The free-market think tank R Street Institute is looking to defend the federally overseen electricity markets from coal and nuclear power plant owners looking for incentives to continue operating in a market dominated by low-cost natural gas.
R Street described the effort in a lengthy letter sent Wednesday to Kevin McIntyre, the Republican chairman of the Federal Energy Regulatory Commission, the nation’s top grid watchdog. The group is urging the chairman to be vigilant in defending the grid against interests looking to resurrect something akin to Energy Secretary Rick Perry’s grid plan to provide market incentives for coal and nuclear power plants.
FERC had unanimously rejected the Perry plan earlier in the year, while simultaneously launching an effort to better rate the resilience of the grid in the wake of the deep freeze this winter when coal became the backbone of the grid.
“Initial attempts by the Energy Department misframed resilience, and we applaud the Commission’s effort to redirect the discussion in a productive direction,” the letter reads.
In the letter, obtained by the Washington Examiner, the group explains the need for McIntyre not to let coal, nuclear, or any other power plant owners, dominate the debate over what constitutes a resilient grid.
“Resilience as framed by the Energy Department certainly served as a conduit for rent-seeking from the coal and nuclear industries, however, other technology providers and resource owners may use it to argue their technology is better and should be favored in the rules,” said Devin Hartman, R Street’s electricity policy manager, who drafted the letter. “Thus, we need to make sure the resilience initiative doesn’t pick winners and losers.”
The letter comes one day after the Energy Department issued a report that said this year’s “bomb cyclone,” which left much of the East Coast in a deep freeze, was proof positive of coal’s role in keeping the grid from crashing when weather events strained the system.
“Coal was the most resilient form of power generation during the event and removing coal from the energy mix would worsen threats to the electrical grid’s dependability during future severe weather events,” said Peter Balash, the head of the National Energy Technology Laboratory’s energy systems analysis team, in issuing the report Tuesday.
The report warned “against overestimating the nation’s ability to respond to weather events if the current rate of coal plant retirements continues.” During the worst of the winter storm, Jan. 5–6, the “U.S. electricity market experience demonstrated that without the resilience of coal plants … the eastern United States would have suffered severe electricity shortages, likely leading to widespread blackouts.”
But Devin doesn’t want McIntyre to be swayed by anything other than clear market signals to keep the grid running while maintaining low prices for consumers.
“Given the degree of political interest in the issue, we are concerned that rent-seeking interests may coopt the resilience narrative,” the letter reads. “In particular, some resilience discussions in states and [the regional grid operator] stakeholder processes appear motivated to placate parochial interests.”
Paul Bailey, the head of the pro-coal American Coalition for Clean Coal Electricity, told the Washington Examiner recently that his group is talking to regional transmission operators that FERC oversees to discuss how they could implement a tax credit for coal and nuclear plants that was proposed in legislation in the House earlier this month.
Bailey is quick to point out that “it’s really not an outgrowth of the Perry plan.” He emphasized that the credits would be phased out over five years. He also emphasized that the coal industry wants the credits to provide parity with federal incentives provided to wind and solar.
But because of such conversations taking place in the regional transmission operators, R Street is starting its own initiative that supports the economics behind sound regulation of the grid.
“As such, the resilience initiative would greatly benefit from a robust economic framing to shed light on whether unaccounted market failures exist and, if so, to develop reforms consistent with the principle of incentive compatibility if anticipated benefits exceed costs,” the letter explains.
R Street will be coordinating with the nonpartisan economic think tank Resources for the Future “to co-host a technical workshop on an economic framing of resilience with the aim of feeding into Commission efforts,” according to the letter.
Resources for the Future focuses on economic analysis of energy and environmental policies. Richard Newell, the president of the group, served as former President Barack Obama’s first director of the Energy Information Administration, the Energy Department’s independent analysis arm.
“I think it’s quite telling that the most enthusiastic industry backers of resilience reforms are suppliers that see increased profit opportunities, while many sophisticated consumers groups remain weary of potentially excessive costs,” Hartman said. “A resilience initiative should have the buy-in of customers and ideally empower them to have more choices that reflect their willingness to pay for reliable and resilient electric service.”
