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Last month, Bloomberg News revealed a leaked memorandum from the Department of Energy purporting to be part of a larger order out of DOE invoking the Federal Power Act and Defense Production Act to “save” economically endangered nuclear and coal plants on the basis of fuel security and resilience. This rumored DOE Order would keep certain nuclear and coal units running pending analyses by the national energy labs evaluating the resilience and economic integrity of the nation’s electric grid. Critics argue that this is an legally overreaching effort to bailout nuclear and coal units that are being buffeted by market forces that makes these generation units uneconomic. Defenders of potential DOE action retort that the markets are distorted by subsidies, price manipulations and regulatory interventions that preordain the failure of baseload electric units, and that the security and resilience of the nation’s electric supply is being jeopardized because of the regulatory mismanagement of resources. Our Teleforum participants will discuss possible DOE action, and what it means for the nation’s energy policy.
Hon. Mark W. Menezes, Under Secretary of Energy, United States Department of Energy
Stephen Moore, Distinguished Visiting Fellow, Project for Economic Growth, Institute for Economic Freedom and Opportunity
Moderator: Raymond L. Gifford, Partner, Management Committee Member, Wilkinson Barker Knauer, LLP
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Operator: Welcome to The Federalist Society's practice group podcast. The following podcast, hosted by The Federalist Society's Environmental Law & Property Rights Practice Group, was recorded on Friday, June 29, 2018, during a live teleforum conference call held exclusively for Federalist Society members.
Mr. Dean Reuter: And we'll now turn things over to our moderator, Ray Gifford. Raymond L. Gifford is a partner in the Management Committee and a member of the Wilkinson Barker Knauer firm right here in Washington, D.C. He's also a long-time member and leader of The Federalist Society and a repeat return guest to teleforum conference calls. So with that, Ray, thank you for joining us, and I'll turn things over to you.
After we hear opening remarks from our one guest, I think what we'll do is try and unmute everybody's telephone and see if we can identify our second guest. So, with that, Ray Gifford, please go right ahead.
Mr. Raymond L. Gifford: Great. Thanks, Dean, and thanks everyone for joining. First and principally, I want to thank Under Secretary Mark Menezes of the Department of Energy for joining us here today. And shortly, we also look forward to Steve Moore, Distinguished Visiting Fellow at the Heritage Foundation, and someone who probably needs no introduction given his background at various places.
But let's start with you and I, Under Secretary Menezes, discussing what has been going on at the Department of Energy, and what's under consideration at the Department of Energy. As I would respectfully set the stage, in the last month, there has been a memorandum that was leaked out of the Department of Energy that partially discussed, or seemed to be partial justification, for steps that DOE was considering under Section 202(c) of the Federal Power Act, as well as the Defense Production Act that would hold open certain generating plants pending some work on grid resiliency at the National Labs.
Could you speak to what DOE is considering, Under Secretary, and just describe what has brought us to this point, as it were?
Hon. Mark Menezes: Well, thank you, Ray, for helping to coordinate this call. And Dean, thank you, as well. And I'd like to thank all the participants who have made time to weigh in. I know we won't have probably enough time to maybe answer everyone's questions, but I do invite everyone to communicate directly with DOE if you have any follow-up questions. We're happy to continue this conversation with all interested parties.
What I'd like to do is to tell you what we have seen over here at the Department of Energy as to why we think that we are considering taking this action. And just to be clear, the leaked document referred to by Ray was not leaked, I don't believe, out of the department. It was a Department of Energy document, which was privileged and confidential and under interagency review. The source of the leak is not known, so I just wanted to just put that out there that we have no knowledge that our own department leaked our own document.
But we stand by everything in the document, although recognizing that the document itself was a draft. And the issues that are described in there is still undergoing an interagency review, and the options that were mentioned in there, again, I just want to emphasize, are a draft. So no decisions have been made. Not all the options, I think, have been considered, and so we're still evaluating it.
That said, I would like to put things into perspective from the Department of Energy. And I want to make -- I would like to discuss four points with the group today. One, from the Department of Energy's point of view, I'd like to make sure that everybody understands that the Department of Energy sits on the National Security Council. We are a member, and as such, we sit there because we have the weapons program, primarily, but as well as we have responsibility for the overall reliability in operation of our nation's energy systems.
The first point is that in what we have seen is we are seeing, as is everybody, increased threats to our energy system through the increasing number of cyber threats, in number and in sophistication. It is widely reported. These go beyond rogue hackers. They are nation states. They are Russia, China, Iran, and North Korea.
The second point I'd like to discuss this morning is we have seen historic closures of what traditionally has been called baseload units. I'd like to talk about the impact of that and why we are seeing those.
I'd like to also make the third point is that we are seeing that all new electric generation that is coming online is natural gas and renewables. There are no, except for the Plant Vogtle in Georgia, there's no plans for nuclear facilities for baseload, nor are there coal plants.
And then, the final point that I'd like to discuss is that the impact that the closure of these nuclear plants, civilian nuclear plants, are undermining our global leadership in the nuclear space, primarily with our allies and partners who are now looking to China and Russia as partners in developing nuclear facilities.
So returning to my first point: these increased threats. We are seeing that they are targeting the electric and natural gas systems of the United States. These are very sophisticated. They are attacks. And with the increased flexibility by design that we are undertaking on our national grid, efforts to bring in -- distribute energy, resources, to increase inputs behind, behind the meter, to bring on additional renewables, to make decisions based on technology advancements, making units more flexible and inflexible, by modernizing our natural gas system to have operational technologies that now use advances in new technologies, both IT and OT, we simply are increasing the vulnerability to our nation's electric system and natural gas pipeline system.
Indeed, Congress was so concerned about this that in 2015, they passed the Fast Act, where they mandated the Department of Energy to identify all of its defense critical electricity infrastructure to ensure that we have sufficient power to keep our critical infrastructure running in the event of a potential both natural and manmade disaster, principally, perhaps a cyber attack on top of a natural disaster.
The prior administration, for reasons that we are unaware of here at DOE, did not undertake this mandate. And we, under the Trump administration, are going to do our statutory duty, and we have begun this. And it is in undergoing that process that we have begun to look at where these closures are and its relationship to the critical infrastructure. So we're undergoing that process, and we are working with DHS and DOD to ensure that we will have sufficient supply to make our electric and natural gas systems both secure and resilient.
Regarding the second choice, the second issue is the historic closures of what traditionally has been baseload units. Now, these are closures of nuclear and coal units, and some natural gas units that primarily have been described as being, quote, "uneconomic" within, typically, the bid-based markets. We have heard from these -- from the folks in -- that believe in these so-called, quote, "markets" that any intervention that we take would just perpetuate some of the market distortions that currently are there.
I'd like to remind everyone just to step back a bit on these so-called markets. Electricity itself is a natural monopoly, and it was regulated for years until the 90s when we thought to bring in, quote, "competition" into this space. And what happened was these regional transmission organizations and independent system operators were a creature of FERC. They had the authority under the Federal Power Act to create these, quote, "regional markets." Congress looked at this and decided not to mandate these markets across the country. These are voluntary markets. States choose to participate -- to allow their utilities and their customers, their constituents to participate. If they pull out of these, FERC has no way to compel them. So these are voluntary.
And when they were initially constructed and designed, it was -- they were designed so that -- the -- today's -- what's called inflexible units, the nuclear generation fleet and the coal fleet, they essentially ran all the time and typically at the bottom of the price stack. And the prices would typically determine, on any given day, by the most inefficient gas unit that came on. Hydro ran, and there were some renewables, but the markets -- back then, these bid-based markets were designed with that expectation, that baseload units would run, natural gas would come on, and then renewables would come on.
And so, policy makers, knowing that, essentially approved and signed off, and many states passed laws to restructure their electric systems. Over time, what we have seen is that FERC has allowed the states to have their own priorities sort of dictate market rules. And so as a consequence, some of the states were passing renewable portfolio standards, environmental dispatch requirements, state and local credits to enhance renewables.
Even Congress passed and extended both the Production Tax Credit and the Investment Tax Credit for renewables. And as a consequence, FERC generally has approved all of these kinds of mechanisms, including demand response, to be bid into the markets to affect a price formation, and they have been essentially very open to that. They have not taken action to stop that.
And as a consequence, due to some of these subsidies, you see in these markets negative pricing. You see market-clearing prices that the actual costs of the coal and nuclear units, and we are seeing natural gas units also, are unable to recover their operating costs with the market-clearing prices. And over time, some of these RTOs decided to address that through a capacity market, ancillary services market. Other RTOs look at it with inadequacy. Clearing process, entering into reliability, must-run units are assurances that there will be resources there in the event that there is a hike in demand and they cannot meet supply.
Interestingly, when I was participating in trilateral discussions with Mexico and Canada on opening of electricity markets, Mexico is developing its electricity markets for the first time, and they sent their experts to the U.S. to learn from our electricity market experts. And they witnessed it, and they decided they would carry over some of the best practices that we had, but they also decided that there were some things that they were not going to do.
And when I asked what lessons had they learned in the U.S. that they wouldn't carry over into Mexico, they make two comments right off the bat. One, we're not going to allow any negative pricing, period. That's not how markets work. They knew of no markets that would allow for negative pricing of any commodity. And two, all bidders that bid in had to bid and know their operating and actual costs because there'd be no subsidies to help them recover costs if they bid in something -- if their -- if market clearing price was less that what their operating costs were.
So we see that as a problem. And FERC, who created these issues, can fix the issues. The third point --
Mr. Raymond L. Gifford: -- So, Under Secretary, is the --
Hon. Mark Menezes: Yeah.
Mr. Raymond L. Gifford: -- and I don't want to interrupt you, but from DOE's standpoint, let me try and just pin you down there. This is not a permanent step necessarily, but this is a step that would be taken to then allow FERC to address the issues?
Hon. Mark Menezes: Well, let me come back to that, Ray.
Mr. Raymond L. Gifford: Yeah.
Hon. Mark Menezes: Let me just finish my two points, and I certainly will talk to you about the process and what we have already done and what we're in the process of considering.
But the other point I want to make, too, is that -- two other points. One, because of the abundance of natural gas that we have, and this is a great story for the United States. We have the shale revolution. We are exporting more natural gas than we ever have. We're about to become the world leader in natural gas exports as well as oil exports. And this has changing the political hegemony across the world. This is a good thing.
As a consequence, domestically, however, all new generation coming on is natural gas and renewables. And as NERC, North America Reliability Corporation, has pointed out that we have seen this before. And they are concerned that as we are building more and more and only new natural gas, then they have identified no less than seven clusters in the United States where they see an overdependency on a primary source of fuel. And there's simply insufficient infrastructure to be able to get the natural gas in the abundant supply and in the different locations to ensure that if a pipeline goes out, it doesn't take off 25,000 megawatts, which would really create a problem. That's beyond the N minus one (N-1) scenario that planners plan for.
So NERC, NAS, any number of experts have been warning policy makers, "Please don't do this again as we've seen it in the 90s when all generation coming on was natural gas and the prices went so high that it caused a resurgence of coal plants."
And then, lastly, and this is an issue that has not been widely talked about, but it's something that we see over here at the Department of Energy, and that is because we now are a competitor with OPEC nations and Russia on the export of natural gas and oil, our Middle East allies are deciding to save those resources for electricity -- and use nuclear for electricity generation. And that's fine. I mean, that's what you get when you have global competition for the first time in the -- certainly since the 70s, we are able to free up countries from being dependent on OPEC nations or Russia for their sources of natural gas and oil. Good thing.
But in the nuclear space, while they may want to do long-term deals with us, they know -- they see that we are allowing our civilian nuclear fleet to close. And as you know, when you sign agreements to use U.S. technology and the best technology, and you commit to nuclear fleet, you are committing to a relationship over several generations because you want to ensure the continued licensing and the newest technologies in both the health and safety standards. And this is what the U.S. provides.
It was anticipated that the U.S. would lead the world in this technology, which is why Congress has said that for the use of any U.S. technologies, if you're going to use that, a nation has to enter into a 123 agreement to ensure both safeguards against proliferation and also agree not to enrich for non-peaceful purposes.
So we are now seeing our allies choosing to have discussions with China and Russia over us. And neither China or Russia have laws that require that they enter into agreements with other countries that would address either non-proliferation or non-enrichment, although some of them may be signatories to treaties where they pledge to do so.
So for those reasons, Ray, to get back to your question about what to do about it. On the market issue earlier this year, we had sent over to FERC, using our authority under the Organization Act, Section 403. We had sent a proposed final rule over to FERC that they, in their FERC-approved markets, and in their price formation docket -- FERC has been looking at this issue since 2013 where the staff identified the closure of these baseload units in that market clearing prices inadequately factored these closures in, and the market clearing prices were focused purely on the just-in-time and out-to-meet demand as opposed to factoring in adequate price formation to ensure that you have sufficient supply over time.
And we sent the 403 over to have them consider looking at their price formation rules to allow the payment of these units when these are active and existing units, and that when they ran in the markets that they would get adequately compensated for those costs. In other words, factoring in a component for resiliency, if you will, in addition to reliability. So FERC, as you know, rejected the final rule and decided to open up a docket where they asked RTOs to participate.
Mr. Raymond L. Gifford: Sure, and if I might, Under Secretary, let me, on the market point, let me get Steve Moore in on the discussion here because, among other things, no one takes the backseat to Steve Moore in his promotion and enthusiasm for markets.
Steve, I know that you've been spending time looking at this set of issues in electricity markets and the short run marginal costs markets that are around large parts of the country. What is your reaction to this? Because I know when the DOE memo leaked, many on the conservative and libertarian side of the spectrum, which is probably overrepresented on this call, given we're on a Federalist Society call --
Mr. Stephen Moore: -- Sure.
Mr. Raymond L. Gifford: -- were, were quick to have concerns with it. What are your thoughts, Steve?
Mr. Stephen Moore: Well, thank you for having me. And look, I am a free-market guy. If I had my druthers, I would get rid of all the subsidies for all the forms of electric power generation and let the market decide these things. But I've very rarely seen a market that is more dysfunctional and distorted than the electric power market. And it's just, it's mind-turning how many distortions there are in this.
And so, as I look at it, I believe that we will be making a big, big mistake if we allow most of our nuclear capabilities, nuclear power plants and our coal to go away, which is what the renewable energy people want. They've wanted that for years. And look, the idea that somehow these forms of electric power generation, coal and nuclear, are being driven out of the market because of market power is just, it is wrong. It's flat out wrong.
This is -- now, some of it is true that, yeah, obviously, natural gas prices are falling and as we've just discussed, that's a good, good thing for American consumers and the American economy, and we want to see more of it. There's nobody -- no bigger fan of shale oil and gas than I am. But what is really -- and so that certainly has constricted the nuclear and coal industries, but the biggest factor is that you've got this gigantic distortion going on with respect to the renewables, wind and solar power.
And so I just put out an analysis here at Heritage that I'm happy to send to people. What we just looked at the -- based on the EIA data, which is the official government statistics on the federal subsidies per megawatt hour, and they were just astounding. So natural gas actually gets no subsidies at all. Nuclear gets -- they're on that same scale. They get about 50 cents per megawatt, million megawatt hours. Coal gets a dollar. So 50 cents, a dollar, and then wind is 6 dollars, and solar is 44 dollars.
So these are orders of magnitude larger subsidies, which makes me laugh when all of these liberals are saying, "We need just to have free-market pricing in electric power markets." That's the last thing we have right now. And, by the way, that's the last thing they really want. They don't want a free-market pricing system. In electric power markets or in most markets, wind and solar would be completely uncompetitive.
And, by the way, this does not even include the fact that we have -- these are just the federal subsidies. At the state level, you also have many states have 25, 30 percent renewable requirements that basically tell the utilities you have to get a certain percentage of your electric power from these wind generators and solar generators, no matter how uneconomical they are. And, of course, in California, most people are aware that they just passed a law that requires solar paneling to be installed on the roof of homes.
And so, these are gargantuan subsidies that put real distortions in the market. And I -- the point I've made over and over again is that, of course, we want -- consumers want the lowest price electric power they can get, no question about it. But why are we being penny wise and pound foolish here? If we shut down our coal and nuclear facilities, what happens if you do have a disruption in the natural gas supply? Or does anybody really think we're going to be able to rely on wind and solar power?
In other words, as an insurance policy against brownouts and blackouts, which could happen, and they've happened in many states in recent years, we want to make sure we have a resilient and reliable electric power source. And that's why I kind of reluctantly favor what the Energy Department is doing here because I don't see any other alternative except to just get rid of all the subsidies, but that's just not on the table right now.
Mr. Raymond L. Gifford: Under Secretary Menezes, could you do something to get rid of all these subsidies?
Hon. Mark Menezes: (Laughing) No, we use those --
Mr. Stephen Moore: -- I mean, am I right? Do you disagree with my analysis? I mean, we haven't talked, I know we've corresponded on this, but, I mean, do I have it about right, or…?
Hon. Mark Menezes: Well, I think so. And this is the turn of events that we see. We see the nuclear industry having to go to individual states and get the same kind of subsidies that the renewables have been enjoying, and the nuclear industry has been able to link itself with the renewable crowd. And they are right to say about the emissions-free, that's a great and wonderful thing. But to most of us that have been involved in this for the many -- now approaching several decades for me, is to have the nukes going hat in hand to states to get the same kind of subsidy that the renewables have enjoyed just goes to underscore your point about the number of distortions.
And I think, Ray, I think you may have written an op-ed yesterday or the day before, or earlier this week, where you point out that it's reached the point where our markets are all markets of essentially relative distortions, and that FERC should stop allowing -- the ways that have been very creatively come up with is yet another market solution that FERC will approve as a market rule. And then FERC announces that this is a, quote, "market solution," when, in fact, it's a rule that further distorts the markets.
Mr. Raymond L. Gifford: Yeah, one question to really both Under Secretary Menezes and Steve, a very insightful person who's the market monitor in the PJM Regional Transmission Organization, Joe Bowring, has cautioned that we may be entering a phase when the competitions that's happening in the markets are all competition for subsidies. And that seems to be happening, given many of the state actions to subsidize, in particular, their nuclear fleets. How do you create an atmosphere if you want to get back to the fundamental and beneficent kind of ambitions that we had when we embarked on electricity competition experiments? How do you un-ring the bell and get rid of the subsidies in these markets, and is that perhaps what DOE aspires to, no matter how naïve that might be?
Hon. Mark Menezes: DOE has limited statutory authorities. We are trying to do what we can with the limited authorities that we have. So there's only so much that we can do. We're not FERC, and we're not -- and we can't tell FERC what to do. The Organizational Act is clear. We can issue proposed rules. We can issue proposed regulations. We can issue policy statements. But we cannot act as FERC. We're not Congress, but we are the only department, I think, that can see what we see and be the voice of what is going on not only in the markets, but again, these -- what we see in the nuclear space, the loss of leadership globally. When our allies tell us that they are likely to choose South Korea -- we're lucky if they choose South Korea or Japan over China or Russia -- but that the U.S. is not even in the running.
We lost out to the South Koreans several years ago when the United Arab Emirates decided to enter into a long-term relationship to build their nuclear fleet because they wanted to keep their resources for export revenues. They chose the South Koreans. The South Koreans, now, are leveraging that relationship that they've established with UAE to our other allies. Our other allies would like to do business with us, but they do not see the commitment necessary to provide them with the technological leadership over the next several decades to ensure that their nuclear fleet has the highest standard, the best technology, etc. And that's very real. That has never happened before in history.
So we as a department can help educate people as to what we see in historic terms. And as I said, historic cyber threats that we have never seen before that are increasing daily, the historic closures, the potential loss of global leadership in the nuclear space -- these are all very serious threats. And this is really the only department that can see all that, primarily because, in part, we have both the responsibility to ensure a reliable grid with FERC, and secondly, our seat on the NSC where we see threats to our system.
Mr. Raymond L. Gifford: One additional question, Under Secretary Menezes. In just -- we've largely discussed what's happening in the markets, the RTOs and the ISOs around the country. As we both know, there are large swaths of the country, mainly in the southeast and many here in the big square states in the west outside of California that have what are bilateral markets. Would the DOE's efforts also involve nuclear and coal plants in those areas, and doesn't that get a little more complicated with the federalism concerns which I feel compelled to raise on a Federalist Society call?
Hon. Mark Menezes: Right. And thank you, Ray, for that question. So it's still being determined as to scope. I'd like to point out our 403 was limited to the FERC approved RTOs that had both an energy and a capacity market, so we think that in the market space, that's the problem. However, what we have seen is in the bilats, for example, you see the increased use in renewables and the choice to move to natural gas. But primarily where renewables that are subsidized, whether through, say -- let's go out west, right? So California is subsidizing greatly renewables. We see where renewables are pushing off even hydro that used to be -- it would always set the market, as prices go. And for the first time, we are seeing that these -- that in the bilaterals, the market prices are now even below hydropower.
So even BPA's prices are sometimes out of the market, and that's just never been seen before in history. And it's a direct result of the subsidized wind coming out of California wind and solar. So while our 403 looked at the markets, the FERC approved markets, our obligations under the FAST Act [are] nationwide. So we are going to be looking, at least under the FAST Act responsibilities we have, nationwide at the impacts and potential closures. And it may not be a market issue there, but it would still be an assessment in modeling that we will do as we look at particularly closures that appear because they may be uneconomic due to these price distortions.
Mr. Stephen Moore: Hey, it's Steve Moore here. Sorry, I had to step away. I've got to run in a couple minutes. Did you have a last question you wanted to ask?
Mr. Raymond L. Gifford: I’m saying that we've made history with Steve Moore modestly endorsing DOE interventions into markets. I'm wondering if you think it is worth the industrial policy step to take these steps to save our domestic nuclear and coal industry? And that was meant in the most puckish sense possible, Steve.
Mr. Stephen Moore: Well, what I'm interested in is reliability of the grid system because the economic costs of having a brownout or a blackout are gargantuan in terms of what the danger to health, safety, and our economy if factories have to shut down because they don't have access to electric power, or whether hospitals, or schools. So there is a huge, huge cost to not having the electric power there when it's needed. And there is a big danger in betting the farm on wind and solar and natural gas.
And so, that's the way I would look at it. I view it as almost an insurance policy against that kind of eventuality because the costs would be so immense to the American economy.
Now, ultimately, I'd like to get this straightened out so we don't need this kind of intervention by the Department of Energy by moving away from renewable energy standards, by moving away from the -- I worked on the tax bill, and we worked like hell to get rid of the -- what industry gets a 30 percent subsidy from the government every time they produce a widget or whatever it is? I mean, it's unparalleled in any other market.
So until we get these markets straightened out, I think we are making a big, big mistake if we're shutting down our nuclear plants and reducing our coal capabilities because we may very much regret it later. As both of you gentlemen have told me many times, these nuclear plants, it's not like you can just flick them on and flick them off. Once you shut it down, it's shut down, and there's a very high cost to doing that.
Mr. Raymond L. Gifford: I thank you, Steve, and I know that you've got to run, and we thank you for your time and your tireless evangelization on behalf of markets. So with that, maybe --
Mr. Stephen Moore: -- All right. Have a great weekend. Bye.
Mr. Raymond L. Gifford: Thanks. And now, with your indulgence, Under Secretary Menezes, if you could take a few calls from the teleforum participants? I know for a fact that our friend, the Chairman of the Arkansas Commission, Ted Thomas, has some questions and hope he's still on the call and will chime in. Would that be a good next step, Under Secretary?
Hon. Mark Menezes: Sure. Yeah. Happy to answer questions if I can.
Mr. Dean Reuter: Very good. Ray, this is Dean Reuter of The Federalist Society. Let's open the floor to questions. In a moment, we'll all hear an announcement that will say the floor mode is on. After you hear that announcement, if you have a question for the Under Secretary, push the star button and then the pound button on your telephone.
So once again, if you have a question, push the star button, then the pound button on your telephone. We've got two questions pending. If you'd like to join the queue, again, push the star button, then the pound button on your telephone. For now, let's take the first call of the day.
Mr. Ted Thomas: This is Ted Thomas. If I can make a few points and then have you respond; first of all, at some point in the future, an over-reliance on natural gas will cause reliability and resilience issues if too many coal and nuclear units retire. I think everybody agrees on that. NERC has engineering standards that will tell us when we have issues, and there're existing market rules that allow must-run generation if you've got to run something out of price order for reliability issues. To me, there is no national security emergency. This is a substitute proposal for a proposal that FERC rejected on a 5-0 vote, including rejection by all three of Trump's Republican appointees. There might be a problem in the next five to ten years that needs to be studied and solved based on engineering and economics.
I worry that this is a political consideration. A bailout is not necessary, in my view, to preserve the generation units. The generation units will continue to exist even if the owner completes the bankruptcy. This is a bailout of bondholders and management at the expense of consumers. I think it's bad policy and bad politics. There are hundreds of baseload units that might be needed, but it is likely only a few will be needed where the engineers say there's a reliability problem.
The challenge is we don't know which units we actually need. To me, the best market approach would be to let people try to figure that out in an informed bidding process and bankruptcy, redo the fixed costs of these units through the bankruptcy, let the bondholders who made a bad bet take a haircut, and redo the cost structure through that choice.
Also, I don't think that this debate can be taken outside of the context of the climate debate. Watching administrative appointees in confirmation hearings respond to questions about the climate debate looks to me like babies playing with razor blades. We're getting our butts kicked on this debate because we want to debate science with scientists instead of debating costs. We've got to pivot from the science debate by punting it and pivot to cost.
With respect to subsidies, all you've got to do is look at a pie chart. Go back whenever you want, national pie chart of generation. I think wind is 7 percent. Coal went from the 50's to the high 30's when wind went from 2 or 3 to 6 or 7. The movement is gas. This is a gas issue. Politically, we lose when we keep paying it. Obama and the leftists with renewables are causing the coal problems. It's not. It's a gas problem.
Politically, taking the 20 percent coal people versus the 80 percent against, instead of taking the 80 percent cost against the 20 percent leave-it-in-the-ground folks is just horrible politics. You can capture the center and part of the left while retaining the right by talking about costs, and we don't do that. If you want to see how to do this, I was interviewed in Atlantic Magazine that talks how to do this message.
And, finally, I apologize if the tone is offensive because I'm frustrated. I'm a Republican appointee of a Republican governor. I'm a former Republican legislator, and a former Republican political consultant. I can't cut through the nonsense on this issue. I've tried to get to the Secretary. I've tried to get to Administrator Pruitt. I've tried to get to people in Congress that used to pay me for political advice. There's a better way to debate these issues.
There's a reason that FERC rejected these proposals on a 5-0 basis that hasn't been covered in this call. It hasn't been covered. The markets are not perfect. There's subsidies all over the place. The solar and wind subsidies are phasing out, but the markets work and deliver value. Cost of electricity on a percentage of personal income is at an all-time low. We don't need a bad policy bailout aimed around the FERC to help First Energy.
I'm going to just put it on the table. We're helping one utility at the expense of the public interest, and I think it's bad policy, and I'd be interested in your response, and how can we do better at debating these issues? I'm tired of losing debate after debate with our fifth-string arguments while our first-string arguments never get into the game. We can win on cost. That's where we win. We're losing the climate debate. That's the threat to coal is gas and losing the climate debate.
So I know that's kind of a rant, and I apologize for my tone, but I've really been trying for three years to cut through the garbage on this, and I've made no progress, even with personal friends or in Congress. So I'd appreciate your response to those issues, and thank you for allowing me to rant.
Hon. Mark Menezes: No, thank you for the discussion on that because you have identified how complicated all this stuff is, and perhaps even how unnecessarily complicated it has become. Just a couple of points on that. You had mentioned NERC and the engineering standards. We are responding to the NERC reports themselves, I mean the NERC alerts that they -- no one forced them to issue or do an analysis on what they see as the overdependency, the growing overdependency, on natural gas, because we all know that as you said -- although I don't see natural gas as a problem. I think it's a good thing. We need more infrastructure to lessen the concerns about overdependency on gas. That would lessen the NERC concerns. But NERC, that has the statutory responsibility to ensure reliability standards, is issuing the alert that we need to be cautious about this and we're becoming -- and we need to take action. Again, NERC can't tell FERC what to do. So I just wanted to say that we're reacting to what NERC is saying on that issue.
With respect to costs, there have been several reports, it is -- IHS market, Daniel Yergin's group -- that has issued a recent report that on nukes, that it is simply much more economical to the consumer to keep units running than to replace them with gas or renewables. Study after study is coming out in showing this. So on the costs, you may call it a bailout -- and again, no offense taken here. We can talk about this, but more and more of the experts in this area who actually know the actual costs of these units know the locational marginal price of each incremental supply coming into the market. Studies are showing that it's just better for the consumer to keep these units running than to let them retire and replace them with natural gas or renewables.
So I would just offer that, but again, it's not to in any way minimize any of the points that you have said. It is just, again, what we are seeing in the public debate and the analysis of these issues.
Mr. Raymond L. Gifford: Under Secretary Menezes, after the shrinking violet question of Chairman Thomas from the Arkansas PSC, I think we have two questions left, if you have time.
Hon. Mark Menezes: Sure.
Mr. Raymond L. Gifford: And if the questioners could be a little more brief than Chairman Thomas.
Caller 2: Yes, well, I'm not a big fan of the man-caused global warming theory. I think when the sun gets hotter, the earth gets hotter. But there is a cost of nuclear, which a nice GE plant in Fukushima illustrated, and that is the fact that the entire Pacific is being polluted with radiation. And that seems to me that should be factored in to the costs, the fact that the risk has always been subsidized in America by providing nuclear insurance and limitations on the liability of a failing nuclear plant. Comments?
Hon. Mark Menezes: Okay. I'll check and see whether or not those kinds of risks are factored in. I think most of the analysis has really been, I guess, within the markets where these units are closing. I'm not sure -- I just don't know if any of these economic modelling address the issue that you raised. I just honestly don't know.
Caller 2: Thank you.
Mr. Raymond L. Gifford: And a final question, if we still have one, Dean.
Mr. Dean Reuter: We do have one more question. Go right ahead, caller.
Mr. Bill James: Hi, this Bill James with JPods, and we have a solar manufacturing plant in Poughkeepsie, New York, and we've signed contracts to build solar-powered mobility networks in China because we can't get access to building them in the U.S. If free markets are enforced and the post-Roads restriction is enforced in the Constitution, then we could have free markets, and the price of solar would make this thing so that we would not have these central-grid liabilities. What can we do to enforce federalism and the post-Roads restriction in the Constitution?
Hon. Mark Menezes: First of all, thank you for having the plant in the United States because we know the tough economic times, if you will, with respect to photovoltaics. A gentleman visited me the other day and came in to see the department. He's a U.S. company. He has been in the solar space for about 15 years. He gave me a document that was probably -- had maybe 300 companies listed on it, U.S. companies, that had either gone bankrupt or out of the business in solar since we had -- since Congress, I guess, had taken some action, certainly since 2005 to provide some incentives for U.S. manufacturers of solar.
And what we've seen is that, with the recent action by Commerce where the Chinese were found to have stolen our technology, manufactured units, and then dumped them here in the U.S., they drove out all of these U.S. companies. So I want to compliment you for figuring out a way to hold your ground, if you will, in the U.S. It's a tribute to your resiliency and your dedication to both solar and to having them in the United States. This is a very good thing.
So we are trying to at least have a level playing field. That's what we're trying to do. And again, it kind of goes to -- we see the same distortions in the global market here where it impacts our U.S. market. And so, President Trump, the Commerce Department, they're trying to address that issue so that companies like yourself can continue to enter into those contracts and produce photovoltaics and solar products.
Mr. Bill James: That's not quite correct. In other words, when we build our solar powered mobility networks, we're deploying a megawatt of solar per kilometer, and we're going to build thousands of kilometers of these things. And the current tariffs, the 30 percent rise on solar collectors, really harms the industry and harms our manufacturing plant because we need this -- we need to transition to U.S. manufacturing, but these tariffs hostile to solar, and then subsidies -- and I studied nuclear energy at West Point, so I have a fair idea of the nuclear industry. And we've subsidized and not capitalized the cost of waste disposal, for instance, into nuclear plants. So there's a purpose for them, but we need free markets, not subsidized markets in both solar and nukes.
Hon. Mark Menezes: Yeah. No, I mean, I don't disagree at all. I know that the Commerce Department has a waiver process to consider, and I would encourage you to look into that process, but no, I -- again, we're still talking about the fundamental thing is that there are distortions in these so-called markets, and we need to do something about them. President Trump is trying to call attention to the fact that there are -- that we have been taken advantage of, and so he's just simply trying to treat them as they have treated our exporters. So Commerce has a process for folks like your company to be able to seek a waiver. And as you described it, you may very well be in the position to make your case over at Commerce.
Mr. Raymond L. Gifford: Under Secretary Menezes, I know that we've told you, and we know that you have plenty of things to do, and I know that we only had you for an hour, so I want to thank you for your time today and turn it back over to Dean, if I might.
Hon. Mark Menezes: And Ray, I just wanted -- to all of our listeners, I know maybe they weren't able to call in, please, you can go to our website and you can send us any comments. Direct them to my attention, and we will respond.
Mr. Dean Reuter: And this is Dean. Let me add my thanks on my own behalf, but on behalf of The Federalist Society, to Steve Moore and to Under Secretary Menezes, and, of course, to Ray Gifford for organizing this call and participating. I want to thank the audience as well and invite you to monitor your emails and check the website for the next teleforum conference call which actually happens to begin in about 13 minutes. So if you would like to participate in that call, I would ask you to hang up and please redial, but otherwise we are adjourned. Thank you very much, everyone.