IEEFA update: Pushback from the big boys against U.S. coal bailout campaign

Core resistance by colossal players across the energy industry

The Trump administration’s scheme to subsidize the coal industry has nothing to do with grid resiliency or energy security—the White House is simply picking a favorite in the heated battle for market share across the U.S. electricity generation sector.

The coal industry is losing this battle. Its contribution to the U.S. electricity generation mix dropped from roughly 50 percent in 2005 to about 30 percent today. This decline is all about economics: competition from low- and no-fuel-cost options that, increasingly, include wind and solar; an aging coal fleet that grows ever more costly to maintain; and the unwillingness of coal plant owners to invest in required pollution controls to keep their facilities online.

The industry, sensing an existential crisis, over the past year or so has waged an intense lobbying campaign for a federal bailout. The fight has been led by two companies, Murray Energy and FirstEnergy, that have close ties to the administration and that are aiming to undermine free-market economics.

The latest—and looming—chapter in this effort is the president’s recent order to Energy Secretary Rick Perry to come up with a way to save coal and nuclear plants through some sort of direct subsidy model.

The proposal has elicited predictable opposition from environmental groups and renewable energy companies. But the backlash is bigger than that. Utility companies, regulators, coal-state newspapers, and the American Petroleum Institute, the oil and gas industry heavyweight, have joined the opposition.

‘It’s not a matter of if we’re going to retire our coal fleet in this nation, it’s just a matter of when.’

One tell on just how deep resistance runs emerged at a Senate Energy and Natural Resources Committee meeting this week where all five members of the Federal Energy Regulatory Commission (four of whom were appointed by Trump and three of whom are Republicans) told the panel that U.S. wholesale electricity markets do not need  such intervention and that the grid-security spiel is a straw man. (In January, FERC earlier voted down a previous administration proposal by Perry to prop up the ailing plants; see here for more.)

Commissioner Robert Powelson, one of the three Republicans on the commission and the former chairman of the Pennsylvania Public Utility Commission, was the most vocally critical of the bailout, which he said could  “blow up the markets [and] result in significant rate increases without any corresponding reliability, resilience or cybersecurity benefits.”

OPPOSITION HAS COME ALSO FROM WITHIN THE UTILITY INDUSTRY ITSELF, which is generally loath to take public stands on controversial issues. But utility executives, who think less like politicians and more like the business people they are, are helping drive a fast-growing momentum away from coal and toward long-term business models built around other forms of generation.

Particularly revealing here are the views of Nick Akins, the chairman, president and CEO of Ohio-based American Electric Power, better known as AEP, which is a huge player in the wholesale electricity market managed by PJM, the grid operator across much of the Northeast and the upper Midwest. (AEP has 5.4 million customers in 11 states and touts itself as the “Energy System of the Future”) In an interview last week with E&E News, Akins said, “It’s extremely critical that the utilities who actually know something about this business be able to inject into the [administration’s] process because we have significant skin in the game. If something happens on the grid, the governors aren’t going to call Rick Perry. They’re going to call us.”

Akins added this: “Obviously, the future is going to be around renewables and natural gas.”

Consumers Energy, which supplies electricity to almost 70 percent of the 10 million or so power consumers in Michigan, also waded into the debate this week, noting that its newest integrated resource plan calls for a complete phaseout of coal generation by 2040. The plan starts with closing the two-unit, 515-megawatt Karn facility in 2023 and a steady increase in renewable energy generation, from 11% of generation today to 37% in 2030.

And Ben Fowke, the CEO of Xcel Energy which sells electricity to more than 3 million customers in 11 states, said this last week. “It’s not a matter of if we’re going to retire our coal fleet in this nation, it’s just a matter of when.”

The proposed bailout has even drawn the ire of editorial pages in the heart of coal country. The editorial board of the Casper Star-Tribune called it an overreach of government authority and out of step with the time: “It isn’t the job of the federal government to pick winners and losers in business … Coal’s place in the energy sector has changed. Investing in our past will only shortchange us in the future.”

A similar editorial came out of the Charleston Gazette-Mail in West Virginia, which said the bailout plan “would be an example of a government overruling the market, the kind of thing free marketers are supposed to abhor.”

There was also a scathing critique from the American Petroleum Institute, one of the most powerful lobbying groups in Washington and one known for its especially close working relationships with Republicans. The API, in a joint communique with 10 energy lobbing groups, called the proposal “ unprecedented and misguided.”

ENERGY INDUSTRY PUSHBACK IS OF NOTE BECAUSE IT IS SO COLOSSAL. AEP alone has a market capitalization of $31 billion. The American Petroleum Institute lists well over 500 members, among them EOG Resources, the biggest shale-gas company in the U.S. (market cap of $66 billion), and household-name behemoths like Halliburton ($42 billion) and Siemens ($100 billion),  FirstEnergy, one of the companies agitating the loudest for a bailout, has a market cap, by comparison, of $16 billion. The market cap for Peabody Energy, the biggest U.S. coal company, is $6 billion, and Murray Energy, whose CEO is perhaps the most vocal bailout proponent, does not even rank in the top three American coal-producing companies.

This all suggests a couple of inescapable conclusions:

First, that if the Trump administration insists on putting forth a coal bailout, it will very likely face well-funded legal challenges.

Second, and maybe more important, the U.S. transition toward cleaner and cheaper electricity generation will not be stopped.

Dennis Wamsted and Karl Cates are IEEFA editors.

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