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Costs of FirstEnergy nuclear bailout bill could exceed out-of-pocket subsidies

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PHOTO BY Wainstead / Creative Commons

FirstEnergy's Perry nuclear plant.

An analysis by grid operator PJM considers losses if Ohio nuclear subsidies deter new generation.

A bill to subsidize FirstEnergy Solutions’ two Ohio nuclear plants could cost customers even more than the hundreds of millions of dollars in direct charges proposed to prop up those plus two older coal plants.

A new analysis from grid operator PJM concludes that keeping FirstEnergy’s nuclear plants open could also cost ratepayers as much as $16 million a year in lost savings by discouraging cheaper gas generation from coming online.

Asim Haque, PJM’s executive director for strategic policy and external affairs,testified about the new analysis before the Ohio Senate Energy and Public Utilities Committee on Wednesday.

“PJM’s findings for consumer savings from power plant competition confirm that a competitive generation market is better for millions of Ohio consumers than charging them for bailouts and subsidies under House Bill 6,” said J.P. Blackwood, a spokesperson for the Office of the Ohio Consumers’ Counsel.

House Bill 6 passed in the Ohio House of Representatives by a vote of 53-43 on May 29. Under the current version, all retail consumers in the state would pay 50 cents per month for the first year and then $1 per month for the next six years to subsidize FirstEnergy Solutions’ Perry and Davis-Besse nuclear power plants. FirstEnergy Solutions and other FirstEnergy generation subsidiaries are currently in bankruptcy. The bill would also subsidize 1950s-era coal plants and gut Ohio’s clean energy standards.

Three scenarios

PJM looked at three scenarios for Ohio consumers through 2023. The first “base case” projects that the two Ohio plants and a FirstEnergy Solutions nuclear plant in Pennsylvania will all close as currently planned, and that all expected new natural gas generation plants come online.

That scenario should produce $1.6 billion in annual savings across the wholesale market “due to the significant entry of new, efficient resources,” PJM’s report said.

The second scenario assumed that all new gas generation plants would still come online and that the Davis-Besse and Perry plants would be “price takers,” bumping up the supply of generation in the market.

In theory, that could drive energy prices lower and save Ohioans an additional $95 million for the year 2023. “This decrease, however, does not factor in any subsidy payments that the nuclear units would receive,” Haque said in his testimony.

Current estimates for those subsidies are between $170 million and $190 millionper year, so Ohio consumers would still have a loss.

PJM’s third scenario assumes the extra supply in the market would discourage half of additional gas generation coming online by 2023. In that case, “Ohioans would save less than the base case in an amount of $16 million in the year 2023,” Haque said. Again, subsidy payments for FirstEnergy Solutions nuclear plants weren’t factored in.

In other words, market prices under that scenario would be higher than they would otherwise be if the plants closed, PJM found. So costs to Ohio consumers would be more than the amount shelled out for the subsidies themselves.

PJM’s analysis contradicts an earlier statement by FirstEnergy Solutions Vice President David Griffing, who claimed that closing the nuclear plants would cost Ohioans an average of $35 per year between 2022 and 2029. Ohio Consumers’ Counsel Bruce Weston responded by asking PJM for a fact check on the projected effects on wholesale and retail electric prices if the two Ohio nuclear plants close.

“It was counter to logic when FirstEnergy Solutions testified in the Ohio House of Representatives that electric consumers would pay more if its antiquated nuclear plants are shut down,” Blackwood said.

A limited review

Yet the PJM analysis may still underestimate costs to consumers.

“While useful, the analysis looks only at the energy market, which is an important shortcoming,” said Dan Sawmiller, Ohio energy policy director at the Natural Resources Defense Council. PJM’s report said that it didn’t consider impacts on longer-term capacity markets because of time constraints.

Although nuclear plants tend to be price-takers that bid low in the day-to-day energy market, Sawmiller said they’re “some of the highest bidders” in thecapacity market, in which the grid operators buy commitments from generators to be ready to provide power years three ahead of time. Most interesting, in Sawmiller’s view, is the scenario PJM envisions where some planned generation would not come online.

“Essentially, subsidies will drive efficient new resources to drop out of the queue, driving up energy prices compared to the [base case],” he said. “Customers would be forced to foot the bill for millions of dollars in higher energy costs and subsidies and potentially higher capacity prices as well.” Even if all those natural gas plants came online, customers could wind up paying for lots more excess capacity than the margins PJM already has, he added.

PJM’s analysis also does not factor in HB 6’s likely impacts on new solar or wind generation. If some of those renewable resources don’t come online, then the claimed emissions benefits from the bill “would be lower than estimated,” Sawmiller said.

Still more costs

PJM’s report also did not consider other provisions of the bill. HB 6 would add consumer charges of $2.50 per month for two 1950s-era coal plants.

As passed by the Ohio House, HB 6 would also gut Ohio’s renewable energy and energy efficiency standards, which critics have been trying to weaken or eliminate from Ohio law for at least six years.

Ohio Public Utilities Commission Chair Sam Randazzo also testified Wednesday before the Ohio Senate committee. By his estimate, the annual out-of-pocket costs to ratepayers are slightly more than a third of a billion dollars. Before his appointment to the commission this year, Randazzo had long represented Industrial Energy Users-Ohio, which has consistently opposed the state’s clean energy standards.

Missing from his and the PJM analysis are estimates of what Ohioans save as a result of the standards. An analysis by the Ohio Environmental Council Action Fund and the Environmental Law & Policy Center this spring shows that the energy efficiency standards actually save an average of $7.71 per month.

After deducting the average monthly utility charge of $4.10 for the renewable and energy efficiency standards, that still yields an average net savings of $3.61 per month, representatives of the two organizations said in a joint statement last month. Their review did not add in any health benefits from lower emissions as a result of the existing standards.

Next steps

The Ohio Senate’s Energy and Public Utilities Committee will likely hear additional testimony on the proposed bill or a Senate version of it. A vote by the full Senate could take place before lawmakers break for the summer.

FirstEnergy Solutions’ Griffing pushed for a fast decision when he testified in April, “due to the significant expense associated with refueling a nuclear facility.”

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Bob Meinetz's picture
Bob Meinetz on Jun 9, 2019 4:28 pm GMT

Kathiann, Ohio's Renewables Bailout, over the course of 11 years, has accomplished the stunning achievement of generating 3% of Ohio's electricity from renewables. Not that it was a surprise - with weak wind and solar resources, apparently evangelists had hoped to discover a way to convert dreams into electricity.

When targets for 2014 were missed they convinced the state legislature to kick the can down the road by freezing them for two years, hoping the sun might shine brighter and the wind might blow harder. In 2017, they tried the same technique. Both times, renewables came up short.

Now, finally, the state's "Renewable Portfolio Standard" will bite the dust, and not a moment too soon. Together with renewables, it's time to allow Ohio's existing nuclear plants, which have never stopped generating clean electricity 24/7, the same credit for clean energy.

It's hard not to blame renewables evangelists for opposing a level playing field, but I guess in their position I would too.

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