Perry’s corporate welfare plan for power would cost consumers
Battle lines are drawn for an epic battle next year over Secretary of Energy Rick Perry’s plan to grant coal and nuclear power plants another trip to the government trough.
The independent Federal Energy Regulatory Commission must decide whether to bow to Trump administration pressure or respect the majority of the nation’s electric companies and sustain the competitive electricity market in 17 states. The Perry plan could cost millions of electricity customers $10.6 billion a year, according to a study financed by the Climate Policy Initiative and Energy Innovation, two nonpartisan groups that research climate and energy issues.
The most misleading argument for new subsidies is that coal and nuclear plants deserve help competing with wind and solar facilities that earn tax credits. But that ignores more than 70 years of subsidies granted to coal and nuclear power.
Governments began guaranteeing profits for privately owned electric utilities in the
1900s. City councils and state public utility commissions granted monopolies to investor-owned utilities and set rates guaranteeing a fair rate of return. Price-fixing is the ultimate subsidy, and most states still operate this way.
Last week, Georgia’s Public Service Commission guaranteed that customers will pay higher-than-market rates for electricity from the Vogtle Nuclear Project, which is five years behind schedule and $9 billion over budget. Natural gas plants would have been cheaper, the commission’s staff reported, but finishing the only new nuclear reactors in the country is a political priority.
Perry is doing his bit, guaranteeing $3.7 billion in loans to finance the two reactors. Georgia’s Public Service Commission is also asking Congress to approve $800 million in additional subsidies.
None of this is unusual. Most nuclear and coal power plants received such subsidies, especially after the energy crisis in the mid-1970s, when the federal government ordered utilities to switch to coal and nuclear power from natural gas, which experts thought was running out. To subsidize new coal and nuclear plant construction, public utility commissions sent electricity prices skyrocketing.
The industry began to change in 1996, when California, Pennsylvania, Ohio and Rhode Island began experimenting with competitive wholesale electricity markets.
Instead of state commissions setting prices, companies began competing to generate electricity at the lowest price. Grid operators, such as the Electric Reliablity Council of Texas, or ERCOT, buy the cheapest electricity first and then buy more until they have all the electricity they need. All producers earn the last, highest price.
The ERCOT grid in Texas, which is not federally regulated because it doesn’t send power to other states, switched to a deregulated market in 2002. And like the 17 federally regulated states that moved to competitive markets, the Texas Legislature convinced generators to accept the end of guaranteed profits by offering one-time payouts to plants that might have difficulty competing without continued subsidy.
Over the last 20 years, independent power companies have built tens of thousands of new power plants in deregulated markets, most of them natural gas, as well as a significant number of wind turbines financed with federal tax credits for electricity production. Wholesale electricity prices in deregulated markets are now the lowest in the nation.
Prices are so low, in fact, that operators shut down 531 coal-fired generation units between 2002 and 2016, according to the Department of Energy. Owners have announced the retirement of eight nuclear power plants.
These plants lost money even though coal-fired plants don’t bear the full cost of their toxic emissions, solid waste and the environmental damage caused by discharging cooling water.
They can’t compete even though Congress subsidizes every nuclear power plant by limiting corporate liability in the event of a disaster.
When it comes to inflation-adjusted incentives since 1950, the federal government has paid out $369 billion for oil, $121 billion for natural gas, $104 billion for coal and $73 billion for nuclear compared with the $74 billion spent on wind and solar, according to a 2011 study by Management Information Services, a nonpartisan consulting firm.
In 2016, federal tax incentives totaled $6.6 billion for renewable energy and $4.6 billion for fossil fuels, the Congressional Budget Office reports. The difference is that tax credits for wind and solar are phasing out, while incentives for fossil fuels are ongoing.
A couple of struggling coal and nuclear operators, who also happen to support President Donald Trump, want another subsidy by making electricity customers in competitive markets pay more for their electricity than for natural gas and renewable energy. Perry claims this is necessary to ensure lights go on when you flip the switch, even though not one independent study has found a reliability problem, and most electric company executives oppose Perry’s plan.
As the Federal Energy Regulatory Commission considers Perry’s plan, some will try to justify it by pointing to renewable energy subsidies. But this is not about leveling the playing field.
Perry’s plan would be a second or third dose of corporate welfare for facilities that really should have shut down long ago.