The Trump administration has yet to officially address a leaked plan that would force grid operators, utilities and ratepayers to buy electricity from economically uncompetitive coal and nuclear power plants.
That’s left opponents — which includes just about everyone involved in the U.S. energy industry and policy, outside the utilities and coal interests that stand to directly benefit — partly guessing about key aspects of the plan to come. The uncertainties include the names and numbers of power plants on a list of “Subject Generating Facilities” to have their power forced upon unwilling buyers, or how much those buyers will be forced to pay for it.
In the meantime, analysts have pored over what is in the leaked memo, studying the laws in question, the way they've been used in the past, and the likely venues of conflict between the Trump administration and its opponents if the plan goes forward.
Rob Rains, energy analyst at Washington Analysis, laid out one such analysis in a Monday note for clients. Rains concurred with majority legal opinion in giving the DOE’s plan a slim chance of success in the courts and Congress, at least in the long term, given the weight of evidence against it and its harmful effects.
But in the short term, it’s likely that “a narrow list of plants, including those owned by politically connected utlity FirstEnergy and supplied by politically connected coal company Murray Energy, may see temporary relief,” for as much as a year or more, he predicted. That's because legal challenges will face review by an administration that’s proven its desire to push through these bailouts in one form or another, and a court system typically deferential to claims of national security — at least until they’ve had a chance to be proven valid or not.
1) DOE has used both of these laws in the past — but not like this
Rains started out by noting that both the Federal Power Act and the Defense Production Act, the two laws cited in DOE's leaked memo, have been called into play by the DOE before — but with nothing like the scale and scope being contemplated by the Trump administration.
DOE has used the FPA’s 202(c) authority several times to order noncompliant power plants to stay running. But it’s always been done in response to a declaration of need by a grid operator or utility, not in opposition to them, and with a strictly limited set of parameters to address a well-defined emergency.
For example, DOE agreed to PJM’s request last year (PDF) to intervene to keep Dominion Energy’s two Yorktown coal-fired power plants running, after the mid-Atlantic grid operator asked for the move to keep the region’s grid reliable until it could complete transmission upgrades. Those could take 18 to 20 months, leaving PJM’s needs rather open-ended. But the agreement only called for keeping the plants running at times when the region was facing peak demand in electricity, and only asked for that authority for 90 days at a time before it would need to seek a renewal.
The Defense Production Act is much less frequently used in an energy context. President Obama used it to jump-start the Navy's Great Green Fleet of biofuel-powered ships in 2012. But the last major precedent was set in 2001, when DOE invoked it to order natural-gas sellers to keep supplying utility Pacific Gas & Electric as it neared insolvency during the state’s energy crisis. But that intervention was even more strictly limited, as the Natural Resources Defense Council described in a blog post.
First, it came in response to a report from PG&E that six of its natural-gas suppliers had either stopped or were threatening to halt deliveries, putting it in the position of being unable to keep supplying power to key military and NASA installations in its service area. Then-outgoing Clinton administration Energy Secretary Bill Richardson simply ordered 27 energy suppliers to provide the utility gas under existing contracts, and only until Jan. 24, a few weeks at most.
On the day before that expiration, incoming Bush administration DOE Secretary Spencer Abraham extended the order by only two weeks, and only after the explicit request of then-California Governor Gray Davis. Finally, after the two-week extension, both agreed the emergency was over and the order lapsed.
All told, that intervention lasted less than a month and cost taxpayers nothing, at least as measured outside of the costs incurred in the course of PG&E’s eventual bankruptcy and reorganization. It’s also noteworthy that the decision received a lot of flak from Congress at the time, with a full hearing scheduled between the first implementation and its expiration less than a month later.
The Trump administration’s purported intervention, by contrast, was asked for by nobody save a few well-connected lobbyists, according to recent reporting, and has been decried by every state and grid operator it would affect. If the leaked memo’s brief description can be taken as a guideline, it would last up to two years. And it would cost taxpayers billions, if it ends up looking anything like what DOE proposed in last year’s notice of public rulemaking (NOPR), which was rejected unanimously by the Federal Energy Regulatory Commission in January.
2) It’s likely "the list” won't be as extensive as some may fear
Many opponents to DOE’s purported plan have drawn attention to the fact that it could well go far beyond what that NOPR proposed, given that it contemplates extending DOE’s reach beyond the country’s interstate grid operators to include individual utilities. It also opens up the idea of an undefined “Strategic Electric Generation Reserve" that could secure more out-of-market payments to chosen power plants.
As for which power plants would be the beneficiaries of this trifecta of protective measures, the leaked memo refers to a list of “Subject Generation Facilities (SGFs),” also referred to as “fuel-secure facilities,” indicating a link to the nuclear and coal-fired power plants with 90 days of fuel on-site previously described in the NOPR. But the memo has no list, leaving it an open question just how many power plants may be on it.
Despite angst over the unknown length and disposition of the SGF list, Rains suggests that “it is more likely that a shorter list of plants proximate to military bases and NASA facilities will eventually emerge.” That’s because the use of DPA in California in 2001 was largely predicated on the need to keep military bases, the NASA Ames Research Center, and the region’s defense-related high-tech industries up and running, as noted in testimony from a 2001 congressional hearing on the subject, he said.
Relying on this precedent would also help justify the memo’s rationale of using DOE’s authority under Title I of the DPA, which is generally called into play to secure priority delivery and procurement from private contractors to the Department of Defense, he noted.
3) No clear legal path, but the DPA is a much tougher nut for opponents to crack
In the case of the Federal Power Act, DOE can tie up any opposition to its authority in at least 90 days of administrative review, said Rains. That makes it likely that the majority of generators against the plan, along with its plethora of other opponents, would file requests for temporary injunctions to block it from going into effect.
But judges tend to be leery of these kinds of actions before letting the administrative process play out, as we’ve noted from other energy law experts in our previous coverage. In the case of blocking the DOE plan, it’s likely that opponents would have to show some form of irreparable harm happening in the time it takes for review, “and it’s tough to persuade a court to do that kind of thing,” he said.
Meanwhile, DOE’s powers under the Defense Production Act are on their face quite broad, and “we see few immediate restrictions” for their exercise, given the courts’ deference to claims of national security, said Rains. Still, these claims will face eventual scrutiny in federal court. “Although I think it’s highly unlikely that a court would weigh in on the invoking of national security, it would have reason to weigh in on the justification for invoking national security," he said.
One area where the Trump administration may well need congressional approval is in the creation of its purported Strategic Electric Generation Reserve fund, said Rains. That’s not explicit in the memo’s language, he cautioned, but rather a presumption that funding for such a reserve would come from the so-called DPA Title III fund available to cover costs of implementing the law.
While there is a reserve for this fund, it is “likely in the hundreds of millions and not the billions that would be needed to meaningfully improve the fortunes of targeted power plants,” he noted. And he judges the likelihood of Congress appropriating more funds as slim even if Republicans retain control of both houses, and “difficult-to-impossible to come by” if Democrats retake the House and its appropriations authority in November.
But the biggest impediment to DOE’s implementing its plan before legal challenges gain traction is its own timeline to completing it. Rains estimated the time it would take until late summer at least before the order referred to in the leaked memo is ready to be unveiled. This view is being echoed from inside the Trump administration, according to a Tuesday report from E&E News, which cited Francis Brooke, a senior energy adviser to President Trump, telling members of the Business Council for Sustainable Energy that it could take months to decide the fate of DOE’s plan.
4) FERC is an uncertain stopgap to DOE’s envisioned must-buy constructs
Many of the opponents to DOE’s leaked plan have held out hope that FERC will serve as a bastion for preventing its worst effects. That’s because FERC will necessarily become involved in any DOE remedy that calls for forcing the purchase of power from plants within the jurisdiction of the interstate grid operators it regulates — although the form those contracts might take is still up in the air.
But Rains noted that DOE’s authority would appear to give it a good deal of control over how this process works. “Assuming a hostile PJM or state regulators, Section 202(c) allows DOE to dictate the terms of any such arrangement should ‘the parties affected by such order fail to agree upon the terms of any arrangement between them,’” he said, citing the law’s text.
That means that “DOE would be in the position to prepare rates that would be submitted and reviewed by FERC,” he said. At that point, “FERC would have to review it under the auspices of what is just and reasonable,” its legal threshold for making any changes to its existing rules.
FERC’s unanimous rejection of DOE’s NOPR in January would appear to put the five-member commission firmly against the concepts being proposed in DOE’s new plan. But it’s impossible to say how they would manage an order coming with the force of national security behind it, without seeing the actual arrangements that DOE is proposing — “Will this be structured like a reliability must-run agreement that lasts for two years, that’s tailored for pockets where national defense might be affected?”
As for the Defense Production Act, it’s not clear what FERC’s role might be in implementing, or blocking, or whatever else DOE decides is the appropriate construct for prioritizing electricity sales to ensure “vitality of the domestic industrial base” or to “promote industrial resource preparedness."
“That’s a pretty clear, unencumbered path,” said Rains.