Energy

Are Coal Stocks Depending on Trump's Life-Support Plan?

Paul Ausick

Published: June 4, 2018 10:20 am

Last Updated: January 11, 2020 10:49 pm

One of the president’s most often-repeated campaign pledges was to bring back coal industry jobs. The volume obviously impressed enough voters in coal-producing regions to win the day for Trump. He’s had a much tougher time delivering on his pledges.

The latest development was revealed last Friday in a 40-page U.S. Department of Energy draft memo obtained by Bloomberg News. The memo suggests that the Energy Department force independent system operators (ISOs) to buy electricity from coal and nuclear power plants that are struggling to remain viable.

As outlined, the plan invokes a the Federal Power Act (Section 202) passed some 80 years ago and last invoked by the Truman administration to prop up the U.S. steel industry following World War II. The Energy Department would declare the closure of the unprofitable plants to be a matter of national security, leaving the United States without secure electricity generation capacity in the event of a cyberattack or an extreme weather incident.

The plan is not getting a lot of support except from the coal industry and operators of coal-fired and nuclear power plants. The nation’s largest ISO, PJM Interconnection, has said it knows of “no immediate threat” to the reliability of the nation’s grid and “there is no need for any such drastic action.”

If the plan were to be adopted, consumers almost certainly would pay more for electricity. Both natural gas and solar power generation are cheaper than either coal-fired or nuclear generation.

The plan also creates opponents among conservatives who venerate free markets. Putting a thumb on the free-market scale is not something they are eager to support.

Consumer groups, oil and gas producers, and renewable energy companies are united in their opposition to such a plan, as might be expected. An official from a trade group representing business consumers told The Wall Street Journal:

The Administration’s plan to federalize the electric power system is an exercise in crony capitalism taken solely for the benefit of a bankrupt power plant owner and its coal supplier.

The president has had some success invoking national security as a basis for tariffs on steel, aluminum and, perhaps, automobiles. It’s not hard to see why he’s applying the same logic to electricity.

Coal stocks got a solid lift Friday after Bloomberg’s report was published. Peabody’s stock rose about 4% and other coal mining stocks saw gains of more than 1.5%. The party continued in early trading Monday.

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