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Research & Commentary: Costly Nuclear Bailout Would Be the Wrong Move for Ohio

April 25, 2019

FirstEnergy Solutions Would Receive $170 Million Annual Bailout

Ohio lawmakers are considering a proposal that would create the Ohio Clean Air Program (OCAP), which would provide an approximately $170 million dollar annual bailout to operators of nuclear power plants in the Buckeye State.

The bill would allocate roughly $300 million per year. About 56 percent of these funds would go directly to FirstEnergy Solutions, which claims it will be forced to close its Perry and Davis-Besse nuclear power plants without the bailout. To fund OCAP, residential electricity customers would pay a $2.50 tax attached to their monthly bills. Commercial customers would be charged an extra $20 per month, and industrial customers an extra $250 per month. “Very large users” exceeding 45 million kilowatt hours of electricity use would pay an extra $2,500 per month.

Although the bill would also remove Ohio’s renewable energy mandate, the Alternative Energy Resource Standard (AERS), the bill would incentivize utilities to build and maintain facilities that don’t produce carbon dioxide emissions by giving them a $9.25 “clean air credit” per every single megawatt hour of carbon-free energy they produce. According to Greg Lawson of The Buckeye Institute, this fund “risks becoming a glorified slush fund with the real incentive being for companies to find new and creative ways to tap into that fund, threatening an unintentional slap in the face to businesses that risk their own capital without seeking money from the state.”

The AERS, established in 2008, requires utilities to generate 12.5 percent of their electricity from “renewable” sources such as wind and solar by 2026. This mandate severely hinders nuclear power by skewing the energy marketplace and subsidizing “renewable” competitors.

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

The current Ohio bailout proposal would overwhelmingly benefit one large energy company at the expense of everyone else in the Buckeye State. 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. 

Therefore, Ohio legislators should not bail out FirstEnergy Solutions. Instead, Ohio legislators should repeal the misguided AERS, which would reduce electricity bills for all Ohioans and force FirstEnergy Solutions to operate its nuclear facilities profitably.

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 Lindsey Stroud, a state government relations manager at The Heartland Institute, at lstroud@heartland.org or 312/377-4000.