Bailing out the coal industry at the expense of the taxpayer

Having failed to obtain bailouts for failing coal plants and mines by way of policy actions from the U.S. Department of Energy and the Federal Energy Regulatory Commission, the coal industry has now turned to its friends in Congress.

Rep. Larry Bucshon (R-Ind.) is promoting the Electricity Reliability and Fuel Security Act, which would provide a bailout for the coal industry of about $3.5 billion to $3.7 billion per year for each of the next five years. It would come to a total of approximately $17.5 billion to $18.5 billion in income tax credits.

{mosads}This bill would ostensibly enhance national energy security but would really benefit only a select few. It is a straightforward tax break, and while its title suggests is has something to do with electricity-supply security, we see no evidence that it would enhance the reliability of the grid in any way.

The bill is a tax break, and while its title suggests it has something to do with electricity-supply security, we see no evidence that it would enhance the reliability of the grid in any way.

As proposed, the bill would allow the owners of coal plants to take credit on their federal taxes in one of two ways, whichever is less:

• At a rate of $13 per kilowatt on the nameplate capacity, or potential output, of their plant.
• Or by getting an annual tax break of 30 percent of non-fuel operating and maintenance
  expenses for the plant.

Owners would get this tax credit whether their plant operated reliably, is available at times of highest demands, or even whether it generated any power at all.

Consequently, the tax credits would be giveaways, pure and simple, and would come with no proof that that they would provide any benefit except to coal industry owners.

The bill would also allow what it defines as “qualified public entities,” which generally do not pay federal tax and would mostly be unable to use the tax credits but could provide transfer their credits to “eligible project partners” which are defined as any entity that:

• is responsible for operating, maintaining, or repairing a coal plant
• participates in the provision, including transportation of coal to the plant
• provides financing for the construction or operation of the plant
• or leases the plant

In order words, a municipal utility that owns all or some of a power plant, but pays no federal taxes, could transfer its tax credits to any coal company that provides the coal that is burned at the plant and/or any investor who has provided funds to build, upgrade or operate the plant. The plant or mine owners or investors could pocket the additional cash they would garner from paying lower taxes because they would not be under any obligation to pass the benefits from the lower federal taxes to their workers or to the communities in which they operate.

Consequently, this bill would in effect increase the federal deficit for five years by giving away billions of dollars to coal plant operators, mine owners, and coal investors without having enhanced grid reliability or made electricity less expensive for consumers.

David Schlissel is director of resource planning analysis at theInstitute for Energy Economics and Financial Analysis.