Trump's Coal Man Is Racing the Clock to Bail Out Plants
Trump's Coal Man Is Racing Against the Clock to Bail Out Plants
(Bloomberg) -- President Donald Trump is on the verge of subsidizing coal plants that would otherwise be driven out of business by cheaper, cleaner natural gas.
A plan that would leave consumers footing a potential multibillion-dollar bill is expected Dec. 11, and Trump couldn’t have chosen a more enthusiastic person to get it done: Neil Chatterjee, a Republican from coal country, who has spent years brokering seemingly impossible deals for Senate Majority Leader Mitch McConnell of Kentucky. Now he’s cutting the biggest deal of his career -- and he’s running out of time to do it.
His role as chairman of the Federal Energy Regulatory Commission, the agency that oversees U.S. power markets, is temporary, with a replacement waiting in the wings. With precious little time, he’s pushing a proposal to bail out failing coal plants, paid for by electricity customers. And he’s treating this latest negotiation as seriously as a last-minute fight for votes in Congress.
“I’ve tried to take Senator McConnell’s approach,” Chatterjee said in an interview last week. “What I learned from him will help me land this.”
Significant Change
In several interviews, Chatterjee laid out his strategy for success, revealing one likely framework for keeping money-losing coal plants alive. He describes it as “the most significant proposed change to market rules in decades.”
Trump made the rebirth of coal, unpopular because of its expense and its contribution to climate change, a central theme of his 2016 campaign. Since then, coal magnate Robert Murray has appealed directly to the president to halt the wave of coal-plant retirements. Murray said that without immediate government intervention, power generator FirstEnergy Solutions Corp. will be forced into bankruptcy, followed by his own company, Murray Energy Corp. Some other energy-generating companies oppose the payments.
Three third-party studies put the cost of compliance between $311 million and $288 billion, depending on which plants are eligible and how the payments are structured.
The payments mark a shift in strategy for Trump officials. Rather than attacking environmental regulations unfavorable to coal, the plan aims to slow coal’s market decline.
Coal, once the largest source of U.S. electricity generation, has seen its share of the power market dwindle to less than a third as natural gas emerged as a less expensive alternative. Between 2002 and 2016, more than 59 gigawatts of coal-fired power -- enough to supply 59 million homes a year -- went offline, thinning the economic prospects for coal producers.
Murray is arguing that the subsidies would halt coal-plant retirements and keep 6,500 miners on the job. FirstEnergy says the payments would bolster the reliability of America’s electricity grid. The plan also includes payments to nuclear plants which, along with coal generators, are able to store fuel on site. Natural gas and renewables generators typically don’t.
Chatterjee said he intends to act quickly and save as many plants as possible. Under his preferred approach, coal and nuclear plants would collect monthly payments from grid operators to keep them in the black, regardless of how much energy they generate. Those payments would come from electricity customers, primarily in the Midwest, who could see their monthly bills rise as soon as the spring.
“This is entirely unprecedented,” said Malcolm Woolf, head of government affairs at the clean-energy firm Advanced Energy Economy. “It’s issuing an emergency lifeline for coal that’s paid for by downstream customers.”
Other options, such as letting grid operators decide how and whether to compensate plants, would take longer, potentially delaying payouts until 2019. That’s something Chatterjee said he would prefer to avoid.
“What I don’t want to have is plants shut down while we’re doing this longer-term analysis, so we need an interim step to keep them afloat,” Chatterjee told reporters earlier this month.
Struggling Coal
The Energy Department’s latest plan to rescue struggling plants came after Murray pushed the agency to provide direct assistance to FirstEnergy.
In an Aug. 4 letter to Trump aide John McEntee III, Murray demanded that the agency issue emergency government orders allowing FirstEnergy’s coal plants to operate when they’d otherwise be retired. Energy Secretary Rick Perry has issued two such orders since taking office, for coal plants in Oklahoma and Virginia.
In the letter, Murray reminded McEntee that Trump had delegated a key plank of U.S. energy policy to Murray and FirstEnergy Corp. Chief Executive Officer Charles Jones. Murray, referring to National Economic Council Director Gary Cohn, recounted that Trump had instructed McEntee to “tell Cohn to do whatever these two want him to do.”
‘Greatest Action’
A few weeks later, Perry issued a plan more sweeping than the one Murray had initially proposed.
“This is the single greatest action that has been taken, in decades, to support low-cost, reliable electric power in the United States,” Murray said in an October statement.
FirstEnergy spokeswoman Jennifer Young said the company is “encouraged by the discussions underway at FERC.” She urged the commission “to move promptly to implement a plan that keeps these critical baseload assets in operation.”
More than 80 percent of the coal payments proposed by Murray and FirstEnergy could go to just five companies: FirstEnergy, NRG Energy Inc., Dynegy Inc., American Electric Power Co. and Talen Energy Corp., according to an analysis by the San Francisco-based clean-energy research firm Energy Innovation: Policy and Technology.
Losing Money
Other likely beneficiaries include Exelon Corp., which has sought subsidies for its money-losing nuclear plants in New York and Illinois, and Public Service Enterprise Group Inc., which runs nuclear reactors in New Jersey.
PSEG supports ensuring that “nuclear plants are not prematurely retired pending a long-term, market-based solution,” said spokesman Paul Rosengren.
Exelon said it urged the commission to act quickly “to halt the retirements of baseload nuclear units that are among the most resilient” in the industry. Talen Energy did not respond to a request for comment.
Many companies that stand to gain from the plan have come out against it over concerns that it could upend wholesale power markets. Dynegy, with coal-fired capacity of about 9.5 gigawatts, enough to power 9.5 million homes, has asked FERC to reject the proposal.
Market Harm
“Even from the perspective of a coal generator, the proposed rule should not be adopted because it would substantially, and potentially irreversibly, harm the nation’s competitive electricity markets,” the company said.
NRG, with nearly 9 gigawatts of coal capacity as of August, also expressed reservations. “While the wholesale energy markets need reform, it would be a mistake for FERC to fight subsidies with more subsidies,” said Marijke Shugrue, an NRG spokeswoman.
AEP filed comments opposing the plan. Company spokeswoman Melissa McHenry said that FERC should do more analysis before adopting any proposal that would reward plants for resilience.
Chatterjee needs three of the five FERC commissioners to pass his plan. The two sitting commissioners, Republican Robert Powelson and Democrat Cheryl LaFleur, raised concerns that the bailout would distort power markets.
Unclear Vote
Two other commissioners –- including the incoming chairman -- are waiting to join the commission after the Senate delayed their confirmations. Democrat Richard Glick, who is presumed to oppose the plan, will be sworn in Wednesday. The timing for Trump’s pick for chairman, Kevin McIntyre, remains unclear, though the Republican and former partner at the Jones Day law firm is expected to take over any day. He’s previously indicated that he wouldn’t support money-losing coal plants the same way Chatterjee has.
“FERC is not an entity whose role includes choosing fuels for the generation of electricity,” McIntyre said at a Senate hearing in September. “FERC’s role, rather, is to ensure that the markets for the electricity generated by those facilities proceed in accordance with law.”
Chatterjee, who hails from coal-rich Kentucky, remained confident. “I’m hopeful that at least two of my colleagues, once they’re sworn, will take my view,” he said.
--With assistance from Dave Merrill
To contact the reporter on this story: Catherine Traywick in Washington at ctraywick@bloomberg.net.
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Bob Ivry, Stephen Cunningham
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