Energy

What Killed Trump's Cockamamie Coal Plan

Rick Perry's idea to prop up dirty and unsafe energy sources was reviled by just about everyone -- even the president's appointees.

Foiled!

Photographer: Drew Angerer/Getty Images

President Donald Trump promised to bring back coal. In a ham-handed attempt to make his boss happy, Energy Secretary Rick Perry in September proposed forcing electrical utilities to heavily subsidize coal and nuclear plants in the name of ensuring a "reliable, resilient energy grid."

Thanks to a quirk of legislative history, though, the Department of Energy can't just issue such a regulation on its own. When Congress established the department in 1977 in the wake of the first oil crisis, it ensured that the Federal Energy Regulatory Commission, the successor to the Federal Power Commission it had created in 1920 and laden with new responsibilities several times since, would continue to set rules for electricity generation, among other things.

This is how it came to pass that on Monday, the five members of the FERC -- four of them appointed by Trump! -- effectively told Perry to take his Notice of Proposed Rulemaking and shove it. The commission said it will "remain vigilant with respect to resilience challenges," but that Perry's approach wasn't compatible with the competitive electricity markets that have evolved under FERC guidance over the past two decades.

This leads to a couple of thoughts:

  1. We have a weird system of government!
  2. That weird system seems to have saved us from a really dumb idea.

There's been a lot written over the past few years (a little bit of it by me) about how the regulatory state in the U.S. has grown so powerful that elected officials, especially members of Congress, find it increasingly hard to shape policy. Here we have a case where one group of presidential appointees thwarted the plans of a more prominent but less expert presidential appointee. Congress played a supporting role, with Democrats roundly condemning the Perry proposal and some Republicans asking skeptical questions. One can probably assume that the bureaucrats at both the Energy Department and FERC were also not fans of the proposal. And one can definitely assume that electrical utilities and energy producers were, with a few exceptions, deeply unhappy about it.

So it wasn't exactly as former Trump campaign manager Corey Lewandowski described it:

But neither was it exactly the way "Schoolhouse Rock" says government is supposed to work:

I know I'll be a law someday

At least I hope and pray that I will,

But today I am still just a bill.

The backdrop to this modern Washington drama is that coal, which a decade ago generated about half the country's electrical power, has been rapidly losing ground. Some of that ground has been lost to wind and solar power, but the main culprit has been natural gas liberated from underneath Texas, Pennsylvania and elsewhere by the fracking boom.

Where Our Electricity Comes From

Net electricity generation by source, trailing 12 months

Source: U.S. Energy Information Administration

If you're wondering where solar is, it's gaining but still way behind hydroelectric and wind, generating 75.3 terawatt-hours of electricity in the U.S. over the 12 months ending in October. 1  If you're wondering why natural gas use dipped last year, it seems to be mainly because prices rose a bit after hitting lows not seen since the 1990s. As for nuclear, it hasn't really lost ground so far, but high costs are endangering some existing plants and making it ever less likely that new ones will be built.

As this shift in power sources has transpired, the way utilities work has changed. A system that was once built around "baseload" plants that ran all the time is reinventing itself. Wind and solar "are beginning to serve more of minimum load, albeit at variable or intermittent output levels," while electrical-grid operators are putting "an increasing premium on flexible generation resources" -- mainly natural-gas-fired plants that can rapidly increase or decrease electrical output. Those quotes are from an August Department of Energy report on grid reliability that Perry commissioned.

This new approach to electricity generation has evolved in the context of regional electricity markets that arose after prodding from both Congress and FERC around the turn of the millennium. After some initial difficulties (remember the Enron-exacerbated California energy crisis of 2000 and 2001?), these markets now actually seem to work. For one thing, retail electricity prices have barely budged over the past decade. In real terms, they've even fallen a little:

What Electricity Costs

Average retail price of electricity per kilowatt-hour

Source: U.S. Energy Information Administration

There are legitimate concerns that the growing reliance on natural gas could pose problems if gas prices rise and stay high or a major pipeline breaks. The DOE staff, in the report that Perry commissioned, recommended efforts to "compensate grid participants for services that are necessary to support reliable grid operations," as long as they were "fuel and technology neutral" and compatible with competitive markets.

What Perry proposed instead was to turn back the clock by a few decades. Electricity produced by plants with 90 days of fuel on hand (which is only practical for coal, nuclear and some hydropower plants) would be priced at the full cost of generating it. No longer would markets set electricity prices; bureaucrats and plant owners would. As a result, electricity would surely get more expensive and electricity markets would be thrown into turmoil, while electricity supply -- which had evolved beyond the old "baseload" model, after all -- might not be made more reliable at all. And I'm not even getting into the environmental consequences: Nuclear is a clean energy source, if you set aside the risk of accidents and the problem of what to do with spent fuel. Coal really, really isn't.

Not surprisingly, apart from coal miners and a few utilities that have remained especially dependent on coal and/or nuclear, pretty much everyone hated Perry's plan. There's a nice series of articles from Bloomberg News reporters explaining why and how much everyone hated it. One piece describes how Gregory Wetstone, head of the American Council on Renewable Energy, assembled an unlikely coalition of "solar installers, oil refineries and natural gas drillers, all of whom were worried that the plan would raise electricity costs and undercut their fuel source in the power markets" to fight the proposal:

“It’s not often that our interests align, but I think everyone recognizes the importance of standing up together,” he said in an interview. “It’s a reflection of how disruptive the policy put forward would be."

So a seemingly awful idea cooked up by the president and one of his cabinet members was thwarted by an alliance of industry lobbyists, civil servants, some members of Congress and ... a group of presidential appointees. That's apparently how American governance works in 2018. I guess it will have to do.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
  1. That includes the Energy Information Administration's estimate of the electricity generated by rooftop solar panels.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net

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