President Trump’s plan to bail out failing coal and nuclear power plants recently took a major step forward and could cost taxpayers billions.
On Nov. 15, 2018, the Senate Committee on Energy and Natural Resources advanced the nomination of Department of Energy (DOE) official Bernard McNamee to be a member of the Federal Energy Regulatory Commission (FERC) by a vote of 13-10. With the potential for McNamee to be confirmed as early as this month, the administration will soon gain an ally in its quest to prop up struggling coal and nuclear plants.
A proposed bailout from DOE Secretary Rick Perry was unanimously rejected by FERC on Jan. 8, 2018. The commission argued that the plan failed to demonstrate that existing legal requirements were “unjust, unreasonable, unduly discriminatory or preferential.”
Former FERC Commissioner Robert Powelson, who resigned in August, stood by the agency’s current approach to the energy market, saying, “This intervention could potentially ‘blow up’ the markets and result in significant rate increases without any corresponding reliability, resilience, or cybersecurity benefits.”
The effort to provide taxpayer subsidies to floundering coal and nuclear plants did not stop after FERC’s decision. On June 1, 2018, a leaked 40-page draft memo to the National Security Council (NSC) claimed that power plant closures would threaten national security due to the military’s dependence on the power grid. The administration also claimed that the decommissioning of power plants must be overseen by the federal government to ensure the U.S. does not reach a “tipping point” in the loss of vital energy resources.
The draft memo received immediate and significant industry pushback. PJM Interconnection, which operates a wholesale electricity grid for more than 65 million people, released a statement contending that “any federal intervention in the market to order customers to buy electricity from specific power plants would be damaging to the markets and therefore costly to consumers.”
Others have questioned whether DOE even has the legal authority to pursue such a plan. The memo cites Section 101c of the Defense Production Act of 1950 and Section 202c of the Federal Power Act (FPA) as legal justification for the proposal, which allows the secretary of energy to issue emergency orders during times of war or electric energy shortages. However, as FERC Chairman Kevin McIntyre stated, “I don’t think we have an emergency on our hands right now in the sense of our ability of our grid to perform today and in coming weeks and months.” Joel B. Eisen, energy and environmental law professor at the Richmond School of Law, also argued that, “there is no grid emergency that justifies this. Nor does the combo of the two laws, neither of which is appropriate in its own right, add any further support.”
The heavy taxpayer burden of the bailout is also cause for concern. The most conservative analyses of the proposal suggest that the subsidies could cost electric customers anywhere from $311 million to $11.8 billion annually. More than 80 percent of these increased costs would flow to just five coal and nuclear companies. Another study determined that a bailout could cost taxpayers $34 billion over two years.
While opposition from advisers on the NSC and National Economic Council has helped put the proposal on the back burner, advancing McNamee’s FERC nomination gives DOE positive leverage to revisit the proposal and eventually move it forward. “This is not just the fox guarding the chicken coop,” said Sen. Ron Wyden, D-Ore., “This is putting the fox inside the chicken coop.”
Instead of using national security as an excuse to prop up doomed coal and nuclear power plants, the Trump administration should focus on where they have had much success: creating an open energy market by eliminating oppressive regulations and excessive taxpayer subsidies. Creating new carve-outs would not only distort energy markets, but also raise utility rates for consumers and leave taxpayers to foot a massive bill.
Tom Schatz is the President of Citizens Against Government Waste. CAGW is the nation’s largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.