By Bloomberg
January 9, 2018

The White House’s plan to bail out America’s coal country has been shot down — by the very energy regulators that President Donald Trump appointed last year.

In an order Monday, the Federal Energy Regulatory Commission rejected U.S. Energy Secretary Rick Perry’s sweeping proposal to subsidize struggling coal and nuclear plants in the name of keeping power grids dependable. Instead, the commission asked grid operators to suggest their own ideas to make the system more resilient.

“We appreciate the Secretary reinforcing the resilience of the bulk power system as an important issue that warrants further attention,” the agency said in the order. All five commissioners were appointed by Trump; three are Republicans.

The defeat is a setback for the president, who vowed on the campaign trail to revive the battered coal industry and put miners back to work. The Energy Department plan drew criticism from natural gas producers, grid operators and others who argued it would undermine competition in wholesale power markets. Consumers in more than a dozen states would have foot the bill, which could have totaled billions.

“As intended, my proposal initiated a national debate on the resiliency of our electric system,” Perry said in a statement. “What is not debatable is that a diverse fuel supply, especially with on site fuel capability, plays an essential role in providing Americans with reliable, resilient and affordable electricity.”

Coal miners decried the decision. National Mining Association President Hal Quinn said the commission’s “disappointing lack of action” comes on the heels of a cold snap that demonstrated the value that coal provides to power grids. Paul Bailey, chief executive officer of the American Coalition for Clean Coal Electricity, said waiting for input from grid operators may prove costly.

“The electricity grid could become less reliable and less resilient while more information is being collected,” Bailey said.

Read: These Countries Are Teaming Up To Eliminate Coal

Perry ordered the commission to consider his plan in September, invoking an obscure 30-year-old statute. His idea was to pay plants a premium to store at least 90 days of fuel on site in an effort to make grids more reliable. Coal and nuclear generators would be uniquely suited because, unlike gas plants, they aren’t fed by pipelines. Wind and solar farms, meanwhile, require no fuel.

The payments would’ve bolstered the economics for coal and nuclear generators who’ve seen their profits and market share squeezed by cheap gas and renewables.

‘Wasn’t Sufficient’

The commission on Monday said Perry’s plan did not pass legal muster. The order gave regional grid operators 60 days to submit feedback on how grid resilience should be assessed, if at all, and whether the commission should take any action on the matter at this time.

“There’s agreement at the commission that the DOE proposal wasn’t sufficient,” Richard Glick, one of the agency’s two Democratic commissioners, said in an interview. “It was unanimous.”

Energy Department Deputy Secretary Dan Brouillette said in an interview that the agency would work closely with the commission as it collects comments from grid operators. “It’s important for folks to remember that FERC could have done nothing at all,” Brouillette said. “We do feel a sense of urgency and we would hope that FERC would act quickly.”

Energy Undersecretary Mark Menezes said in an interview that any rule considered should be open to all generation sources, including natural gas and battery storage.

The energy commission initially had a Dec. 8 deadline to act on the proposal. The day he was sworn in, FERC Chairman Kevin McIntyre asked Perry for a 30-day extension, saying he needed time to review the flood of public comments.

The Opposition

Every major U.S. grid operator strongly opposed Perry’s plan, characterizing it as a threat to competitive power markets. Critics of the proposal said it could have let some coal and nuclear plants continue to operate even if they’re not economic to run. That could slow development of gas, wind and solar projects, whose growth depends on aging power plants closing.

Coal producers and a handful of utilities supported the Energy Department proposal. FirstEnergy (fe), which has been considering bankruptcy for its competitive power generation business, was widely viewed as a key beneficiary of the proposed rule.

“The future of FirstEnergy’s competitive generating facilities remains challenged,” Jennifer Young, a spokeswoman for the Akron, Ohio-based utility owner said in an email. “We will review the order and determine our next steps.”

FirstEnergy rose 0.9% on Monday to $30.39. Exelon (exc), the nation’s largest nuclear power generator, was up 1.1% at $38.60. The energy commission posted its decision just as the market was closing for the day, and given ongoing reforms, it’s “very tough to be negative power” in 2018, Guggenheim Securities analysts including Shahriar Pourreza said in a note late Monday.

Maria Korsnick, president of the Nuclear Energy Institute said the trade group was disappointed in the agency’s order and warned that upholding the status quo would lead to the retirements of more reactors in the U.S. “Once closed,” she said, “these facilities are shuttered forever.”

‘First Step’

Commissioner Neil Chatterjee, who has pushed for immediate aid to struggling coal and nuclear plants, signed off on the order and said in an opinion that he expected the decision to be “only the first step in a more systematic effort by the Commission” to address resilience.

Perry has repeatedly said that storing fuel on site makes coal and nuclear plants less prone to shutdowns than other power generators in the event of disasters and attacks. An Energy Department study released in August doesn’t support that claim, finding instead that “attempts to achieve fuel diversity in market designs explicitly would likely result in inefficient and potentially discriminatory practices that are inconsistent with the Federal Power Act.”

Grid operators and utilities also rejected Perry’s claim, contending that resilience has more to do with power lines than about fuel supply.

Perry’s plan was “never about making sure the lights and heat stayed on,” said John Moore, director of the Sustainable FERC Project affiliated with the Natural Resources Defense Council. “It was about protecting the bank accounts of plant owners with a more than $14 billion bailout at the expense of everyday Americans’ budgets, health, and safety.”

Cheryl LaFleur, the agency’s other Democratic commissioner, said in an interview that the proposal was long on “generalizations” but short on “evidence.”

“If I’m going to require customers to pay for something in their electric bill, I want to make sure that they are getting a benefit,” she said.

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