4/17/15 - WALL STREET JOURNAL: Nuclear Power Goes Begging, Likely at Consumers’ Expense

By REBECCA SMITH

Operators of nuclear power plants are seeking rate increases to avoid closures in deregulated market.

Electricity producers in several states are asking for hundreds of millions of dollars in financial support to keep costly nuclear power plants in business—a move that is likely to boost customers’ power bills.

The utilities claim the nuclear reactors in question—located in New York, Ohio and Illinois—should be given special compensation because they are important to local economies and the electrical grid’s stability, and because they don’t emit greenhouse gases or other pollutants.

But consumer advocates don’t see why utility customers should be asked to subsidize these plants. They note that New York, Ohio and Illinois all deregulated their electricity markets more than a decade ago, a move meant to reduce power costs in part by weeding out the least-competitive power plants.

Nuclear plants cost a lot to maintain and staff because they must meet more stringent safety standards than other kinds of power-generating stations. In recent years, plunging natural gas prices have forced down wholesale power prices, making it hard for reactors to compete, though they still supply 19% of America’s power.

Before deregulation, all nuclear reactors were part of utility-owned networks of power plants that used different kinds of fuel, including coal and natural gas. Utilities passed along their combined costs to consumers in a single monthly charge.

Today, roughly half the nation’s 99 nuclear reactors operate in deregulated markets where they must compete on a stand-alone basis by selling electricity to utilities and other suppliers through daily auctions that tap the cheapest resources capable of satisfying grid needs.

As many as three dozen reactors are considered at risk of closure for economic reasons. Dominion Resources Inc. shuttered its Kewaunee plant in Wisconsin in 2013 when it became unprofitable to operate.

New York and federal regulators are weighing whether to make customers subsidize the Ginna nuclear station in Ontario, N.Y., 20 miles northeast of Rochester. Its owner, Chicago-based Exelon Corp., says the plant loses about $50 million a year because it can’t collect enough money from the deregulated market to cover its costs.

With a push from state utility regulators, Rochester Gas & Electric Co. recently inked a deal with Exelon that would guarantee Ginna $17.5 million in revenue every month, or $210 million a year. The typical RG&E residential bill would rise by 4%—about $4 a month—to keep the reactor in service until at least 2018 even though cheaper power is available from other plants. State regulators say Ginna’s power is needed to keep the grid stable in that part of New York.

Exelon and RG&E declined to comment. But large industrial customers are asking the Federal Energy Regulatory Commission to reject the contract, arguing in a petition that “it’s not always clear whether nuclear power plants asking for financial help are actually losing money or are simply less profitable” than they were in the past.

David Schlissel, an economist in Belmont, Mass., who represents consumers in utility cases, said many reactors “aren’t making as much money as the owners want, but they were printing money for quite a while. Now that it’s not as advantageous, the owners want a new deal.”

Illinois is considering financial assistance for three Exelon nuclear plants that the company says are suffering from low power prices. State officials are considering several forms of aid, including legislation that would require utilities to support carbon-free generators like nuclear and renewable energy.

Bill Von Hoene, Exelon’s chief strategy officer, recently told investors that his company isn’t seeking a bailout in Illinois. “This is about addressing market flaws to properly value resources that are of great importance to the state,” he said.

Roughly half of the electricity generated in Illinois comes from reactors.

Steve Mitnick, former energy czar for New York and a research economist, said nuclear power is valuable in part because reactors can provide huge amounts of uninterrupted electricity. Reactors often run for 18 months before stopping to refuel.

“It’s not just that nuclear plants are carbon-free, they also have scale that makes them especially valuable to the grid,” he said.

Utility watchdogs note that in the 1980s utility customers paid billions of dollars to construct reactors and then billions more when many states deregulated their electricity markets in the late 1990s. That is because many utilities sold their nuclear reactors for a pittance and passed on remaining debt from those plants to customers to prevent utility losses. Utilities say the arrangement was fair because they built the plants to serve markets that regulators dramatically altered

This has made consumer advocates wary about the latest twist. “You have to be very careful it doesn’t turn in to a nuclear bailout,” said Dave Kolata, executive director of the Citizens Utility Board in Chicago, which represents energy users.

In Ohio, FirstEnergy Corp. has asked the state for a cash infusion for its deregulated Davis-Besse plant near Toledo. Don Moul, head of commodities for the Akron-based company, said the proposal would help Ohio keep the plant running and protect high-paying jobs. He declined to answer whether Davis-Besse is losing money.

FirstEnergy’s proposal would obligate three regulated Ohio utilities it owns—Ohio Edison, Toledo Edison and Cleveland Electric Illuminating—to buy kilowatts from Davis-Besse and other company-owned plants even when cheaper electricity is available on the open market.

Consumers would pay an extra $400 million in the first three years of a 15-year contract, but then have the benefit of below-market, fixed payments for power for the remaining 12 years, the company said, adding that customers would reap a $2.1 billion benefit overall.

It is impossible to analyze FirstEnergy’s economic case because the public version of its state filing is heavily redacted.

The Ohio Consumers’ Counsel, which represents ratepayers in utility cases, opposes the deal. The group contends that FirstEnergy’s request violates the state deregulation law by saddling customers with the costs of unregulated, uneconomic plants.

Hearings before the Ohio utilities commission began on April 13.