clock menu more-arrow no yes mobile

Filed under:

A moment of truth arrives for Rick Perry’s widely hated coal bailout

Federal regulators will decide soon whether to go along with the partisan hackery.

Energy Secretary Rick Perry Delivers Remarks At Energy Policy Summit In DC
“What is the cost of freedom?”
Photo by Drew Angerer/Getty Images

Donald Trump campaigned for president with intense support from coal miners and coal mining communities. He promised them the moon: mines would reopen, their jobs would come back, and their communities would thrive.

Like many of Trump’s promises, these are impossible to keep, but he’s been making a real effort (more than you can say about his other promises). Part of that effort was instructing Rick Perry, head of the Department of Energy, to figure out a way to stop so many coal-fired power plants from closing.

Perry dutifully came up with a plan (albeit a bonkers plan), but it requires the cooperation of federal regulators. Specifically, Perry asked the Federal Energy Regulatory Commission, or FERC, to pass a new rule that would bail out coal plants.

Now the deadline is approaching, and FERC faces a fateful decision: whether to go along or not. FERC is within its rights to say no, to ignore Perry’s proposal or pass a different rule of its own — but it is under considerable pressure to toe the administration line.

Originally, FERC was working under the deadline of Monday, December 11. On Thursday, however, newly sworn-in Chair Kevin McIntyre wrote to Perry requesting a 30-day extension, which Perry grudgingly granted on Friday. So the real moment of truth is in 30 days, early in 2018.

The decision will serve as a barometer measuring how deep partisan hackery has penetrated the federal bureaucracy. It has become extremely clear since Perry debuted his proposal that it is nothing but pure crony capitalism — a bid to heap rewards on a few wealthy friends, with no larger justification.

Pretty much everyone hates the proposal except the handful of companies that would directly benefit from it. It is built on a false premise. It would raise costs for electricity consumers and produce unnecessary pollution to line the pockets of energy executives. "The precedent is so bad,” one industry official told E&E, “on so many levels."

Now the ball is in FERC’s court. No matter what kind of song and dance it performs, ultimately the commission cannot accomplish what Trump wants — bailing out coal plants — while also faithfully carrying out its mission to support competitive power markets. In 30 days, FERC will have to decide: integrity or hackery.

To appreciate just how stark the choice is, let’s take a quick tour through the history of Perry’s proposal.

President Donald Trump onstage with Energy Secretary Rick Perry and Vice President Mike Pence.
“I think they’re buying it.”
Kevin Dietsch-Pool/Getty Images

Perry is determined to bail out coal plants, so he’s invented a crisis

Trump came into office determined to do favors for the coal miners who had cheered him throughout the campaign — and for the coal executives, like Robert Murray of Murray Energy, who helped make his election happen.

Along with rolling back Obama’s Clean Power Plan, Stream Protection Rule, methane regulations, and every other Obama rule he can lay his hands on, Trump put Perry to work figuring out a way to stop the retirement of big coal-fired power plants.

With the help of lobbyists and executives from the companies that own those plants, along with fossil fuel advocacy groups like the American Coalition for Clean Coal Electricity, Perry developed a narrative, which has become the administration party line:

  1. Nefarious Obama regulations are driving the retirement of big “baseload” power plants (i.e., coal and nuclear).
  2. Those retirements are negatively affecting the reliability and resilience of the grid.

This narrative is flat-out false, in both parts.

Being wrong is no impediment in this administration, though, so Perry pressed onward, ordering a study of grid reliability and resilience. Through some sort of bureaucratic oversight, the Department of Energy assigned an experienced, straight-shooting analyst, Alison Silverstein, to write the report.

DOE strongly suggested that she find fault with Obama’s regulations, but the data didn’t support it. So Silverstein wrote her report, finding, as many similar analyses have, that:

1. Regulations play a small-to-negligible role in the retirement of coal and nuclear plants. Those plants are retiring because of market discipline — they are older, more expensive, slower, and less useful than the alternatives, especially natural gas and renewables.

2. There’s no evidence those retirements are harming grid reliability or resilience. In fact, reliability has been improving “due to better planning, market discipline, and better operating rules and standards,” Silverstein wrote. And most blackouts, as research from the Rhodium Group showed, happen via damage to power poles and wires, not fuel supply chains.

Hurricane Maria Bears Down On Puerto Rico
Puerto Rico’s power plants are fine. Its grid is down.
Alex Wroblewski/Getty Images

Perry might have wanted to meddle with these awkward conclusions, but a draft of Silverstein’s report leaked to Bloomberg in July, so big changes would have been too obvious.

Instead, when it released the final study in August, DOE just tacked on a cover letter in which Perry reiterated, contrary to the report he was releasing, the party line: Baseload plants must be saved from “regulatory burdens.”

In October, to address the “urgent energy crisis” that his own study had utterly failed to detect, Perry issued a Notice of Proposed Rulemaking (NOPR), formally requesting that FERC intervene in power markets to keep coal and nuclear plants open. Specifically, it requested that FERC ensure full “cost recovery” for coal and nuclear plants threatened with closure. The bill would be paid by ratepayers in the areas around the plants in question. (I wrote a more detailed piece on the NOPR here.)

The NOPR opened a floodgate of feedback, and it has been brutal, on a number of levels.

Analysts say the NOPR would cost ratepayers billions and mostly benefit just five companies

Though the NOPR was incredibly vague — nothing close to a complete rule or even the basis for a complete rule — several analysts have attempted to figure out how much it would cost.

Several credible studies have modeled what Perry’s rule would mean for power markets and power prices. Their conclusions are not kind. Let’s hit the highlights.

The first is from Resources for the Future. Its conclusion:

If the policy is in effect from 2020 through 2045, it prevents the retirement of approximately 25 GW of coal-fueled capacity, delays the retirement of 20 GW of nuclear capacity, causes 27,000 premature deaths in the United States, and has an estimated total net cost of $263 billion during those 25 years. ... We find that the policy’s net cost for electricity end-users is $72 billion and its net benefit for generation owners is $28 billion.

In other words, it’s a massive transfer of wealth to the already wealthy from the middle and working classes, who pay in both money and sickness. Environmental policy is usually not seen through this lens, but it’s quite reminiscent of Republican health care policy and Republican tax policy.

The second analysis, from the researchers at Energy Innovation, modeled four different ways of implementing the NOPR and found that it would increase annual costs between $311 million and $10.6 billion.

They also found, significantly, that “more than 80 percent of the increased costs customers would pay to subsidize coal would go to just five companies, and nearly 90 percent of the costs to subsidize nuclear would go to just five or fewer companies.” (An analysis by SNL found something similar.)

EPA Proposes New Limits On Emissions From Coal-Fired Plants
A FirstEnergy coal plant (Mitchell Power Station) that is scheduled to retire.
Jeff Swensen/Getty Images

The third, by the Brattle Group, estimates the cost of these out-of-market payments at between $3.7 to $11.2 billion a year — and 60 percent of that would be in one power market, the PJM Interconnection (which ranges over 12 states from the Midwest to the Mid-Atlantic).

The fourth, by analysts at research consultancy ICF, found that, depending on how it is implemented, the NOPR could cost ratepayers between $800 million and $3.8 billion annually through 2030.

So, a massive hit to ratepayers. (For other analyses with similar conclusions, see PJM itself, Rockland Capital, and Sierra Club.)

Supporters of the NOPR (see below) have cited a single study by IHS Markit, which was funded in part by coal and nuclear interests and retrofitted to support their conclusions. The aforementioned Alison Silverstein takes it apart piece by piece, concluding that it contains “so many factual, logical, and methodological flaws that it is wholly unsuitable to inform serious public policy.”

The Center for Policy Integrity, in its comments to FERC, has an even more detailed dismantling of the study and its “unreasonable assumptions, internal contradictions, and flawed methodology,” if you need any more schadenfreude.

What does Rick Perry have to say about the massive costs his proposal would impose on electricity customers?

“I think you take costs into account,” he said, testifying before a House Energy and Commerce Subcommittee, “but what’s the cost of freedom?"

Makes you think.

rick perry
“What? Freedom isn’t free!”
Alex Wong/Getty Images

Those that benefit from NOPR’s corporate welfare support it

FERC’s receipt of the NOPR kicked off a comment period, which continued with a round of reply comments, wrapping up last week. FERC received more than 1,500 comments, so many their system crashed for a while — and likely an unprecedented number of comments for a FERC rulemaking.

The division of opinion could not have been more stark. In favor of the NOPR were the those who stood to directly benefit from it. In opposition, the vast bulk of comments, pretty much everybody else.

First let’s take a quick tour of who supports this thing — and their ties and access to the Trump White House. (For a similar survey of supporters, see the Energy and Policy Institute.)

First among equals is FirstEnergy, the troubled Ohio utility that made a lot of bad bets, owns a lot of uncompetitive coal plants, and has been relentlessly lobbying someone, anyone to subsidize them. (EDF has been following FirstEnergy’s years-long quest for bailouts.) It has been so battered by markets that it wants Ohio to end them entirely, returning to a fully regulated utility market wherein their profits are guaranteed by regulators.

FirstEnergy filed its own comments in support of the NOPR, of course. It also went to communities and organizations that directly depend on its coal plants and goaded them to submit comments. The Energy and Policy Institute found that comments in support of the NOPR consisted of “hundreds of pages of largely ghostwritten and similarly-worded comments signed by dozens of corporate, non-profit, union, local government and school officials as part of a campaign hastily orchestrated by FirstEnergy.”

“What these commenters share in common,” EPI writes, “is that they all rely in some way on FirstEnergy’s money, or its trickle-down effect on local communities.”

FirstEnergy also has another asset: Sean Cunningham, who lobbied for the company for over six years, is now executive director of the DOE's Office of Energy Policy and Systems Analysis. E&E reports that Cunningham was directly involved in developing the NOPR and has now been deployed by DOE to sell it to skeptical industries.

Another man who would very much like FirstEnergy’s coal plants to stay open is Robert Murray, CEO of coal producer Murray Energy and an early Friend of Trump. He seems to have dictated quite a bit of Trump energy policy.

He claimed he had nothing to do with the NOPR, but reporters at In These Times got their hands on photos from back in March (just after Perry took office) of Murray handing Perry a proposal to alter FERC policies to favor coal in the name of reliability.

In These Times scoop.
Perry talking with Murray on March 29. That’s Andrew Wheeler on the far right.
In These Times

Someone else who has admitted to seeing that proposal is Andrew Wheeler, a former James Inhofe staffer who lobbied on behalf of Murray Energy for years. As a lobbyist, he attended meetings between Murray Energy and DOE about how to preserve coal and nuclear power plants.

Can you guess where Wheeler is now? Yes: on his way to being deputy administrator of the EPA — Scott Pruitt’s right-hand man.

Another potential beneficiary is the beleaguered Peabody Corp., a once-mighty coal producer now emerging from bankruptcy. Turns out, as Bloomberg News reported, Peabody lobbyists were also solicited for ideas.

Alongside this belching motorcade of backroom dealing and cronyism rides the nuclear industry, which stands to benefit from the NOPR more or less by accident. (Nuclear plants also typically have 90 days’ worth of fuel on site, DOE’s absurd metric of resilience.) The Nuclear Energy Association and PSE&G, a utility that owns lots of nuclear plants, filed comments in favor.

Some analysts have warned — rightly, in my view — that the nuclear industry will come to regret hitching its wagon to coal’s rentseeking.

Outside this circle of direct beneficiaries is ... pretty much everyone else, who hates this thing.

Market operators, fuel producers, utilities, clean energy companies, and friggin’ Etsy hate the NOPR

The organizations that administer wholesale power markets — regional transmission organizations (RTOs) and independent system operators (ISOs) — are the ones that will have to implement this change, and they hate it.

The power market most directly affected by the rule will be PJM, which contains more than 65 million people, gets a third of its power from coal, and is seeing the most coal retirements.

The head of PJM, Andrew Ott, has said, "I don’t know how this proposal could be implemented without a detrimental impact on the market.” He also called it “discriminatory” and said it probably violates federal law. PJM’s VP of federal policy, Craig Glazer, called it “an imprecise, at best, remedy to the problem — a sledgehammer type remedy.”

Other market operators have followed suit. The Midcontinent Independent System Operator, the New York Independent System Operator, and ISO New England, which would also be affected by the rule, filed in opposition, joined by the California Independent System Operator, the Electric Reliability Council of Texas, and the Southwest Power Pool, which would not. They said the rule would “undermine price formation and competition in the nation’s organized electricity markets” and hurt, rather than help, reliability.

The Public Utilities Commission of Ohio (PUCO), the power sector regulator in the state where the most coal plants are threatened with closure, hates the NOPR.

NRG Energy and Dynegy, two merchant-coal operating utilities that could actually benefit from the NOPR, also hate it. “Even from the perspective of a coal generator,” Dynegy wrote in its comments to FERC, “the proposed rule should not be adopted because it would substantially, and potentially irreversibly, harm the nation's competitive electricity markets.” NRG wrote that it opposed the rule “despite the superficially attractive premise of rate-basing a substantial portion of our generation fleet, at enormous additional cost to ratepayers.”

A dizzying array of energy companies and organizations have made clear their antipathy for the NOPR. A joint statement of opposition was filed by a coalition including everything from the American Petroleum Institute and the Natural Gas Supply Association to Advanced Energy Economy, the American Wind Energy Association, the Energy Storage Association, and the Solar Energy Industries Association. They note that neither DOE nor any of the first round of commenters has substantiated the idea of a reliability crisis.

And FERC, they wrote, “is simply not authorized to provide an entire class of generation with a new payment stream, whether temporary or permanent, based on a desire to keep all options open for the future.”

Companies that produce natural gas hate the NOPR. Anadarko, Exxon, and Devon all filed in opposition. Environmental groups hate it, of course, as do all sorts of companies from Apple to Microsoft, Walmart, General Electric, and Etsy. Lawmakers on both sides of the aisle hate it — the co-chairs of the House Energy Subcommittee wrote a bipartisan letter opposing it.

Perhaps most piquant: a bipartisan group of eight former FERC commissioners, including five former chairs, submitted comments to FERC confirming that they, too, hate the NOPR.

And finally, the New York Times editorial board — which, needless to say, does not typically weigh in on FERC dockets — opposed the NOPR in a scathing piece that uses the terms “ham-fisted,” “devious,” and “reckless” (and that’s just the first two paragraphs).

What will FERC do?

While most of this was going on, ex-Mitch McConnell staffer Neil Chatterjee was acting chair of FERC. He has been vigorously dancing around the question of what FERC will do, all the time insisting on speed.

The rush is no accident. As the comments above show, the longer people have to think about this proposal, the worse it looks. “We don’t have time to wait for regular order,” Paul Bailey of the American Coalition for Clean Coal Electricity told Politico.

It has become obvious that the NOPR as proposed by Perry is unworkable, so Chatterjee now says FERC will do ... something else. Similar, but not Perry’s thing. “We’ve moved past that,” Chatterjee told Utility Dive. He has resorted to gaslighting, saying people are having a ”hyperbolic” reaction to the NOPR and they just need to “calm down.”

neil chatterjee
Neil Chatterjee.
FERC

In the meantime, he has proposed an interim rule, which would pay to keep coal and nuclear plants open while FERC studies whether it should pay to keep coal and nuclear plants open.

That proposal has also not been well received. David Hill of NRG Energy (which serves 3 million customers) said:

There has been discussion of an interim rule. That would be a disaster. From the perspective of companies that have to allocate at-risk capitol and make investments and predict the rules, the idea of an interim rule would be a bad, bad outcome. We are absolutely outright opposed to some interim final rule on this thing.

As of last week, FERC has a new chair, Kevin McIntyre, and is up to a full five members — it is ready to go.

To implement any of the hackery that Perry and the coal industry are pushing, Chatterjee will have to persuade at least two of the four other commissioners to support it.

McIntyre does not seem as devoted to coal as Chatterjee. “FERC is not an entity whose role includes choosing fuels for the generation of electricity,” he has said. “FERC’s role rather is to ensure that the markets for the electricity generated by those facilities proceed in accordance with law.” Commissioners Robert Powelson and Cheryl LaFleur have both expressed reservations about the NOPR “blowing up markets.” Richard Glick (also seated last week) hasn’t weighed in directly, though he has pledged to uphold FERC’s mission to be “fuel neutral.”

LaFleur and Powelson are rumored to be working on a plan that would give each RTO and ISO 90 days to report on the resilience needs of their grids — effectively delaying a final rule further.

But sooner or later, FERC will have to decide. And we will find out just how far the rot has penetrated the machinery of American democracy.

Sign up for the newsletter Today, Explained

Understand the world with a daily explainer plus the most compelling stories of the day.