By Christen Smith

Ohio lawmakers are being asked to trade ratepayer-funded renewable energy mandates for the jobs and carbon-free energy that would come from the continued operation of FirstEnergy Solutions’ Davis-Besse and Perry nuclear plants.

House Bill 6, titled the Clean Air Act, has confounded fossil fuel proponents and environmental groups alike, while state Republicans and labor unions insist the cost of losing the facilities overrides the need to invest in renewable resources and energy efficiency programs.

Under current law, the state’s electric distribution utilities (EDUs) must obtain 12.5% of their power from renewable sources by 2027, including 0.5% from solar. HB 6 would repeal those requirements and provide subsidies to “clean air resources” including nuclear power and some solar resources that had obtained siting certificates before June 1.

“Ohioans deserve so much better,” said Miranda Leppla, vice president of energy policy at the Ohio Environmental Council Action Fund. “HB 6 is nothing more than a ploy to bail out corporate utilities that want to continue to run old, dirty energy sources, under the guise of ‘clean air.’”

FirstEnergy argues its plants deserve the help. Davis-Besse and Perry produce 2,100 MW of electricity around the clock — 90% of Ohio’s carbon-free power — but the company says it can’t afford to keep the plants running based on its revenues from PJM’s wholesale market, which has seen prices fall because of renewables and cheap natural gas.

The bill, approved 53-43 by the House of Representatives on May 29, also has the support of Gov. Mike DeWine. “As I have previously stated, Ohio needs to maintain carbon-free nuclear energy generation as part of our energy portfolio,” DeWine said. “In addition, these energy jobs are vital to Ohio’s economy.”

The bill is now being considered by the state Senate.

Critics say FES doesn’t need help to keep the plants afloat and are playing a “shell game” in PJM’s capacity market auctions to convince lawmakers otherwise.

“The bottom line is that Ohio nuclear resources are in no danger of retiring anytime soon and to do so would not only be economically irrational but would financially harm the equity shareholders of these nuclear assets,” Paul Sotkiewicz, president of E-Cubed Policy Associates and PJM’s former lead economist, told the Ohio Senate Energy and Public Utilities Commission on June 4. He came to share the results of an American Petroleum Institute-funded study that accused the company of misleading lawmakers and the public about their intentions to deactivate the plants over the next two years.

“I must say, I was surprised with this result,” Sotkiewicz said. “Of all the nuclear assets in PJM, I viewed single-unit facilities such as Three Mile Island, Davis-Besse and Perry to be very much at risk for retirement given the Nuclear Energy Institute’s reported costs for single-unit sites.”

FES’ supporters say Sotkiewicz’s math is wrong.

“The natural gas industry is doing what all rivalrous generation resources do in these instances,” said Ray Gifford, former chairman of the Colorado Public Utilities Commission, who was brought to Columbus by FES to convince the Senate Energy and Public Utilities Committee to approve the bill. “It is protecting its turf and trying to handicap its rivals.”

FirstEnergy spokesperson Tom Becker said that Sotkiewicz’s profitability calculations are “deeply flawed” and correcting his “obvious” errors would show a loss in excess of $125 million for both plants over the next decade.

“After weeks of testimony in committee inaccurately criticizing the health, longevity and maintenance of our two nuclear plants in Ohio as unworthy of future investment, suddenly this last-minute report — funded by out-of-state oil and gas interests — proclaims that Davis-Besse and Perry are in excellent position to continue providing clean energy in Ohio,” he said. “Clearly the opponents of HB 6 cannot make the argument on both sides.”

Emissions and Reliability

FES says its nuclear plants’ contribution to the grid’s reliability and the state’s carbon-free electricity can’t be ignored.

“I see no good alternative, and these plants are too vital to Ohio to sacrifice because of the failures of a distorted regional wholesale market,” Gifford said.

He said it’s unrealistic to expect renewables and battery storage will replace the lost capacity if the plants close. Just ask Germany and Japan, where carbon emissions and energy prices increased after they severely curtailed their nuclear output, he said.

“You end up with a collective action problem where states that do not subsidize their failing units end up being chumps who forego the power, the resilience characteristics, the jobs and tax revenue,” he said, urging Ohio not to give up its plants and let natural gas fill the void. “I don’t know a good way to cut this Gordian Knot, but I do know that losing these plants would be bad for Ohio and bad for consumers.”

A PJM analysis released earlier this month concluded emissions will drop regardless of whether Perry, Davis-Besse and FirstEnergy’s Beaver Valley plant in Pennsylvania close or stay open — though the reduction would be significantly greater if the plants stay online. (See PJM: Nukes Keep Energy Costs Down, in Theory.)

The problem, according to PJM Independent Market Monitor Joe Bowring, is that the number of gas plants slated to come online in 2023 will likely decrease by more than half of what is currently in the RTO’s pipeline of approved projects, and less enthusiasm for nuclear subsidies in Pennsylvania means a scenario that saves all three plants is far from realistic. A combination of nuclear plant retirements and canceled gas projects would increase energy costs and push emissions in both states higher because of the reliance on less efficient coal-fired generation, PJM’s analysis concluded.

‘Rise Like Lazarus’

Sotkiewicz insists the new law would just increase the profitability of the plants by as much as 240%, with no true reduction in carbon emissions on account of the bill’s last-minute carveout for two of Ohio Valley Electric Corp.’s coal plants.

Citing data compiled from publicly available sources, Sotkiewicz said the single reactors at Perry and Davis-Besse incur costs nearly 25% below the industry average. He estimated annual net operating profits over the next decade for Perry will reach $28 million, while Davis-Besse will collect almost $44 million.

As a result of FES’ bankruptcy proceedings, Sotkiewicz says the reorganized company will soon rid itself of crippling debt service and be poised “to emerge as a fully independent power producer.”

He also pointed out that the entirety of FirstEnergy’s generation portfolio, except for its 545-MW West Lorain fuel-oil and natural gas-fired plant, has submitted retirement notices. “That seems highly implausible … why would [bond holders] agree to become equity holders in a single peaking plant? Other resources slated for retirement are likely to ‘rise like Lazarus,’ but only those with the most to offer competitively. Perry and Davis-Besse are good candidates given their profitability.”

He further suggests that PJM auction data indicate that FirstEnergy plays “a shell game” by “hiding cleared capacity in units slated for retirement (or already retired) to eventually be transferred over to nuclear plants when they remain in service” — another sign that the Ohio nukes “are not going away anytime soon.”

Gifford says Sotkiewicz gets its all wrong.

“The API study does what all wish-fulfillment utility planning models do,” Gifford said. “It cherry-picks its numbers to overstate revenues and understate costs. By doing so, plants operating at a loss suddenly turn profitable.”

Specifically, Gifford accused the API study of using inaccurate price nodes and assuming plants receive capacity payments when they have not cleared auctions in several years. He also said the study underestimates operating costs for nuclear plants, including overlooking refueling years, equipment maintenance and the differences between cost structures at single- and multiunit facilities.

He also cited another API study that determined TMI would lose $466 million over the next decade.

“Three Mile Island and Davis-Besse are virtually twin facilities, and both are operated at the highest level of performance within the same PJM market construct,” he told the committee. “Yet, a study completed 60 days prior to the one submitted to you today reflects nearly a $750 million difference in profitability between the two units over the next 10 years. How can that be?”

Over-compliance on EE

HB 6 also would make major changes to Ohio’s energy efficiency incentives.

Under current law, EDUs assess a monthly $4.10 fee on customers. The Ohio Environmental Council Action Fund says about 74 cents support distributors meeting renewable resource standards and the remaining $3.36 is used for energy efficiency and peak demand reduction.

Over the last five years, Ohio’s EDUs have collected more than $1.3 billion from residential customers to meet the mandates, Public Utilities Commission of Ohio Chairman Sam Randazzo said. Utilities boost their take by reducing energy efficiency and peak demand response over and above the state requirement for the year.

“The EDUs have been over-complying with the statutory demand-side compliance requirements,” Randazzo told the committee on June 4. “Based on past experience and the incentives that each EDU presently is receiving, it is reasonable to expect that this over-compliance trend will continue into the future.”

PUCO spokesperson Matt Schilling said the primary driver for this behavior boils down to the millions in shared profits that utilities split for each megawatt-hour saved. Between 2014 and 2017, companies shared $233 million in savings, he said.

In fact, all the state’s EDUs will hit the statutory compliance peak of a 22.2% reduction in demand a full four years before the 2027 deadline, according to PUCO’s analysis.

“The escalating annual supply-side and demand-side compliance requirements were not based on any studies or analysis,” Randazzo said. “They were and are arbitrary. But more importantly, the compliance obligations were proposed and considered based on some assumptions about the future — assumptions that sharply conflict with our current reality.”

Randazzo said the compliance obligations incentivize entry of renewable generation sources while simultaneously encouraging EDUs to reduce the size of the overall electricity market — disproportionately impacting “non-preferred” technologies on both the supply and demand side. Because it’s unlikely they’ll stop collecting these fees, Randazzo said, it’s no wonder these older technologies, nuclear generation included, want financial assistance “to stay in the game.”

Rob Kelter, senior attorney with the Environmental Law & Policy Center, said existing efficiency mandates help keep costs lower for consumers.

“Because the efficiency programs reduce energy consumption across the state, energy prices are lower for all Ohioans,” he said, noting a Resource Insight report that determined ratepayers save an additional $2/month because of the fees. “Our Energy Efficiency Resource Standards are vitally important, not only for the environmental benefits that result from reducing our energy consumption, but because they keep energy prices low for all Ohioans.”

Sweetener for EDUs?

EDU Duke Energy Ohio testified in April that any elimination of the energy efficiency standard should be gradual, with “a reasonable period of time to allow affected stakeholders to adjust to the change.”

Two other companies, AES’ Dayton Power & Light and American Electric Power, indicated their support for HB 6 last month.

Duke, AEP, FirstEnergy and AES are the parent companies for all six of Ohio’s EDUs.

The companies also own almost two-thirds of OVEC, which would benefit from a provision in the bill that codifies a state Supreme Court ruling allowing it to charge customers up to $2.50/month to subsidize its Kyger Creek and Clifty Creek coal-fired plants.

On top of the nuclear subsidy fee, which sunsets in 2026, electricity companies can also recoup costs lost on long-term contracts to meet Ohio’s renewable portfolio standard mandates until 2030. AEP, the Columbus-based utility that owns more than 40% of the state’s coal and natural gas plants, urged lawmakers to allow rate recovery for these existing contracts when moving the bill forward.

Tom Froehle, AEP’s vice president of external affairs, testified on June 12 that the bill allows the company to further invest in renewable resources, while simultaneously addressing Ohio’s increasing reliance on out-of-state generation and its legacy resource issues dating back more than a decade.

“HB 6 provides ongoing certainty for an important and longstanding baseload generating asset,” he said. “The bill also includes rate caps for customers while allowing for the continued operation of OVEC generating units, which will provide certainty for AEP Ohio’s customers and Ohio jobs.”

Critics said this OVEC carveout serves one purpose alone: bolstering support among EDUs.

“The only reason these plants are in HB 6 was to enlist support for HB 6 from the other Ohio utilities, because the bailout for the nuclear plants would only benefit FirstEnergy,” said John Finnigan, lead counsel for the Environmental Defense Fund.

Ratepayer Impact

HB 6 would eliminate the $4.10 fee and charge residential customers $1/month, starting in 2021, to support the nuclear plants through 2026. Commercial customers will pay $15/month, industrial customers will pay $250 and large-scale users consuming more than 45 million kWh at one site annually will pay $2,500 monthly. The anticipated $198 million in revenue will be collected by the state treasury and distributed back to the defined “clean air resources” at a rate of $9/MWh. The subsidy would be reduced if the “market price index” — based on energy futures contracts for the PJM AEP-Dayton hub and projected capacity prices using PJM’s Rest of RTO market clearing price — exceeds $46/MWh. Wind and new solar generators are ineligible for the credit.

Ohio Sen. Steve Wilson (R), chairman of the Energy and Public Utilities Committee, told RTO Insider the issue is certainly “complicated” for lawmakers.

“I’ve been working hard to be the guy in the striped shirt blowing the whistle and giving everyone a chance to explain their position,” he said. “But we are working hard to get FirstEnergy an answer by their June 30 deadline.”

The committee completed its fourth hearing on the bill June 19 and has scheduled a fifth for Tuesday.