The Heritage Foundation released a new report by Katie Tubb concerning the ramifications of DOE intervention into U.S. electricity markets through a 202(c) action. Specifically, the white paper outlines five core arguments against FirstEnergy’s request.
In one particularly strong passage, Tubb notes that “true competition, customer choice, and disciplined government to reduce barriers rather than create them will achieve the energy reliability and security goals that undergird the FirstEnergy request.”
The reality is granting FirstEnergy’s 202(c) request will raise the price of electricity for U.S households and disincentivize investment in deregulated power markets.
Some key takeaways from Tubb’s report are copied below:
FirstEnergy’s Request Is Fundamentally At Odds With Power Market Dynamics. “Subsidized market players or protected monopolies in electricity services create a system where a utility profits less by understanding and meeting customer needs and more by influencing politics to protect its narrow interests.Consequently, such a utility has little incentive to innovate beyond what it takes to keep regulators and politicians happy and to pacify its most vocal opponents. In contrast, through competition for customers, markets efficiently align incentives to meet the needs and desires of customers.” (Katie Tubb, “Second Attempt at the Department of Energy’s 2017 NOPR Should Be Rejected,” Heritage Foundation, 4/25/18)
PJM’s Market Structure Has Done An Incredible Job Of Incentivizing Investment In More Efficient Power Generators. “FirstEnergy fails to mention that PJM has 99,452 megawatts queued for construction. This more than accounts for the 9,062 megawatts that PJM anticipates retiring from 2017–2020. And while FirstEnergy emphasized coal and nuclear closures and anticipated closures between 2011 and 2020, it did not mention the coal and nuclear plants that are anticipated to continue operation. In fact, the independent mandatory review of PJM’s market determined that all but four nuclear power plants are expected to recover operating costs between 2018 and 2020. Those four plants have operating costs of $25.95/MWh compared to PJM’s other 15 nuclear plants, the operating costs of which are $18.73/MWh.” (Katie Tubb, “Second Attempt at the Department of Energy’s 2017 NOPR Should Be Rejected,” Heritage Foundation, 4/25/18)
Competitive Markets Like PJM Already Have Strong Fuel Diversity. “The market structure of PJM has led to increased diversity since 2008 as companies and technologies compete to provide the best and most affordable service to customers. Across PJM’s territory, installed capacity at the close of 2017 consisted of: Natural gas (37 percent of electricity); Coal (35 percent); Nuclear (18 percent); Hydroelectric (5 percent); Oil (4 percent); and Wind, solid waste, and solar (1 percent).” (Katie Tubb, “Second Attempt at the Department of Energy’s 2017 NOPR Should Be Rejected,” Heritage Foundation, 4/25/18)
By Intervening Into U.S. Power Markets, The DOE Would Reduce Competition and Limit Innovation Across The Sector. “In contrast, there is almost no better way to fossilize an industry than by guaranteeing prices and knocking out the competitors of a select few companies. Such an avenue is precisely what FirstEnergy has requested. Ultimately, this approach would punish competitive, innovative technologies and companies in order to keep others afloat.” (Katie Tubb, “Second Attempt at the Department of Energy’s 2017 NOPR Should Be Rejected,” Heritage Foundation, 4/25/18)