Why is Rick Perry’s Energy Department proposing an anti-conservative reform?
The proposal calls for draconian, emergency subsidies to address a crisis that grid reliability experts say doesn’t exist. The alarmist proposal is neither technically nor procedurally sound.
Knowledgeable, principled conservatives are speaking out. Travis Kavulla, the Republican vice chairman for the utility regulator of Montana, calledthe DOE’s proposal a “command and control” system that “will be predetermining through industrial policy who stays in the market and who goes out.” Similarly, former Republican FERC Commissioner Tony Clark said applying the proposal’s basic tenets could threaten market operations. Current FERC Commissioner, Republican Robert Powelson, demonstrated leadership amid an anxious energy industry by reassuring concerned parties that he “did not sign up to go blow up the markets.”
Pat Wood, the former FERC chairman appointed by President George W. Bush, called the action “profoundly disappointing” as Energy Secretary Rick Perry previously oversaw the best competitive electricity market in the country. Wood serves as the chairman of Dynegy, who’s power fleet would actually benefit from the rule, but still felt compelled to call the proposal an unwelcome present.
Shockingly, the DOE proposal cites the DOE’s well-reasoned staff reportreleased a month prior, then directly contradicts its recommendations. Alison Silverstein, who drafted the technical portions of the report, called the proposal “dreadful” with “immense cost implications” without obvious benefits.
Clearly, the proposal did not originate with technical staff at DOE. This is a political monster.
The Trump administration is right to be concerned with heavy regulatory burdens on coal and nuclear and subsidies for competing power sources. But counter-distorting subsidies is not the answer. Bill Peacock of the conservative Texas Public Policy Foundation sees the proposal leading to more subsidies, when the correct response is to eliminate subsidies and reduce regulatory burdens.
The proposal, done in the name of promoting grid reliability, resiliency, and security, is a wolf in sheep’s clothing. It cites the 2014 Polar Vortex as the poster child for needing to protect “fuel secure” generation. However, the majority of power plant outages during the event had nothing to do with fuel shortages, but rather plants with fuel access experienced equipment failures from extreme weather. Some coal plants couldn’t transport on-site fuel to their boilers because conveyor belts broke and coal stockpiles froze.
“Fuel security” is not synonymous with “on-site” fuel storage. We should be looking at all the causes of power plant outages instead of keying in on one specific method to address one specific sub-type of outage.
Dozens of issues cause power plant outages, and government cannot prescribe remedies efficiently. FERC should ensure proper incentives exist so that the fleet of power plants performs reliably, whereby the private sector decides which costs to incur to improve the performance of their plants. This fuel- and technology-neutral approach minimizes the costs to achieve a reliable and resilient grid.
An approach to grid reliability and resiliency must improve markets and empower customers, rather than cater to the exaggerated or false narratives of parochial interests. Unprofitable industries like to play the national security card with conservatives that, unfortunately, often trumps their commitment to markets. It’s no surprise that the on-site fuel initiative happens to benefit two industries that have a difficult time competing in today’s market conditions.
Market forces have predominantly caused coal and nuclear retirements. Competition has induced innovation and the entry of new, low-cost resources. As Silverstein notes, “competition worked as intended, driving inefficient, high-cost generation out of the market.” This propelled competitive markets to outperform the regulated monopoly model.
The grid is in transition, not crisis. Problems could emerge if we don’t continue with thoughtful incentive-based reforms. In the meantime, the worst course of action is to act impulsively and impose a government-induced crisis.
The DOE proposal undermines conservative principles, but the conversation it launched may propel productive action. Conservatives need to pull some “electrical judo” to redirect political momentum in a constructive manner.
Tremendous opportunity exists to advance proper reliability and resiliency reforms. The recommendations in the DOE technical report are a great start. Silverstein laid out additional ideas to strengthen markets. The R Street Institute delineated a pathway for new FERC leadership to reform rules affecting electricity price formation.
If “energy dominance” means a muscular, expansive role for government, we’re in big trouble. If it means liberating market participants to compete on their merits, then we’re on a path to drain the swamp.
Image by Christopher Halloran
