Energy Secretary Rick Perry was a strong proponent of states’ rights and free markets while governor of Texas. Understandably, his recent federal proposal to effectively disrupt organized electric markets raised many eyebrows.
Indeed, the proposal [PDF] the U.S. Department of Energy filed with the Federal Energy Regulatory Commission last month has been met by a chorus of resistance from unlikely allies in the industry and policy worlds – and it’s easy to see why.
By propping up uneconomic coal and nuclear plants under the pretense that grid reliability is at stake, the DOE is trying to guarantee a bailout in perpetuity that would violate the very market principles the Trump administration has said it supports – as well as federal law.
As for policy, this plan already has some FERC commissioners scratching their heads.
A grid reliability crisis that doesn’t exist
According to Perry, our electric grid is in jeopardy because of what he calls the “premature” retirement of coal and nuclear plants. Remarkably, the report he commissioned recently from DOE disagrees.
So do numerous other studies on the subject, such as the recent National Academy of Sciences energy resiliency report, which says nothing about rescuing inefficient, uncompetitive coal and nuclear units.
Rather, the academy suggested resource-neutral refinements to strengthen and improve market competition. The author of the DOE’s own grid reliability “study” said much of the same earlier this month.
By making up a problem that doesn’t exist, ostensibly to align with the administration’s broader pro-coal agenda, Perry is ignoring evidence showing that the transition to cleaner energy sources is already making America’s electricity system more reliable and affordable.
But Perry’s faulty policy rationale isn’t the only problem with this plan.
Undermining markets won’t save coal
Under the DOE’s proposal, the federal government would require anyone who receives an electric bill to pay owners of coal and nuclear power plants their operating costs, plus a guaranteed profit – and regardless of whether their plants are selling electricity at a competitive price.
Today, such plants are driven out of the competitive market by flattened energy demand and a growing list of cheaper, cleaner and more efficient energy alternatives.
In Perry’s home state of Texas alone, more than 4,000 megawatts of coal power are coming offline early next year as one utility shuts three plants, citing low wholesale prices and competition from renewables and natural gas. Nationwide, coal now supplies 32 percent of our electricity, down from 47 percent a decade ago.
In a misguided effort to reverse this economic trend, the DOE is now asking FERC – an agency that must be resource-neutral – for a legally guaranteed, multi-billion dollar profit margin for owners of uncompetitive coal and nuclear plants.
Homeowners and businesses would be footing the bill for the forseeable future.
Mixed messages, on shaky legal ground
Perry’s plan to put struggling power plants on life support flies in the face of the market principles that his colleagues in the administration regularly tout.
Curiously, Perry’s plan applies discriminatorily – only, in fact – to a specific set of competitive, regional electricity markets where cost-effective clean energy solutions are flourishing.
This suggests that Perry’s overture to FERC has nothing to do with grid reliability or the nation’s well-being, but about a political agenda that goes against current competitive markets and what we know about them.
Beyond bad policy, this can present problems since federal law clearly prohibits FERC from favoring energy resources for political reasons.
Not surprising, then, to see virtually every stakeholder line up against Perry’s “grid reliability” proposal. Oil and gas producers are aligning with wind and solar developers, consumer advocates and environmental groups against the idea. It means this story likely won’t go away any time soon.