Energy & Environment

Subsidies to Power Plants Are No Substitute for a National-Security Plan

During construction of Sunoco’s Mariner East II natural-gas pipeline near Morgantown in Chester County, Pa., August 1, 2017 (Reuters/Charles Mostoller)
The administration should work with Congress to protect the national grid.

In an effort to deal with the market and non-market forces inflicting economic losses on coal- and nuclear-power plants, the Trump administration is seeking through regulation to force state and regional grid operators to purchase bulk power from coal- and nuclear-power producers to slow the (early) retirements of those facilities. The administration is justifying this policy on national-security grounds: “The Nation’s security and defensive capabilities . . . depend on an electric grid that can withstand and recover from a major disruption, whether from an adversarial attack or a natural disaster.” And: “Resources that have a secure on-site fuel supply . . . are essential to support the Nation’s defense facilities . . . and other critical infrastructure.”

It is true — and unsurprising — that foreign powers would test their ability to disrupt the U.S. power grid, a crucial component of the economy generally and of our national-defense infrastructure in particular. Nor are natural threats to that infrastructure unimportant. The question is whether this indirect measure — federal intervention in wholesale electricity markets — to address this national-security problem is a sound substitute for federal policies designed to deal with those threats directly. Moreover, states have nontrivial incentives to address reliability and resiliency threats so as to minimize the possibility of blackouts or service disruptions. Is it obvious that the federal intervention proposed by the Trump administration would yield an improved national-security outcome?

It is hardly the case that the federal government, state and regional authorities, and the private sector are ignoring this problem. Are there strong reasons to believe that ongoing and expected actions are insufficient? Nowhere has the Trump administration attempted to make that argument. Indeed, even the Department of Energy has responded to the cybersecurity threat, with its “Multiyear Plan for Energy Sector Cybersecurity” (March 2018). Does the federal government’s right hand know what its left hand is doing?

More generally, it is clear that pipeline operators recognize the importance of the cybersecurity threat to the resiliency of the natural-gas/power-grid nexus and are working with federal officials to address cybersecurity threats through planning efforts and investments. The gas industry last year participated for the first time in the GridEx IV training exercise, in which industry participants were tested with a set of simulated cyber and armed assaults on U.S. electric networks. In March, the Transportation Security Administration (TSA) released an updated version of its pipeline-security guidelines, in which it outlines the measures that should be taken to protect pipeline assets in the cybersecurity context.

It must be the case that TSA has access to the same classified information on cyber and physical threats that is available to the Department of Energy. It is far from clear that a new DoE regulatory policy on power purchases would improve on the evolving policy of the TSA, particularly since the latter is designed specifically in terms of the threats, while the Energy Department proposal is a far cruder effort, one designed merely to keep the coal and nuclear generating plants open. It is the TSA guidelines that are consistent with the security objectives and standards established by the government’s National Institute of Standards and Technology, which in April updated its official framework of cybersecurity objectives and standards that includes protection, defense, resilience, and recovery methods.

Back to ongoing federal efforts: Through the National Energy Technology Laboratory, the Energy Department has implemented a research-and-development program to develop technology for cyber-security protection across the power-generation sector. Representative Fred Upton (R., Mich.) has introduced legislation (HR 5175, the Pipeline and LNG Facility Cybersecurity Preparedness Act) “to require the Secretary of Energy to carry out a program relating to physical security and cybersecurity for pipelines and liquefied natural gas facilities.”

Such a program would address the cyber and physical threat directly. Why would an indirect program of subsidized purchases from coal and nuclear generators be a superior approach? Mandated purchases would not address the stated threats to pipelines at all, at least conceptually; they would merely shift the national electric-generation mix away from gas generation, thereby creating a new class of “stranded” assets with sales smaller than anticipated and therefore unable to earn the economic returns anticipated when the investments were made.

That outcome would create its own set of problems, foremost among them a system less flexible in terms of adjustments to changes in demand and supply driven by such variables as weather and unanticipated outages. The national-security argument promoted by the Trump administration in support of the proposed purchase mandates applies in equal force to that reduced flexibility for the regional and national grids, and it is far from obvious that the net national-security effect of the Trump proposal would prove to be positive. This is particularly the case given that the Trump proposal would increase costs in ways both explicit and hidden. Because industries contributing both directly and indirectly to national security would bear part of those adverse effects, the aggregate cost of national-security efforts would rise. Accordingly, the net effect of the Trump proposal on U.S. national-security endeavors would be unlikely to prove salutary.

The administration claims authority for this regulatory action under the Defense Production Act of 1950 and the Federal Power Act of 1920, both as subsequently amended. Under various interpretations of those laws, the federal government can order that power plants that store 90 days of fuel — that is, coal and nuclear plants — recover all of their (historical) costs, even when selling power in wholesale power markets in which sales and purchases are made at market prices, and which traditionally have been overseen by state and regional power authorities.

Some suspicion about the invocation of the national-security rationale for this proposal is justified. Why not ask Congress to authorize these subsidies explicitly? It is far from obvious that any such proposal would pass Congress, and it is not irrelevant to point out more generally that the legislative process — negotiating, writing, and enacting laws — is hard work. The end result yielded by the compromises and side promises required to move bills through both houses of Congress can be unsatisfying, to say the least. That is the case a fortiori for efforts to subsidize particular economic sectors, in that the scent of such largesse inexorably elicits demands, on the basis of exceedingly creative rationales, from innumerable interest groups and their political representatives for inclusion among the beneficiaries.

In pursuit of objectives viewed as necessary by presidents and executive-branch agencies, a president not devoted viscerally to the separation of powers and the U.S. constitutional system may be disposed to find the use of executive orders an attractive alternative to the messiness and distasteful components certain to characterize actual legislation. In the famous words of a former presidential aide: “Stroke of the pen, law of the land. Kinda cool.”

Barack Obama exemplified such thinking, and the erasure of much of his policy legacy is one predictable result. Ironically enough, even as the Trump administration is the active eraser, it seems to be following much the same path in its approach to the economic problems confronting coal- and nuclear-power generators.

If there are serious cyber and physical threats to the national power grid, and if federal actions to deal with them are appropriate, then those threats should be confronted directly. An attempt to circumvent them by subsidizing some segments of the power-generation sector at the expense of others is likely to yield the usual array of adverse unanticipated consequences for which federal-government machinations are famous. Too clever by half in a national security context, the Trump policy proposal has a real potential for counterproductive outcomes. However messy the process of legislative negotiation, it would be better for the administration to work with Congress to craft policies aimed directly at the problem, rather than attempt to impose a crude solution driven by an executive deus ex machina.

Benjamin Zycher is a resident scholar at the American Enterprise Institute.

Benjamin Zycher — Benjamin Zycher is a resident scholar at the American Enterprise Institute.

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