Where to Regulate Electricity? Energy Secretary Rick Perry’s Proposed Rulemaking

17 November 2017
By Dr. Jeff D. Makholm

NERA Managing Director Dr. Jeff D. Makholm contributed the article, “Where to Regulate Electricity? Energy Secretary Rick Perry’s Proposed Rulemaking,” to the ABA’s Fall 2017 Environmental & Energy Litigation Newsletter. In the article, Dr. Makholm comments on US Secretary of Energy Perry’s recent letter to the Federal Energy Regulatory Commission (FERC), which called on that agency to consider a proposal that would essentially return coal and nuclear power plants serving regions with wholesale power markets to cost-of-service regulation. It would be easy to frame the proposed rule as simple protectionism for the coal and nuclear industries in a power-supply sector increasingly dominated by modern gas-fired plants drawing from a technologically advanced and highly competitive US gas market. But there is more to the issue than protectionism. Competitive wholesale power markets in the United States have persistent problems squaring competitive principles with industrial and financial realities. These problems lie at the heart of what ails wholesale power markets in the United States—where power and gas markets intersect.

Secretary Perry invoked both the polar vortex and recent hurricanes as justifications for the proposed rule. Cold winter weather and hurricanes are two different sorts of problems for energy markets generally. Both highlight persistent shortcomings in wholesale power markets. For an economy that already depends so widely on its energy markets, the best result of the FERC’s investigation into Secretary Perry’s proposed rule would press for more consistent and workable competition, not more cost-of-service regulation. However the disparate elements of regional power markets come together, the best path would generally mean expending more energy to tackle the economic and administrative problems impeding a power market that captures the costs of a diverse and reliable competitive generating fleet and less on protectionism and re-regulation—despite the wholesale power markets’ growing pains.