A top official of the regional grid operator that would be most affected by Energy Secretary Rick Perry’s proposal to subsidize ailing coal and nuclear plants said Thursday that the plan would impose a “sledgehammer” on competitive power markets and discourage investments in energy development.
Craig Glazer, vice president of federal government policy of PJM Interconnection, which operates the grid from Illinois to Virginia, said he recognizes the reliability and resilience challenges that the electric grid faces as coal and nuclear lose market share to natural gas and renewables.
But he said Perry’s proposed solution for the Federal Energy Regulatory Commission to pay coal and nuclear plants to keep running is the wrong prescription for the problem.
“Quite frankly we view the cure they proposed as worse than the disease,” Glazer said during an event at the Heritage Foundation in Washington. “The disease is significant, but the cure of a cost of service fix to all power plants that are coal and nuclear that have a 90-day fuel supply is an imprecise, at best, remedy to the problem. [It’s] a sledgehammer type remedy.”
FERC, the independent agency that oversees U.S. electricity markets, is set to rule by Dec. 11 on how it will proceed with Perry’s proposal.
Perry’s plan would rewrite the rules governing wholesale power markets to reward power producers that are able to store enough fuel for 90 days of generation on-site, a condition coal, nuclear and some hydropower plants can fulfill.
It is intended to reward coal and nuclear for their ability to keep the lights on when the grid is significantly strained.
But the wider energy industry, from oil and natural gas producers to wind and solar, opposes the proposed rule, saying it would upend competitive power markets by propping up failing plants and increasing prices for consumers.
Resources for the Future, a nonprofit research outfit, projected Thursday that the plan could impose a net cost of $263 billion over 25 years.
Experts say Perry’s plan mostly would affect consumers in certain areas, especially the 11-state region managed by PJM.
That’s because Perry’s plan applies only to regional, wholesale power markets that conduct "capacity auctions" every year.
In those markets, power plants receive payments to keep a certain amount of electricity online to track with demand.
“We feel like we have a target on our backs,” Glazer said.
David Hill, executive vice president of NRG Energy, a major utility that serves 3 million retail customers, said the debate over Perry’s plan has not focused enough on how it would affect households.
“We are worried about employees and creating jobs every day, but what is in the best interest of the American consumer?” Hill said at the Heritage event. “What is the best way to protect consumers and allow them to exercise their own individual choices? The answer is competition. Competitive markets should be the policy.”
Hill said Perry’s proposal would harm competition.
“There are significant problems with the wholesale markets in the United States,” Hill said. “But if you really wanted to do something that values reliability and resilience, you do it with something that is fuel neutral and attribute based. We are not against or for any particular generation source. We are for whatever generation serves the needs of customers at the lowest cost.”
Despite the opposition to the plan, FERC Interim Chairman Neil Chatterjee has expressed strong support for it, and suggested he is hoping to convince other commission members to implement by Dec. 11 an interim rule to save coal and nuclear plants. Chatterjee, a Republican, favors an interim step until the commission can agree to a long-term plan.
Hill said Thursday a temporary measure would be a “disaster” that injects uncertainty into the energy market.
“There has been discussion of an interim rule,” Hill said. “That would be a disaster. From the perspective of companies that have to allocate at-risk capitol and make investments and predict the rules, the idea of an interim rule would be a bad, bad outcome. We are absolutely outright opposed to some interim final rule on this thing.”
Richard Mroz, president of the New Jersey Board of Public Utilities, is one of a handful of state regulators who has expressed support for Perry’s proposal, at least in some form. New Jersey has a diverse energy mix, but it also relies on nuclear power more than many states, generating 45 percent of its electricity from it.
New Jersey, like many, is increasingly reliant on natural gas for fuel, which accounts for another 45 percent of its energy mix. Mroz worries a dependence on gas to produce electricity increase vulnerabilities because of the sensitivities of the pipelines that deliver the gas across the country.
“In New Jersey, we are concerned about the loss of the nuclear portfolio,” Mroz said at the Heritage event. “If there is a loss of large components of the generation mix, our concern is of an over-reliance on natural gas, which at some point could be interrupted or there could be price volatility that impacts consumers and generation prices. There needs to be a valuation of reliability and resilience attributes that the current market does not provide.”
Glazer empathizes with those challenges. He worries Perry’s proposal would have worse consequences.
“My goal is to make sure competitive markets don't go down the drain as part of this effort to drain the swamp,” he said.