Through interactive graphs, RFF researchers simulate how the proposed rule would affect energy markets and social welfare.
The Federal Energy Regulatory Commission is expected to act by January 10, 2018,
on the Department of Energy's
notice of proposed rulemaking
on “grid resiliency pricing,” which directs the commission to impose rules
that would prevent early retirement of coal and nuclear-fired power plants
in the eastern United States. It would guarantee cost recovery and a “fair rate of
return on equity” for qualifying merchant generators—ones maintaining 90
days of fuel on-site and operating in competitive markets
that also have capacity markets. Presumably, plants that did not recover
costs and make a fair rate of return would receive subsidies.
Proponents of the proposed rule say it is necessary to ensure the
reliability and resiliency of the nation's power grid; opponents call it a
bailout for the coal industry. The commission was granted a 30-day
extension on the decision in December.
recent working paper, we simulated how the proposed rule would affect energy market outcomess and social
welfare, assuming that it does not harm the efficient functioning of markets in ways beyond the subsidization of certain plants. We simulated several versions of the proposal that vary how long
the policy is in effect, which type of generators qualify (coal, nuclear,
or both), and whether the subsidies guarantee profits as in the proposed
rule or only the costs necessary for continued operation. See the
for more information on our interpretation and assumptions.
Below, we summarize the results of the main scenario,
which reflects our interpretation of the proposed rule and assumes that
it remains in effect from 2020 through at least 2045. In the main scenario,
the rule guarantees the profitability of both coal and nuclear units. At the bottom of the post, you can interactively explore the
effects of other scenarios.
All of the values in these charts are in comparison to a business-as-usual
projection of a future without the proposed rule. That is, the charts show
the effects of the proposed rule.
Greenhouse gas emissions
In our scenario guaranteeing profits to both coal and nuclear plants for 25
years, the amount of power generated by natural gas declines due to more
coal and nuclear generation. Because nuclear generation increases almost
twice as much as coal generation in 2025, carbon emissions decrease
slightly at first, but they increase in later years as older nuclear plants
retire in spite of the subsidies based on the assumption that they cannot
renew their operating licenses beyond age 60. Sulfur dioxide and nitrogen
oxide emissions, however, increase immediately from the increase in
coal-fired power generation and stay elevated throughout the life of the
An increase in sulfur dioxide and nitrogen oxide emissions would take a
toll on human health. We find that the policy, under the main scenario,
would increase premature deaths by 840 in 2025, 1,139 in 2035, and 1,291 in
2045. The total number of premature deaths over the course of 25 years
would be 26,896.
The proposed policy would affect electricity prices in two main ways.
First, the proposal calls for charges to be assessed to cover the costs of
the subsidies. We assume that these would be charged to consumers as a
per-megawatt charge, also known as an “uplift.” In 2025, the total subsidy
amount is $7.6 billion. Second, the policy decreases the average underlying
wholesale electricity price, but not enough to offset the tariffs. The sum
of the two, the total price effect, is an average increase of $1.66 per
megawatt-hour to consumers in 2025 across the eastern and midwestern United States and
Canada. This amounts to $18 per year for the average residential
electricity customer. The price increase resulting from the policy declines
over the following years.
Under our main scenario, the total net benefits of the proposed policy are
negative, amounting to a cumulative cost of $263 billion over 25 years. The
total net benefits are the sum of net benefits to electricity end-users,
the environment and human health, generator profit, and government revenue.
Relative to business as usual, generator profit is higher in 2025 but lower
in 2035 and 2045 because the policy decreases both the number of lower-cost
generators and wholesale prices.
The net non-environmental benefit for electricity users is negative
throughout the life of the policy. In 2025 the proposed policy would cost
consumers $5 billion. That cost lessens in 2035 and 2045 but amounts to a
cumulative $72 billion costs to electricity users over 25 years.
The environmental calculation comprises the net benefits of the change in
carbon emissions and the costs of increased morbidity and premature
mortality from sulfur dioxide and nitrogen oxide emissions. It is decidedly
negative (a cost of $9 billion in 2025 and cumulative costs of $217 billion
over the life of the policy). Most of this cost comes from increased
premature US deaths from sulfur dioxide and nitrogen oxide emissions.
Our working paper includes several variations of the proposal, including a
10-year lifespan for the policy instead of 25, policies that support only
coal generators or only nuclear, and policies that guarantee only recovery
of the costs of continued operation (“going-forward” costs) rather than
guaranteeing profits. We find that the only policies with positive net
benefits are the ones that support only nuclear plants.
Explore the results from these other scenarios in the charts below.
For more information about this article and others—including links, interactive features, and references—view Resources online at www.rff.org/resources.