State Energy Policy – Not “Markets” – Is Saving the Day This Summer

An underappreciated story during this summer of blackouts and high energy prices is the role that state energy policy played in keeping open significant portions of the U.S. nuclear generation fleet.  Energy policy watchers know well the recent actions in several state legislatures to stave off the demise of nuclear generating stations around the country.  These initiatives primarily arose in states that had deregulated their energy supply.  To make a long story short: “markets” have been brutal to nuclear units.  Nukes are carbon-free.  They provide outstanding reliability benefits.  They work 24/7/365 – rain or sun, wind or calm.  They provide fuel source security and diversity to a grid that badly needs it.  And as designed, the “markets” undervalued all those attributes, so state legislators stepped-in to subsidize the units.

The retail choice crowd decried the legislators who made an understandable policy call to save their nuclear units from extinction.  Thank goodness these legislators tuned-out the noise coming from the acolytes of deregulation.  These units today aren’t just providing the juice that is keeping lights on – they are quite literally paying back – and then some – the customers and states that lent them a financial lifeline.  As dire as the nation’s electricity grid looks this summer, just imagine how bad a shape the country would be in had these units been retired – which is exactly what the so-called “markets” were telling them to do.  It all goes to show just how unworkable the deregulation theory has been in the electricity policy space.

Of course, no one should argue these state subsidies don’t distort the markets and have spillover effects on other resources – they do – but that brings the discussion full circle.  The only reason so many of these retail choice states had to enact emergency measures to save these valuable nuclear units is because they deregulated in the first place.  A well-structured system of state regulation – such as integrated resource planning – ensures that citizens have a diverse pool of clean resources that can support reliability, while smoothing out the inevitable price volatility that plagues the hideously complex and often unworkable “markets.”  The subsidies that saved the nuclear units were but a band-aid to stop the bleeding caused by deregulation.  If states want to heal the injury once and for all, they should look for ways to jettison the failed deregulation experiment and rejoin the majority of states that still maintain state oversight of electricity resource planning.