President Trump is going national with his latest bid to save money-losing coal and nuclear plants.
The Energy Department’s new proposal, spelled out in a leaked memo, has been met with widespread outrage, similar to the reaction to a previous version that was rejected by the Federal Energy Regulatory Commission.
But to succeed where that version failed, the Energy Department is proposing making coal and nuclear plants across the country eligible for subsidies, instead of limiting payments to plants in states that use wholesale electricity markets.
By broadening the eligibility, rather than focusing on specific regions hit hard by the pending loss of coal and nuclear plants, the Energy Department appears to be trying to bolster its national security rationale for bailing out the power plants, experts say.
“It’s very explicit that they want to stop the retirement of any coal or nuclear plant across the country,” said John Hughes, president of the Electricity Consumers Resource Council, which represents industrial users of energy. “To the extent this national security issue passes the smell test, it would be silly to apply it only to PJM. To get some credibility for their proposal, they have to apply it consistently rather than helping a small set of plants.”
The administration would not be able to argue that subsidizing coal and nuclear plants bolsters national security if the plan were allowed only in wholesale electric markets that are overseen by the Federal Regulatory Commission. The biggest of those markets is run by PJM Interconnection, which operates the power grid for 65 million people in 13 states from Illinois to Virginia.
FirstEnergy Solutions, a Ohio utility supplier, has asked Energy Secretary Rick Perry to use the Federal Power Act authority to force PJM to enter into contracts with its coal and nuclear plants in the region slated for closure.
The Energy Department draft memo proposes using two federal laws focused on emergencies and wartime needs to save the lives of coal and nuclear power plants set to retire soon.
It would subsidize select coal and nuclear plants for two years, using executive authority under emergency provisions of the Federal Power Act and the Defense Production Act. The Energy Department has not finalized a list of proposed plants.
The Federal Power Act is not meant to be used for economic reasons, but rather for emergency circumstances that include energy shortages or sudden surges in demand.
The Defense Production Act, a Cold War-era law, allows the president to spur an industry to produce more of a scarce critical resource through a loan guarantee or direct subsidy, effectively nationalizing it.
The Energy Department argues using the laws is justified because coal and nuclear plants, which can store fuel on-site and run around-the-clock, offer a protection of fuel security that the nation’s power grid needs during extreme weather or other major disruptions.
Since 2010, nearly 40 percent of the capacity of the nation’s coal-fired power plants has been shut down or designated for closure, according to the American Coalition for Clean Coal Electricity, a trade group supporting the industry.
Department officials in recent weeks have said they are focusing on boosting coal and nuclear plants beyond those in competitive power markets.
“We’re not talking about disrupting the markets,” Mark Menezes, the Energy Department”s undersecretary of energy, told reporters at the Energy Information Administration’s annual conference in Washington this month. “It is more than the markets. The markets don’t exist everywhere in the country.”
Operators of the power markets have rallied against the Energy Department’s plan.
PJM has emphasized its grid is “more reliable than ever” any federal intervention “would be damaging to the markets and therefore costly to consumers” by raising electricity prices.
The region currently has a 25 percent energy capacity surplus, meaning it has plenty of extra power on hand.
Much of the Southeast and most of the West operate outside of organized markets, although more than two-thirds of the U.S. participates in some form of market structure.
Plants existing in any structure could qualify for subsidies under the Energy Department’s draft plan, experts say.
“The memo intends to direct system operators to buy energy and capacity from a designated list of plants, and directs utilities in areas outside of footprints of markets to continue to buy electricity from these plants,” said Joel Eisen, an energy law professor at Richmond School of Law.
But some experts say the national security rationale falls flat on its face.
Less than 1 percent of all major power disruptions over the past five years were caused by fuel supply problems, according to a recent independent study by the Rhodium Group research firm. The vast majority were the result of severe weather knocking down power lines.
“I cannot think of any way that keeping inefficient coal and nuclear plants online will protect national security,” said Alison Silverstein, an energy consultant and former FERC staffer who helped write an Energy Department study last year on the health of the power grid. “If the administration wanted to improve national security related to the power grid, they would help the industry invest in more protection for transmission and distribution assets and more energy efficiency.”
Outside of national security, broadening the bailout plan could protect the Energy Department from accusations it is acting for political reasons.
FirstEnergy, the Ohio utility with plants in PJM, and the chief executive of its main supplier of coal, Bob Murray of Murray Energy, have lobbied the Trump administration to act.
Both have contributed heavily to Trump’s political activities.
So by making plants in regulated states eligible for subsidies, the Trump administration could argue it is extending federal relief similar to how some states have taken care of retiring nuclear plants.
“I assume there will be a political calculation, where they can appease certain constituencies and target some of these units in wholesale markets, but these are areas with little concern about fuel security,” Devin Hartman, electricity policy manager at the R Street Institute, a free-market think tank. “So you’d have to be alarmed about, and address, regulated states’ concerns as well.”
Indeed, electric utilities in areas without wholesale electricity markets are closing money-losing coal and nuclear plants, too.
Colorado’s largest electricity provider, Xcel Energy, announced this month it intends to retire two coal-fired units a decade early and nearly double the amount of power it gets from renewable sources.
Arizona’s water authority, meanwhile, is seeking to end its contracts with the Navajo Generating Station, the largest coal plant in the West, which is scheduled to close next year. The Interior Department, which owns a stake in the plant, is trying to save it.
Critics say bailouts for coal and nuclear plants may open the Trump administration to new scrutiny, because it is picking and choosing which plants to include, without a public process.
“If you were going to claim these are the specific plants needed for national security, you would probably have to explain why this plant but not that one, which could get awkward,” Silverstein said.
