Trump’s electricity solution in search of a problem
President Trump is directing his administration to prop up financially struggling coal and nuclear power plants to ensure the electricity grid is resilient and reliable, but government data and most objective experts say there is no such problem.
Why it matters: America’s electricity fuel mix is undergoing significant change, which does present challenges. But Trump’s laser focus on coal and nuclear power — and companies seizing on that — distracts the debate from more substantive issues.
Driving the news: Trump repeatedly asks his advisers about how to revive the economically struggling coal and nuclear industries, according to officials following the deliberations. These kinds of power plants are facing competition from cheap natural gas, among other factors.
The issue is how to guarantee "resilience" in the power grid, which generally means being able to reliably keep the lights on during extreme weather and as variable wind and solar become more common in the electricity mix.
The government has limited policy levers:
- The Energy Department is considering a request from bankrupt FirstEnergy Solutions to keep open certain coal and nuclear plants to prevent the power grid from becoming unreliable in an emergency. The department rejected a similar request from coal production company Murray Energy last year.
- It’s unlikely FirstEnergy will succeed where that company, whose CEO Robert Murray is close to Trump, failed. Murray conceded to me earlier this month that “the options are getting fewer.”
- The administration is also considering invoking a 1950 law used in war time to nationalize industries in the name of national security, according to multiple officials familiar with the deliberations.
- FERC, which oversees U.S. power markets, rejected an Energy Department proposal last year imposing market rules boosting revenues of struggling coal and nuclear plants. The department argued they can provide fuel on site in ways other resources can’t — a characteristic that helps make the grid more resilient, in the view of Energy Secretary Rick Perry.
Data and independent experts say there is little to no evidence of any resilience problem, particularly as it relates to coal and nuclear power plants:
- The Energy Department’s own data shows that power outages are due mostly to storms and downed power lines, not resource shortages, according to a report by research firm Rhodium Group.
- The PJM Interconnection, a company serving as the power market operator for numerous Mid-Atlantic and Midwestern states, says in response to FirstEnergy that there is no emergency in the resilience of the power supply.
Silverstein, who led the Energy Department's grid reliability study last spring, said the administration’s rhetoric makes it seem like all coal and nuclear power plants are shutting down, which isn’t the case.
“The ones shutting down now are more expensive and inefficient and under-utilized than other plants,” Silverstein said. “And markets are supposed to weed out weak competitors and assets.”
Perry, Chatterjee and others in the administration say that just because a problem doesn’t currently exist, doesn’t mean one won’t in the future, so action should be taken now. Chatterjee had supported a temporary lifeline to coal and nuclear plants, but he’s backed down on that more recently. Perry continues to push for such a policy.
An Energy Department spokeswoman didn’t provide a comment by publication time.
FirstEnergy spokesman Thomas Mulligan cited a recent Energy Department report that concluded reliability issues could arise if coal and nuclear plants close, but that such a hypothetical needs more study.
“We agree with the Department of Energy that the premature retirement of nuclear and coal generating capacity represents a potential reliability and resilience crisis for our regional grid,” Mulligan said.
Chatterjee pointed to sky-high electricity bills in New England during a cold snap earlier this year as an example of what may happen elsewhere if policy isn’t implemented to ensure electricity can reach consumers in an emergency. In that case, the main problem was lack of pipeline infrastructure to move gas, not lack of coal or nuclear plants.
What’s next: FERC is studying the issue of grid resilience and may issue proposals in the coming the months. “Maybe we’ll end up issuing something that’s very applicable, but not tied specifically to coal and nuclear,” Chatterjee said.
FERC is facing plenty of other challenges, ranging from cybersecurity threats to integrating variable resources, like wind and solar, into the power grid.
How to lower prescription drug costs
President Trump's upcoming speech on drug prices will probably stick to small-ball ideas. But small-ball doesn't necessarily mean no impact.
Reality check: There are a lot of legitimate ways to bring down drug costs; there are also a lot of empty gestures masquerading as real change. Here's a guide to the kinds of ideas and the odds that they'll actually happen.
Bucket 1: Move the costs around
The big picture: These proposals could reduce what patients pay for drugs, but not necessarily what the health care system as a whole pays.
How it works: The gist here is to rearrange existing discounts within the drug supply chain, usually by targeting the various middlemen between drug companies and patients.
- One idea is to make pharmacy benefit managers, who negotiate big discounts on behalf of insurers and employers, pass more of those savings on to patients at the pharmacy counter.
- The administration has already announced changes to a program that provides discounted drugs to hospitals, and Congress may go even further.
Threat level: This is where the administration has been most active so far, and politically, there’s a lot of low-hanging fruit in this set of policies.
What they’re saying: All of this fits with the industry’s larger worldview, which is that new drugs are worth the money, but patients should have to foot less of the bill on their own. Consumer advocates don’t oppose these policies, but they say this bucket doesn’t get at the heart of the problem.
Bucket 2: Increase competition
The big picture: Some conservatives want to tackle the underlying price of drugs, but they want to do it by fostering a more competitive market, rather than through price controls.
How it works: New drugs are entitled to five to 12 years of sales, depending on the type of drug, before a generic version can come to market. That window usually ends up being longer, though, because of drugs’ patent protections.
- The FDA has largely cleared out its backlog of generic drugs waiting for approval, and commissioner Scott Gottlieb hopes to jump-start the lagging market for generic versions of especially complex drugs.
- No one formally opposes more generics, but brand-name drug makers have been accused of unfairly denying generics the samples they need to develop their products. There’s a bill in Congress to address that; industry opposes it.
- Critics also say drug companies are abusing the patent system by taking out patents on even the most minor component of a drug, then reformulating those components and taking out a whole new “thicket” of patents — keeping generics at bay even longer.
Threat level: Health and Human Services secretary Alex Azar — himself a former pharmaceutical executive — said in his confirmation hearing that he would be willing to look at patent “gaming.”
What they’re saying: The advocacy group Patients for Affordable Drugs says some of these ideas, including the bill on product samples, would make a real difference. Industry, meanwhile, will probably have to concede that some “gaming” does occur, but acceding to the most aggressive regulatory changes would cost drug makers billions.
Bucket 3: Reduce the prices
The big picture: Bucket 1 addresses who pays, but not the underlying prices of drugs. Bucket 2 tries to get the market to deliver lower prices. Bucket 3 demands them.
How it works: The marquee policy here is for Medicare to negotiate — or simply to dictate — what it will pay for drugs.
- Democrats say that would not only lower costs for seniors and Medicare, but for everyone, because private insurance wouldn’t pay much more than Medicare does. Drug companies say it would dry up innovation and research.
Threat level: Trump has endorsed price negotiations in the past, which makes industry nervous, but the policy remain very much a long shot.
What they’re saying: Traditional conservatives — like Azar, Gottlieb, Vice President Mike Pence, and congressional GOP leaders — have long hated this idea. And as much as it’s still a holy grail on the left, the advocacy groups most active on this issue are also focusing on more achievable goals.