to fracking almost certainly harmed her chances of winning the state. On Nov. 16, Trump announced he was naming Chris Wright, CEO of Liberty Energy, which provides hydraulic fracturing services (fracking) to extraction companies in Pennsylvania and other states. Wright is also a Pacific Research Institute board member.
In announcing the appointment, “the Trump campaign cited Wright’s work with Pinnacle Technologies, a company he founded before Liberty Energy, as being critical to the US’s fracking boom, which has made the country the largest oil producer in the world,” the BBC reported.
If Wright is confirmed, his stewardship of the Department of Energy will likely expand fracking on federal lands. Currently, “natural gas production from federal lands and waters is approximately 11% of total U.S. natural gas production,” according to the American Petroleum Institute.
In another key state, Michigan, Trump scored gains by criticizing the Biden Administration’s regulations meant to favor electric over gas-powered cars. NBC News reported in April, “With violent rhetoric, Trump fights electric vehicles to defeat Biden in Michigan.” Reuters reported 10 days after the election that Trump was “planning to kill the $7,500 consumer tax credit for electric-vehicle purchases as part of broader tax-reform legislation.”
Analysts expect that a second Trump Administration will modify or eliminate rules on Multi-Pollutant Emissions Standards for cars and trucks and on carbon emissions standards for power plants, which aim to increase EV use while at the same time limiting the availability of fossil-fuel-fired plants to keep up with this demand.
While during the campaign Trump stressed a “drill, baby, drill” strategy to increase U.S. petroleum production, he is also expected to focus on getting natural gas and other energy resources to where they can be used to generate electricity – and on getting the electricity to consumers and businesses. That means easing and speeding permitting requirements that currently make it difficult to build essential infrastructure, such as pipelines and transmission lines to strengthen the electric grid.
Jim Matheson, CEO of the National Rural Electric Cooperative Association (NRECA), emphasized in a statement on Nov. 6 that the industry currently faces a precarious situation. “America is at an energy crossroads,” he said, “and the reliability of the electric grid hangs in the balance. Critical generation resources are being retired faster than they can be reliably replaced.
“At the same time,” he added, “electricity demand is skyrocketing as power-hungry data centers and new manufacturing facilities come online. Smart energy policies that keep the lights on are more important than ever.”
What are NRECA’s policy priorities? The main one is rolling back the Biden Administration’s environmental rules. As PowerMag pointed out, the recent suite of regulations of the Environmental Protection Agency (EPA) includes final Carbon Pollution Standards, targeting greenhouse gas “emissions from coal and new natural gas-fired plants; a strengthened Mercury and Air Toxics Standards (MATS) for coal emissions; updated Effluent Limitations Guidelines (ELGs) to cut wastewater pollutants from steam plants; and a rule on legacy coal ash disposal, fulfilling a mandate from the DC Circuit for stricter coal ash oversight.”
As we reported in our Newsletter No. 34, the Biden Administration in March decided to postpone rules covering carbon emissions from existing gas-fired power plants until after the Nov. 5 election. Lisa Friedman wrote in the New York Times that the decision to delay came because the Biden Administration was “facing intense opposition from major industries and some Democrats.” As a result, existing gas-fired plants will be exempt, “at least for now,” from new regulations.
But the EPA began crafting a “new, comprehensive approach” to cover the “entire fleet of natural gas-fired turbines.” The agency may still release those rules in the two months left to the current administration, but it is unlikely they will survive much beyond Jan. 20, 2025 – nor, perhaps, will rules that apply to new gas-fired plants.
On Nov. 6, Pat Vincent-Collawn, the interim president of the Edison Electric Institute, which represents the nation’s largest utilities, stated:
This is an exciting time for electric companies and our industry, as customer demand for electricity is growing at the fastest pace in decades, and we look forward to working with the Trump administration, Congress, and state policymakers and regulators to meet this demand safely, reliably, and affordably.
Even clean energy advocates are hopeful about the Trump Administration’s new energy policies. Jason Grumet, CEO of the American Clean Power Association, noted in a statement the day after the election:
Our industry grew by double digits each year under the first Trump Administration and has accelerated this rate of progress since. ACP looks forward to working with the Trump-Vance Administration to unleash American-made energy, deliver reliable power to the grid, grow the economy, and enhance our national security. Domestically produced clean power is vital to meeting our nation’s surging electricity demand.
Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association, also saw the chance for continued growth opportunities in solar and storage with Trump’s election. “America’s solar and storage industry is unleashing abundant, homegrown energy that is creating jobs and delivering affordable, reliable power to every home and business in this country,” she said in a statement, also on Nov. 6.
Fallout From PJM’s Base Rate Auction Continues: a ‘Glaring Market Signal’
In our Newsletter No. 39, we reported on the results of the July 30 base rate auction (BRA), in which the nation’s largest grid operator, PJM Interconnection contracts for enough capacity to assure a reliable supply of electricity – in this case for the period June 1, 2025, to May 31, 2026.
The auction resulted in an increase of more than 800% in system-wide prices compared to the prior BRA. It was “a price spike unprecedented in PJM,” said a report by the Office of People’s Counsel, the State of Maryland’s ratepayer advocate.
The cost across all of PJM, which covers all or parts of 13 states and the District of Columbia, will be $14.7 billion, compared with $2.2 billion last year. As a result, many consumers can expect electric bill increases in range of 10% to 20% starting in the next six months.
The controversy over the auction hasn’t cooled, and on Nov. 18, ratepayer advocates from Maryland, Illinois, New Jersey, Ohio and DC filed a complaint with the Federal Energy Regulatory Commission (FERC) “seeking changes to the PJM Interconnection’s capacity market design, which they said is causing ‘crushing’ capacity prices,’” according to a Utility Dive report.
But the real story here is not the design. It is that prices are spiking because new energy resources are not getting onto an electric grid that desperately needs them. As the Wall Street Journal’s Heard on the Street column put it on July 31:
The largest wholesale electricity market in the U.S. is signaling that there’s a shortage of power plants on its grid. PJM said auction prices were significantly higher due to a large number of older power plant retirements (about 6.6 gigawatts).
Maryland is representative of the problem. It’s a net electricity importer that needs new transmission lines and generating plants to meet demand. In a piece on April 23 on the PJM website, Paul McGlynn, the organization’s vice president of planning, wrote:
Simply put, how do we maintain a reliable and affordable power system through this transition? One acute challenge is interconnecting enough new reliable generation resources to replace the fossil-fuel generators that are retiring en masse due to economics or state and federal policy requirements.
McGlynn noted, “According to Lawrence Berkeley National Laboratories, more than 300,000 MW of projects have been approved nationally but have not proceeded to construction – nearly 25% of current generating capacity in the country.”
The complaint by the states follows a separate complaint filed on Sept. 27 with FERC by the Sierra Club and other groups. They sought to include reliability must-run, or RMR, units in capacity auctions. (An RMR unit is a power plant that a grid operator can require to remain operational even when it might not be economically viable.)
“Partly in response to the complaint, PJM asked FERC to let it delay upcoming capacity auctions by about six months so it could craft market reforms and propose them next month at FERC,” reported Utility Dive. “The agency on Nov. 8 approved PJM’s request for a delay.”
But the answer to high costs is not RMR requirements or other tweaks. What is needed, say close observers, is for energy sources to come online and be made available to utilities in the hard-pressed PJM region. The delay, critics say, won’t solve the problem and will merely constrain energy sources available to national utilities, driving up electricity prices.
The huge increase in auction prices was a glaring market signal that energy experts believe the Trump Administration should heed. There is simply not enough generating capacity in this country to ensure sustainable, reliable and inexpensive electricity.
Natural gas is the top energy source for electricity generation, accounting for 43% of U.S. electricity, followed by all renewables combined at about half that level. Natural gas is also among the cheapest sources, according to the U.S. Energy Information Administration (EIA).
FERC Chairman Willie Phillips has promised that FERC will be resource neutral, so it makes sense that the commission’s decisions around PJM will be based on FERC’s mission of affordability and reliability rather than other policy goals.
NERC Winter Reliability Assessment Finds ‘Many Parts of North America at Elevated Risk of Energy Shortfalls’
Earlier this month, the North American Electric Reliability Corporation (NERC) released its 2024-2025 Winter Reliability Assessment. NERC, a non-profit whose mission is to “improve the reliability and security of the bulk power system in the United States, Canada and part of Mexico,” found:
Many parts of North America are once again at an elevated risk of energy shortfalls under extreme conditions. The findings are largely driven by issues related to natural gas production and delivery coupled with potential limited regional pipeline capacity in the U.S. Mid-Atlantic and Northeast, robust load growth that continues to surpass growth in dispatchable resources, and retirements in thermal generation resources.
Dispatchable resources like coal and natural gas, are reliable sources of energy that can up turned up or down to meet demand for electricity. A excess of non-dispatchable resources (such as solar and wind) can lead to shortfalls in conditions of high demand or diminished supply.
The NERC report also had some good news – that “regulatory and industry initiatives have improved winter readiness.” But those improvements fall far short of solving the national reliability crisis. As Utility Dive summarized on Nov. 15, NERC is concerned about the potential for freezing temperatures to impact delivery of natural gas to power plants. Outside of Texas, there is “little to no information to indicate that upstream gas producers, gatherers, and processors have improved winterization of their operations.”
One of the areas that faces an elevated risk is PJM Interconnection (see above), the largest regional transmission organization (RTO). Its job is to coordinate the movement of wholesale electricity in all or parts of 13 states and the District of Columbia.
The NERC reported concluded that, “despite an increase in winter peak demand forecast of over 3.2 GW (2.5%), Planning Reserve Margins in PJM have risen slightly with increased firm imports and demand response.” While no Bulk Power System (BPS) reliability issues “are currently anticipated in PJM, natural gas infrastructure capacity could be negatively affected if legal proceedings require the shutdown of facilities that were installed as part of a regional natural gas pipeline expansion project.”
Natural gas, NERC noted, “is the leading fuel for electricity generation in PJM,” with over 44% of total generation “in the PJM real-time energy market. PJM estimates that fuel service for as much as 20 GW of generation capacity is directly or indirectly served by the pipeline at the center of these proceedings.” (PJM is referring to litigation involving the Transcontinental Gas Pipeline Co., whose application the RTO supports.
Other areas at risk are the New England ISO (Independent System Operator), where “dispatchable thermal generation capacity has dropped by 2.6 GW, while forecasted peak demand has grown by 0.6 GW, or 3%,” and Texas where, in 90% of the state served by ERCOT (the Electric Reliability Council of Texas)….
The risk of reserve shortage remains elevated due primarily to robust load growth that continues to surpass growth in dispatchable resources. Net internal demand has risen by more than 2 GW since 2023. Solar and wind capacity has increased by more than 3 GW, while dispatchable resources have only increased by 1 GW.
Some industry leaders found the Winter Reliability Assessment disturbing. “This growing threat to reliable electricity jeopardizes the health of local communities and undermines the American economy,” said Jim Matheson, CEO of the NRECA (see above comments on the new administration), in a Nov. 14 statement. “This report clearly highlights the need to swiftly implement a pro-energy policy agenda with a focus on affordability and reliability for American families and businesses.”
Todd Snitchler, CEO of EPSA (see above as well), which represents competitive power suppliers, said:
NERC’s report once again underscores the serious power supply challenges facing our nation, and the critical importance of securing enough electric generation capacity – specifically including critical dispatchable resources – to ensure reliability in winter months and throughout the year as energy demand rises. Natural gas remains essential to ensuring a reliable system.
It is encouraging, as Natural Gas Supply Association CEO Dena Wiggins said, that natural gas producers have taken “a multitude of proactive measures to prepare for winter weather,” but the incoming Trump Administration faces a major challenge to keep electricity flowing, especially under extreme weather conditions.
Industry observers stress the importance of Washington encouraging energy infrastructure in the elevated-risk states. New projects are clearly needed to fortify the grid in the face of rising demand.
A FERC Conference Looks at Data Centers Co-Locating with Power Sources
At a conference earlier this month led by its commissioners, FERC examined innovative solutions to increased electricity load demands, mainly driven by rising needs of data centers for computing power for Artificial Intelligence applications. The conclave brought together federal and state regulators, utilities, generators, and data center developers.
Discussion centered on the issue of co-locating power generation at data center facilities and the effect of such projects on the stability and reliability of the grid for consumers.
The conference comes on the heels of widespread news reports that AI data centers are causing “potentially overwhelming demand” on utilities nationwide. According to an October report by Bain & Co., data centers could account for 44% of U.S. electricity load growth from 2023 to 2028, compared with growth of about 27% from the residential sector, 17% from manufacturing and the remainder from the commercial sector.
The demand has led data centers and their primary customers to seek new solutions. For example, Talen Energy and PJM recently proposed employing 180 megawatts (MW) of nuclear generators in Pennsylvania to serve centers directly.
That proposal, which involved co-location with an Amazon Web Services data center, was rejected by FERC on Nov. 1 in a 2-1 vote. FERC was concerned about the ISA, or interconnection services agreement not adequately protecting against cost shifts that would affect consumers.
Talen issued a statement on Nov. 4 saying:
Contrary to the Commission’s ruling, Talen’s co-location arrangement with AWS is part of the solution to issues raised on November 1 at the FERC technical conference on large co-located load. It brings service to the customer quickly and without expensive transmission upgrades necessary to serve large-load demand.
Issue No. 41 of this newsletter explored several proposals for co-location, such as a deal signed by Constellation Energy and Microsoft to “help resurrect a unit of the Three Mile Island nuclear plant in Pennsylvania in what would be the first-ever restart of its kind,” according to Reuters.
In addition, Amazon is “leading a $500 million funding round for X-Energy Reactor, a company that develops small modular nuclear reactors and fuel,” reported the Washington Post on Oct. 16.
“As part of the agreement,” reported the Wall Street Journal, “Amazon and X-Energy will provide initial backing for a four-unit, 320-megawatt project with regional utility Energy Northwest in central Washington state.”
Advocates of co-location near nuclear or natural gas resources argue that it reduces the pressure of building out additional transmission capacity, thus avoiding long interconnection delays. Grid transmission would then be freed up for other newly interconnecting resources, typically wind and solar projects.
Co-location is one way of coping with the rise in demand for electricity, and conference participants from industry said that the arrangements are becoming more common.
With this in mind, near the end of a panel of utilities and energy industry leaders, speakers began to express the sentiment that co-location “arrangements are becoming more common now because generator interconnection to the grid is not happening fast enough,” according to a conference summary by the law firm Gibson Dunn.
The summary added:
Commissioners Rosner, See, and Chang requested input on how FERC should regulate both co-located behind-the-meter and grid-connected configurations, while addressing cost allocation, market improvements, and reliability. In response, many panelists requested clarity on state regulator versus FERC jurisdictional authority, while others sought better methods for transmitting price signals across markets.
It was an encouraging sign that FERC did appear open to clarifying existing rules about managing development of co-located loads. Commissioners certainly understand the threat of data center-led demand growth and its effect on consumers. The key appears to be increasing the use of abundant U.S. energy resources, especially natural gas.
This sentiment was supported by the EPSA CEO ,Todd Snitchler (see above), who congratulated FERC on its leadership on the issue and stated, “Co-locating power generation resources with large demand customers has emerged as an innovative and promising approach to address this issue. But as with any new arrangement that could impact the existing grid and competitive markets, getting the particulars right and carefully assessing surrounding market ramifications is essential.”
He added that the business model of EPSA’s members, competitive power suppliers, “allows them to respond nimbly and efficiently to this new market signal to deploy reliable, long-duration generation resources, shielding consumers from investment risks associated with the expected buildout of new resources.”
At an Anaheim Conclave, RTO and Energy Executives Say Natural Gas Is Needed to Retain Grid Reliability for Many Years
During another November conference – this one held by the National Association of Regulatory Utility Commissioners – executives from Southwest Power Pool (SPP), the RTO for that part of the country, and Black Hills Energy (BHE) made from it clear that electricity generation fired by natural gas will be necessary to maintain grid reliability for years to come, Utility Dive reported on Nov 13.
“Hopefully there’s a replacement technology other than gas that can provide that reliability, but today, gas is the reliability [option] of choice, and will be for at least a decade,” said Mark Lux, vice president for power delivery for BHE, at the Anaheim, Calif., conference.
Lux said that BHE’s Colorado utility is adding solar, wind and batteries to comply with the state’s requirement to cut carbon emissions from the power sector by 80% by 2030. But wind turbines trip offline when temperatures exceed 104 degrees or drop to less than 20 degrees below zero. And when the wind isn’t blowing, power isn’t being generated. Therefore, the utility needs gas-fired generation to serve the utility’s load.
Utility Dive reported that Bruce Rew, SPP’s senior vice president of operations, said that the RTO’s forecast for the next seven days is for about 30 GW of wind generation but that figure could fall to 5 GW in that period. “How do we manage that?” Rew asked. “We’ve got to have a diverse portfolio…. We’ve got to have something else to keep the lights on. It ideally would be as economic and clean as possible, and right now, the best option that we have for generation over the next several years looks like it’s natural gas.”
Reported Utility Dive, “SPP expects its load will grow 30% by 2030…. The grid operator has about 34 GW of wind on its system, which has a peak load of about 56 GW, Rew said.”
Concerns about the reliability of renewable energy are mounting. A report in Power Engineering warned that the output of renewable generators may be strongly influenced over a wide geographical area by natural phenomena, such as long winter nights, a string of calm or cloudy days, or even a snowstorm, which can cause large decreases in intermittent generation output.
How great a proportion of total capacity should wind and solar comprise? A formula that calls for a 40% or greater capacity factor for solar and a 20% factor for dispatchable resources like natural gas risks higher prices and greater chances of rolling blackouts, especially at a time of extreme weather.
Utilities are properly concerned, highlighting the importance of an all-of-the-above energy generation strategy to provide a sustainable balance of power supply. Energy consumption in the U.S. is still largely dominated by natural gas, and it was clear from the Anaheim conference that an abrupt departure from the current mix would harm the grid, consumers, utilities and businesses nationwide.
Demand for Energy Concentrated in States Like Texas
New reporting by the Dallas Morning News reveals that not only is demand for energy rising in the U.S. but that the demand is concentrated, putting the reliability of electricity at risk in particular states like Texas.
The EIA estimates that Texas had the second-largest energy consumption surge from 2019-2023, close behind Virginia and ahead of other states with fast-growing populations such as South Carolina, Arizona and Florida.
At a Nov. 13 energy conference in Dallas, Jeff Schmid, president and CEO of the Federal Reserve Bank of Kansas City, noted that the energy sector has had the “fastest productivity growth of any industry over the past decade.” But demand is rising rapidly because of AI data centers, crypto mining, an increase in electric vehicles and ballooning population in the region covered by his Fed bank. Schmid pointed to Texas, Nebraska and Wyoming as experiencing a large jump in electricity use with the “rapid expansion of data centers.”
Another state with rapidly rising electricity demand because of data centers is Arizona. “Arizona Public Service has about 10 GW in pending interconnection requests from data centers,” Utility Dive recently reported, “but the utility cannot commit to serving them because it would put existing customers at risk of having poor reliability, according to Jose Esparza, the utility’s senior vice president of public policy.”
Energy demand across the country is powering demand at rates that haven’t been seen since the end of World War II, said Garrett Golding, a senior business economist at the Federal Reserve Bank of Dallas, at the conference. The 1.3% annual growth pace is more than twice as fast as the decade before the pandemic.
“These dynamics, on top of the uncertainty of current forecasts, present major challenges for grid planners, power generators, transmission developers, regulators and at the end of the day, everyday consumers in the broader economy,” Golding said.
Grid regulators are worried, especially with winter weather coming. Worst-case scenario models from Texas power grid operator ERCOT show that if the state were to be hit by weather on par with that of December 2022, the chance of rolling blackouts would be 50%. That figure jumps to nearly 80% if Texas experiences a more severe winter – like that of February 2021, when storms caused widespread outages and killed more than 200 people.
Texas is set to outpace Virginia, which currently handles about 70% of global Internet traffic. As a result, the isolated electric grid of Texas is becoming increasingly important in the reliability conversation, and an adequacy report from ERCOT notes, that the possibility of “low wind production remains a significant risk” for maintaining sufficient reserves in the coming months.
A state with outsized importance as a hub for data centers and Internet infrastructure has a lopsided reliance on intermittent energy resources such as wind (40% in Texas vs. 15% for natural gas). With the new Trump Administration, regulators need to take conditions of regulatory strain in states like Texas seriously. Regional grids (or isolated state grids in the case of Texas) are critical to safeguarding national security and economic prosperity in the 21st century.
Battle Over LNG ‘Pause’ Continues; Will Biden Hamstring Trump?
Also in apparent jeopardy with the advent of the new administration is the pause, issued in January by President Biden, on applications to export liquefied natural gas (LNG) to countries that lack a free trade agreement with the U.S. – a freeze that covers European countries that have been importing American gas to make up for disruptions in Russian supplies because of the Ukraine war.
The Department of Energy said the pause was “put in place to allow the department to update climate and economic analyses used to decide whether authorizations are in the public interest.” A court issued an injunction to block the pause in July, and the Biden Justice Department asked earlier this month for a reversal.
As we have noted in past editions of this newsletter, many political and industry leaders have called upon the Biden Administration and its Department of Energy to lift the pause on permits, but the issue is far from simple.
Bloomberg Law reported on Nov. 7 that the “Biden administration is racing to complete a study that could complicate President-Elect Donald Trump’s plan to immediately approve new liquefied natural gas export terminals, according to people familiar with the matter.”
The problem, as Kevin Book, managing director of consulting firm ClearView Energy Partners, put it, is this: “If Trump wants to say ‘Yes’ on day one, and there is a study that says ‘Yes’ isn’t in the public interest, then those approvals might be targets of legal challenges.”
What is the status of the study? On Oct. 23, the Republican leadership of the House Committee on Oversight and Accountability sent a letter to Energy Secretary Jennifer Granholm calling for public transparency concerning the “LNG export study transmitted by the National Energy Technology Lab (NETL) to the DOE’s Office of Fossil Energy and Carbon Management between Jan. 1, 2023 and Oct. 31, 2023.”
The committee leaders wrote that litigation has “forced a stonewalling DOE to at long last admit that, yes, there is a 2023 study meeting that description, it was sent to the senior political appointees in the Biden-Harris DOE, and has disappeared into the ether.” This subterfuge is disturbing, they said.
Republican leaders of the House Energy and Commerce Committee, in a separate letter sent to Secretary Granholm on Nov. 15, are demanding that the DOE not rush its LNG study in an effort to hamstring the incoming administration.
Speaking at a United Nations climate summit in Azerbaijan that same day, Granholm said that her department is “committed to finishing its review of the economic, climate and national security impacts of LNG exports by year’s end, telling reporters the study will ‘speak for itself,’” E&E News reported. And just recently, Politico reported that some industry sources believe the study will be released around November 29th and find LNG exports drive up domestic prices.
In their final months in office, departing presidents, including George W. Bush, often go out of their way not to hamstring their successors, leaving critical decisions up to the new crew. The Trump Administration could produce its own LNG study, perhaps lifting the pause until it is complete. But if DOE is going to release a study in the waning weeks of Granholm’s tenure, it stands to reason that it must be free of ideology and politics.