Congress must oppose intervention in the energy market

Fear is the great foe of liberty. Nothing drives fear deeper into energy policymakers’ hearts than predicting blackouts.

Owners of unprofitable power plants sometimes seize on this fear to call for vast government interventions that would prop up their failing ventures. Their latest iteration includes a Department of Energy proposed rule before the Federal Energy Regulatory Commission (FERC) to subsidize power plants with 90 days of on-site fuel supply.

The proposal amounts to a nuanced charade, socializing the costs of unprofitable power plants under the pretense of thwarting imminent threats to grid reliability. In reality, the rule will drive up energy costs and profoundly damage competitive markets, while leaving reliability concerns unaddressed.

{mosads}Though conservative industry experts have spoken out strongly against the rule, the conservative cavalry in Congress has been reluctant to join and, in many cases, has defected.

The concern writ large with fuel security comes from the displacement of coal and nuclear by natural-gas generation, which relies on “just in time” delivery of fuel through pipelines. Despite this feature, gas plants generally perform well, and many methods to improve their fuel security involve strengthening the reliability of off-site fuel networks, as opposed to on-site ones.

This is not a new issue, nor one that FERC has neglected. In recent years, FERC has advanced reforms to boost natural gas-electric industry coordination and incentives for fuel security through rulemakings and region-specific reforms.

Yet the confusing, technocratic nature of electricity market rules invites parochial interests to advance invalid, fear-laden arguments that boost their bottom lines. This explains, in part, why numerous GOP members have publicly supported the rule despite the harm it poses to their constituents. Though independent experts have told Congress that current reliability and resiliency conditions present “no reason to intervene” and that broadly extending subsidies would “destroy the market,” some conservatives — particularly those less-schooled in the industry — have fallen for special-interest scare-mongering.

Conservative generalists have too often mischaracterized the rule, much of which stems from the bad taste left by the prior administration. Take Pennsylvania, where the GOP delegation has expressed support for the rule to help coal and nuclear plants facing excessive regulatory stress and increased competition from renewables subsidies. But the rule would do nothing to address these concerns and would disproportionately harm Pennsylvania consumers. In fact, the proposed rule would hammer consumers in the Mid-Atlantic. According to the independent auditor of the Mid-Atlantic grid, the total price tag could reach $288 billion over a decade.

Fragmented GOP support also reflects a campaign by rent-seeking interests superior to that of any campaigns representing liberty and consumers. But the latter side, anchored by free-market think tanks and industrial consumers, has gained steam. As these organizations have rightly noted, the department’s rule sends the misguided message that manufacturing jobs are “not as important” as those at economically-obsolete coal and nuclear plants.

Fortunately, some lawmakers have gotten the message and rejected it. Principled conservatives such as Congressman Pete Olson (R-Texas) have voiced concern that the rule will drive up power prices by picking winners and losers. Former Pennsylvania utility regulator and current Republican FERC Commissioner Rob Powelson was so appalled by the proposed rule that he proclaimed he would quit rather than “destroy the marketplace.”

But to defeat the rule, more widespread opposition is necessary. Electricity markets have flaws, but failing to directly compensate on-site fuel storage isn’t one. Healthy markets provide sufficient incentives for reliable power plant operations; government should not prescribe and subsidize the techniques it prefers. Efforts to improve energy price formation and use markets to procure “essential reliability services” would enhance industry incentives for reliability. Such efforts are what an insightful Energy Department technical report recommended in August, but the department’s political proposal fundamentally contradicts this message.

The proposal is easily the most anti-competitive rulemaking the electric industry has considered in recent memory. GOP leadership should not allow this conservative blasphemy on their watch. A fruitful electric reliability and resiliency agenda is in sight, but it’s rooted in strengthening, not gutting, competitive markets. We need conservative leadership to see through the smoke and stand by their principles.

Devin Hartman is electricity policy manager at the R Street Institute, a nonprofit group aimed at promoting limited government in Washington, D.C.