(Bloomberg Opinion) -- A tip for whenever you hear someone invoke “security” as a reason to mess with markets: Try reading it instead as “insecurity,” regarding the wealth or status of those sounding the alarm.
The latest abuse of this quintessential 21st-century justification for just about anything concerns the provenance of your electricity. This one emerged Thursday evening in the form of a draft memo, obtained by Jennifer Dlouhy of Bloomberg News, proposing the U.S. Energy Department use emergency powers to prop up struggling coal-fired and nuclear power plants. (Earlier that day, the Trump Administration also invoked national security in announcing tariffs on steel and aluminum coming from such monstrous threats to the homeland as – *checks notes* – Canada.)
The memo, prepared in advance of a meeting of the National Security Council on Friday, may not lead to anything. Still, it kind of fits a pattern.
Recall that last summer, Energy Secretary Rick Perry commissioned a report on the state of America’s power grid sprinkled liberally with references to the need to ensure “resilience” but which certainly wasn’t alarmist. Those fearing it would be essentially an extended and politicized pamphlet extolling the virtues of coal were relieved.
Yet, in retrospect, that was merely a prologue to Perry’s next move, namely pushing the Federal Energy Regulatory Commission to force power markets (read: American businesses and households) to subsidize coal-fired and nuclear plants because they store energy on site (something I dubbed Operation Squirrel). The FERC, noting in a roundabout way that Perry’s solution was of a class that searches desperately for a problem, rejected it in January.
And so, up against it, the merchant generation business of FirstEnergy Corp., a struggling Midwest utility that bought coal-heavy Allegheny Energy Inc. with spectacularly bad timing in 2011, called on Perry to use emergency powers to bail out its plants (the business filed for bankruptcy protection a few days later). The memo that just surfaced contemplates using those powers, as well as the 1950 Defense Production Act, to force grid operators to buy power from coal-fired and nuclear plants.
Energy has never been an ordinary industry, partly because its infrastructure is so expensive to build and so vital to modern society. The regulated utility model, with its intermingling of commercial and political imperatives, is a direct result of this. (Indeed, one of the memo’s other proposals – to establish a “Strategic Electric Generation Reserve” – looks like little more than the traditional utility model of having redundant capacity, only subsidized directly.)
Over the past few decades, the commercial bit of that equation has expanded, as large parts of the energy market have been liberalized to increase competition. This is a thing of which Republicans were nominally supportive, last time I checked.
It is simply absurd that the Trump administration is contemplating using Cold War-era provisions to bail out unprofitable power plants in the name of security, particularly as its own Energy Department and FERC see little evidence of an emergency. And market-based mechanisms, such as PJM Interconnection LLC’s recent capacity auctions, seem to be working just fine. It is notable that the authors of the 41-page draft memo found no room to discuss potential costs of such dramatic intervention in markets, with numbers and stuff.
The concern for security is also absurd in the context of other energy-related moves in Washington, such as the desire to liquidate much of the Strategic Petroleum Reserve for a relatively paltry sum, as well as easing fuel-efficiency standards, where the apparently God-given right to cruise suburban streets in a two-ton vehicle trumps any pesky discussion of oil flows. Climate change, another threat to America’s well-being, is given lip-service at best (and yet carbon pricing would actually help those nuclear plants.) And the sentiment rings particularly hollow in the context of Puerto Rico’s death toll, now estimated to be in the thousands and exacerbated by the continued lack of reliable electricity supply after a hurricane hit nine months ago.
In a recent podcast I recorded with Sarah Ladislaw of the Center for Strategic and International Studies and Kevin Book of ClearView Energy Partners LLC, we noted how political attitudes to energy security in America had changed as 1970s-era scarcity thinking (and policymaking) gave way in the face of apparent abundance.
The latter can be seen in everything from lower net oil imports to surging natural gas supply and how little energy costs take from American wallets these days. This is partly the shale effect, yes. But that’s just part of a broader set of changes in technology, the economy and society forcing competition onto a 20th-century energy industry that was built largely on monopolies and oligopolies.
As in every disrupted industry, this offers the potential for broad gains over time but hurts specifically in the meantime. The latter isn’t to be dismissed and deserves political attention and sustainable solutions. Yet rolling back power markets to an earlier era isn’t the answer. It will impose significant costs and ripple effects across the U.S. energy industry and its customers. Subsidizing uneconomic plants in the face of flat demand is, for example, a recipe for more costly debacles such as South Carolina’s two half-built reactors.
True energy security means embracing solutions that cut across both supply and demand, rather than cherry-picked stockpiling of fuels. As it stands, the Trump administration’s attempt to subvert the wider trends in energy is – in a perversion of the conservative maxim – to pick losers.
©2018 Bloomberg L.P.