Shakespeare’s adage about those who “doth protest too much” seems an appropriate response to Energy Secretary Rick Perry’s recent testimony on an administration proposal to change the way coal and nuclear power plants are compensated for sending electricity to the U.S. grid.
Perry’s cryptic and somewhat baffling rhetoric Thursday in front of the House Commerce Committee’s Energy Subcommittee came during tough questioning by members worried the proposal, if accepted by federal regulators, would undermine electricity markets throughout the country. In particular, the proposed rule by the U.S. Energy Department calls for subsidies for power plants that keep at least 90 days’ worth of fuel stored on site. Such a rule would act as a subsidy for coal and nuclear interests over natural gas, solar, wind and other renewable energy providers, and could cost consumers up to $4 billion a year, according to analysts.
“I think you take costs in to account, but what’s the cost of freedom? What does it cost to build a system to keep America free? I’m not sure I want to put that straight out on the free market and build the cheapest delivery system here,” Perry retorted in response to a question from Rep. Paul Tonko, D-N.Y., about the potential for higher energy prices for consumers. “I think the cost-effective argument on this is secondary to whether or not the lights are going to come on.”
The DOE on Sept. 28 asked the Federal Energy Regulatory Commission (FERC) to consider new rules ensuring nuclear and coal-fired power plants are paid not just for the electricity they provide consumers, but the reliability they may provide to the electric grid. Former FERC commissioners have said such a rule could “blow up” wholesale electricity markets that have taken decades to design. Both coal and nuclear plant operators, meanwhile, have been shuttering inefficient plants over the past several years due to inexpensive natural gas-fired generation and government support for renewable generation.
It is true that fuel security is an important issue to evaluate, as long as it is evaluated objectively. Perry’s “Braveheart” moment regarding energy security suggests a certain irrationality that can only hurt electricity market operations and which, over time, would undermine fuel security as poor economic incentives become institutionalized.
The truth is that free and unfettered price discovery in electricity markets is the most important element in grid resiliency. Perry is involved in a subterfuge, a deception that even someone of his legitimate political skills has trouble pulling off. The administration is in the position of being forced to come up with creative ways to fulfill promises made directly by President Donald Trump to coal mine owners during the election campaign, even at the cost of free markets – a supposed core belief among Republicans and conservatives of all strips.
This intellectual inconstancy is even more acute when one considers that Perry spent much of his 14 years as Texas governor praising and promoting the virtues of freer energy markets in the Lone State State. Texas has the freest electricity marketplace in the country and hasn’t faced any major reliability problems, even in the aftermath of major flooding by Hurricane Harvey in late August. (Of course, it should be noted that most of Texas would be exempt from the DOE’s proposed rule because it maintains its own intrastate grid.)
Fortunately, efforts like this often come up against checks and balances that keep poor policies from being enacted. In response to the DOE proposal, a hitherto unprecedented coalition of 11 energy lobbying groups is asking FERC for a delay in processing the new rule so they can prepare arguments against it. The coalition included a combination of major oil and gas associations and the most important renewable-energy lobbyists, such as the American Wind Energy Association and the American Petroleum Institute.
Because FERC is an independent regulator, the administration can’t force the policy through by fiat. Final rules must be passed by a majority of FERC commissioners and the commission only recently received a quorum, after spending more than six months inactive. The likely postponement of quick action on the DOE proposal will allow the five FERC commissioners (two who of whom still await confirmation) time to consider the full ramifications of such a rule. If the $4 billion annual cost estimate is even close to accurate, the commission’s definition of what counts as “free” may be very different from Perry’s.
Image by Andrew Cline