Imagine this: A city council decides to require all children’s summer lemonade stands to add a surcharge to keep other children’s iced-tea stands from closing. This is necessary, they say, to make sure there are enough stands open through the summer heat.
Residents would balk at the absurdity and unfairness of such a law. Well, a similar situation is playing out in the Ohio legislature now.
Swap lemonade stands for electricity companies that run on natural gas, coal and renewables. Exchange the iced-tea stands for nuclear-powered electricity companies. And trade the city council for the legislature.
Since 1999, Ohio has allowed residents and businesses to shop for their electricity provider. But a hotly debated bill passed in the House stretches the definition of competition. House Bill 6 would (mostly) end the state’s renewable energy mandate and replace it with a new government mandate called the Ohio Clean Air Program to subsidize electricity companies for every megawatt-hour of CO2-free electricity they produce.
The clear beneficiaries are Ohio’s two struggling nuclear power plants, Davis-Besse and Perry. As proposed, all of Ohio’s electricity customers would contribute to the Clean Air Program kitty for these companies via a tax tacked onto their monthly electricity bills, regardless of who provides their electricity.
Proponents argue the subsidies are needed to keep these two nuclear power plants open. If the legislature doesn’t pass the Clean Air Program and these nuclear plants close, the argument goes, jobs will be lost and grid reliability will be compromised. Plus, it’s for the environment!
But the arguments for a new government mandate are about as thin as a soggy paper cup of iced tea. Taken in turn:
The prospect of closure isn’t such a crisis. The Davis-Besse and Perry plants are indeed slated to close in 2020 and 2021 unless a buyer is found. This has been known since at least 2016.
For at least the last 10 years, Perry and Davis-Besse have had higher costs than any other nuclear power plant in PJM (the regional market Ohio belongs to) except Pennsylvania’s Three Mile Island plant. In 2018, these three plants had costs of $42.66 per megawatt-hour of electricity they produced. By contrast, all other nuclear power plants had costs of $30.89 per megawatt-hour. The likely reason is that they are single-unit plants, meaning that instead of having multiple nuclear reactors onsite, they only have one — and the economics show.
Unfortunately, that does mean jobs at Perry and Davis-Besse will be lost. That day will eventually come, whether these plants are subsidized or not. Even then, closing and decommissioning a nuclear power plant is a long, multimillion-dollar process that doesn’t immediately turn off the tap of employment and tax revenues.
Consider, too, the other side of the job coin. Other companies have made investments in the last decade anticipating Ohio customers’ needs with the confidence that they and their competitors would both play by market rules. Legislators engage in “bait and switch” by proposing new rules to socialize costs for certain companies. While subsidizing the purchase of nuclear energy will save those jobs for a time, it will also prevent the creation of others.
Grid reliability is perhaps the biggest non-issue. Regional market PJM has 14,000 MW of excess reserves, and the North American Electric Reliability Corporation states that the region has sufficient reservesthrough 2027, even with announced closures.
Lastly, competition helps the environment. Competition forces companies to be efficient and innovative, unlike a government-protected monopoly that can ride on political goodwill. For example, Ohio’s competitive market has enabled it to enjoy the environmental benefits of the shale-gas revolution rather than be locked into power providers resistant to change.
In the end, there’s nothing wrong with iced tea or lemonade, per se – they bring different things to the table, just like nuclear, gas, coal, and renewables. The problem is government mandates that move choice further from customers and closer to legislators and lobbyists.
If Ohio legislators want to be fair, they should defend competitive markets and eliminate policies that created unfairness in the first place.
This piece first appeared in Cleveland.com