What Are The Threats to America's Electric Supply?

Tony Alexander

On Tuesday, Anthony J. Alexander, President and CEO of FirstEnergy Corporation, addressed a standing-room only gathering at the U.S. Chamber of Commerce. Part of the 2014 "CEO Luncheons" sponsored by the Chamber, Mr. Alexander spoke frankly about the enormous threats to the reliability and affordability of the nation's electricity supply. The majority of these threats arise from government policies that distort electricity markets to force uneconomical energy sources into the mix and drive proven sources out. He described these policies as replacing what works with what "sounds good."

The full text of Mr. Alexander's speech is available from FirstEnergy. A video recording of Mr. Alexander's speech is available on the Chamber web site. His remarks begin at 1:03:43 in the recording. Introductory comments of Senators Rob Portman (R-OH) and Joe Manchin (D-WV) precede Mr. Alexander's remarks. The Chamber's blog post also provides some highlights.

Among the key points that struck us as significant were the following:

Germany offers a vivid picture of what lies ahead if U.S. policies continue. There electricity prices have doubled to more than 37 cents per kilowatt-hour, as compared with a U.S. average of 10 cents per kwh.
As government mandates and subsidies drive renewables into the market, our electric system is relying more on intermittent sources of generation, such as wind and solar. These resources require back-up generation and substantial investments in transmission (i.e., hidden costs) to maintain reliability.
Production tax credits and other subsidies encourage developers to build new capacity whether or not the output is needed. This unneeded capacity puts additional pressure on baseload coal and nuclear assets that are essential to grid stability and affordable energy prices.
In competitive electricity markets, if market rules don't change to reflect the true value of baseload generation, additional coal and nuclear units may be shut down.
While the supply of natural gas today is abundant, substantial changes will be needed in the natural gas pipeline and storage infrastructure to make it match the just-in-time nature of the electric system. That is a long way off.
With its current approach to electricity markets, government is, in effect, using private sector balance sheets to pay for social policies.

Mr. Alexander ended on an optimistic note, recognizing the challenges but expressing hope that we can establish a long-term energy policy that favors diversity of supply and reliance on the market instead of government picking winners and losers among technologies. For those of you eager to gain a sense of how a utility CEO thinks about energy policy, listen to the end of the video recording for Mr. Alexander's responses to audience questions.

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NEI Nuclear Notes

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