By Dennis McGinn
July 24, 2018 at 5:00 am ET
While the nationalization of an energy industry is a headline you’d expect to see in states like Venezuela, a recently leaked National Security Council memo suggests President Donald Trump may do just that.
Concerned that uneconomic coal and nuclear power plants can’t compete in the free market, special interest groups are pushing the president to use a little-known law called the Defense Production Act to save insolvent electricity producers. Passed by Congress in 1950, this relatively obscure act gave past presidents broad authority to compel the private sector to mobilize in the name of national security.
A small handful of administration officials have argued the federal government must intervene to “save” some coal and nuclear plants at risk of closure. Their central argument is that coal and nuclear power plants have unique attributes that make them critical to keeping the lights on.
While virtually no academic, energy policy expert or member of the utility industry agrees with this argument, the administration has attempted to address this imagined emergency through a variety of proposals. None, however, have been as audacious as using Cold War-era price controls to hijack the direction of the electricity industry so a few financially distressed companies can turn a profit.
The truth is, the nation doesn’t need to support a specific type of fuel to ensure electricity keeps flowing. Competitive markets work, and the resilience of the grid has remained strong without drastic federal intervention. In fact, we can see the success of free market forces in many regions like PJM (covering the Midwest to Mid-Atlantic), where there has actually been an increase in new generation facilities and a rise in available reserve capacity while prices have decreased.
This doesn’t mean grid operators shouldn’t seriously consider how power plant retirements will affect grid reliability in the future. Maintaining a diverse and reliable power supply for future generations is certainly in our nation’s best interest, but effectively nationalizing one slice of the energy industry will do nothing to ensure national security.
Our nation’s transmission and distribution grid, which all power generators rely on to deliver electricity to our homes and cities, will continue to face physical and electronic threats. Instead of arbitrarily prioritizing one type of power plant over another, the administration should work closely with the private sector to encourage investments in more reliable infrastructure and develop aggressive cybersecurity measures.
Any government intervention into the energy sector through the DPA would also fly in the face of the act’s intended use. While the United States doesn’t have a substantial track record of nationalizing industries, a quick glance at the history books makes it clear that such a move would be hugely disruptive to power markets and have disastrous effects on the broader economy. The proverbial icing on the cake? Everyone would pay higher electricity prices as a result.
There are also significant political ramifications to using a national security law such as the DPA to justify broad government intervention in the private sector. Should any president try to expand the scope of the DPA’s usage, he or she will dilute the power of national security arguments in future policy debates and open a domestic Pandora’s box.
After all, if the argument can be successfully made that a power company losing money is a national security issue, then why is this not true for other sectors? What is to stop a president from arguing that the health of the American workforce is a national security issue and then nationalizing all health insurance companies, hospitals and doctor offices?
The DPA should never become a regular tool in the president’s policy toolkit, and abusing its authority will likely make it more difficult for the president to leverage such powers during real national emergencies.
Pushing the president to use the DPA is yet another desperate attempt by special interest groups to force the administration to twist the spirit and letter of the law. Coal magnates are hoping to leverage their campaign donations into political outcomes and seem bent on continuing their relentless lobbying campaigns to get the administration to support their own personal agendas at the expense of everyone else. This isn’t “crony capitalism”; it’s market-disrupting “crony welfare.”
Autocratic leaders in Venezuela and Iran may be willing to use the levers of government and public funds to benefit their supporters and ruin their economies, but the United States has always stood against such dangerous abuse of state power. Let’s keep it that way.
Vice Admiral Dennis McGinn is a member of the Center for Climate and Security Advisory Board, and he served as assistant secretary of the Navy for Energy, Installations and Environment from September 2013 until January 2017.
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