The Coal/Nuke Bailout, or DOE’s Game of Whack-A-Mole

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If it feels like you’ve been reading about a potential federal bailout for America’s aging and uneconomic coal and nuclear plants for a long time, you’re not wrong.

In fact, the Sustainable FERC Project team at NRDC has blogged about this issue over 14 times since early 2017. That’s in addition to the mountain of articles, legal motions, and studies by a diverse group of energy producers, current and former government officials, politicians, academics, grid operators, editorial boards, and advocates over the past year to question the Trump administration’s quest to save coal and nuclear power. The opposition transcends party lines, with senior officials at conservative think-tanks stating that the idea of a coal and nuclear bailout “has no intellectual basis by anybody beyond the third grade.”

With this level of opposition, one may wonder why the idea won’t die. Maybe it’s the Trump administration’s known ties to the coal industry. But one thing’s for certain—the bailout has been a continuous game of whack-a-mole since April 2017, with the Department of Energy (DOE) continuously revising and reframing its arguments to try to find something that sticks.

This is for resilience and reliability! My staff will prove it!

First, presumably under pressure from his boss, DOE Secretary Rick Perry ordered his staff in April 2017 to conduct a study of grid resilience and reliability. (While I discuss resilience and reliability in tandem here, they’re not the same, and resilience can be much better achieved through improvements to the distribution system. Check out here and here for more.)

Perry said that the study’s results “would help the federal government formulate sound policies to protect the nation’s electric grid.” In response, seven Democratic senators described the request as a “thinly-disguised attempt to promote less economic electric generation technologies, such as coal and nuclear, at the expense of cost-competitive wind and solar power.”

If the senators’ suspicions were correct, however, the plan failed. That’s because when the study was released in August 2017, it concluded that the grid has become more reliable in the last 15 years—notwithstanding coal and nuclear retirements.

So, no problem, right? Not so fast.

I’ll just have FERC solve it!!

Lacking proper support from the DOE study, Perry chose a new avenue. In September 2017, he sent the Federal Energy Regulatory Commission (FERC)—the agency in charge of regulating wholesale electricity prices—a Notice of Proposed Rulemaking (NOPR) to provide a bailout of coal and nuclear plants. As my colleague Miles Farmer explained at the time, it was “perhaps the worst idea ever proposed for the nation’s electricity markets.”

On January 8, 2018, the Republican-led FERC unanimously rejected the NOPR as unlawful under the Federal Power Act because in order to change electricity rates as contemplated by the NOPR, “there must first be a showing that the existing [rates] are unjust, unreasonable, unduly discriminatory or preferential. Then, any remedy proposed … must be shown to be just, reasonable, and not unduly discriminatory or preferential.” Because FERC found that there was no evidence to demonstrate a resilience crisis, FERC determined that the NOPR “did not satisfy those clear and fundamental legal requirements” under the Federal Power Act, and therefore had to be rejected.

Okay, okay, how about this: there’s a grid emergency!

Having been rebuffed at FERC, the coal and nuclear industry tried a new forum and narrative. On March 29, FirstEnergy Solutions (FES) (which owns failing coal and nuclear plants that would benefit from a bailout) asked DOE to find that a “grid emergency” exists in PJM, which is the nation’s largest grid operator serving 65 million people, and also just so happens to be where several FES facilities are located. An emergency determination would enable DOE to act via the Federal Power Act to bail out coal and nuclear power plants located within PJM’s footprint.

But PJM itself responded that “nothing we have seen suggests there is any kind of emergency from these units retiring,” calling the problem “fundamentally a corporate issue.” And even after studying impending FES nuclear retirements, PJM still concluded that these units could retire without threatening the grid’s resilience or reliability.

While the request remains outstanding (and FES actually re-raised its request on June 15), the overwhelming response from the energy world—including groups as diverse as the Natural Gas Supply Association and the American Wind Energy Association—has been that the FES request is an illegal action that would cost consumers billions. (Also, in an ironic twist, at the same time that FES asserts that its plants are necessary for resilience, FirstEnergy’s incompetence in managing the power grid was the major cause of the 2003 Northeast blackout.)

Hmm, not buying that? How about “national security?”

Running out of ideas, DOE turned to the Trump administration’s blankie: “national security.” In a leaked DOE memo, the agency proposed using either its Federal Power Act emergency authority or the Defense Production Act to bail out coal and nuclear facilities in the name of “national security.” Again, it’s a stretch into the world of fiction, since nothing has happened to the grid since DOE began this escapade that has created a national security threat warranting a coal and nuclear bailout. And as my colleague John Moore and I noted earlier this month, the Defense Production Act provides no more of a legal justification for bailing out coal and nuclear than does the Federal Power Act.

Last week, the FERC commissioners testified in front of the Senate Energy and Natural Resources Committee. When asked about the most recent proposal, the FERC commissioners unanimously rejected the national security excuse, with Republican Commissioner Robert Powelson going so far as to say that the memo’s proposed bailout would “blow up” well-functioning markets and “goes against everything we talk about in supply and demand-side economics.”

In fact, when asked by Senator Martin Heinrich (D-NM) about the national security argument, the FERC commissioners were awkwardly silent. National security experts also have criticized the plan.

They’re still not buying it? Wave the flag harder!

Digging in after the FERC commissioners’ Senate testimony, in a June 18 interview with Columbia University, DOE Assistant Secretary Bruce Walker took the flag-waving to a new extreme, stating that disrupting energy markets to bail out coal and nuclear was justified because “[o]ur freedom in this country and our democracy is priceless.”

Why you should be concerned

DOE seems determined to find a way to placate coal and nuclear companies, no matter the cost to consumers or lack of actual national security needs. To be clear, any bailout must be paid for in some way—Americans will pay either through their utility bills or by the misappropriation of national security funds, meaning taxpayer dollars.

This game of whack-a-mole needs to stop.

About the Authors

Gillian Giannetti

Project Attorney, Sustainable FERC Project, Climate & Clean Energy Program

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