Latest posts by H. Sterling Burnett (see all)
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Exelon, a huge utility with the largest fleet of nuclear plants in the U.S. is trying to extort increased subsidies from ratepayers and taxpayers in Illinois, threatening to close three under-performing nuclear power plants serving the state if the state government doesn’t throw it some more money. My colleague at Heartland, Senior Fellow James Taylor, has provided a devastating critique of Exelon’s “request.”
Exelon gives a number of reasons for the state to pay it to keep the three nuclear plants in question open, among them: to keep electricity reliable and to prevent costs from rising, and to protect the environment by avoiding the social costs of carbon-dioxide emissions. Taylor details why these arguments fail.
Exelon claims three of its six Illinois nuclear power plants are uneconomical without a new round of government assistance. Exelon blames its problems on lower-than-expected energy demand, low natural gas prices that bolster competitive natural gas power, and renewable energy subsidies and mandates that give unfair advantages to the wind power industry. While I agree with Exelon that subsidies and mandates give unfair advantages to renewable power sources, in Illinois, the wind industry in particular, I find the company’s complaints concerning competition in the marketplace almost laughable. Why? Because Exelon tout itself as a great advocate and defender of competition in the market place on its corporate website.
In its About Exelon Factsheet the company states, “Exelon maintains a strategic presence in key competitive markets and believes that competition drives choice, innovation and savings for businesses and residential customers alike. The company champions competitive power markets as the best framework for meeting important economic and environmental policy objectives, including ensuring the nation’s shift to a cleaner energy supply in the most cos teffective manner.”
Evidently competition in power markets is good, until Exelon can’t compete and then government support is subsidized. Imagine if automobile manufacturers and banks ran to the government for support every time market shifts made their investments unprofitable — oh, wait, my bad, we don’t have to imagine that. But just because the government bailed out failing companies in those industries, doesn’t mean it should do so here — Exelon is not threatened with failure and it money losing nuclear plants in Illinois are not “too big to fail.”
In fairness, its hard to assess whether Exelon’s three plants are actually losing money since, though the company is asking for additional subsidies, it refuses to open its financial records to public scrutiny. Despite Exelon’s claimed financial woes, the energy company recorded a net profit of more than $2 billion in 2014. Even if these plants aren’t profitable at current electric prices, it doesn’t mean they won’t be if prices rise as expected in the future. As Taylor argues:
If Exelon demands taxpayers guarantee solid profits for every individual component of its nuclear power plant fleet, then taxpayers can reasonably demand in return that Exelon not keep excessive profits from any individual component of its fleet. Exelon, however, does not offer to return excessive profits it has garnered from its other power plants.
Exelon threatens to shut down the three nuclear power plants if it does not receive its demanded taxpayer subsidies. Rather than cave in to such strong-arm tactics, which Exelon may employ again and again in the future, the legislature should consider taking steps to immunize electricity customers from similar future threats. Responding to Exelon’s threats by giving it protective regulation and subsidies that temporarily prop up uneconomical nuclear power plants would encourage rather than discourage Exelon from making similar threats in the future.
Another factor mitigating against Exelon’s claims is electric grid operator MISO Energy’s 2015/2016 generator auction, conducted in April 2015. High prices generated by the auction will add $13 million to Exelon’s Illinois nuclear power plant revenue. Also, cost structure changes approved by electric grid operator PJM Interconnection will increase Exelon consumers’ electricity bills and may add another $560 million in revenue for Exelon’s nuclear power plant fleet by 2018.
Concerning the effect on reliability and costs, a study conducted by four agencies in the state of Illinois found that there is little likelihood the loss of the three plants, even in extreme power situations, would result in reliability problems. The report indicates, there will be sufficient generation capacity for Illinois electricity demand, even if Exelon closes its at-risk nuclear power plants, during all but the most extreme foreseeable scenarios. However, most extreme scenarios would likely overwhelm capacity even if these three power plants remained operational. Even the minimal risk of insufficient capacity to meet demand would be alleviated if the state allowed lower-cost power plants to be constructed in response to the closure of Exelon’s nuclear power plants.
Concerning costs, the Illinois report found, any short-term cost impacts from Exelon shutting down the power plants could be mitigated by longer-term cost savings stating, “the closure’s actual or anticipated impact on electric energy and capacity prices would provide an incentive for firms to construct replacement generating facilities.” As Taylor notes,
Absent government interfering and distorting electricity markets, these replacement generating facilities would be less expensive coal and natural gas power plants. A short-term increase in retail electricity prices brought on by Exelon’s poor planning and decision-making could be offset by more economical coal and natural gas power plants replacing the uneconomical nuclear plants.
While the state government backs Exelon’s claim, to a limited extent, that subsidies and other costly interventions may be justified to keep its under-performing nuclear plants operating to avoid the “social costs of carbon,” as anyone following the climate change debate knows, carbon-dioxide is not a pollutant, but rather necessary to life on earth and the increase in carbon-dioxide the the past half-century has had tremendous benefits, including forests regrowth, natural desert reclamation and record crop yields (which have contributed to significant decreases in malnutrition and hunger).
By the same token, there scant if any evidence higher carbon-dioxide levels are causing harmful or extreme weather events. Tornadoes and hurricanes have become less frequent and severe. Droughts are no worse nor longer in duration now than historically recorded and death rates due to weather are declining rapidly.
Even if there are measurable social costs of carbon-dioxide that can be calculated accurately, Taylor shows harms from closing these three plants would be infinitesimal since the amount of carbon-dioxide avoided through continued their operation in lieu of replacement fossil fuel plants, would have no measurable effect on climate or temperature.
As important, every energy sources has negative environmental impacts, yet the Illinois agencies examining the case for government support for keeping Exelon’s three money losing nuclear plants open, failed to compare the social costs of carbon-dioxide emissions with the social costs of the environmental harms posed by other forms of energy generation. Looking just at wind power, for example, “while generating merely 3 percent of U.S. electricity, kills 1.4 million birds and bats, including many endangered and protected species, every year. Some 600 square miles of land must be developed with wind turbines to produce as much electricity as a single conventional coal-powered power plant. The power lines required to deliver wind power from remote sources to human population centers cause even more environmental damage and disruption.”
In the end, Taylor makes a dispositive case there is no compelling justification for Illinois state government to to bail out Exelon’s three nuclear power plants.