Low-Energy Fridays: DOE “Zombies” Are Eating Competitive Power Markets
This past May, the U.S. Department of Energy (DOE) used emergency authority to stop two scheduled power plant retirements. As we explained in July, these emergency orders are not a good way to boost grid reliability. That’s not the only problem, though—the DOE’s emergency orders also threaten to undermine competition in regional power markets.
The case invoked Section 202(c) of the Federal Power Act, which limits most orders to just 90 days. The DOE used this law to block the coal-fired J.H. Campbell Power Plant in Michigan and two units at the gas- and oil-fired Eddystone Generation Station in Pennsylvania from retiring. When those 90-day orders expired in August, the DOE issued new orders to keep the plants online. When these orders expire later in November, the DOE is expected to order the plants to stay online for another 90 days. Both currently operate with a safety net: If they lose money, the law makes area consumers cover those losses. And with losses covered no matter what, the plants have little reason to run efficiently. The result isn’t grid reliability—it’s creeping zombification of the market.
Markets require profits and losses to steer investment where it’s needed (and away from where it’s not). When a unit can’t cover its costs at market prices, it should retire. When older, inefficient plants exit, space opens on the grid and in the market for better resources to jump in. Prices may initially rise, but consumers benefit in the end as competition grinds down average costs. Serial “emergency” orders break the economic feedback loop and undermine competitive forces.
The DOE’s decision to keep two fossil-fueled power plants running raised speculation that the administration would block any fossil-fueled plant from retirement. However, a New Hampshire coal unit retired in October without federal intervention. That’s good, because a plant that doesn’t contribute to reliability and energy supplies at a competitive price should retire. But the lack of clear policy heightens uncertainty.
The economic damage shows up in three places:
- Crowding out. When zombie power plants are ordered to stay in the market, customers are stuck with the bill from any losses. Market revenues that would support efficient resources get skimmed by units the market has already rejected. The effect is subtle but important: Energy market prices flatten, clean and firm resources see less upside in tight hours, and generation turnover slows.
- Planning. Reliability planning depends on credible schedules—retirements that can be believed, new power plants that can be counted, and rules that don’t change unnecessarily. A plant yo‑yoing between “retired,” “ordered to run,” and “maybe extended” in 90-day increments can’t fit into long-run reliability plans.
- Policy-driven uncertainty. States and stakeholders are suing the DOE over the emergency orders because the law is being employed in a manner different from what Congress intended. The DOE has not articulated a clear policy for how they will use their authority in the future, which leaves plant owners and potential investors in the dark.
Emergency orders do have their place. If a hurricane hits, fuel freezes, or a wildfire takes out a major power line, use 202(c) for the days or weeks necessary and then stand down. Utilities regularly ask for these emergency orders when they need them. The difference with zombie plant orders is that neither the plant owners nor the grid operators responsible for reliability in their regions requested them.
Nothing in this discussion denies reality—demand for electricity is rising, interconnection queues are clogged, and grid operators face tough winters and hot summers. The way forward is in policies that make better use of the existing grid, drive economical additions to transmission infrastructure, and let market forces drive power plant entry and exit. Competitive power markets are not responsible for rising electricity rates; in fact, a recent study pointed to increased spending on transmission and distribution wires as key factors in driving up customer rates.
Should the DOE continue to undermine market competition, consumers may get hit with the double-whammy of rising energy costs and rising infrastructure spending. Zombification of the electricity industry is no way to support a reliable, efficient power system.