Oct 11, 2017 What They Are Saying: Experts Agree Energy Department’s Grid Proposal Will Harm Markets, Raise Consumer Costs
As Secretary of Energy Rick Perry prepares to testify tomorrow before the House Energy and Commerce Committee, a wide-range of experts from across the political spectrum, including former FERC Commissioners, power company executives, energy trade groups, renewable advocates, academics and think tanks have weighed-in on the Department’s proposed rule to fundamentally alter electricity markets in the United States.
And while FERC denied IPAA’s request to extend the comment period on this proposal, an initial analysis by consulting firm ICF International pegs the cost of this rule at between $800 million and $3.8 billion – costs that will be passed along to consumers and ratepayers should the proposal be enacted.
Here’s a sample of what the they’re saying about the proposed rule:
Former FERC Commissioners, Elected Officials
- Former FERC Chairman Jon Wellinghoff: “This would blow the market up… It’s gonna be as expensive as hell. Expensive as it can be because we will be paying the full freight on coal and nuclear plants…The practical effect of implementing the order as written would be to basically destroy the wholesale energy markets as we know them, and I don’t think anyone wants that. Ultimately it will cause prices to go up significantly for consumers.”
- Rep. Pete Olson, Energy and Commerce Subcommittee Vice Chairman: The DOE rule is “a big challenge and a big change. I’m concerned because it appears to be picking winners and losers, and every time we do that, we hurt the consumer. We jack prices up.”
- Former FERC Chairman Pat Wood: The rule is “a draconian way of fixing it [the markets].”
- Former FERC Commissioner Nora Mead Brownell: “If Republicans are presumably about fiscal responsibility and markets, this totally contradicts that. It’s the antithesis of good economics. It’s going to destroy the markets [and] drive away investment in new more efficient technologies, whether they be generating plants or energy efficiency, at a cost to business and ratepayers that is astronomical.”
- Former FERC Commissioner Tony Clarke: “But I think if they [FERC] took the most aggressive angle that they could on it, which is … to figure out how to put money into coal and nuclear plants, it would be very challenging for the markets.”
- Sen. Maria Cantwell (D-WA): “Secretary Perry has embraced an obsolete view of the grid… This proposal would bail out coal and nuclear power plants at the expense of everyone else, rising electricity rates for other consumers. Natural gas, renewable efficiency and storage, and most importantly the consumers would lose out in this proposal. I hope FERC rejects it and his unsolicited, backward proposal.”
- Rep. Gene Green (D-TX): “When Secretary Perry was governor of Texas, that’s when we expanded our wind power dramatically and it’s part of our grid in ERCOT. I’m afraid the latest move may artificially tip the scale… Secretary’s issued a directive to combat what he calls ‘immediate dangers’ of the North American Electric Reliability Corp. report from earlier this year [which] made no claim of a grid in crisis from the retirement of coal powered plants. The CEO of NERC testified in June that the state of reliability in North America remains strong and the trend line shows continuing improvement year upon year.”
- Rep. Frank Pallone, Energy and Commerce Committee Ranking Member (D-NJ): “It is an ironic proposal considering EPA Administrator Pruitt stated as part of his announcement in rolling back the Clean Power Plan, and I’m quoting again, ‘Regulatory power should not be used by any regulatory body to pick winners and losers.’ But, Mr. Secretary that’s exactly what you are doing here. You are distorting the market, damaging the environment, and delivering preferential treatment to favored industries. At the end of the day, killing off competitive electricity markets just to save generation assets that are no longer economical will lead to higher prices for consumers.”
Energy Policy Experts, Think Tanks, Academics
- Travis Kavulla, Montana Public Service Commissioner: “There would not be competitive resources on the market if the rule’s text is to be taken seriously.”
- Alison Silverstein, Energy Consultant to DOE: “New subsidies for coal and nuclear plants won’t level the playing field relative to renewables nor undo the impact of old subsidies – they’ll just make the playing field even bumpier.”
- Mark Perry, American Enterprise Institute: “Coal and nuclear utilities can and should play an important role in helping to diversify and strengthen our nation’s electricity needs. That said, tipping the scale in any particular energy source’s favor is unproductive, dangerous favoritism that imposes costly burdens on consumers and taxpayers. These types of heavy-handed taxpayer bailouts also discourage innovation and create uncertainty about how investment capital is best deployed.”
- Joseph Bowring, Independent Market Monitor, PJM: “Such subsidies suppress energy and capacity market prices and therefore suppress incentives for investments in new, higher efficiency thermal plants but also suppress investment incentives for innovation in the next generation of energy supply technologies and energy efficiency technologies.”
- Ari Peskoe, Harvard Law School’s Environmental Policy Initiative:“[The NOPR] flies in the face of everything FERC has done under the Federal Power Act over the past 20 years”
- Richard J. Pierce, Jr., Professor of Law, George Washington University: “As FERC and the Secretary well know, there is no emergency with respect to the reliability of the U.S. electricity supply…[DOE ] is proposing that we identify the oldest most technologically, economically, and environmentally obsolete generating units and improve reliability by retaining them in service or, in some cases, restoring them to service, maximizing our use of those units, and maximizing the price we pay for the output of those units. He apparently has never heard of outages due to equipment malfunctions or frozen coal piles.”
- Miranda A.A. Ballentine, Rocky Mountain Institute: “It also ignores the clear message from the country’s wholesale electricity markets — and from the utilities themselves — that many existing coal and nuclear power plants are simply uncompetitive in the dawning era of cheap natural gas and renewables.
- Devin Hartman, R Street Institute: “Proponents of markets, consumer choice and limited government should shudder. Consumers would ultimately bear a hefty and unnecessary bill from any such draconian intervention, which would also raise capital borrowing costs and have a chilling effect on new investment. Proponents of good governance should also cringe, as the proposal calls for an unnecessarily rushed response in a timeframe completely unrealistic to enact reforms through the proper channels. To craft and implement sophisticated market rules requires working through a robust development process, often over the course of two years or more. The 60-day timeframe called for in the proposal is unprecedented.”
Utilities, Energy Trade Associations
- Independent Petroleum Association of America: “The actions DOE proposes for the Commission to undertake are complex, far-reaching, and unsuitable for such hasty consideration…The DOE Staff Report to the Secretary on Electricity Markets and Reliability explained changes that have occurred in electric markets, with significant growth in generation from natural gas and renewables. However, neither the DOE Report nor information from the North American Electric Reliability Corporation support an emergency that would warrant such an expedited schedule.”
- Bob Flexon, CEO, Dynegy: “The subsidy war is alive and well. For years, we turned a blind eye to wind getting subsidies. Now, nuclear is getting subsidies and it’s disrupting the markets. That letter is just a new subsidy entering the space. This is designed to counter the effectiveness of the marketplace and save assets that should be exiting the market. Even though we’re a fairly large coal generator, we’re not supportive of [Perry’s memo]. We believe policy should be fuel-neutral.”
- Mauricio Gutierrez, CEO, NRG Energy: “The concept of a just and reasonable return for generation, we are all for that, but it has to be in the context of a competitive market. What this proposal does is create entitlement.”
- John Hughes, CEO, Electricity Consumers Resource Council: “While it might not make our grid much more stable, forcing utilities to buy overpriced coal power will certainly make electricity more expensive for companies and families…In a normal situation, plants that can’t compete would go out of business. We see no reason for bailing out these plants.”
- American Petroleum Institute: “We are concerned the agency has mischaracterized the lessons learned from past weather-related events and appears to suggest that additional regulation is the answer where markets have already proven the ability to greatly benefit consumers and give our electric system the flexibility needed to meet constantly, and often rapidly, changing electricity demands.”
- Kelly Speakes-Backman, CEO, Energy Storage Association: “…We are troubled by DOE’s rule proposed on Friday, which would undermine markets and unnecessarily increase costs for consumers.”
- National Association of State Utility Consumer Advocates: The rule represents “a fundamental change in how markets operate and will materially affect the price that tens of millions of residential and business consumers pay for electricity.”
- Todd Foley, SVP, Policy & Government Affairs, American Council on Renewable Energy: “We’re concerned this proposed rulemaking uses grid resilience as an excuse to prop up plants that have not been shown to be needed, preventing consumers from buying the power they want to buy. On-site fuel power sources have not helped with severe weather events such as the Polar Vortex where coal piles froze, Hurricane Harvey where coal piles flooded, and the Fukushima event where the nuclear plant ceased to operate.”
- Amy Farrell, Senior Vice President, Government and Public Affairs, American Wind Energy Association: “We worry today’s proposal would upend competitive markets that save consumers billions of dollars a year. The best way to guarantee a resilient and reliable electric grid is through market-based compensation for performance, not guaranteed payments for some, based on a government-prescribed definition.”
- Industrial Energy Consumers of America: “The proposal would undo the competitive wholesale electricity markets that benefit all American consumers, replacing it with an unworkable and intrusive centralized pricing system. Although the competitive markets are not perfect, the current low electricity prices have substantially benefited the competitiveness of the U.S. manufacturing sector, which depends upon affordable and reliable energy supplies. Those markets cannot be sustained if coal, nuclear, wind, and solar resources are all compensated with out-of-market payments.
- Institute for Energy Research: “The proposal from the Department of Energy is an excessive and unnecessarily distortive means of pursuing a more appropriate valuation for secure baseload generation capacity. Like using a sledgehammer to swat a fly, this rule would end up causing enormous destruction even if it also managed to provide more resilient baseload capacity. Guaranteeing cost recovery for certain types of generation would destroy electricity markets.”
- Don Santa, president and CEO of the Interstate Natural Gas Association of America: “We are deeply disappointed that the secretary would propose a FERC rulemaking that, if adopted, would so clearly favor a very limited set of fuels and technologies for generating electricity.”
- Dena Wiggins, president and CEO, Natural Gas Supply Association: “NGSA is dismayed that the Department of Energy would pursue this drastic action that would distort energy markets. We agree that our electric grid must rely on a diverse fuel mix that includes all fuels, however introducing market distortions and fuel preferences into the energy mix is a disservice to consumers and contrary to the non-discriminatory principles of the Federal Power Act.”
- John Shelk, President and CEO, Electric Power Supply Association: “While EPSA appreciates DOE’s focus on energy price formation reform that EPSA has been the leader on for years, EPSA is equally concerned that the DOE proposal is ill-advised in key respects…If FERC is going to essentially re-regulate wholesale markets with cost-based regulation for some, it will have to do so for all resources or none if it wants to keep the lights on reliably and affordably.”
- Business Council for Sustainable Energy: “The portfolio of currently available clean energy technologies and services in the energy efficiency, natural gas and renewable energy sectors – working with energy storage, demand response and micro-grids, among other technologies and services – is meeting the needs of the grid affordably and reliably today and can meet the needs of an evolving electric grid into the future. The DOE grid resiliency pricing proposal could jeopardize this approach.”
- Graham Richard, CEO, Advanced Energy Economy: “Simply put, this proposed rule has something for everyone to dislike. If you’re a believer in competition and free markets, this rule would insert the federal government squarely into the middle of market decisions. If you are driven by keeping energy costs low, this rule would impose higher energy costs on consumers for no tangible benefit by forcing electricity customers to pay to keep uneconomic power plants in operation. Finally, if you are driven by innovation and technology, this rule purposefully puts a thumb on the scale for existing, century-old technology at the expense of modern advanced energy that is currently winning based on price and performance.”
Editor’s note: This post was last updated on October 12, 2017 to include additional comments.
About the Independent Petroleum Association of America
The Independent Petroleum Association of America (IPAA) is a national upstream trade association representing thousands of independent oil and natural gas producers and service companies across the United States. Independent producers develop 90 percent of the nation’s oil and natural gas wells. These companies account for 54 percent of America’s oil production, 85 percent of its natural gas production, and support over 2.1 million American jobs. Learn more about IPAA by visiting www.ipaa.org and following @IPAAaccess on Twitter.
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