Feds shouldn't pick winners and losers in energy markets

Feds shouldn't pick winners and losers in energy markets
© Camille Fine

The federal government should not be in the business of picking winners and losers in the private sector by formulating government policy that favors one industry over another. Despite that, the U.S. Department of Energy did just that on Sept. 28, marking an abrupt and unprecedented reversal of a quarter century of progress in the development of competitive electric power markets.

Energy Secretary Rick PerryJames (Rick) Richard PerryOvernight Energy: DNC to reject fossil fuel donations | Regulators see no security risk in coal plant closures | Senate committee rejects Trump EPA, Interior budgets DNC to reject fossil fuel company donations Energy commission sees no national security risk from coal plant closures MORE ordered the Federal Energy Regulatory Commission (FERC) to consider electric market rule changes across much of America that could result in massive subsidies for certain coal and nuclear power plants. Not only could this shortsighted decision lead to higher prices for consumers, it is also bad energy policy that flies in the face of common sense.  

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In defending the proposal before Congress on Oct. 12, Perry made the argument that our grid must be prepared to face natural disasters — like hurricanes and winter storms — that can cause mass power outages. He argued “I want to try to push the FERC and country to take action so that we don’t face that event in the future where people’s lives are put in jeopardy or where this country’s national security is jeopardized because we refuse to buy into the concept that we need a very diverse energy portfolio.”

 

Let’s tackle both of those arguments with the facts. 

The Energy Department alleges that competitive markets are not doing enough to ensure diversity in our generation fleet, citing the retirements of many coal-burning facilities over the past 10 years.  But the fact is that the nation’s electric power system is becoming more diverse, and more resilient, with significant investments in newer and more efficient technologies. For this reason, wholesale power prices in competitive power markets are at historic lows. 

Imagine if it were a different industry, such as trucking, and the problem becomes clear. It would be crazy for the government to subsidize a trucking fleet built in the mid 1960s rather than taking advantage of a newer, more efficient and cleaner generation of trucks built today. 

Moreover, despite this trend, the current mix of traditional electricity generation in the United States is still roughly 33 percent coal, 20 percent nuclear and 33 percent natural gas, and the markets are seeing additional diversity with robust development of non-traditional resources. 

Perry also argued that recent hurricanes in Texas and Florida support the need to subsidize coal and nuclear plants because they have onsite fuel storage capability.

But the reality undermines this assertion. In Texas during hurricane Harvey, natural gas-fired plants continued to operate while a large coal plant outside Houston was forced to switch to natural gas because its coal pile was too wet to use.

During Irma, some nuclear units in Florida had to shut down for safety reasons, despite having plenty of fuel. The lesson is that, simply having fuel on-site does not guarantee continued performance during adverse weather conditions. 

In an example of another extreme weather event cited by the Energy Department, it is true that a significant number of power plants — across all fuel types — experienced outages during the Polar Vortex of 2014. But the vast majority of outages were caused by reasons other than lack of fuel, and included ill-prepared coal and nuclear units. The Energy Department’s mischaracterization of the lessons learned from historic weather events does a great disservice to the grid operators, utilities, and power plants that actually kept the lights on during those events.  

And before anyone suggests otherwise, opposition to the Energy Department proposal is hardly political. This proposal has been roundly criticized by energy producers, consumer organizations, financial institutions, environmental advocates and numerous policymakers across the political spectrum. 

Indeed, the only overt support for the proposal is from the special interests that would directly benefit from it. Those of us who are raising our voices in opposition are doing so, not because of politics, but because we believe in free markets and the value that competition brings to consumers. Our power grid needs to remain diverse and resilient, but, rather than government picking winners and losers, we will achieve our policy goals more efficiently and effectively if we continue to let the market work.

Fortunately, the Energy Department’s order is not yet enacted policy. Final action rests with FERC, an independent agency with a history of supporting open and fair competition. FERC, and regional electric grid operators, already have tools that ensure reliability while maintaining the myriad customer benefits that come from highly competitive power markets.  We urge FERC to act independently, with a principled approach based on solid analysis. The facts simply do not support the conclusion that retirement of uneconomic power plants is a threat to reliability. 

John Hughes is president and CEO of the Electricity Consumers Resource Council.

John E. Shelk is president and CEO of the Electric Power Supply Association.