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Coal bailout faces economic reality

Paul Kando

A report by the Institute for Energy Economics and Financial Analysis (IEEFA) argues that subsidizing the coal industry has nothing to do with grid resiliency or energy security. Rather, it is simply picking a favorite in the heated battle for market share across the electric power sector. The coal industry‘s share of the U.S. power generation market dropped from roughly half in 2005 to about 30% today. This decline is about economics: competition from low- and no-fuel-cost energy options like wind and solar; aging coal-fired plants that grow ever more costly to maintain; and reluctance by coal plant owners to invest in required pollution controls to keep their facilities operating.

Coal train cars
photo credit: San Antonio Express-News

Sensing an existential crisis, the coal industry has been lobbying relentlessly for a federal bailout, led by Murray Energy and First Energy, two companies with close ties to the current administration. The latest chapter in this saga is the president’s recent order to Energy Secretary Rick Perry to find a way to save coal and nuclear plants through some sort of direct subsidy.

This proposal provoked predictable opposition from environmental groups and renewable energy companies. But utility companies, regulators, the American Petroleum Institute — the oil and gas industry’s trade association — and even coal-state newspapers have joined the opposition.

Just how deep the resistance runs became clear at a recent hearing of the Senate Energy and Natural Resources Committee where all five members of the Federal Energy Regulatory Commission (FERC) — four of whom are Trump appointees and three of whom are Republicans — told the panel that U.S. wholesale electricity markets do not need such market intervention and that the administration’s grid-security argument on coal’s behalf makes no sense. The proposed bailout could “blow up the markets and result in significant rate increases without any corresponding reliability, resilience or security benefits.”

Opposition has come also from within the utility industry, which is generally loath to take public stands on controversial issues. Utility executives are driving a fast-growing momentum away from coal and toward long-term business models built around other forms of generation. To quote Nick Akins, chairman, president and CEO of Ohio-based American Electric Power (AEP), which has 5.4 million customers in 11 states: Obviously, the future is going to be in renewables and natural gas. It is extremely critical that the utilities, that actually know something about this business, be able to weigh in on the fuel-mix issue. We have significant skin in the game: If something happens on the grid, state governors aren’t going to call Rick Perry. They’re going to call us.

The newest integrated resource plan of Consumers Energy, which supplies electricity to 7 million consumers in Michigan, calls for a complete phase-out of coal-fueled power generation by 2040, beginning with shuttering the two-unit, 515 MW Karn facility in 2023. Renewable energy’s share in power generation will increase from 11% today to 37% by 2030, the plan predicts.

The proposed coal bailout has even drawn the ire of coal country editorial pages. The Casper (WY) Star-Tribune called it an overreach of government authority and out of step with the times: It isn’t the job of the federal government to pick winners and losers in business… Coal’s place in the energy sector has changed. Investing in our past will only shortchange us in the future. Similarly, according to the Charleston (WV) Gazette-Mail, the bailout plan would be an example of a government overruling the market, the kind of thing free marketers are supposed to abhor.

And the American Petroleum Institute (API), one of the most powerful lobbying groups in Washington, and one known for its close working relationships with Republicans, is calling the bailout proposal unprecedented and misguided.

The energy industry’s pushback is noteworthy because it is so overwhelming. AEP alone is market capitalized at $31 billion. API has well over 500 members, among them EOG Resources, the largest U.S. shale-gas company (market capital $66 billion), Halliburton ($42 billion) and Siemens ($100 billion).  In contrast, among companies agitating for a bailout, First Energy is capitalized at $16 billion, Peabody Energy, the biggest U.S. coal company, is worth $6 billion, and Murray Energy, perhaps the most vocal bailout proponent, does not even rank among the top three U.S. coal producers.

All this suggests that the U. S. transition to cleaner and cheaper electric power generation will not be stopped. It’s not a matter of if but when the U.S. coal fleet will finally be retired. Should the administration insist on a taxpayer-financed coal bailout, it will certainly face well-financed legal challenges.

And I didn’t even mention the environmental and climate consequences of using coal.