White House reportedly exploring wartime rule to help coal, nuclear

According to reports from Bloomberg and E&E News, the Trump Administration has been exploring another way to help coal and nuclear generators: the Defense Production Act of 1950.

The Act was passed under President Truman. Motivated by the Korean War, it allows the president broad authority to boost US industries that are considered a priority for national security.

On Thursday, E&E News cited sources that said “an interagency process is underway” at the White House to examine possible application of the act to the energy industry. The goal would be to give some form of preference to coal and nuclear plants that are struggling to compete with cheap natural gas.

Third time’s the charm?

This appears to be the third attempt to use policy to keep coal and nuclear operators afloat. The main focus is coal generators, which Trump promised to rescue during his campaign. Although Trump’s campaign rhetoric often blamed environmental regulations, the problem has been economic more than regulatory; cheap natural gas has been the biggest threat to coal and nuclear.

In office, the Trump Administration has tried a number of arguments to justify intervening in electricity markets to the benefit of coal and nuclear. In early 2017, Energy Secretary Rick Perry released a memo calling for a study of “baseload energy” in the US, meaning power that could be delivered consistently around the  clock. Although the memo never explicitly targeted renewable energy, Perry wrote that Obama-era policies had unfairly threatened coal-burning plants and had therefore threatened the existence of continuous and reliable energy in the US.

But the study that resulted from Perry’s memo bucked the political message, instead asserting that the decline in coal has resulted from the US’ boom in natural gas.

Undeterred, Perry used the study to justify a proposed rule that would have required grid managers to compensate coal and nuclear generation over and above current electricity prices. The proposal was based on the idea that these sources of generation could keep 90 days of fuel onsite in case of an emergency, whereas natural gas cannot in most cases. (This 90-day logic turned out to be specious when Hurricane Harvey flooded out coal piles in Houston, causing at least two coal-burning units in the area to have to switch to burning natural gas.)

However, Perry’s proposed rule could not go into effect without approval from the Federal Energy Regulatory Commission (FERC). In January, FERC denied Perry’s proposed rule, saying that the Department of Energy (DOE) never showed that current pricing mechanisms for coal and nuclear power were “unjust and unreasonable.”

Section 202(c)

Since FERC’s January action, the Trump Administration has been looking at other legal means to boost the flagging coal industry, according to E&E News. One potential avenue was proposed in late March by a power company called FirstEnergy, which petitioned the DOE to use Section 202(c) of the Federal Power Act to mandate that its coal and nuclear generators stay open despite their financial issues. However, Section 202(c) is generally reserved for emergencies, like natural disasters or California’s 2001 energy crisis.

Section 202(c) was not used at all between 2008 and 2017. In 2017, the DOE invoked Section 202(c) twice: once to keep a generator open temporarily while another came online, and once to permit limited use of two coal-fired units in Virginia during periods of high demand.

Secretary Perry expressed his willingness to consider a Section 202(c) action for coal and nuclear plants at a hearing held by the US House of Representatives Subcommittee on Energy last week. But staff within the DOE haven’t been inclined to use emergency powers to solve an economic situation.

That didn’t stop Perry and West Virginia Representative David McKinley from painting a dire picture of the US without coal power at the hearing. The representative asked Perry, “Can you just imagine what our grid stability is gonna look like… if we have fewer coal and nuclear plants? Our fuel security is a national security issue.” The Energy Secretary agreed. Such rhetoric could be used to justify either the use of Section 202(c) or the Defense Production Act in the near future.

The Defense Production Act

If the DOE decides not to invoke Section 202(c), the president may turn to the Defense Production Act. According to a 2014 summary report (PDF) from the Congressional Research Service (CRS), the act would allow the president to “demand priority for defense-related products,” “provide incentives to develop, modernize, and expand defense productive capacity,” and establish “a voluntary reserve of trained private sector executives available for emergency federal employment,” among other powers. (Some even more permissive applications of the Act were terminated in 1957.)

The Act was used in the 1970’s to keep the then-struggling Chrysler Corporation on a project building tanks for the US Department of Defense. It was used again in 2001 when President George W. Bush ordered that electricity and natural gas receive priority delivery to California utilities during the state’s electricity crisis. It was invoked again in 2003 “to prioritize supply of Precision Lightweight Global Positioning System Receivers to British military forces operating in Iraq,” the CRS report states.

But after being on the shelf for nearly a decade, President Trump used the Defense Production Act in June 2017, directing the Department of Defense to “take actions to target critical technology item shortfalls affecting aerospace structures and fibers, radiation hardened microelectronics, radiation test and qualification facilities, and satellite components and assemblies.”

Using the Act to protect coal and nuclear facilities would almost certainly be more controversial, as the link between national defense and keeping uneconomic coal generators running is not well-established.

It’s unclear exactly how the Administration would institute protection for coal or nuclear generators under the Defense Production Act. Other applications of the Act allow the president to “provide or guarantee loans to industry” for material-specific deliveries and production. The president may also authorize the purchase of “industrial items or technologies for installation in government or private industrial facilities.”

Any of these powers could be used to bolster coal and nuclear generation businesses. But some sort of civil emergency or military necessity generally precedes application of the Defense Production Act, and if the White House intends to use it, they’re likely building the case for such an application now.

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