OPINION: Republicans And Democrats Are Switching Sides On Govt. Subsidies

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Richard Miniter Author, "Leading from Behind"
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Remember when Republicans were against government subsidies? And regulators supported subsidies? Times have changed. In a perplexing policy transformation, some Republicans in Washington are embracing government interventionist policies and some Obama appointees are fighting for freer markers.

This bizarre reversal first rippled through Trump’s Energy Department last year, in which Trump appointees were pushing a plan to require electric utilities to buy a minimum amount of their power from high cost nuclear and coal-fired plants. A fat subsidy to electricity producers that couldn’t compete with low-cost natural gas plants.

This implicit subsidy creates a price floor for the most inefficient, costly plants (mostly coal) that will gouge consumers, manufacturers and other electricity users by some $34 billion over the first two years, according to a multivariate analysis conducted by the Brattle Group.

The proposed subsidies could potentially cost electric customers between $311 million to $11.8 billion annually, with the vast majority of the benefit flowing to a handful of coal companies. Hardly a free-market solution.

The Energy department’s proposal said that the high price tag is due “largely to regulatory and economic factors, too many of these fuel-secure plants have retired prematurely.”

Let’s unpack that. “Fuel-secure” is code for uncompetitive and antiquated nuclear and coal plants, which store a 90-day supply of fuel on site, supposedly making them immune to cyber attacks.

The “economic factors” are lower prices. Natural gas generally costs about $3 per million British Thermal Units, while coal costs a little over $10 per million BTU. So low-cost natural gas is putting its high-cost rivals out of business. Isn’t that how markets are supposed to work?

Finally, consider the “regulatory factors” cited in Energy’s proposal. Wouldn’t targeted regulatory relief make more sense? Indeed, such relief could be partly accomplished by the Energy Department itself.

The stated reason for the bailout of coal plants is national security, specifically a fear that cyber attacks would shut down our nation’s electrical grid.

In fact, the cyber attack threat to the grid is already being met. The Transportation Safety Administration issued cyber-security and other safety guidelines for pipelines and the electrical grid in March. These are sensible and tailored.

The fact is, both the government and the pipeline industry are well aware of the threat posed by bad actors and are working together to bolster an already robust system. Department of Homeland Security Secretary Kirstjen Nielsen announced the creation of the National Risk Management Center in July, to bring together private-sector and federal agencies to pool expertise to ward off cyber attacks on the grid.

Nor is the natural-gas industry ignoring the potential threat posed by hackers, terrorists or other malefactors. For the first time ever, the natural-gas industry participated in the GridEx IV training exercise, which simulated cyber and armed assaults and highlighted improvements.

Finally, the subsidy plan does little to protect the grid itself.

Coal plants use a network of power lines to move their energy to market and that network is just as vulnerable as the gas pipeline network, if not more so. Second, once nuclear power plants are shut down (as they are required, by law, to do during storms), they require natural-gas to rotate the turbines from a “cold start.” So nuclear is not a pure alternative to gas and relies on it in a crisis.

For these and other reasons, the Federal Energy Regulatory Commission unanimously voted down the Energy department’s proposed rule-making in January 2018. Both Obama and Trump-appointed commissioners voted no.

But the composition of the FERC board is changing and so is its resistance to subsides.  Bernard L. McNamee was recently confirmed 50-49 by the Senate to replace an anti-subsidy commissioner. McNamee led the development of the bailout plan while serving as the Deputy General Counsel for energy policy at Energy.

The president is expected to fill several more seats on the FERC board over the next 18 months.

Meanwhile, New Jersey and Ohio legislatures are considering subsidies for coal plants, citing the same factors that appeared in the Energy department’s proposal. If those measures pass, electricity prices will soar.

There is a better way out for the president and the public. Deregulating nuclear power would make it much more cost effective. Many of the rules burdening it were written in the 1970s, during the “China syndrome” scare and in the wake of the Three Mile Island crisis.

Forty years later, it is time to update those burdensome rules. Regarding coal, opening up Asian markets is a better alternative than burning coal in aging U.S. plants that can never really compete on price with their natural-gas rivals. Approving more pipelines for gas and LNG terminals would also lower electricity generating costs—boosting job creation and economic growth.

Subsidies only punish efficient producers for their virtues and stick taxpayers with higher electricity bills that they don’t deserve.

Richard Miniter is CEO of the American Media Institute, a non-profit investigative news outfit.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.