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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Prospects have dimmed for Ohio state legislation, which is supported by FirstEnergy Corporation (NYSE:FE) (Akron, Ohio), that would increase electric prices by up to $300 million annually for a period of 16 years to compensate owners of nuclear power plants for their non-emitting characteristics. The potential cost of the measures, as drafted--up to about $5.25 billion more than 16 years--has drawn sharp criticism from consumer groups, environmental organizations and competing energy companies.
Separate bills creating a Zero Emission Nuclear (ZEN) program were introduced in the Ohio House of Representatives and Senate earlier this year, and testimony was taken by both bodies in mid-May. The Ohio House Public Utilities Committee suspended consideration of its bill after hearing over 10 hours of testimony on May 17. The Ohio Senate Pubic Utilities heard testimony on its bill May 18.
A FirstEnergy subsidiary, FirstEnergy Solutions (FES), owns Ohio's two nuclear plants: the Perry Nuclear Generating Station, a 1,245-megawatt (MW) facility, and the Davis-Besse Nuclear Power Station, a 901-MW plant. Those two plants generate about 14% of Ohio's electricity.
Cheap and abundant natural gas has made those nuclear plants uneconomic to operate. Last year, FirstEnergy took a $9.2 billion asset-impairment charge to reflect the reduced value of its merchant generation fleet, which includes its nuclear and coal plants. That charge caused FirstEnergy to post a net loss of $6.2 billion for 2016. For more on this, see March 30, 2017, article - Will FirstEnergy Achieve ZEN for its Ohio Nuclear Plants? The financial challenges of operating in competitive energy markets have caused FirstEnergy to focus on its regulated businesses. For more on that, see February 8, 2017, article - Stung by Competitive Power Markets, FirstEnergy Focuses on T&D Investments.
Encouraged by measures enacted in Illinois and New York that provided financial aid to nuclear operators, FirstEnergy tried the same thing in Ohio. But the proposed legislation has drawn a torrent of criticism. For more on the New York measure, see August 3, 2016, article - Cash on the Barrel: New York Clean Energy Standard Includes Multibillion-Dollar Support for Nuclear Power's Carbon-Free Generation. For more on the Illinois measure, see December 20, 2016, article - Exelon Wins Financial Aid for Two Uneconomic Nuclear Plants.
"These nuclear bailouts are spreading like the plague--first from New York and Illinois--and now potentially to Ohio and other states," David Gaier, a spokesman for NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey), told Industrial Info in an emailed statement. "They completely distort the power markets, and above all, they harm ratepayers by saddling them with non-bypassable charges that enrich only certain operators of nuclear plants--that are uneconomic and should be closed if they cannot compete in the power markets. NRG opposes these bailouts and we'll take them on wherever they rear their head."
Another power provider, Dynegy Incorporated (NYSE:DYN) (Houston, Texas), has been critical of the idea of providing financial aid to owners of nuclear power plants. The measures also were opposed by a wide range of environmental, consumer and citizen groups. However, on May 17, the Nuclear Energy Institute (Washington, D.C.), the Ottawa County Improvement Corporation and Summit County testified in support of H.B. 178 before the Ohio House Public Utilities Committee.
The proposed measure would set the initial price of a ZEN credit at $17 per megawatt-hour, with the expectation that the fee would rise to about $21.89 per megawatt-hour in the last year of the program, fiscal year 2033, according to an analysis of H.B. 178 prepared by the Ohio Legislative Service Commission (OLSC), a nonpartisan agency providing the Ohio General Assembly with drafting, research, budget and fiscal analysis, training and other services. The initial price of the ZEN credits could be modified by the state's utility regulators. The fee would be a non-bypassable rider that all retail electric customers would be required to pay for a period of 16 years. The OLSC analysis estimated the initial annual cost of the rider at up to $286 million per year. In the out years, the fee could rise to as much as $372 million per year. Over its 16-year lifespan, the rider would generate up to $5.25 billion, the OLSC analysis calculated.
FirstEnergy spokesperson Jennifer Young confirmed the ZEN legislation would create a mandatory fee of about $300 million per year. In an emailed statement, she added: "FirstEnergy will continue pursuing the legislation in Ohio, as nuclear power provides critical economic, environmental, fuel diversity and other benefits for the state." The utility is continuing discussions with lawmakers in the state House and Senate, and she said more hearings are expected in the Senate in the coming weeks.
The Ohio legislature is scheduled to adjourn in a few weeks. Since the House committee has suspended hearings on its proposed bill, the prospects of passing a bill in the current session appear dim.
William Seitz, chairman of the Ohio House Public Utilities Committee, suspended further hearings on the ZEN legislation on May 17. "I am not sensing a keen desire on the part of the House members to vote on this and doubt that we will have more hearings in the near future unless something cataclysmic should happen," Seitz said, according to a report in The Cleveland Plain Dealer.
One such potential cataclysmic event could be the FirstEnergy Solutions' filing of a Chapter 11 bankruptcy petition. FES' bonds have a "junk" status, and if it seeks Chapter 11 protection from its creditors, there is a chance ownership of the nuclear plants will pass to another party. The company reportedly said that the measures under consideration by the state legislature, which would increase customer bills by about 5%, are needed to help avoid a bankruptcy filing by FirstEnergy Solutions.
Testifying before the Ohio House Public Utilities Committee on May 17, FirstEnergy President and Chief Executive Charles E. Jones reportedly said of H.B. 178, "This is not a bailout for FirstEnergy." The Perry and Davis-Besse plants provide "clean, dependable baseload resources" and "it's in the absolute best interest of our customers and the state to ensure that these plants are valued for the unique environmental and fuel-diversity benefits that they provide to Ohio," according to a report in the Plain Dealer.
In his testimony on May 18 before the Ohio Senate Public Utilities Committee, Jones said, "Ohio cannot afford to continue heading down a path that could lead to less fuel-diverse and fewer homegrown energy resources, more energy imports, fewer jobs and less economic growth, not to mention more volatile electricity prices for our customers and your constituents." His remarks were reported by The Columbus Dispatch newspaper.
The Plain Dealer report of that session included this comment from Jones: "Nuclear power plants in Ohio are losing money. Why are they losing money? It's not because they can't compete in a competitive market. They are losing money because there is no competitive market."
Referring to the PJM Interconnection (Valley Forge, Pennsylvania), the grid operator for a 13-state region, Jones reportedly told the senators, "The current wholesale electricity market construct does not value certain attributes that these [nuclear] plants provide to Ohio."
Jones had much the same thing to say at his company's annual shareholder's meeting, held before the House and Senate hearings. In his address to that meeting, Jones extolled nuclear power's benefits. His comments also referenced an interesting aspect of the proposed Ohio legislation: that it could apply to out-of-state nuclear power plants, including FirstEnergy's Beaver Valley Nuclear Power Station plant in Pennsylvania and the Donald C. Cook Nuclear Power Station, located in Michigan and operated by a subsidiary of American Electric Power (NYSE:AEP) (Columbus, Ohio).
"Our Davis-Besse, Perry and Beaver Valley nuclear plants have the ability to operate 24/7--generating enough electricity to power more than 4 million homes, around the clock. In fact, nuclear facilities produce more than 90% of the carbon-free power in Ohio and Pennsylvania," Jones told FirstEnergy's shareholders May 16. Those plants employ about 2,300 people. Noting that shifting energy economics have forced the early retirement of nuclear plants in Wisconsin, Vermont and Nebraska, Jones said, "We simply cannot allow this to happen in Ohio and Pennsylvania. So if you share our concerns and live in either state, I encourage you to reach out to your local senator or representative."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Separate bills creating a Zero Emission Nuclear (ZEN) program were introduced in the Ohio House of Representatives and Senate earlier this year, and testimony was taken by both bodies in mid-May. The Ohio House Public Utilities Committee suspended consideration of its bill after hearing over 10 hours of testimony on May 17. The Ohio Senate Pubic Utilities heard testimony on its bill May 18.
A FirstEnergy subsidiary, FirstEnergy Solutions (FES), owns Ohio's two nuclear plants: the Perry Nuclear Generating Station, a 1,245-megawatt (MW) facility, and the Davis-Besse Nuclear Power Station, a 901-MW plant. Those two plants generate about 14% of Ohio's electricity.
Cheap and abundant natural gas has made those nuclear plants uneconomic to operate. Last year, FirstEnergy took a $9.2 billion asset-impairment charge to reflect the reduced value of its merchant generation fleet, which includes its nuclear and coal plants. That charge caused FirstEnergy to post a net loss of $6.2 billion for 2016. For more on this, see March 30, 2017, article - Will FirstEnergy Achieve ZEN for its Ohio Nuclear Plants? The financial challenges of operating in competitive energy markets have caused FirstEnergy to focus on its regulated businesses. For more on that, see February 8, 2017, article - Stung by Competitive Power Markets, FirstEnergy Focuses on T&D Investments.
Encouraged by measures enacted in Illinois and New York that provided financial aid to nuclear operators, FirstEnergy tried the same thing in Ohio. But the proposed legislation has drawn a torrent of criticism. For more on the New York measure, see August 3, 2016, article - Cash on the Barrel: New York Clean Energy Standard Includes Multibillion-Dollar Support for Nuclear Power's Carbon-Free Generation. For more on the Illinois measure, see December 20, 2016, article - Exelon Wins Financial Aid for Two Uneconomic Nuclear Plants.
"These nuclear bailouts are spreading like the plague--first from New York and Illinois--and now potentially to Ohio and other states," David Gaier, a spokesman for NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey), told Industrial Info in an emailed statement. "They completely distort the power markets, and above all, they harm ratepayers by saddling them with non-bypassable charges that enrich only certain operators of nuclear plants--that are uneconomic and should be closed if they cannot compete in the power markets. NRG opposes these bailouts and we'll take them on wherever they rear their head."
Another power provider, Dynegy Incorporated (NYSE:DYN) (Houston, Texas), has been critical of the idea of providing financial aid to owners of nuclear power plants. The measures also were opposed by a wide range of environmental, consumer and citizen groups. However, on May 17, the Nuclear Energy Institute (Washington, D.C.), the Ottawa County Improvement Corporation and Summit County testified in support of H.B. 178 before the Ohio House Public Utilities Committee.
The proposed measure would set the initial price of a ZEN credit at $17 per megawatt-hour, with the expectation that the fee would rise to about $21.89 per megawatt-hour in the last year of the program, fiscal year 2033, according to an analysis of H.B. 178 prepared by the Ohio Legislative Service Commission (OLSC), a nonpartisan agency providing the Ohio General Assembly with drafting, research, budget and fiscal analysis, training and other services. The initial price of the ZEN credits could be modified by the state's utility regulators. The fee would be a non-bypassable rider that all retail electric customers would be required to pay for a period of 16 years. The OLSC analysis estimated the initial annual cost of the rider at up to $286 million per year. In the out years, the fee could rise to as much as $372 million per year. Over its 16-year lifespan, the rider would generate up to $5.25 billion, the OLSC analysis calculated.
FirstEnergy spokesperson Jennifer Young confirmed the ZEN legislation would create a mandatory fee of about $300 million per year. In an emailed statement, she added: "FirstEnergy will continue pursuing the legislation in Ohio, as nuclear power provides critical economic, environmental, fuel diversity and other benefits for the state." The utility is continuing discussions with lawmakers in the state House and Senate, and she said more hearings are expected in the Senate in the coming weeks.
The Ohio legislature is scheduled to adjourn in a few weeks. Since the House committee has suspended hearings on its proposed bill, the prospects of passing a bill in the current session appear dim.
William Seitz, chairman of the Ohio House Public Utilities Committee, suspended further hearings on the ZEN legislation on May 17. "I am not sensing a keen desire on the part of the House members to vote on this and doubt that we will have more hearings in the near future unless something cataclysmic should happen," Seitz said, according to a report in The Cleveland Plain Dealer.
One such potential cataclysmic event could be the FirstEnergy Solutions' filing of a Chapter 11 bankruptcy petition. FES' bonds have a "junk" status, and if it seeks Chapter 11 protection from its creditors, there is a chance ownership of the nuclear plants will pass to another party. The company reportedly said that the measures under consideration by the state legislature, which would increase customer bills by about 5%, are needed to help avoid a bankruptcy filing by FirstEnergy Solutions.
Testifying before the Ohio House Public Utilities Committee on May 17, FirstEnergy President and Chief Executive Charles E. Jones reportedly said of H.B. 178, "This is not a bailout for FirstEnergy." The Perry and Davis-Besse plants provide "clean, dependable baseload resources" and "it's in the absolute best interest of our customers and the state to ensure that these plants are valued for the unique environmental and fuel-diversity benefits that they provide to Ohio," according to a report in the Plain Dealer.
In his testimony on May 18 before the Ohio Senate Public Utilities Committee, Jones said, "Ohio cannot afford to continue heading down a path that could lead to less fuel-diverse and fewer homegrown energy resources, more energy imports, fewer jobs and less economic growth, not to mention more volatile electricity prices for our customers and your constituents." His remarks were reported by The Columbus Dispatch newspaper.
The Plain Dealer report of that session included this comment from Jones: "Nuclear power plants in Ohio are losing money. Why are they losing money? It's not because they can't compete in a competitive market. They are losing money because there is no competitive market."
Referring to the PJM Interconnection (Valley Forge, Pennsylvania), the grid operator for a 13-state region, Jones reportedly told the senators, "The current wholesale electricity market construct does not value certain attributes that these [nuclear] plants provide to Ohio."
Jones had much the same thing to say at his company's annual shareholder's meeting, held before the House and Senate hearings. In his address to that meeting, Jones extolled nuclear power's benefits. His comments also referenced an interesting aspect of the proposed Ohio legislation: that it could apply to out-of-state nuclear power plants, including FirstEnergy's Beaver Valley Nuclear Power Station plant in Pennsylvania and the Donald C. Cook Nuclear Power Station, located in Michigan and operated by a subsidiary of American Electric Power (NYSE:AEP) (Columbus, Ohio).
"Our Davis-Besse, Perry and Beaver Valley nuclear plants have the ability to operate 24/7--generating enough electricity to power more than 4 million homes, around the clock. In fact, nuclear facilities produce more than 90% of the carbon-free power in Ohio and Pennsylvania," Jones told FirstEnergy's shareholders May 16. Those plants employ about 2,300 people. Noting that shifting energy economics have forced the early retirement of nuclear plants in Wisconsin, Vermont and Nebraska, Jones said, "We simply cannot allow this to happen in Ohio and Pennsylvania. So if you share our concerns and live in either state, I encourage you to reach out to your local senator or representative."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
