What A Coal Bailout Could Look Like In the U.S. And Wyoming

Jun 15, 2018

The Trump administration has confirmed a proposed bailout to the coal and nuclear industries. A memo from the Department of Energy was leaked recently outlining the plan. It would force utilities to buy electricity and capacity from retiring coal and nuclear plants to keep them alive for two years. University of Richmond Law Professor Joel Eisen, who has written extensively on matters on administrative law, energy, and the electric grid, helps make sense of what the draft memo means.

JE: What we know is that there’s a memo from the Department of Energy that suggests that two federal statutes, the Defense Production Act, and the federal power act, be used to justify payments to coal and nuclear plants that are on a specific list of designated plants. And it’s important to note that all we have right now is a memo that suggests that action will be taken.

CM: So they set out in their outline a two-year timeline it looks like. And one of the things they talked about in that was a vulnerability study of the grid system. What does that mean?

So, the Department of Energy did a study last year in which it attempted to assess the reliability of the electric grid. And actually, the study found the grid we have right now is quite reliable. And the DOE's study of last year does not support action under either of these two federal statutes that are discussed in the memo. The two-year timeline that is discussed in the memo is a timeframe under which the action, whatever form it takes, would be in place while the DOE continues to study what it sees as the need for further action. Let’s assume for the moment that action is taken according to the outline that’s called for in the memo, it does two things, it direct regional grid operators to pay for energy or capacity to a list of coal and nuclear power plants and then it directs individual utilities to buy electricity from these power plants.

So, if this order does come to be, who will it help? What about workers on the ground?  And would this actually help coal states?

It’s not at all clear that taking action would help workers on the ground. As I mentioned before, one thing that might actually happen here is these plants might get paid to not run. And of course, if that happens, that does nothing at all to help workers in the coal mining industry who might be affected by coal’s declining market share in the generation of electricity. if the bailout were to result in more coal-fired power plants running more often, then you might see increased demand for coal, but I don’t think there’s any guarantee that that is going to happen. At least not the way the memo is phrased.

Already within the Trump Administration, there’s been another version of a bailout for coal and nuclear plants that would have cost around $11 billion. Could you see this costing a similar amount?

Actually, there was a hearing before the Senate Energy and Natural resources committee last week in which an independent consultant testified that this bailout would, in fact, cost many billions of dollars. And those billions would be passed along to consumers in the form of higher electricity prices. 

So we've mentioned there’s already been a bailout attempt. What’s different about this time? 

The Federal Energy Regulatory Commission or FERC is the principal energy regulator of the electric grid. In January, FERC rejected a request from the Department of Energy to make a federal rule that would have paid money to bail out the coal and nuclear plants. So, the procedure that was done that time was under a relatively obscure provision of federal law under which the Department of Energy could suggest that FERC make a rule. And FERC refused to do so. This time, if the DOE acts according to the memo, it is going to act unilaterally. That is, it’s going to say that under the limited authority it has over the grid under the Defense Production Act and the Federal Power Act that it and it alone is taking this particular action. 

Is there anything else you’d like to add? And maybe you could talk about some of the next steps as well that you see?

Using the specific authority of the Defense Production Act, effectively commandeers the economy to nationalize the electric grid for up to two years. And that is such intervention in the market, that we shouldn’t sanction it unless it's most absolutely necessary and it is certainly not necessary in this particular instance. The next steps if this order were to be taken, challenging the order within the DOE itself, and then I would expect a torrent of litigation in federal courts as opposition to this proposal crystalizes and catalyzes into a wave of lawsuits against this.

On June 12, the Senate Energy and Natural Resources Committee held an oversight hearing of the Federal Energy Regulatory Commission. Members outlined issues with a coal and nuclear bailout including its negative impacts on wholesale power market. They also said they didn’t see a national security emergency that required this level of intervention.