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How Trump’s coal bailout affects you and your wallet

The energy sector is currently undergoing a hotbed of politically charged emotions and debate.

A few weeks ago, Secretary of Energy Rick Perry proposed a new rule in the electricity sector that would fundamentally change how generators, and more specifically coal and nuclear generators, are paid. This rulemaking, the “Grid Resiliency Pricing Rule,” proposes to have bail out coal and nuclear energy at the expense of the taxpayer. It has pitted coal and nuclear generators against nearly every other party in the energy sector. The proposed rule guarantees coal and nuclear power plants will be paid for what they spend. The proposal, if accepted, will lead to higher prices of electricity, undermine the competitive electricity market, and have ratepayers (you if you pay for electricity) foot yet another bill for failing companies.

One speculation is that this proposal stems from a promise by the Trump administration made during the election to “save coal.” Could it be that the Trump administration is just trying to check off all the boxes that they promised in their election process? Trump claimed that he would save coal, but like with Blockbuster and Netflix, sometimes the free market demands that old business models simply need to be replaced by better ones.

The energy market is extremely complex, but the fact that well-respected energy leaders across the nation are uniting against a foolhardy policy that could derail electricity markets is something that we should stop and think about.

It is worth discussing the fundamental argument of the proposal – that different “energy products” are needed to better accurately price the needs of the electricity grid, as discussed below.

Different energy products: Energy and Capacity

Energy

Most of us are familiar with the idea of paying for electricity by each unit of electricity used, in kilowatt-hours, or kWh. In general, homes use an average of 1-3 kWh each hour in a day. For perspective, over the course of an hour a 60W light bulb will use 0.06 kWh and an A/C unit will use 1-4 kWh. This kWh electricity usage is called energy, and the market accurately represents the cost of each kWh by allowing prices to fluctuate based on the variable cost of generating energy during the day. Usually, if you pay an electricity bill, this is the variable cost of your electricity bill on a daily basis.

Capacity

The reliability of the grid can be thought of like insurance. This insurance plan values the ability to produce energy at any given moment, measured in kilowatts, or kW. The same 60W light bulb will use 0.06 kW at any given time, meaning it has an “insurance” of 0.06 kW.

One product that pays for this reliability is termed “resource adequacy,” or “capacity.” The capacity product pays power plants just to be available to meet any potential insurance needs. These plants do not actually have to generate electricity to earn money for capacity, but merely need to be available.

Energy and capacity in electricity pricing

Electricity markets price both capacity and energy just like they would price a stock on the stock market. Participants can buy and sell energy or capacity, regardless of whether those products come from coal, nuclear, solar, storage, demand response or gas. The importance of this approach is that the government does not choose the winners; the market chooses the winners.

Proposed Rule on Grid Resilience

The purpose of the Grid Resiliency Pricing Rule is to pay coal and nuclear power plants, even if the energy or capacity they produce is economically uncompetitive.  The name itself is misleading and does not reflect what is needed for the grid to be “resilient.”

If you were to brainstorm ideas of resiliency, you might think of diversifying your portfolio or increase visibility into issues. People who study energy markets for a living come up with similar ideas of smartening the grid, hardening the grid, diversifying the grid via distribution, and making demand responsive. However, the proposed rule defines resiliency as ensuring power plants that stockpile solid fuel for 90 days to be fully paid for all costs, regardless of how much they spend. This flawed reasoning would be as if the government decided that stocks that start with the letter “F” should never lose any money. Continuing this analogy, the proposal is saying we, the taxpayers, should collectively pay for any company losses if the company made the great decision to start their company name with the letter “F.”

In other words, this is a bailout. And note that because the only power plants that stockpile solid fuel are coal and nuclear power plants, this is a bailout for coal and nuclear power plants. What the reason is for “solid fuel” is unclear. It could be that the Department of Energy believes renewable resources like solar or wind are not reliable because the sun could stop shining or the wind stop blowing in the next 90 days. It is also unclear on why 90 days is necessary – it could be that the Department of Energy does not anticipate any major events, such as a war, that last 91 days or longer. Needless to say, the only thing this rulemaking ensures is resilient is the bottomline of nuclear and coal power plants.

How will this affect you?

We have seen massive efficiencies created by electricity markets over the past few decades. As the ex-FERC chairman Jon Wellinghoff put it, this proposed rule will “blow up the markets.” What that means is that we lose the gains that we have made from competitive electricity markets. Which means prices go up and so will your electricity bills. Why? Because we would  be paying for something that does not make sense economically. We are bailing out the coal and nuclear generators.

What can you do about it?

Contact your local representative and ask them to oppose the “Grid Resiliency Pricing Rule”. Cite any of the following reasons:

  • America is built on competition and we want fair competition in the energy sector to drive down prices.
  • We want to ensure the lowest possible prices and smaller electricity bills.
  • Resiliency should be defined by energy experts and common sense, not an arbitrary “90 days of solid-fuel” definition.
  • We want to use America’s greatest asset, innovation, to be used in the energy sector.
  • We do not want the government to pick winners.

Energy-sharing apps seeing groundswell in wake of Trump’s Clean Power Plan rollback

As the Trump administration announced plans to roll back the Clean Power Plan this week, Americans are taking matters into their own hands with energy sharing apps, solar installations, and electric vehicles.

Continue reading “Energy-sharing apps seeing groundswell in wake of Trump’s Clean Power Plan rollback”

OhmConnect & The Great Eclipse

On August 21st, 2017, the first total eclipse that the continental U.S. has experienced in decades will occur. This event also represents the first total solar eclipse that the U.S. will experience since solar power has achieved mainstream adoption and will prove to be a test of new energy technologies. Continue reading “OhmConnect & The Great Eclipse”

New Gizmos!

We are excited to announce new wifi thermostats for just $9.99! We just integrated with Venstar thermostats, which means that you can now get your hands on an OhmConnect compatible wifi thermostat for a lower cost than ever before. Continue reading “New Gizmos!”

Open for Business!

Please note that these requirements are outdated. You can reference the new status level requirements here.

All OhmConnect community members now have $150 in credit to apply against smart device purchases.

If you live in California, you’re entitled to receive payments for saving energy – and OhmConnect wants to cash in. 

OhmConnect sends you notifications once a week when the California needs you to save energy, and pays you when you do. These events are called #OhmHours.

Continue reading “Open for Business!”

The Supreme Court Rules in OhmConnect’s Favor!

Ok, that’s not exactly how the headlines read. But if you skimmed the news on Monday, chances are you noticed stories like “Supreme Court Upholds Efforts on Managing Electricity Use Through Pricing” and “FERC’s ‘Demand Response’ Rule Upheld by U.S. Supreme Court”. Continue reading “The Supreme Court Rules in OhmConnect’s Favor!”

Happy New Year from Mr. Ohm!

With the historic Paris Climate Agreement now in our rearview mirror, we look forward to the road ahead to address climate change with measurable and actionable steps. The OhmConnect community understands that these government driven interventions highlight the importance of these issues, but Continue reading “Happy New Year from Mr. Ohm!”

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