Energy Secretary Rick Perry’s statement that the the Trump administration is looking “very closely” at using at using a Cold War-era law to save coal and nuclear plants sparked skepticism from energy experts and industry officials, who questioned how legislation designed to protect national security could apply.
The Defense Production Act of 1950 was created as America’s security and economy were recovering after World War II and early in the Cold War period.
President Harry S. Truman used the newly passed law at the start of the Korean War, capping wages and imposing price controls on the steel industry.
The law allows the president to prioritize the federal government’s ability to obtain critical, scarce industrial materials in a time of war, ensuring the government can buy the goods before others. So, for example, if the Army needed more planes from Boeing because of a shortage during war, it would get the aircraft before other potential customers, such as a private carrier.
The law also can be used to spur an industry to produce more of a scarce critical resource through a loan guarantee or direct subsidy, effectively nationalizing it.
Congress, in writing the law, said “national defense preparedness” requires the “availability of domestic energy supplies for national defense needs.”
The statute, as amended in 1980, classifies energy as a “strategic and critical material,” although it does not give the president the authority to set the price of fuels or electricity.
Sen. Joe Manchin, a Democrat from the coal state of West Virginia, has urged Perry to invoke the law to prevent planned closures of financially struggling nuclear and coal plants by Ohio utility FirstEnergy.
Energy experts say using the Defense Production Act for that reason would stretch the law beyond what it’s meant for because there is no imminent national security threat from the plants closing in several years. The federal government recently invoked the law to provide natural gas to California utilities to avoid blackouts. But experts say that situation was different because it was for a specific and limited purpose and necessary to fulfill existing contracts with Pacific Gas and Electric Co., which faced credit problems.
“What DOE is doing now is essentially scrubbing all potential statutes to find something that could be the most legally defensible case,” Devin Hartman, electricity policy manager at the R Street Institute, a free-market think tank, told the Washington Examiner. “The constitutionalist in all of us should just be crying out and saying this isn’t what any of these statutes were meant to do. Abusing something like a defense statute for civilian purposes undermines national security and our rule of law.”
Experts also note that electricity is not scarce as a result of lost coal and nuclear power.
PJM Interconnection, the nation’s largest federally overseen grid operator, has declared there is no “immediate emergency” to the grid from the planned closures and the system has “adequate power supplies and healthy reserves in operation today.”
The Energy Department’s consideration of the Defense Production Act is just the latest proposal to save coal and nuclear plants, as it struggles to find an option that is legally defensible and could be approved by independent energy regulators.
Perry said Wednesday he is considering using the law as an alternative to granting a petition from FirstEnergy to declare an emergency under Section 202(c) of the Federal Power Act to keep its struggling plants from closing.
Perry suggested the request may miss the mark since is focused on economics, not an emergency.
The Federal Energy Regulatory Commission rejected a proposal by Perry that called for paying coal plants subsidies to keep them running.
Tom Pyle, president of the free-market American Energy Alliance and Trump’s former Energy Department transition team leader, said the administration will run into the same problems with the Defense Production Act.
“They are clearly in a tough spot,” Pyle told the Washington Examiner. “The Department of Energy realizes these approaches are pretty dramatic and probably not doable. So what they are doing is struggling with the idea of needing to gently tell the industry we can’t do these Hail Mary passes. It’s impossible to do legally, and they’d be stretching the intent of the law to the point it could be challenged in court.”
Natural gas, renewable, and energy efficiency groups have joined forces in urging the Energy Department to not invoke the Defense Production Act, saying such a move would be illegal.
“As broad as it is, the Defense Production Act is not broad enough to do what the supporters of these uneconomic power plants would like,” six groups wrote this week in joint comments to the Energy Department. “The Defense Production does not allow the government to set prices. Nor does it allow the government to force market participants to buy products or services they do not wish to buy.”
Competitors to coal and nuclear say government action would disrupt competitive electricity markets and act as a bailout that would set a bad precedent.
“If they want to nationalize the power industry they will have to nationalize all of us,” John Shelk, the president and CEO of the the Electric Power Supply Association, which represents merchant utility companies and contributed to the letter, told the Washington Examiner. “You will also have to pay us because you are taking our economic interest.”
Some energy experts say the executive branch can invoke the Defense Production Act without Congress. But Congress would have to agree to appropriate new spending if the government intends to provide subsidies or loans.
Mike McKenna, a conservative environmental adviser with close ties to the Trump transition team, argues those considerations are not worth the effort.
“It is ridiculous,” he told the Washington Examiner. “If we think coal has value that is not being properly accounted for, let’s figure that out and find a way to account for it. This is using a cleaver in lieu of a scalpel.”
