Secretary Perry’s Socially Responsible Investing

October 12, 2017

The classic definition of arrogance is the guy who murders his parents and pleads for mercy as an orphan. We’re hearing echoes of this logic from critics of energy Secretary Perry’s proposal to value baseload power plants for the reliability they provide the grid.

Any cost-of-service deal for merchant producers would be “picking winners and losers” … “raise cost to consumers” … “a subsidy” … “where’s the crisis?”.

If there are justifiable objections to the Secretary’s proposal, these aren’t among them. The secretary’s proposal is a prudent response to a deliberate multi-year effort to weaken baseload power through the power of the federal government. During the past 8 years we have seen a policy, unprecedented in modern history, of federal intervention in the energy market to destroy as much coal-based capacity as possible – all through regulations, without congressional approval and without public support.

The result, said Secretary Perry today, has been that “thousands of megawatts of fuel-secure generation capacity, including environmentally compliant coal and emission-free nuclear resources, have been prematurely retired before reaching full life expectancy or will be placed into retirement soon.”

The author of this federal euthanasia policy for coal plants made no secret of his intention. He boasted of using his pen and his regulators to raise costs for coal and drive producers out of business. In this at least he succeeded. Some 400 units have been retired since 2010, just part of the loss of 60 GW forced out of the grid, much through regulatory fiat.

So much for indignant complaints against market interference from critics who were silent throughout this bloodbath.

As for subsidies, the accusation is risible coming from those who live by them. Federal production tax credits, says S&P Global, have helped wind-power capacity quadruple in the Obama-era. PTC is the gift that keeps on giving. Any threats not to renew this gift of 2.3 cents per kw/hr give wind producers the vapors with End of Days warnings of downsizings, layoffs.

The objection to public intervention in the energy market is no less credible. Where’s the condemnation of the renewable portfolio standards that in 32 states effectively guarantee a market for intermittent power producers. The Lawrence Berkeley National Lab found state-level RPSs account for more than half of the 120 GW of renewable capacity brought on line since 2000. This “significant regulatory support for wind,” said the Lab, “has contributed to the weakening credit quality of independent power producers, which often include large quantities of conventional baseload generation.”

As for complaints that Perry is raising costs for consumers, this is like complaining about home and car insurance. Allowing organized markets to recover full value from at-risk assets that offer reliability is an insurance policy against the risks of very costly, catastrophic events – from worsening storms to brutal winters. Cost recovery can prevent blackouts, brownouts or rationed electricity.

How’s that for a socially responsible investment?