An Ohio cure for the nuclear subsidy contagion

Joe Nichols Jul 17, 2017

This op-ed appeared on Ohio.com.

COLUMBUS – Moving like a virus from state to state, a scheme to subsidize nuclear power plants appeared in New York last year and has spread to Ohio, Illinois, Connecticut, New Jersey and Pennsylvania. In Columbus, FirstEnergy is trying to convince lawmakers to establish a “zero emissions nuclear resource program” (ZEN) to prop-up its failing nuclear plants. FirstEnergy argues that we should keep the plants running to preserve their jobs and economic benefits.

In this case, the cure is worse than the disease. The plants would require a massive subsidy to stay open, the cost of which would far outweigh the benefits to your family. The right policy prescription is to stop the ZEN program in its tracks.

Nuclear power plants across the country are struggling to turn a profit due to historically low electricity prices. Ohio is no exception. FirstEnergy owns Ohio’s only two nuclear plants — Davis-Besse near Toledo and Perry, east of Cleveland — and the company claims it will close the plants unless lawmakers grant the subsidy.

The ZEN program is modeled on nuclear power subsidies already approved in New York and Illinois. The power plants would receive extra payments per unit of electricity they produce, picked from the pockets of FirstEnergy’s customers. The Legislative Service Commission projects the program would cost FirstEnergy customers approximately $300 million per year.

FirstEnergy hopes the subsidy would make the plants attractive to a buyer. The company wants to sell the plants and focus on the monopolized business of transmitting and distributing electricity. Oddly, though, FirstEnergy has told legislators it doubts the ZEN subsidy would be enough to make the plants attractive to a buyer.

This begs the question: Why go forward with this scheme at all if it isn’t likely to work?

On the other hand, let’s suppose that the subsidy proposal would work to make the plants attractive to a buyer who continued operating them. This would still put FirstEnergy’s customers on the losing end of the deal.

FirstEnergy has also told Ohio legislators that the Davis-Besse and Perry plants reduce customers’ bills by $177 million per year, according to an independent consultant’s study. But recall that the scheme to keep the plants operating will cost customers at least $300 million per year. Even assuming the study is accurate and that all the benefits accrue only to FirstEnergy customers, the company is asking its customers to pay it $300 for every $177 worth of value they receive. That’s obviously a raw deal.

FirstEnergy has also staked its case on the need to save 1,420 jobs at the nuclear plants and about 3,000 other jobs that it claims the plants help support. Yet again, the company fails to consider the fact that higher electricity prices will force other businesses to lay off workers, cut back on hours or hold off on hiring new people.

This is especially true of manufacturing companies that tend to use large amounts of electricity. The Ohio Manufacturers Association estimates that the nuclear subsidies would cost a “medium” manufacturer approximately $43,000 per year and an “extra-large” manufacturer approximately $5.7 million per year, every year for at least 16 years.

The Buckeye Institute recently studied a similar state subsidy for renewable energy and found that artificially raising electricity prices by just a few percentage points would reduce employment in Ohio by tens of thousands of jobs over the next decade. The nuclear subsidy is very similar and is expected to have similar effects — lost wealth and job creation.

Although propping up the nuclear plants would preserve some jobs and economic benefits, those benefits pale in comparison to the hit that your pocketbook — and maybe even your paycheck — would take if the plan goes into effect. The same is true for the thousands of other families who get their electricity from FirstEnergy.

“Subsidies are contagious,” electricity market auditor Joseph Bowring stated after these nuclear proposals began to appear. His warning proved prescient, and Ohio caught the bug. Now, we should be the first state to cure the nation of this contagion by denying the ZEN program.

Nichols is the strategic partnerships officer at The Buckeye Institute.