Let the Markets (Not Lawmakers) Decide the Fate of the Energy Grid

David Fessler By David Fessler
Energy and Infrastructure Strategist, The Oxford Club

Alternative Energy

Back in April, Energy Secretary Rick Perry ordered a comprehensive study of the state of the electric grid. In a memo he wrote to his Department of Energy staff, Perry expressed concerns that Obama-era renewable energy policies were responsible for the closing of coal and nuclear power plants as well as grid reliability issues.

But Perry’s concerns were unfounded. The preliminary results from the study show Obama’s renewable energy policies have nothing to do with grid reliability… or the closing of coal and nuclear plants.

Here’s how Pat Vincent-Collawn, CEO of PNM Resources (NYSE: PNM), put it, “We have one of the most reliable generation fleets in the world.”

That’s about as straightforward as you can get.

Craig Glazer, vice president of government policy at PJM Interconnection, agreed. “The lights aren’t going to go out. There’s not a [grid] reliability problem.”

Ridiculously cheap and abundant natural gas is the culprit. Utilities are switching to it in droves.

And the grid? It’s as reliable as ever.

State Subsidies for Nuclear Power Plants

Meanwhile, many state lawmakers think nuclear power plants are key to reliable grid operation.

FirstEnergy Corp. (NYSE: FE) owns and operates a nuclear power plant near Toledo, Ohio, and another near Perry, Ohio. Back in May, CEO Chuck Jones told the Ohio Senate Public Utilities Committee that his two nukes couldn’t compete with low-cost natural gas-fired generation.

This seemed to suggest that FirstEnergy would shut down the nuclear plants to save its customers money.

But hold on a minute…

Ohio lawmakers are now drafting legislation to keep the plants running. After all, what do the plant and grid owners know?

The bill, SB 128, would create “zero emission credits” (ZEC) to pay FirstEnergy for “clean, reliable and secure power it generates” from its nukes.

And where would that money come from? Well, if you live in the area served by the two plants, that would be YOUR wallet.

Ohio Sen. John Eklund is SB 128’s sponsor. He says FirstEnergy customers served by the nukes will see a “small increase” every month on their bill. No specifics are available.

But Ohio isn’t the only state with ZEC fever. Illinois and New York have already passed ZEC legislation.

New Jersey is also considering ZEC legislation. And Connecticut introduced a ZEC bill to support its only nuclear plant, owned by Dominion Energy (NYSE: D).

Many subsidy programs for renewable energy will end in 2019. Meanwhile, it appears that government support for nuclear energy is never-ending.

Despite various states’ pushes to turn to nuclear energy, with the intention of reducing carbon emissions, it turns out that most utility companies have found they can significantly decarbonize by using natural gas.

In fact, utility companies are moving to natural gas and renewables more and more for economic reasons. Forcing them to do otherwise is a disservice to customers.

An open, competitive energy market is in the best interest of customers. It’s also in the best interest of our planet.

What’s your opinion? Share it in a comment below.

Good investing,

Dave