Trump Orders Action to Stem Coal, Nuclear Plant Shutdowns

Source: By Jennifer A Dlouhy, Bloomberg • Posted: Monday, June 4, 2018

“Impending retirements of fuel-secure power facilities are leading to a rapid depletion of a critical part of our nation’s energy mix and impacting the resilience of our power grid,” White House spokeswoman Sarah Sanders said in an emailed statement Friday. Trump has directed Energy Secretary Rick Perry “to prepare immediate steps to stop the loss of these resources and looks forward to his recommendations.”

Trump’s directive comes as administration officials search for ways to extend the life of money-losing coal and nuclear power plants that face competition from cheaper natural gas and renewable energy. The plants are considered “fuel-secure” because they house coal and nuclear material on site and are not dependent on pipelines that can be disrupted, wind that stops blowing or a sun that sets.

Coal producers rose on the news, with Peabody Energy Corp. climbing the most since Aug. 1, 2017 and closing up 4.8 percent to $45.35. Arch Coal Inc. rose 2 percent to $83.81. Consol Energy Inc. gained 3.7 percent to $45.70, while Alliance Resource Partners LP was up 1.3 percent to $19.50. The Stowe Global Coal Index was up 1 percent.

Administration officials are still weighing the best approach, Sanders said. The National Security Council was to meet Friday to discuss the Energy Department’s latest idea for shoring up the facilities.

The department’s strategy, outlined in a memo obtained by Bloomberg News, would use authority granted under a pair of federal laws to establish a “strategic electric generation reserve” and compel grid operators to buy electricity from at-risk plants. The steps are necessary, the memo says, to protect national security.

The move comes as Trump uses similar national security arguments to justify market interventions aimed at protecting other treasured political constituencies — steelworkers and automakers — at the expense of U.S. allies.

“National security is being invoked by people who once favored markets,” observed John Shelk, president of Electric Power Supply Association, at a conference in New York. “Everybody loses in a fuels war.”

Two-Year Study

The draft plan is meant to buy time for a two-year study of vulnerabilities in the American energy delivery system, extending to natural gas pipelines as well as power plants. The agency argues that power plant closures must be managed for national security reasons, because nuclear and coal-fired facilities can easily be restored after extreme weather events, cyber-attacks and other emergencies.

Trump administration officials have already spent a year contemplating action. After the Energy Department conducted a study of grid reliability last year, Perry proposed a rule to compensate coal and nuclear plants. Federal regulators shot down the idea in January.

A FirstEnergy Corp. subsidiary requested immediate intervention from Perry’s agency in late March, after the Ohio-based company announced it would shut three nuclear power plants feeding the nation’s largest grid, operated by PJM Interconnection LLC.

FirstEnergy Reaction

FirstEnergy President Charles Jones welcomed the administration’s announcement Friday.

“Baseload coal and nuclear plants help maintain electric system resiliency and national security while also playing an irreplaceable role in the regional economy,” Jones said in an emailed statement. “Preserving these vital facilities is the right thing to do for the industry, the electric grid and our customers.”

The move would represent the president’s most direct effort to bring back coal mining jobs and reward voters who helped put him into office, ahead of pivotal midterm elections that could decide whether Republicans retain control of the House and Senate.

Some 12,000 megawatts of coal-fired power are expected to retire this year, the National Mining Association said.

“Without action, we may pass a reliability and resiliency crisis point of no return,” the trade group said by email. “We need a plan to preserve the reliable, affordable energy that continues to slip away each day, and it is encouraging that this administration is taking the issue seriously.”

Opponents of the new proposal contend the intervention is a solution in search of a problem and that there are other ways to back up the grid.

PJM Interconnection said in a statement that the power system is more reliable than ever.

“There is no need for any such drastic action,” the grid operator said. “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.”

The administration’s plans drew a swift rebuke from Trump allies in the oil and gas industry, aligning them with renewable power boosters also threatened by the action.

Todd Snitchler, the American Petroleum Institute’s market development group director, said a move to assist power plants “that are struggling to be profitable under the guise of national security would be unprecedented and misguided.”

Environmentalists vowed to file lawsuits combating any potential intervention, arguing it threatened to jeopardize progress in paring greenhouse gas emissions that drive climate change.

“This is an outrageous ploy to force American taxpayers to bail out coal and nuclear executives who have made bad decisions by investing in dirty and dangerous energy resources,” said Mary Anne Hitt, director of Sierra Club’s Beyond Coal campaign. “It will be soundly defeated both in the courts and in the court of public opinion.”

Under the Energy Department’s draft plan, the administration would take action under two laws: the Federal Power Act that allows the government to guarantee profits for power plants amid grid emergencies, and the 68-year-old Defense Production Act, a Cold War-era statute once invoked by President Harry Truman to help the steel industry.

For two years, the Energy Department would direct the purchase of power or electric generation capacity from a designated list of facilities “to forestall any future actions toward retirement, decommissioning or deactivation,” according to the memo. The proposed Energy Department directive also would tell some of those facilities to continue generating and delivering electric power according to their existing or recent contracts with utilities.

It’s not clear that the Federal Energy Regulatory Commission would go along with the plan. Although the administration could aim to bypass the electric regulators completely, FERC could play a role in any effort to require grid operators to make out-of-market payments to electric generators.

“This might just never even be taken up by FERC,” said John Bartlett, co-portfolio manager of the Reaves Utilities ETF. “Job No. 1 if you’re a FERC commissioner is stay out of court.”

— With assistance by Susan Decker, Chris Martin, Brian Eckhouse, Ari Natter, Sarah McGregor, and Joe Ryan

(Updates with comment from FirstEnergy, details on plan from tenth paragraph.)