IEEFA op-ed: A U.S. coal bailout wouldn’t stop electric sector transition

July 25, 2018

David Schlissel

It seems a waste of time and resources to call on a nearly 70-year-old defense law to rescue certain failing and outdated sectors of the energy industry. Yet that is precisely what has been proposed.

The Trump administration is floating a plan to use the Defense Production Act of 1950, enacted as a drastic national-security measure to be deployed in time of war, to prop up failing coal and nuclear power plants. Invoking this act would be a blatant misuse of the law, which came into effect at the outset of the Korean War and with the intent of ensuring rapid mobilization of U.S. industries within the larger context of the Cold War.

And it would be costly for anyone who pays an electric bill.

The proposal to employ the act amounts to an intervention in energy markets and a bailout for unprofitable power plants that can no longer compete against natural gas and renewables. The argument is that these plants are necessary to prevent blackouts on the grid — a claim nearly all experts say is untrue.

Two companies in particular have championed a bailout: FirstEnergy and Murray Energy, which are both struggling with outdated business models that wrongly assume American demand for coal will never end. A fast-moving transition away from coal is enveloping the American electricity industry, however, and utility executives themselves have acknowledged and embraced this reality. The CEO of Xcel, one of the nation’s largest utilities, told an industry convention earlier this year that it was “just a matter of when” the U.S. would retire its coal fleet.

That said, it’s unclear how many plants would be propped up by invoking the Defense Production Act, but it would certainly come at a price. Credit ratings agency Moody’s said recently that while the proposed bailout would be good for coal and nuclear plant owners, it would be costly for residential and manufacturing ratepayers. At a recent Senate hearing, one member of the Federal Energy Regulatory Commission said the bailout could cost up to $65 billion, or about $500 more per year for the average person who pays an electric bill. A study by the Brattle Group puts the price at $34 billion annually.

‘Significant rate increases without any corresponding reliability, resilience or cybersecurity benefits.’

All five members FERC, including those appointed by President Trump, indicated in recent open testimony to Congress that the retirement of coal and nuclear power presents no threat to the grid and that markets are working quite well.

Robert Powelson, one of the three Republicans on the commission, said the plan could very well collapse competitive markets and “result in significant rate increases without any corresponding reliability, resilience or cybersecurity benefits.”

And this doesn’t even get into the health consequences of burning coal, which is linked to tens of thousands of deaths each year.

THE PROPOSAL IS SO NONSENSICAL THAT IT IS UNITING BROAD SWATHS OF THE ENERGY INDUSTRY in opposition. The American Petroleum Institute joined a larger group of industry associations that represent energy-efficiency and storage businesses, natural gas, solar and wind generators to condemn the effort.

The supposed alarm over grid security comes as power prices from sustainable solar and wind keep dropping. In Nevada, a power provider just signed a long-term power purchase agreement that will provide electricity from solar resources for a record low $23 per megawatt hour. That’s far less than the cost of producing electricity at the coal-fired Navajo Generation Station in neighboring Arizona, which, like many such plants across the country, is scheduled for closure because it can’t compete. It’s not just out West that this transition is happening. Driven by record low prices, solar and wind-powered generators are replacing coal-fired generation across large parts of the nation.

Not a lot is clear about the technical reasoning or practical execution behind the administration’s proposal. What is clear is that these lower-cost renewables — solar and wind — and gas-fired generators would be bumped off the grid in favor of more expensive coal plants. All in the name of a national security “emergency” that does not exist.

The use of emergency war-time powers to save coal-fired and nuclear power plants is ultimately a futile attempt to thwart long-term, fundamental change in U.S. energy markets that will proceed nonetheless, and to the benefit of customers everywhere.

David Schlissel is IEEFA’s director of resource planning analysis. A version of this column appeared this morning in USA Today.

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