Ohio Senate struggles to revise nuclear subsidy bill amid intense political maneuvering

Source: By John Funk, Utility Dive • Posted: Wednesday, June 26, 2019

Republican Senate leadership is aiming to unveil a substitute bill by this Wednesday or Thursday to replace House Bill 6, which was introduced by House GOP leaders in early April as a “clean air” bill and significantly altered 18 times following committee hearings before its passage by the House as Sub HB 6 on May 29.

Senate President Larry Obhof generally supports nuclear energy but is also a proponent of renewable technology and gas turbine development. The House and Senate usually wrap up legislation by June 30. Obhof has added an “if needed” Senate session day in July. Other members of the Senate GOP leadership are not convinced the subsidy legislation must be approved before the end of this month.

FirstEnergy Solutions (FES), the bankrupt owner of the two nuclear plants on Lake Erie that the legislation would subsidize through 2026, earlier set an end-of-June deadline for a decision, saying it had to order fuel rod assemblies for its Davis-Besse plant near Toledo by mid-year to have them ready for a scheduled refueling in the spring of 2020. The company completed the biennial refueling of its Perry nuclear plant, east of Cleveland, this past spring. Refueling typically costs about $50 million.

Whether or not lawmakers believe the company — which expects to emerge from bankruptcy protection later this year with its creditors as owners — is a question that has been lost in the rush by the state’s other electric utilities to gain something from the legislation, in hundreds of pages of testimony filed in committees, in daylong hearings, and in television advertising wars that that have erupted to convince voters to pressure lawmakers.

Tough maneuvering

The tough political maneuvering involved in this week’s last-minute creation of an acceptable compromise bill comes as senators are seeing two new analytical reports predicting that passage of the legislation as written would drastically drive up Ohio power prices and potentially drive out new manufacturing to states south of Ohio where power prices would be lower.

The latter conclusion comes from Ohio State University economist Edward Hill who delivered his analysis to the Senate’s Energy and Public Utilities Committee on Monday for its fifth hearing on the bill set for today.

Previous studies by Hill and other academic economists have shown that customer electric bills in Ohio have increased over the last decade even as competition has driven down wholesale electric rates.

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Hill is now arguing that House Bill 6 is little more than “crony capitalism” and part of an effort by the state’s regulated utilities over the last five years to raise electric rates and to “bail out” uncompetitive and failing coal and nuclear power plants.

He sees the legislation as a concerted effort to “re-monopolize the electric generation industry through a mix of regulation and legislation,” to “re-balkanize the regional generation market managed by PJM Interconnection,” and “to mandate above-markets rates payments” by allowing distribution utilities to enter into short-term power purchase agreements, or PPAs, and move those costs to customer electric bills.

Hill’s analysis compares the effort to increase power prices in Ohio to the seven-state region served by the Tennessee Valley Authority, which is working to lower electric rates. He argues that price increases in Ohio will affect the state’s ability to keep or attract aerospace, automotive and advanced manufacturing industries as well as limit the state’s ability to attract new energy-intensive data centers.

“Ohio is heading in the wrong direction by allowing in-state corporate redistributive politics [to] increase electricity rates and pick winners and losers while a major competitor region is busy cutting electricity [rates] and not subsidizing legacy generating capacity,” he warned.

Negative impacts

Hill’s analysis comes just days after the Ohio Manufacturers’ Association (OMA) quietly released a gloomy prediction of the negative impact the legislation, if approved as passed by the House, would have on Ohio businesses.

In an analysis sent to all members of the Ohio Senate, the OMA asserts that the legislation would funnel up to $338.5 million per year in additional revenues, or $2 billion during the six-year term of the clean air program created by HB 6, to FES for power generated by its Perry and Davis-Besse plants.

Those figures are significantly higher than what lawmakers had been led to believe ($140 million in 2020 and nearly $200 million annually from 2021 through 2026), figured only on the total “clean air” credits the company would be collecting for the power the two plants generate annually.

The OMA analysis sees additional costs that would be created by what it sees as a government intrusion into the energy markets, now managed by 13-state grid manager PJM Interconnection. And those costs would end up in customer bills, it asserts.

The argument relies on the assumption that the Federal Energy Regulatory Commission will order PJM to exclude state-subsidized power plants from its annual “capacity auctions” or set minimum prices it would accept in the auction from subsidized plants such as the FES plants.

FERC has not yet ruled on the changes in the capacity auctions that PJM conducts annually to choose power plants willing to guarantee they will deliver competitively priced electricity whenever PJM calls upon them three years in the future.

The auctions are crucial to power plant owners because they provide an extra flow of revenue over and above revenues earned in the sale of electricity itself.

Generating plants chosen in the auctions receive regular payments from PJM, funding that the OMA analysis estimates at about $82 million annually in total for Davis-Besse and Perry. The OMA believes FES would seek that money from customers if it were excluded from participating in the capacity auctions.

The OMA bases this belief on comments FES filed in PJM’s case before FERC on how it might deal with nuclear and coal-fired power plants that are receiving substantial state subsidies.

Finally, the OMA points to language in HB 6 that would allow distribution utilities, such as FirstEnergy Corp., the former parent of FES, to buy power from independent power companies using three-year power purchase agreements, or PPAs. The cost of these PPAs would be based on whatever it cost FES to generate the electricity, plus a profit.

The inclusion of PPAs in the bill would also allow the state’s other delivery utilities, American Electric Power, for example, to buy power from huge, utility-scale solar farms and pass those costs on to customers. AEP previously proposed building large, customer-financed solar arrays, which is permissible under the state’s deregulation laws if a company can prove the power is needed. FirstEnergy intervened in AEP’s case before the Public Utilities Commission of Ohio in order to object.

In other words, the OMA expects the distribution utilities to use the PPAs to get back into the generation business in a way that mimics the safety of traditional regulated markets in which competition does not exist.

While the House brought back some renewable provisions that had been stripped out in committee, advocates for renewable energy, natural gas and consumer rights bemoaned the passage of the bill, hailing it as a way to achieve President Donald Trump’s goal to subsidize coal plants.

By repealing the state’s broad renewable portfolio standard, the bill would eliminate a monthly surcharge of less than $5 from residential customers to help utilities obtain 12.5% of their power from renewable resources by 2027.

But while the bill eliminates the mandate, it contains other renewable provisions that helped garner support from 10 of 38 Democrats.

One amendment helped reduce permitting risk for the approval of small on-site industrial wind facilities, increasing the maximum from 5 MW to 20 MW for on-location self-generation wind-farms that could avoid Ohio Power Siting Board review. Another made room for five large-scale solar power projects to qualify for funding from the “clean air” program, after a House committee had stripped the bill of most of its renewable components.

But while some were glad to see at least some renewable provisions in the bill, oil and gas groups blasted the nuclear support provisions as unnecessary.

A report from the former senior economist of PJM Interconnection, Paul Sotkiewicz, says the FES nuclear plants make billions. The analysis, released on Tuesday published by E-Cubed Policy Associates, concludes that “Ohio nuclear resources are profitable on an operating basis and have no incentives to retire for the foreseeable future, therefore there is no need for additional out-of-market financial support.”

“This vote essentially bails out the profitable Davis-Besse and Perry nuclear power plants owned by FirstEnergy Solutions, and subsidizes two coal plants,” Chris Zeigler, American Petroleum Institute Ohio’s executive director, said in a statement.

“Independent research now confirms that the entire pretext for bailing out FirstEnergy’s power plants is bogus. Why should Ohioans be forced to bail out a profitable company?” Dick Munson, Midwest regulatory and legislative affairs director for the Environmental Defense Fund, said in a statement.