Secretary of Energy Rick Perry defended his department's plan to provide cost recovery for coal and nuclear plants at a House Energy and Commerce Subcommittee hearing Thursday, telling members that cost impacts of the proposal should be "secondary" to ensuring grid resilience in emergency situations.
Asked if the Department of Energy had evaluated consumer costs of the proposal, Perry declined to answer directly, saying "I think you take costs into account, but what's the cost of freedom? What is the cost to build a system to keep America free?"
Perry repeatedly expressed a lack of confidence in existing grid reliability assessments, saying they assume "everyday, blue-sky" scenarios, and said he "doesn't have a problem" with generation subsidies because “the idea that there is a free market in the energy industry is a fallacy.”
Perry's testimony before the House E&C energy subcommittee on Thursday was his first public appearance since DOE finalized its Notice of Proposed Rulemaking (NOPR) on Sept. 29. The rule would provide full cost recovery for merchant coal and nuclear plants with 90 days of fuel supply onsite.
The NOPR rule sparked widespread anxiety in the power sector, with a broad array of energy and industry interests announcing their opposition. Former FERC regulators warned the proposal could "blow up" wholesale power markets.
Last week, ICF estimated the proposal could cost consumers nearly $4 billion annually. Rep. Paul Tonko (D-NY) seized on those numbers in his questions for Perry.
"What factors did you consider that said it would be more cost effective to support specific types of generation to enhance reliability rather than shooting right at improving [grid infrastructure]?" Tonko asked.
"I think the cost effective argument on this is secondary to whether the lights are going to come on," Perry said.
"Did you measure the costs to the consumer?" Tonko shot back.
"I think you take costs into account, but what's the cost of freedom?" Perry replied. "What is the cost to build a system to keep America free? I'm not sure I want to put that straight out on the free market and build the cheapest delivery system here."
The comment was only one of many in which the former Texas governor questioned existing assessments of grid reliability.
Asked by Ranking Member Bobby Rush (D-IL) why DOE issued the rulemaking when the North American Electric Reliability Corporation (NERC) has said reliability is strong and improving, Perry said he did not believe their assessments included the most serious types of grid emergencies.
“I think their picture is one that is a snapshot in time. There’s blue skies, sun is shining, wind’s blowing and the pipelines are carrying gas," Perry said of NERC. "In that scenario, our grid is fairly reliable and resilient, but that’s not the world I’ve been asked to participate in — to oversee normalcy, the everyday blue-sky scenario.”
Perry repeatedly offered the Polar Vortex as the type of emergency that would require more fuel-secure generation. That cold snap in the winter of 2013-2014 threatened outages on the PJM grid as natural gas was diverted to heating and some coal generators struggled with frozen fuel stockpiles.
“When polar vortex came into the Northeast in 2014 and that event occurred, I don’t think any of you want to stand up in front of your constituents and explain why the decision had to be between turning our lights on and keeping our family warm,” he warned lawmakers.
Some Democrats argued increasing onsite coal and nuclear stockpiles would do little to enhance resilience. Rep. Frank Pallone (D-NJ) referenced recent analysis showing that “less than 1%” of power outages are caused by fuel interruptions, and Rep. Gene Greene (D-TX) noted that coal plants in Texas were recently taken offline during Hurricane Harvey due to flooded coal piles.
Perry waved away those questions about operational difficulties.
“I would suggest to you the coal folks would have learned something new this time about how they store the coal,” he said of Hurricane Harvey issues. “I don’t consider that to be any more than a bit of a diversion for them to look at.”
Concern for events like the Polar Vortex fueled the motivation for the DOE NOPR, Perry told lawmakers.
"That was really kind of my goal with this [proposal] .... to get us talking about the idea and the understanding that we have subsidized the energy industry for a long time and frankly I don’t have a problem with that," Perry said. "If the concept of the free market is [government] is not going to have any impact … I don’t know if I want to bet my grandmother’s safety and security on whether the lights are going to come on in a totally excellent, unregulated [market]."
Last week, subcommittee Vice Chairman Pete Olson (R-TX) said he was concerned the NOPR meant “picking winners and losers” in the generation fleet. When he and other lawmakers posed that question to Perry, the DOE head said the concern was misplaced, as the power sector is already heavily subsidized.
“We subsidize a lot of different energy sources. we subsidize wind energy, we subsidize ethanol, we subsidize solar, we subsidize oil and gas,” he said. “So the question is how do you make it as fair as you can?”
The secretary also said that DOE had not evaluated alternatives to the proposed rulemaking, but hoped conversations at FERC could reveal better policies if they exist.
“I don’t have any idea if there are better options — that’s one of the reasons we wanted to have this conversation," he said. "I’m not saying my letter to FERC is the be all, end all, but it’s obviously been very successful in getting the conversation going.”
Many in the power sector worry that conversation will be all too short. Perry asked FERC to act on the DOE proposal within 60 days, and FERC an even faster timeline, with initial comments due Oct. 23.
Eleven energy industry groups, later joined by industrial consumers and state energy regulators, petitioned FERC for an extension, but the commission denied the request this week without extension.
After the hearing, committee Vice Chairman Joe Barton (R-TX), who is set to begin drafting a DOE reauthorization bill in the coming weeks, said he was not concerned about the tight timeframe.
"The Lord made the world in seven days, so I think FERC could have a rulemaking in 60,” he said.
This post has been updated.