In an era in which “no new taxes” is a sacred cow, the Trump administration is considering other, creative ways to raise the funds it needs to save financially distressed coal and nuclear power plants, at the expense of the public.
This time, the consumer will not be victimized as a taxpayer, but rather as a utility ratepayer. Under orders from President Trump, the Department of Energy is considering immediate steps to stop the shutdown of unprofitable coal and nuclear plants. Under one plan being considered, DOE would order grid operators to buy electricity from struggling power plants for two years, using emergency authority that is normally reserved for national security crises.
Energy Secretary Rick Perry said the ongoing retirement of coal and nuclear plants, which are being pushed out of competitive electricity markets by an abundance of cheap natural gas and renewable energy, was leading to a rapid depletion of energy diversity and impacting the resilience of the power grid. Perry told the Federal Energy Regulatory Commission, which oversees regional electricity markets, that the loss of such plants would threaten “reliability and resiliency of our nation’s grid.” But FERC maintained that government intervention was unnecessary, saying that the nation’s grid currently had plenty of spare electricity capacity, even with the loss of some coal and nuclear plants.
Now, a study by the Brattle Group shows that bailing out financially ailing coal and nuclear plants could cost ratepayers $17.2 billion per year. Not only would federal intervention be costly to consumers by raising electricity prices, it would do nothing to increase the security of the nation’s electric grid.
In reality, the administration is considering an almost open-ended collection of fees from ratepayers. In other words, consumers could be heavily “taxed” through their electric bills. The assumption is that utilities, whose only source of revenue in many cases is the ratepayers, are a bottomless pit of funding. It is no wonder that the bailout idea has been rejected by a broad alliance of energy companies and consumer groups.
Given that taxes are likely to be one of the big political issues of the next few years, and maybe the biggest one, it’s worth understanding who could wind up paying for the bailout.
Although no concrete plans are in the works to collect additional fees — and the scope of the bailout being considered has yet to be announced, the reality is that struggling coal and nuclear plants would be heavily subsidized at the expense of the consumer.
Subsidizing coal and nuclear power is foolish and unnecessary. It is disconnected not only from the real interest of electricity users but also from the efficient and cost-effective operation of the electricity system itself. Economic reality, not vague arguments about the need for coal and nuclear power to protect national security, ought to influence decisions vital to the nation’s economy and energy supply.
It is time to let natural gas and renewable power earn their fair share of the electricity market, unencumbered by government interference. Those pushing for a bailout lack some essential facts, not to mention some basic common sense.
Shale has basically fueled more than a 40 percent increase in the country’s gas production over the last decade to make the U.S. the world’s leading producer of gas in recent years. The EIA says that gas will remain the biggest source of electricity generation through 2050, accounting for 35 percent of the nation’s electric power. If nothing else, the collapse of coal and nuclear power has made one thing clear: Stopping the bailout plan before it goes any further would be the right thing to do. The country should do better for its money than penalize ratepayers to artificially prop up outdated, money-losing power plants.
Mark J. Perry (@Mark_J_Perry) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.
