FirstEnergy claims that Ohio’s economy is threatened by the loss of nuclear power plants. That claim turns economic reality on its head and is an example of alternative facts.
You don’t have to be an economist to know that nuclear power has deep problems. You can tell by the number of nuclear plants in the United States that have closed in recent years. Since 2012, U.S. nuclear plant owners have closed or announced closure of 14 nuclear plants, and many others are considered at high risk of being shut down. The energy source that was supposed to be “too cheap to meter” became the energy source that is too expensive to survive.
Several factors help explain why the energy renaissance led by nuclear never materialized. Operating costs have been rising rapidly, in part because of the need to replace expensive components and equipment in aging plants with parts that come from overseas. With electricity demand no longer increasing at historic rates, there is less need for large amounts of base-load power that nuclear plants provide.
But the most important contributor to nuclear power’s quandary has been low cost and abundant natural gas, thanks to the “fracking” boom that started a decade ago and has boosted gas output by more than 70 percent. Low cost and abundance make it cheaper to produce electricity from natural gas than from nuclear power. The United States uses vastly more natural gas at power plants than experts predicted a decade ago and its growth as a power source will continue to grow.
The revival of U.S. manufacturing is perhaps the most visible beneficiary of cheap shale gas that is used both for power generation and as a feedstock. The Marcellus and Utica shale formations that underlie large parts of Pennsylvania and Ohio now produce more natural gas than shale fields in Texas. And this is creating thousands of new jobs in Pennsylvania and Ohio.
But despite the availability of low-cost gas, FirstEnergy is proposing that ratepayers subsidize the continued operation of its money-losing nuclear plants, Davis-Besse and Perry. FirstEnergy wants the Ohio legislature to approve a plan that would provide about $300 million annually in zero-emission credits to keep the two nuclear plants alive. That could amount to $4.8 billion if cast over the 16-year life of the bailout scheme.
FirstEnergy’s plan appears to have been borrowed in large part from Chicago-based Exelon, the nation’s largest nuclear utility, which recently succeeded in getting Illinois and New York State to subsidize the continued operation of seven of its unprofitable nuclear plants. The only logic to FirstEnergy’s commitment to distressed and aging plants is to add billions of dollars to its bottom line with subsidies before the State legislature understands the real economic consequences. It makes no sense to subsidize a technology that is well understood and not competitive. It’s not as if the money will be invested in new innovative nuclear technology. To the contrary, it will be used to keep two distressed nuclear plants operating at the expense of lower cost electricity from natural gas. It’s not FirstEnergy shareholders who will foot the bill, it will be Ohio households, businesses, and industries.
FirstEnergy says the plan will cost the average household only $5 a month. That amounts to $60 a year. Extrapolated over 16 years, it will cost a typical residential ratepayer $960. Businesses and industries will pay much more. But it’s not as if FirstEnergy hasn’t gotten some hefty rate hikes. Last year state regulators granted a $200 million a year increase in FirstEnergy’s customer delivery charges.
There is an economic truism. Lower cost energy contributes to job creation and business growth; higher cost energy does just the opposite.
Bill O’Keefe is president of Solutions Consulting. He’s a former CEO of the George C. Marshall Institute and is a member of the American Petroleum Institute.