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Misguided government handouts to nuclear power stations. Why?

Why are some governments giving taxpayer handouts to nuclear power plants? by Mark J. Perry |  Recent proposals to subsidize financially-distressed nuclear plants illustrate how much pressure states are under to produce zero-emission electricity, even as cheaper and more effective ways to provide clean energy become available.

Last winter, and to the delight of utility executives, a bipartisan majority in the Illinois State Legislature offered them a generous gift they had long sought: a $16.4 billion bailout to keep a pair of nuclear plants in operation.

The executives had lobbied hard for this, warning of the loss of 4,200 jobs and carbon-free electricity if the money-losing Clinton and Quad Cities nuclear plants closed. The two plants, owned by Chicago-based Exelon Corporation, were in jeopardy of closing because they were losing a combined $100 million a year due to the increasing availability of cheap natural gas and renewables.

With less than an hour remaining in the legislative session, the state legislature passed the Future Energy Jobs Act, a multi-billion-dollar bailout that provides taxpayer subsidies to keep the nuclear plants operating for at least another 10 years. The cost of power for Chicago-area ratepayers has increased 16 percent since May due to higher capacity charges coupled with the nuclear subsidies. Power rates will go up at least an additional 5 percent next May based on capacity charges that have already been set. For consumers in a typical suburban Chicago household, the increases will boost their annual electricity bill by at least $140.

The ripple effects from the bailout may well lead to future increases on top of the new surcharges. Subsidizing the two nuclear plants has the unintended consequence of potentially harming the owners of unsubsidized, competing power plants. The PJM Interconnection, an organization that sets the rules for wholesale power markets, is contemplating changes that would compensate the owners of natural gas and coal plants. Simply put, households and businesses in Illinois could be paying twice to keep the same nuclear plants open.

What has yet to be determined is how much electricity bills will rise as a result of the bailout. They’re already on the upswing due to earlier changes PJM made to reward nuclear plant operators and owners of other “base-load” plants that run most of the time for their reliability during periods of intense heat or cold.

And the same basic story applies at a broader level. Nuclear subsidies are expected to raise the electricity bills of New Yorkers by $7.6 billion over 12 years, thanks to the bailout of three nuclear plants in upstate New York. The New York State Legislature approved the bailout on a promise to save 2,600 jobs. The Exelon Corporation stands to benefit the most from the bailout. The company owns two of the plants and, since the bailout last year, purchased a third plant. Other states considering bailouts of nuclear plants are Ohio, Pennsylvania, New Jersey, and Connecticut.

Now, on top of that, Energy Secretary Rick Perry recently called on the Federal Energy Regulatory Commission to come up with a new pricing system to reward power plants that help ensure reliability by storing months’ worth of fuel on site. This is an attempt to help financially-distressed coal and nuclear plants nationwide.

There was a time not too long ago when market competition, one of the most basic cost-control methods, was a driving force in the electricity market, and everyone benefitted from it. History clearly shows that market competition lowers costs, boosts performance, and spurs innovation. In the end, consumers get reliable power at competitive prices.

What we don’t need, and can’t afford, is another round of misguided nuclear bailouts that saddle households and businesses with higher electricity bills. If greater use were made of low-carbon natural gas and renewables, and if more failing nuclear plants were closed, the country and economy would be better off. As it is now, in a quest to shield some utilities from the marketplace, more nuclear plants will receive taxpayer subsidies, the growth of more competitive power, along with more jobs, may be slowed. And millions more will be wasted to perpetuate a cycle that not only abuses consumers but promotes what is at best a dubious energy policy.

Mark J. Perry (@Mark_J_Perry) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.


October 25, 2017 - Posted by | politics, USA

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