Bailing out coal hurts consumers

President Donald Trump’s plan to subsidize money-losing coal and nuclear plants makes no economic sense and runs counter to the free market ideology of the party he leads. But it will make the operators of those plants very happy while consumers across the country foot what could be an extraordinarily expensive bill.

The president has ordered his energy secretary, Rick Perry, to prepare immediate steps to keep these plants open. Under a plan first disclosed by Bloomberg, two rarely used laws would be invoked to require operators of the nation’s electricity grid to buy power or reserve generation capacity from unprofitable coal and nuclear plants that are scheduled to be retired.

Ostensibly, the idea is to establish a “Strategic Electric Generation Reserve” to ensure that a domestic energy supply is available in a national emergency while the Energy Department undertakes a study of risks to the energy system.

But “national security” is really just a fig leaf for subsidizing coal and nuclear plants that can’t compete anymore against natural gas and renewables like solar and wind power. The effort is built on the lie that these plants will be essential if the nation’s electric grid is attacked. It’s an obvious gift to the troubled coal industry that President Trump promised to save while a candidate. And it would be an expensive gift. One study estimated it could cost consumers as much as $11.8 billion.

In its effort to bail out the coal and nuclear industries, the Trump administration is turning to two laws. The Defense Production Act gives the president broad power to force private industries to ensure the timely delivery of products and services. And Section 202 of the Federal Power Act enables the president to guarantee profits for power plants that can store large fuel reserves on-site — a criteria that only coal and nuclear plants typically can meet.

In late March, the Ohio-based utility FirstEnergy appealed to the administration to invoke Section 202 of the power act to save its struggling coal and nuclear plants, as well as other plants located in the nation’s largest power market, managed by PJM. Section 202 is designed to stabilize energy resources during wartime or extended emergencies. It wasn’t designed to bail out unprofitable industries.

Subsidizing these industries has come under sharp criticism. Even some members of Trump’s own team object. In January, the Federal Energy Regulatory Commission, which oversees regional electricity markets, rejected a proposal by Perry to guarantee that companies would cover their costs and earn a return on investment if they had 90 days’ worth of fuel on site.

Robert Powelson, a commission member appointed by President Trump, warned last month that subsidizing coal and nuclear plants “would lead to the unwinding of competitive markets in this country.” He added: “Old, inefficient power plants need to retire. OK? You can’t have a market when you’re sending the wrong price signal to people that need to enter and exit.” The commission’s chairman, Kevin McIntyre, another Trump appointee, said of Perry’s plan, “It’s perhaps not the most obvious fit.”

Some Republican congressional energy leaders clearly don’t like it, either. “I don’t favor nationalizing anything,” Sen. John Hoeven, a Republican from North Dakota, said. Senator Hoeven, who serves on the Senate Energy and Natural Resources Committee, also heads the appropriations subcommittee that oversees Homeland Security spending.

The Defense Production Act gives the president wide discretion to guarantee loans to keep plants open, to mandate that the Energy Department or Pentagon buy certain equipment or goods deemed critical to national security, or to fund research and procurement projects. These approaches — especially loan guarantees — could cost billions of dollars and require Congress to get involved.

Other sectors of the American energy economy oppose any bailouts. A coalition representing the natural gas, power, renewable energy and energy-efficiency industry associations said, “The Defense Production Act cannot be used to command favorable pricing for a favored class of power plants.” It added,”To invoke the concept of ‘national defense’ for what is transparently a domestic effort to boost an uneconomical segment of industry would be an unprecedented abuse of the act.”

The president has pressured Perry repeatedly to find a way to bail out the coal industry. Using national security as a pretense for bailouts for money-losing coal and nuclear plants is the simplest path available to the White House and might make it more difficult to challenge in federal court.

Criticism of the effort is unlikely to deter Trump, who has said his administration has “ended the war on beautiful, clean coal.” Which means that facts notwithstanding, we are almost certain to soon see a White House directive declaring that uncompetitive coal and nuclear plans are essential for the national security of the United States. They aren’t, but consumers will pay the cost anyway.

Using national security as a pretense for bailouts for money-losing coal and nuclear plants is the simplest path available to the White House and might make it more difficult to challenge in federal court.