Although the U.S. Department of Energy's draft plan to use two rarely invoked laws to save struggling coal-fired and nuclear power plants likely would face steep legal challenges, it still may roil power markets absent an immediate court stay, legal experts said.
The May 29 draft document, which is an addendum to a separate order that has not yet been made public, called for requiring grid operators to buy power or capacity for two years from an unreleased list of so-called "fuel-secure" power plants, including coal-fired and nuclear generating facilities at risk of closure. The plan, which is not final and has not yet received public approval from President Donald Trump, is aimed at stemming a tide of power plant closures that the DOE said will place U.S. grid reliability and resilience at risk.
In the 40-page document, the DOE said it could exercise the plan using two laws: the Defense Production Act, or DPA, a law intended to ensure access to materials essential for national security and defense; and Section 202(c) of the Federal Power Act, or FPA, a provision aimed at addressing unplanned, emergency energy shortages or sudden increases in demand.
Both laws have been used sparingly in the past. FPA Section 202(c) has been employed fewer than a dozen times, often in response to short-term energy supply disruptions stemming from natural disasters such as hurricanes or to ensure reliability while a utility completes another power project. All of those orders lasted less than the two years prescribed by the DOE in its draft plan and usually only involved keeping a narrow set of assets online.
Using the FPA in the manner recently suggested by the DOE "would be indefensible in the courts," because "it is [a] far greater intervention than the statute contemplates and for a far longer period of time," said Joel Eisen, an energy law professor at the University of Richmond School of Law, in an interview.
In addition to the longer power contracts it contemplates, Eisen said the draft plan would require sustaining a wider range of coal, nuclear and potentially other plants across the country than the one or two facilities typically kept operating under FPA Section 202(c).
The DPA, which was created in 1950 during the Korean War, also has been used rarely. It generally has been employed in wartime. However, it was used during the Western energy crisis of 2000-2001, when the government required natural gas sellers to ensure deliveries to Pacific Gas and Electric Co., which was on the verge of bankruptcy, so the company could sustain electricity service to customers in northern and central California.
The DOE cited the DPA's application during the California energy crisis as support for its draft proposal. But energy law experts say that scenario differed greatly from the one the DOE proposed to address in the May 29 draft addendum.
"The use of the Defense Production Act in this situation goes well beyond what was done in the PG&E situation in California ... and is potentially quite dangerous for that reason," Eisen said, noting that the DPA order for PG&E lasted only about two months.
He added that the DPA lacks a price-setting mechanism for contracts for materials — including energy — needed for national defense. Critics of the DOE's possible use of the DPA to save coal and nuclear plants have said if Trump wants to impose price controls for such contracts, he will need authorization from the U.S. Congress.
Congress also would need to be involved in the DOE draft plan's call to form a "strategic electric generation reserve," which would be subject to congressional appropriations, Rob Rains, a senior energy analyst with Washington Analysis LLC, said in an email. Rains said he thought the Trump administration is more likely to ultimately seek price support for a smaller set of plants mainly located near military bases and NASA facilities.
But the legal hardiness of the DOE's plan may depend on how the agency actually proposes to use the FPA and DPA, because the order to which the addendum is to be attached has not yet been released, key details of the plan still are not publicly available.
Plan could touch markets even if courts balk
Ari Peskoe, director of Harvard Law School's electricity law initiative, agreed that the 2001 directive under the DPA was much narrower in scope than what the DOE appears to envision for its recent draft plan. He also questioned how the power contracts the DOE is seeking would not involve the participation of the Federal Energy Regulatory Commission, which has previously rejected a DOE call to subsidize at-risk coal and nuclear generating facilities.
But Peskoe said the Trump administration may not even care if the DOE plan survives legal challenges.
"All they really have to do is presumably prevent a court from stepping in and ordering a stay immediately because this plan contemplates two-year contracts," Peskoe said. "But, if we wait for an entire case to play out, we'll already be well into those contracts."
