A legal battle over the future of the US electricity system is looming after the Trump administration shocked the industry with proposals for new subsidies for coal-fired and nuclear power plants.

If implemented, the plan could mean the most radical shake-up of the market in decades.

Rick Perry, the energy secretary, on Friday sent a proposal to the Federal Energy Regulatory Commission calling for payments for power plants that provide “essential energy and ancillary reliability services” — and defined these in a way that means only coal and nuclear generators are likely to qualify. 

Travis Kavulla, the Republican vice-chairman of the utility regulator for Montana, said Mr Perry was proposing to move US power markets from competition to a “command and control” system. 

“This way, they will be predetermining through industrial policy who stays in the market and who goes out,” he said. 

The plan has been drawn up under a rarely-used legal provision that allows the energy department to propose rules to FERC, an independent government agency. Mr Perry has given FERC 60 days to come up with plans for payments at a “just and reasonable rate” for power plants that meet certain criteria, including having a 90-day fuel supply on site.

That requirement would be achievable for coal plants, but not generally possible for gas-fired plants.

The policy is diametrically opposed to the Obama administration’s Clean Power Plan, regulations for cutting carbon dioxide emissions that would have accelerated the closures of coal-fired plants. The rules were finalised but never implemented after the Supreme Court issued an order that put them on hold in 2016.

Lawyers said the regulations would be expected to face a battle through the courts, both over the substance of Mr Perry’s proposals and over the speed of the process he has demanded. 

Miles Farmer, a lawyer for the Natural Resources Defense Council, an environmental group, described the plan as “insane”, saying it would generate “huge market uncertainty” for the electricity industry. 

But Paul Bailey of the American Coalition for Clean Coal Electricity, an industry group, welcomed the move, saying the new rule from FERC would “finally value the on-site fuel security provided by the coal fleet”.

In a letter to FERC, Mr Perry said his plan would strengthen US energy security. “Much more work needs to be done to preserve these fuel-secure generation resources that have the essential reliability and resiliency attributes needed to keep the lights on for all Americans in times of crisis.”

The combination of cheap natural gas from the shale boom and the plunging cost of renewable energy, helped by federal and state incentives, has made it increasingly difficult for ageing coal and nuclear plants to compete in US electricity markets. 

In 2008, coal provided 48 per cent of US electricity, but by last year it was down to just 30 per cent. There is no evidence that the reliability of the US grid has deteriorated as a result, but the energy department points to the cold weather in the north-east US in the “polar vortex” of 2014, when gas supplies were tight and coal plants were needed to keep the lights on, as an example of the potential risks in allowing those plants to shut down. 

Donald Trump has set reviving the US coal industry as one of his priorities, saying his administration was “putting our coal miners back to work”. 

The US has a fragmented patchwork of electricity grids and regulatory systems, but the trend since the 1990s has generally been to encourage competitive markets to bring down costs to consumers, although that strategy has been combined with policies to support renewable energy to cut carbon dioxide emissions and other pollution. 

Jules Kortenhorst, chief executive of Rocky Mountain Institute, which works with businesses to promote renewable energy, said Mr Perry was “planning to commit a coup in broad daylight on US electricity markets”. 

There will be several hurdles to jump before the Trump administration’s policy can come into effect, however. The authority used by Mr Perry was last employed in 1985 to reform price regulation for natural gas, according to Joel Eisen of the University of Richmond law school. 

He described the proposal as merely “an opening salvo”, and said there were compelling reasons to believe FERC, which has legal responsibility for setting “just and reasonable” electricity rates, would not simply adopt Mr Perry’s plan.

Ari Peskoe of Harvard Law School said Mr Perry’s plan did not meet the legal requirements for proposed rules under US administrative procedures, and recommended that FERC treat it as a “comment” on its existing work on supporting grid reliability.

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