Beware proposals that purport to improve electric grid reliability

Beware proposals that purport to improve electric grid reliability
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When we picture emergencies, we imagine absolute, worst-case scenarios. You might think of a parent or a child in the hospital, or the need to evacuate ahead of a natural disaster. So when we talk about the government issuing emergency orders, the bar is set pretty high. A national crisis — such as a mass shortage of electricity, or a war demanding immediate use of resources — constitutes an emergency. A corporation filing for bankruptcy because it cannot compete in a free market, however, does not constitute such a crisis.

In January, the Federal Energy Regulatory Commission (FERC) unanimously rejected a notice of proposed rulemaking (NOPR) from the Energy Department, which would have subsidized aging and uneconomic plants under the guise of improving electric grid reliability. In reality, as experts ranging from former FERC commissioners to industry leaders noted, the proposal would have done no such thing. Instead, it would benefit a select few companies and cost consumers $11 billion a year. Regional grid operators condemned the proposal, and FERC rejected the proposal outright.

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Now, companies such as FirstEnergy, which recently filed for bankruptcy, are seeking aid from the administration in the form of various government interventions in competitive electricity markets. 

 

In March, FirstEnergy requested the DOE issue support for four years through Section 202(c) of the Federal Power Act — a provision that can be used to keep power plants running in times of emergency. In the past, these emergencies have included devastation from Hurricanes Rita and Ike, and regional blackouts. Typically, corporations are only involved in the solution, while grid operators — who make no profit from the use of emergency powers — themselves seek out the aid.

Beyond 202(c), they have suggested using the Defense Protection Act (DPA), a national security law from 1950, to support these failing plants, claiming resilience and reliability as national security concerns. These requests go against all precedent, as corporations stand to profit from these decisions.

Here’s the catch: There’s just no cause for all this concern. As the Institute for Energy Economics and Financial Analysis’ David Schlissel pointed out, “We see no evidence that [proposals to subsidize plants] would enhance the reliability of the grid in any way.”

Sounds about right. When the original NOPR was rejected by FERC, the commissioners called for regional grid operators to submit statements on what, if any, issues they saw in their regions. Grid operators responded with specifics — limited infrastructure in New England, for example — but none identified grid reliability as an existing, unmet concern.

After all, in reality, less than 0.00007 percent of all power disruptions over the past five years were because of fuel supply problems. In other words, for the overwhelming majority of the time, power disruptions are because of things such as power lines going down during a storm.

The grid has been tested and proven to be reliable and resilient. During extreme weather — such as the so-called “bomb cyclone” earlier this year — the electricity grid responded with little disruption. Regional grid operators learned from past experiences, such as the 2014 polar vortex, and were prepared for what came their way. Rich Dewey, executive vice president of New York’s regional grid operator, wasn’t concerned about maintaining resilience because of any single fuel, noting that the “diverse fleet [is] not linked to any one fuel.”

Proposals that benefit a select few companies at the cost of consumers and the market’s ability to operate effectively are taxpayer bailouts that will cost billions. There is zero precedent of a long-term emergency order, and zero justification from independent experts to corroborate the request for one.

The original NOPR underwent a lengthy process, having been submitted last fall and thoughtfully considered until January. Failing companies’ requests for a sudden and immediate override of that decision entirely circumvents a contemplative, fact-gathering process that exists for a reason: keeping politics out of the equation and protecting the market’s operating ability.

As the owners of aging and uneconomic plants continue to push for consumers to bail them out, I am hopeful that our leaders will put American consumers first. These proposals would force consumers to pay billions of dollars while taking the electricity markets that operate on free-market principles and flipping them upside down. Now more than ever, the administration has to resist the pressure from corporations by putting the American consumer first.

John Hughes is president and CEO of the Electricity Consumers Resource Council (ELCON), a Washington, D.C.-based national association representing large industrial consumers of electricity. He has managed the association’s interventions with regulatory agencies and in testimony before Congress. He has served on the executive committee of the North American Energy Standards Board, and has been active with the North American Electric Reliability Corporation and its predecessor organization since 1997.