President Trump recently announced that the Energy Department is reconsidering funneling emergency aid to unprofitable power plants in response to a request from a bankrupt company. But experts agree that no grid emergency exists, and that such action would cost consumers billions and destroy market competition.
Indeed, subsidizing troubled companies would constitute an extreme measure at consumers’ expense. It’s about time consumer voices took control of the grid narrative.
The leader of the bailout push is FirstEnergy Solutions, a company that recently declared bankruptcy because some of its coal and nuclear plants are not competitive in today’s market. The company asked Energy Secretary Rick Perry to declare a grid emergency under Section 202 of the Federal Power Act to keep plants online to “serve the public interest.”
If the plants were necessary for grid reliability and resilience, then customers would share FirstEnergy’s concern. Instead, electricity users are deeply distressed by the immediate costs they could face, as well as the long-term damage to the market, due to the proposed intervention. Specifically, FirstEnergy’s proposal would re-regulate a large portion of the competitive power fleet, which may render market pricing mechanisms nearly irrelevantby disrupting signals for market entry and exit.
FirstEnergy requested the subsidies for plants in the PJM Interconnection, which is the marketplace in the Mid-Atlantic region where its plants reside. Yet PJM, PJM’s independent market monitor, and PJM’s customers all agree that these plants are not necessary to keep the lights on. PJM, which thoroughly evaluates reliability impacts of planned plant retirements, has repeatedly disagreed with the “fundamental assertion that there is an emergency.” In fact, the PJM system has supply in excess of its reserve target. PJM’s market monitor, which objectively evaluates the performance of PJM markets, notes that the PJM markets work well and deliver the benefits of competition to customers, pointing out that the biggest problem PJM faces is excessive government intervention.
The fictitious crisis might be more credible if PJM hadn’t been experiencing the effects of large coal and nuclear retirements for the better part of a decade. In PJM, more than 20,000 megawatts of coal capacity have retired since 2011. The primary reasons are declining demand and massive new investment in low-cost natural gas-fired plants, which are strategically sited to minimize their fuel costs and maximize their grid value. The results have been robust reliability metrics and lower costs to customers. This is exactly what customers hoped for when states in PJM adopted the competitive market model.
As the backbone of the manufacturing, technology, retail, and service industries, we know what it means to compete, and we care deeply about affordable, reliable electricity. We benefit when our energy suppliers compete under fair, efficient rules, and when we have options to choose our energy sources and to take increased control of our energy use and costs. Subverting electricity markets, on the other hand, puts consumers last.
The triumph of our economy is rooted in private capital accepting risk and seeking reward. Markets work best when they facilitate new investment in low-cost resources and drive high-cost resources out of the market. Provided that the fates of coal, nuclear, renewables, natural gas, and all technologies are market-driven, consumers will benefit.
This is not an issue of coal and nuclear versus renewables and natural gas; this is about customers versus rent-seekers, good versus bad governance, and markets versus destructive government intervention.
The grid is in transition, not crisis. In fact, it is undergoing a healthy and beneficial transformation. The crisis could occur if we let government, instead of markets, determine investment decisions.
Any emergency that may exist is limited to the financial condition of companies that bet against market forces. Such companies do not deserve bailouts. Instead, they should face their creditors and reposition themselves for the energy system and economy of the future.
America’s families and businesses deserve a government that upholds fair competition. Everybody should play by the same rules. As electricity consumers and experts, we urge the Trump administration and Energy Department to champion competition and good governance by rejecting baseless calls to bailout unprofitable power plants.
The following individuals co-authored this op-ed: John Hughes is president & CEO of the Electricity Consumers Resource Council. Owen Kean is senior director of energy policy at the American Chemistry Council. Caitlin Marquis is manager of policy at the Advanced Energy Buyers Group.
Image credit: Denis Belitsky