Bailing Out Failing Companies Runs Counter to Trump's Agenda

Bailing Out Failing Companies Runs Counter to Trump's Agenda
Joel Bissell//Muskegon Chronicle via AP, File

President Trump could soon make an extremely flawed move if his Energy Department proceeds with a bailout of coal and nuclear power plants. The president recently ordered Energy Secretary Rick Perry to draft a plan to keep open up to 80 unprofitable power plants, many operated by a now bankrupt company, FirstEnergy Solutions. Should the president follow through, his actions to prop up a single company would constitute an unprecedented expansion of federal intrusion into America’s energy sector — a move that should make all free market advocates cringe.

The president has the authority under Section 202(c) of the Federal Power Act to take extraordinary action in order to serve the public interest during national crises. This is intended, however, to be invoked only during natural disasters, war, or large-scale blackouts, and not merely used to keep afloat a failed company in a competitive market.

According to a leaked internal memo, the Energy Department is considering requiring parts of the nation’s electrical grid to buy power from unprofitable coal and nuclear power plants and establishing a “Strategic Electric Generation Reserve.” If the President Trump follows this course of action, he would be wasting taxpayer dollars, disrupting free markets, and raising energy prices for all Americans.

And if there is one lesson politicians should have learned from the Great Recession, it is that Americans are tired of seeing their hard earned tax dollars to prop up failing businesses. This is why National Taxpayers Union has led a coalition letter with a half dozen free market and taxpayer advocacy groups to President Trump in opposition to this flawed proposal. Market forces are working as intended and businesses should not need the government’s thumb on the scale in order to make them competitive. In our June 28 letter, we argue:

Section 202(c) is reserved for national emergencies and security threats. It must be used judiciously and only when merited by the broad national interest - not to prop up individual companies that are dealing with financial difficulties. As it currently stands, no significant security threat currently exists and the reliability of our electricity grid is not in danger.

Invoking Section 202(c) would run counter to the president’s goal of leveling the playing field for American businesses. Thus far, the president has done an excellent job of making energy companies more profitable through pro-growth tax reform and cutting burdensome regulations that have handicapped the sector for far too long. He should continue to embrace these types of free market reforms and avoid resorting to targeted bailouts.

It is not just taxpayer groups that oppose this precarious proposal: Left-leaning organizations such as the Environmental Defense Fund and National Resource Defense Council also share our view. At National Taxpayers Union, we strongly contend that competition in the free market does not constitute a national security crisis but is rather the fair result of market forces.

After all, FirstEnergy’s struggles are a result of its own business choices, exposed by the competitive nature of free markets. Coal is naturally declining due to the readily availability of cheaper substitute, such as natural gas. Unfortunately, while many of its competitors transitioned to these cheaper alternatives, FirstEnergy acquired a series of uneconomical coal plants that has hampered the company’s bottom line.

According to one independent analysis from the Environmental Defense Fund: “guaranteeing costs and profits to coal and nuclear assets would potentially increase costs on consumers and businesses in PJM’s retail choice states by $8.1 billion annually, a roughly 19% increase in total costs.” Higher costs will fall harder on lower income consumers who have less disposable income to meet their obligations. 

Prior to its plea to the federal government, FirstEnergy appealed to the Public Utilities Commission of Ohio for rescue. That plan was blocked, however, by the Federal Energy Regulatory Commission, who said that it would illegally disrupt regional competitive markets. 

If FirstEnergy gets its way, we could be setting in motion a string of reckless economic behavior. Bailouts today would incentivize risky investments in the future, as energy companies would know that the federal government could just prop them up even if they fail. Essentially guaranteeing a safety net to companies is surely a dangerous path to follow in our free market system. Instead, the Trump administration should reject the coal and nuclear bailout and resist the urge to pick winners and losers.

Thomas Aiello is a policy and government affairs associate with National Taxpayers Union, a nonprofit dedicated to fairer and lower taxes at all levels of government.

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