DOE’s subsidy plan is dying. What will Trump do now?

Source: Benjamin Storrow, E&E News reporter • Posted: Thursday, October 18, 2018

The coal industry began to pivot away yesterday from a Department of Energy plan meant to help ailing coal and nuclear plants as the subsidy effort flounders amid political infighting.

The shift came as news began to trickle out of the White House that administration officials could be poised to scrap the DOE rescue package (Greenwire, Oct. 16).

Industry representatives and administration allies noted that those dynamics could change with a single tweet by President Trump. But they acknowledged that the DOE plan might have tested the legal limits of seldom-used statutes to prop up struggling coal and nuclear facilities.

“I think the stories are accurate. No one is pushing back on it. There are significant legal issues, as they have found out,” Fred Palmer, a former Peabody Energy executive, said after exiting a National Coal Council meeting yesterday.

Despite the setback, Palmer said industry members remain supportive of Trump. There is little doubt of the president’s commitment to coal. And if the DOE plan is not the answer, then there are other options that the administration could pursue.

Palmer pointed to a recent report by the National Coal Council that outlined a series of steps aimed at halting the wave of coal plant closures, largely through the use of tax incentives to build new plants and retrofit old ones.

“A societal signal from the administration and the Congress in the tax arena, that would be a significant thing you could do to alter the direction at the state level,” where utilities continue to close coal plants in favor of natural-gas-fired facilities, Palmer said.

A shift away from the DOE plan has a potential political upside for Trump. Oil and gas interests have heavily criticized DOE proposals to subsidize coal and nuclear facilities, effectively turning one of the administration’s closest allies into a prominent critic of its efforts.

Tom Pyle, president of the Institute for Energy Research, a conservative think tank, falls into that category. Pyle led Trump’s DOE transition team but has opposed the department’s plans to subsidize struggling plants. It does no good for Republicans to oppose subsidies for one fuel type while they’re out of power, only to turn around and offer subsidies to another fuel once they’re in power, he said.

Pyle said he would welcome a shift in the administration’s focus and recommended it rework IRS guidance to make it more difficult for wind and solar developers to capture federal incentives. Trump could then set about pressuring Congress to end the subsidies available to renewables.

“There are other things to be done to level the playing field instead of layering on additional interventions. That to me is the key here,” Pyle said.

In the absence of federal intervention, much of the focus will shift back to states and the Federal Energy Regulatory Commission. FERC has already rejected one DOE plan to subsidize coal units.

The commission has long wrestled with the question of how to ensure that seldom-used plants, which are needed to meet brief periods of high demand, remain in the operating mix. That debate has been fueled by concern over a series of state moves to subsidize failing nuclear units. Some power companies have argued that state subsidies are distorting power markets and leading to artificially low prices.

“The action moving forward is going to be the interplay between the two: the states exercising the authority that they have and FERC reacting to those state actions by exercising its authority over wholesale market rules,” said Tony Clark, a former Republican commissioner.

The dynamic underscores the wider challenges facing the coal industry. The country’s largest wholesale power market, the PJM Interconnection, has taken a series of steps in recent years to ensure coal and nuclear plants remain operational, said Paul Patterson, a financial analyst who tracks power companies at Glenrock Associates LLC.

Yet coal and nuclear plants continue to close in the face of low natural gas prices and tepid power demand. Roughly 5 percent of the U.S. coal capacity is scheduled to retire this year.

The stark economic backdrop means some combination of presidential or state intervention will be needed to save the old generating behemoths, Patterson said.

But while support for subsidizing nuclear facilities has gained traction in Illinois, New York and New Jersey, there has been little appetite for rescuing coal. That leaves the matter largely in Trump’s hands.

“I can’t help but wonder if this cat has more lives. The president seems to want to do things for coal,” Patterson said. Absent that, “What will happen is what has happened all along: Markets will continue to operate except in places where states have intervened.”

Trump, in other words, is likely coal’s last best hope.