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Research & Commentary: Costly Nuclear Bailout Is the Wrong Move for Pennsylvania

April 4, 2019

Nuclear Would Receive $500 Annual Bailout, Be Included In Pennsylvania's Renewable Mandate

A proposal in the Pennsylvania House of Representatives would provide a $500 million annual bailout to operators of nuclear power plants in the commonwealth and would add nuclear power to the Keystone State’s Alternative Energy Portfolio Standard (AEPS), a renewable energy mandate. Operators of the nuclear facilities have threatened that they will be forced to close some of them without a bailout.

AEPS, established in 2004, currently forces state utilities to generate 18 percent of their electricity from “renewable” sources by 2020–21. The bailout proposal would add a new tier to AEPS, which would include nuclear, solar, wind, and other “zero-carbon” sources and mandate utilities generate 50 percent of their electricity from these sources by 2021.

Renewable energy mandates such as the AEPS force expensive, heavily subsidized, and politically favored electricity sources such as wind and solar on ratepayers and taxpayers while providing few, if any, net environmental benefits. Even worse, these mandates disproportionally impact low-income households by raising their electric bills as well as the cost of all goods and services.

Unsurprisingly, in states with REMs, energy rates are rising twice as fast as the national average and states with renewable mandates had electricity prices 26 percent higher than those without. The 29 states with renewable energy mandates (plus the District of Columbia) had average retail electricity prices of 11.93 cents per kilowatt hour (cents/kWh), according to the U.S. Energy Information Administration. On the other hand, the 21 states without renewable mandates had average retail electricity prices of just 9.38 cents/kWh.

A 2016 study found AEPS cost state taxpayers and ratepayers more than $502 million in 2016, increasing electricity prices by 3.5 percent. It also found losses in economic activity in 2016 due to the mandate were more than $1.3 billion, and it cost the state more than 9,800 jobs. By 2020, it estimates costs to rise above $654 million, with electricity prices increasing by 5.25 percent. It also estimated economic activity in 2020 will be reduced by $1.67 billion, and that more than 11,000 jobs will be eliminated.

Bill sponsors argue the closure of some of the commonwealth’s nuclear plants would have increased the price of electricity and affected the reliability of the commonwealth’s electric grid. However, a 2018 Penn State University study found wholesale energy prices would not be seriously impacted by the closure of these plants, nor would their closure hurt the reliability of commonwealth’s electric grid. “These nuclear power plants are big, but even if you were to lose these big power plants there’s so much other generation capacity that can produce electricity at costs competitive with the nuclear plants that the market outcomes aren’t going to change and the reliability of the grid won't be compromised,” said Seth Blumsack, the study’s author, in an accompanying press release.

State governments in Illinois and New York recently conceded to similar nuclear bailout demands and allowed utilities to charge consumers some $2.35 billion and $7.6 billion, respectively, to keep unprofitable nuclear plants operating. According to a report from Bloomberg Intelligence, if all the nuclear plants in the Northeast were to receive the same level of subsidies as New York, ratepayers would be staring down an annual $3.9 billion rate hike.

A bailout would also be politically unpopular. A 2018 poll of 600 Pennsylvania voters conducted by Citizens Against Nuclear Bailouts, a special-interest coalition, found 63 percent of respondents were opposed to a nuclear bailout if it meant they were forced to pay more for electricity. Another 52 percent said they would be less likely to vote for state legislators who supported a bailout.

The current bailout proposal would benefit a couple large energy companies at the expense of everyone else in the commonwealth. There is nothing wrong with nuclear power, which is perfectly safe and is an important part of the country’s energy portfolio, and it will continue to be so in the future. However, the government should not decide winners and losers in any market, and lawmakers should never enact policies that will harm individual consumers and families. Legislators should reject this bailout and also look to repeal the regressive, unnecessary AEPS. 

The following documents provide more information about nuclear bailouts and renewable energy mandates.

Legislating Energy Poverty: A Case Study of How California’s and New York’s Climate Change Policies Are Increasing Energy Costs and Hurting the Economy
https://www.pacificresearch.org/wp-content/uploads/2018/12/LegislatingEnergy_F_Web.pdf
This analysis from Wayne Winegarden of the Pacific Research Institute shows the big government approach to fighting climate change taken by California and New York hits working class and minority communities the hardest. The paper reviews the impact of global warming policies adopted in California and New York, such as unrealistic renewable energy goals, strict low carbon fuel standards, and costly subsidies for buying higher-priced electric cars and installing solar panels. The report finds that, collectively, these expensive and burdensome policies are dramatically increasing the energy burdens of their respective state residents.

Ten State Solutions to Emerging Issues
https://www.heartland.org/publications-resources/publications/ten-state-solutions-to-emerging-issues-2018
This Heartland Institute booklet explores solutions to the top public policy issues facing the states in 2018 and beyond in the areas of budget and taxes, education, energy and environment, health care, and constitutional reform. The solutions identified are proven reform ideas that have garnered significant support among the states and with legislators.

Best Options for Potential Nuclear Power Plant Closings in Illinois
https://www.heartland.org/publications-resources/publications/best-options-for-potential-nuclear-power-plant-closings-in-illinois?source=policybot
In this Heartland Policy Brief, James M. Taylor and Taylor Smith analyze the potential closing of several nuclear power plants in Illinois and conclude the best option for taxpayers and electricity consumers is to allow uneconomical plants to close and let the most economical power options replace them under a free-market system. 

Evaluating the Costs and Benefits of Renewable Portfolio Standards
https://www.heartland.org/publications-resources/publications/evaluating-the-costs-and-benefits-of-renewable-portfolio-standards?source=policybot
This paper by Timothy J. Considine, a distinguished professor of energy economics at the School of Energy Resources and the Department of Economics and Finance at the University of Wyoming, examines the renewable portfolio standards (RPS) of 12 different states and concludes while RPS investments stimulate economic activity, the negative economic impacts associated with higher electricity prices offset the claimed economic advantages of these RPS investments.

The 100 Percent Renewable Energy Myth
https://www.instituteforenergyresearch.org/wp-content/uploads/2019/02/Renewable-Myth-Policy-Brief219.pdf
This Policy Brief from the Institute for Energy Research argues that a countrywide 100 percent renewable plan would put the U.S. economy in jeopardy. The brief investigates the intermittency, land requirements, capacity factors, and cost of transition and construction materials that limit the ability of the U.S. to adapt to 100 percent renewable energy.

The U.S. Leads the World in Clean Air: The Case for Environmental Optimism
https://files.texaspolicy.com/uploads/2018/11/27165514/2018-11-RR-US-Leads-the-World-in-Clean-Air-ACEE-White.pdf
This paper from the Texas Public Policy Foundation examines how the United States achieved robust economic growth while dramatically reducing emissions of air pollutants. The paper states that these achievements should be celebrated as a public policy success story, but instead the prevailing narrative among political and environmental leaders is one of environmental decline that can only be reversed with a more stringent regulatory approach. Instead, the paper urges for the data to be considered and applied to the narrative.

The Social Benefits of Fossil Fuels
https://www.heartland.org/publications-resources/publications/the-social-benefits-of-fossil-fuels
This Heartland Policy Brief by Joseph Bast and Peter Ferrara documents the many benefits from the historic and still ongoing use of fossil fuels. Fossil fuels are lifting billions of people out of poverty, reducing all the negative effects of poverty on human health, and vastly improving human well-being and safety by powering labor-saving and life-protecting technologies, such as air conditioning, modern medicine, and cars and trucks. They are dramatically increasing the quantity of food humans produce and improving the reliability of the food supply, directly benefiting human health. Further, fossil fuel emissions are possibly contributing to a “Greening of the Earth,” benefiting all the plants and wildlife on the planet.

Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers
https://www.heartland.org/publications-resources/publications/climate-change-reconsidered-ii-fossil-fuels---summary-for-policymakers
In this fifth volume of the Climate Change Reconsidered series, 117 scientists, economists, and other experts assess the costs and benefits of the use of fossil fuels by reviewing scientific and economic literature on organic chemistry, climate science, public health, economic history, human security, and theoretical studies based on integrated assessment models (IAMs) and cost-benefit analysis (CBA).

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Arianna Wilkerson, a state government relations manager at The Heartland Institute, at awilkerson@heartland.org or 312/377-4000.