The impact on the economy and on taxpayers in states that have approved the bailout of struggling nuclear plants wouldn’t fare well in Pennsylvania, according to experts.
“Whenever the government gives taxpayer dollars to private companies, everyday Americans suffer,” Anna McCauslin, deputy state director at Americans for Prosperity Pennsylvania, one of 36 state chapters nationwide of Americans for Prosperity, which advocates for limited-government public policies.
“Subsidies would only increase prices for ratepayers and in the long-term limit opportunities for individuals, communities and businesses to succeed,” McCauslin told Pennsylvania Business Report.
Rod Williamson, executive director of Industrial Energy Consumers of Pennsylvania (IECPA), a trade organization representing the state’s large, energy-intensive users having one or more facilities in the Commonwealth, said a potential bailout for struggling plants in Pennsylvania would be quite costly.
While IECPA hasn’t performed an independent analysis of the impact of state subsidies to struggling nuclear plants, Williamson told Pennsylvania Business Report, “It is our understanding that the cost of these bailouts is significant.”
For example, New York State Energy Research and Development Authority filings reveal that, in the first nine months of the program, electricity consumers were charged upwards of $354 million via surcharges on their monthly bills to support nuclear reactors in 2017, he said.
“Despite the promise that the policy would accelerate renewable energy, 99 percent of the money collected from consumers during 2017 to pay for the program went to prop up nuclear reactors,” said Williamson, who is also the business unit director of the Environmental, Energy and Natural Resources Practice Group at Clark Hill PLC, and head of the company’s Energy Management Consulting Group.
For example, Williamson pointed to a recent report from Inside Climate News that said customers of Illinois’ utilities by law must pay a monthly charge that helps support the state’s two nuclear plants.
The charge — equivalent of up to $16.50 per megawatt-hour last year — is based on a calculation of the social cost of emissions, according to the non-profit, non-partisan organization, which noted that a New York program adopted in 2016 by state utility regulators is similar, charging $17.48 per megawatt-hour, as is a New Jersey law that subsidizes nuclear power and provides support to clean-energy programs. The New Jersey law, which went into effect this year, hasn’t yet been challenged, according to the Inside Climate News report.
“This will result in millions of dollars being paid to a handful of nuclear generation owners which will prevent new, lower-cost generation from being built,” said Williamson.
So what’s an alternative to such bailouts?
“Instead of picking winners and losers in the energy market and forcing Pennsylvania families to pay more to bailout a private company, lawmakers should enact policies that increase competition to maintain a diverse mix of fuel types and lower energy prices,” McCauslin said.
The current bailout initiative, Williamson said, fails to recognize the massive bailout that has been provided to the Pennsylvania nuclear industry from 1999 through 2015.
“Nuclear plant owners were awarded large stranded cost recovery funds to eliminate expected investment losses when prices dropped post-electric industry restructuring,” he said. “Over $8.6 billion of nuclear-related stranded cost was paid.”
Stranded costs were negotiated amounts based on settlement discussions and finalized orders at each state utility commission with each utility, according to the June 14, 2017 Analysis Regarding Pennsylvania Nuclear Power Plant Cash Flows, which was prepared by Daymark Energy Advisors for Citizens Against Nuclear Bailouts.
Stranded costs related to nuclear-generating capacity at each utility were reflected in the remaining cost on the utility’s books, minus a forecast of the plants’ market value, plus costs associated with nuclear decommissioning funding and other nuclear-related regulatory assets, according to the analysis.
“Deregulation in the late 1990s and early 2000s led to billions of dollars of stranded costs being collected in market transition charges from ratepayers across multiple states to owners of nuclear facilities,” according to the 21-page analysis. “A large portion of the utilities’ stranded costs was associated with nuclear power generation plants, including plants in Pennsylvania, New Jersey and Ohio.”
Back then, as energy markets were being developed, capacity markets for many plants didn’t yet exist as stranded costs were being settled. Now, though, these power plants have operated in both the energy and capacity markets so they have actual market revenues to compare against the originally forecasted revenues, the analysis explains.
“In all cases the data shows that actual revenues exceeded forecasted revenues,” according to the analysis advisors, including in Pennsylvania.
That means that plant owners have had more money to make investments that in turn have allowed them to reap more revenues via increased sales and reduced costs.
“So in addition to the billions of dollars in stranded cost payments, the nuclear generation owners also enjoyed billions of dollars in actual energy market revenues above what was expected,” Williamson said. “During this time of higher energy market payments, the nuclear generation owners never returned any of the over-earnings back to customers.”
And, he pointed out, now that the energy market has actually worked and private investment in fuel development such as natural gas and new, lower-cost renewable generation has driven down the energy market prices and hence the payments to the nuclear generation owners, these nuclear generation owners once again want a bailout from customers.
“What should be the alternative to the current bailouts? The answer is no more bailouts,” Williamson said. “Let the market continue to drive the development of new lower-cost, more efficient generation.”
Specifically, in the Commonwealth of Pennsylvania, proponents of a state nuclear bailout tout a minor cost impact for consumers, he said.
“A $2/month to $4/month increase to residential homeowner bills is used to represent the financial impact,” he said. “Nuclear plant owners view this cost as a minor necessity to retain nuclear jobs and maintain the zero carbon emissions associated with nuclear plant operations.”
However, that discussion remains silent on the financial impact to Pennsylvania’s largest end use consumers.
“Companies like members of the IECPA face a substantial cost that must be acknowledged,” said Williamson. “Industrial consumers are at a far greater electric demand level and consumption level than households.”
He said that the average IECPA member electric demand level is equal to approximately 39,000 residential homes. Annual financial impacts of a nuclear bailout for the average IECPA member is conservatively $500,000 per year using the $2/month rate and $1 million per year at the $4/month rate, according to IECPA.
“Now consider that bailouts are promoted for 10 years or more and the impact becomes $5 million to $10 million or more,” Williamson said. “This cost would dramatically impact job retention and job creation initiatives at Pennsylvania’s largest employers, diminish funds for innovation, reduce investment, minimize energy efficiency efforts and generally diminish the competitiveness of Pennsylvania companies.”
“Pennsylvania manufacturers cannot support the profitability of nuclear plant owners,” he said.
McCauslin agreed, but goes further.
“Corporate welfare schemes like this ruin market competition, stifle innovation, and erect barriers to opportunity, which ends up hurting the economy and costing more jobs down the road,” she said. “Taking money from hardworking taxpayers and handing it over to well-connected businesses isn’t the way to grow strong communities, boost local economies, and help people to improve their lives.”