Trump must avoid Obama mistake with bailout of energy companies

Trump must avoid Obama mistake with bailout of energy companies
© Getty Images

Republicans seized on the $500 million loan guarantee to failed solar energy company Solyndra under the Obama administration, but now the Trump administration is preparing an energy industry bailout that will dwarf the size of that debacle. If this bailout goes forward, taxpayers will be on the hook for tens of billions of dollars for failing coal and nuclear power plants. The Solyndra failure was a textbook example of the pitfalls that exist when the federal government tries to pick winners and losers in the energy industry. The Trump administration seems to not have learned the lesson, as a number of financially troubled and outdated plants are struggling as energy generation becomes more efficient.

Some of the companies that own these facilities are looking for government handouts to stay afloat and, unfortunately, the Energy Department under the Trump administration currently appears to be willing to oblige. A bailout proposal has been drafted that would dramatically increase the role of the federal government in energy markets and send a staggering amount of resources to a few chosen private companies. Conservative estimates of the proposed bailout peg the cost at somewhere between $20 billion and $35 billion, meaning this could cost taxpayers 70 times more than the Solyndra debacle.


The proposal would involve direct purchases of energy from approved power plants and create a strategic electric generation reserve. The direct purchases would be used to prop up several failing coal and nuclear plants, some of which are scheduled to be shut down in coming years. But helping keep these plants operational will not help consumers, according to energy grid operators. PJM Interconnection, which manages electricity reliability for 13 states and the District of Columbia, has stated that there is “no immediate threat to system reliability from plant retirements.”

The creation of the strategic electric generation reserve would in theory create a system of dormant generation capacity that would be activated only in times of great need. This would come at a high cost, but it is unclear if it would provide any benefit. The vast majority of serious energy disruptions are caused by problems related to distribution rather than fuel supply constraints. Indeed, a 2017 study found that just 0.00007 percent of outage hours from 2012 to 2016 were caused by a lack of fuel supply. The attempt by the government to create massive amounts of reserve generation capacity would not be helpful in the vast majority of instances.

Also troubling is that this bailout could be implemented unilaterally by the Energy Department with no oversight from Congress, through claiming authority from arcane national security provisions in the Federal Power Act and the Defense Production Act. These provisions are intended to allow the government to rapidly respond to energy disruptions caused by natural disasters or war. The gradual retirement of existing power plants over the next several years should not trigger these provisions, since there is no threat posed to either the grid or to fuel supply by outdated plant retirements. Absent a clear threat, any bailout proposal should go through Congress rather than be enacted unilaterally by an executive agency.

Energy Secretary Rick PerryJames (Rick) Richard PerryHouse Dems propose billions in extra funding for environmental programs that Trump sought to cut Overnight Energy: States fight Trump rollback of Obama lightbulb rules | Greens seek hearing over proposed rule on energy efficiency tests | Top Dem asks GAO to investigate climate threat States fight Trump rollback of Obama lightbulb rules MORE was absolutely right when, as governor of Texas and then as a candidate for president, he admonished the energy sector cronyism of the Obama administration by noting that “no greater example of it than this administration sending millions of dollars into the solar industry” and that taxpayers lost “over $500 million” over it. Perry should be just as skeptical of the wisdom of federal intervention in markets today as he was in criticizing the Solyndra handout.

Directing tens of billions of dollars to energy companies without a good policy justification is going to open up this administration to charges of cronyism. Perry has long been a champion of a fair “all of the above” energy strategy that is rooted in free market principles, yet the draft bailout proposal is a major departure from a market approach. That is why a coalition of free market groups warned President TrumpDonald John TrumpThe Hill's Morning Report - White House, Congress: Urgency of now around budget GOP presses Trump to make a deal on spending Democrats wary of handing Trump a win on infrastructure MORE that a “bailout would cost taxpayers billions of dollars and “would represent an inappropriate government intervention into energy markets.”

Outdated companies and technologies are routinely replaced by newer and more efficient competitors. That is how the market works and is exactly what is happening in the energy sector right now. The biggest threat to clean and affordable energy is heavy handed federal intervention. When this intervention comes with a $35 billion price tag that dwarfs the Solyndra disaster, taxpayers should be outraged.

Brandon Arnold is executive vice president of National Taxpayers Union.