Why this impending bailout for Ohio coal plants is bad news for America

Dick Munson

Editor’s note: On April 27, 2016, the Federal Energy Regulatory Commission blocked Ohio’s decision to make electric customers bail out inefficient fossil fuel plants. It signals to other states that they cannot subsidize power plants unable to compete in the interstate market.

Wait – Ohio utility regulators did what?

The $6-billion bailout of uneconomical coal and nuclear plants is bad enough. But the decision by the Public Utilities Commission of Ohio to let two power companies saddle ratepayers with their bad debt also sets a dangerous precedent that could have ramifications for consumers in other states.

This is more than a local rate case. It’s about traditional utilities going on the offense against new and cleaner power providers that offer cheaper rates in a competitive energy market – a drama playing out nationwide. 

All eyes are now on the federal agency overseeing wholesale electricity markets to see if the Ohio deal will stand or fall.

If the Federal Energy Regulatory Commission should side with Ohio and the two utilities, it could set off a domino effect of fossil fuel plant bailouts that will hurt the environment and consumer pocket books. There are indications similar utility subsidy deals are on the horizon in Michigan, New Jersey, New York and Texas.

That’s why it’s so important to get this one right. 

How utilities schemed to protect profits

In essence, the Ohio deal forces power customers in the state – including those serviced by other providers – to buy electricity from FirstEnergy’s and American Electric Power’s uneconomical plants, and regardless of cost.

Here’s how the scheme works: FirstEnergy and AEP’s plants can’t compete in the marketplace because the power they produce is too expensive. So the utilities convinced state regulators to guarantee the purchase of the electricity, and to pass on the cost to Ohio ratepayers. The bill to consumers comes to $6 billion over the life of the contracts.

The power companies have defended the deal, saying their coal and nuclear plants need to keep running to maintain a reliable supply of electricity, steady market prices, and job security for plant workers.

Of course, this is not how it’s supposed to work in a competitive marketplace.

The truth is, the Ohio utilities made some bad investments years ago and have since been slow to adapt to change. Their plants became uneconomical when natural gas prices dropped and energy efficiencies took a bite out of power sales. They’re now at risk of becoming stranded assets.

We don’t think consumers or the environment should pay for these companies’ mistakes. This is not the time to keep dirty power plants on life support – in Ohio or anywhere else.

Comments

I've read that the plan is to liquefy our domestic natural gas and ship it to Europe for a tidy profit. This would bring the cost down slightly overseas and increase it in the United States, given simple supply and demand economics. Plus, natural-gas generation competes with home heating.

Nuclear power yields long term spent fuel storage liabilities, and renewables are still intermittent without significant increases in energy storage capacity. Discounting magic, and accounting for scale, I don't see society being able to continue on the current net energy use trajectory. I think we need to employ demand response and distributed generation to use a lot less energy per capita, indefinitely.

llamawalker
April 21, 2016 at 12:48 pm

You are definitely on the right track, especially with your last statement.

Sally White
April 22, 2016 at 12:38 am

In reply to by llamawalker

Wind and solar and batteries do not have enough energy to power the grid. Only those who live in a pipe dream, or believe those with an agenda of one sort or another, believe so. Nor are the baseload technologies. Simple rule of physics: On an AC power system, generation must be constantly matched to system load to maintain voltage and frequency stability. In order to accomplish this, fully controllable generation sources are needed.

Wind and solar are not fully controllable. This is the reason for the roughly 90% capacity credit d-rate. What is that? Basically, it says that only about 10% of a wind farm's rated output can be used (solar fares slightly better). Immense battery banks are being installed in an effort to improve this, bringing with a whole host of environmental issues of their own, and they are only marginally successful.

Now, back to voltage and frequency stability, what happens if you don't maintain these? Well, instability, which results in massive large scale black-outs. Instability wasn't the root cause of the August 2003 blackout in the North East, but an unstable situation was caused by the events of that day which greatly extended the blackout.

Now, with an unstable grid, any industry that is dependent on electric power will relocate to somewhere like China, where reliable energy sources are not quashed by unreasonable environmental regulations. And because these areas do not have environmental regulations, their factories and industries lack any pollution controls.

Relocating these facilities from the United States, where they do have emissions controls, to an area where they done is, overall, bad for the planet. People at the EDF, Sierra Club, and other such organizations need to realize this.

Carl Pierce
April 21, 2016 at 6:20 pm

Thanks for your note, Carl. Markets change – that’s the benefit of innovation. Analysts used to swear that wind could never supply more than 5 percent of the grid without making it unstable. Texas now has days when wind provides more than half the power – and the lights have stayed on and factories are still running. I agree strongly with your observation grid stability is key; fortunately, markets can value and secure it.

Dick Munson
April 25, 2016 at 9:33 pm

In reply to by Carl Pierce

Dick, your evaluation betrays such a skewed understanding of energy and how American utilities function in the post-PUHCA era. I don't know where to start.

Let's try this: First, utilities have always saddled ratepayers with their debt - good and bad. That's a given, because they're monopolies, and the only other choice ratepayers have is to not use electricity at all.

Second: Your assumption that a truly competitive marketplace exists when utilities own the companies which are selling them natural gas is - laughable.

Third: What exactly is "uneconomical" about coal, nuclear, wind, solar or anything else when utilities are entitled to charge ratepayers for all expenses incurred, plus a profit margin?

Fourth: Why on Earth would an advocate for renewables push for a "truly competitive marketplace" when in such a scenario coal would shut down renewable energy tomorrow?

And last, you write: "This is not the time to keep dirty power plants on life support." What, except in the minds of anti-nuclear activists, is remotely "dirty" about carbon-free nuclear energy?

Bob. Meinetz
April 23, 2016 at 1:22 am

Bob: I appreciate your frustration, but the purpose of deregulation was to ensure some level of competition in the business of generating electricity, and regional transmission organizations were created to provide such markets.

Ohio utilities initially embraced deregulation, thinking they could profit from competition. Yet after making numerous bad business decisions, several of their power plants could no longer compete in those competitive markets. Rather than innovate, they want to return to being monopolies, able, as you say, to saddle ratepayers with their debt and other expenses.

EDF has opposed those bailouts and, fortunately, federal courts are ruling in favor of competition and against Ohio-style subsidies that disrupt those markets.

Dick Munson
April 25, 2016 at 9:35 pm

In reply to by Bob. Meinetz

Dick, whether you know it or not, your utilities are embracing deregulation more than ever.

Have you ever noticed how Constellation Energy, Dominion Resources, Duke Energy, and Vectren sell both natural gas and electricity? That's because they're "holding companies" which, since 2005, have been permitted by law to sell themselves the natural gas they use to generate electricity for the first time since 1935.

What? How can that be, that would mean the more natural gas they burn the more money they make! That's exactly what's happening, and it's a result of the repeal of The Public Utility Holding Company Act of 1935 (PUHCA) - the foundation upon which America's regulated utility model functioned dependably and inexpensively for half a century.

One of the first companies to be granted an exemption from PUHCA in 1994 was a company called Enron - and it's been downhill ever since. That's because PUHCA forced utilities to be audited by the SEC every year, preventing them from engaging in Samuel Insull's holding company shenanigans of the 1920s. Now they're back at it, and the only thing your supposed "competition" is accomplishing is guaranteeing fossil fuels a foothold in generating electricity for decades to come while sending your electricity rates skyrocketing (Ohio's electricity rates are 30% higher than they were a decade ago, a feat which took 24 years before that to achieve; your total CO2 emissions are fifth worst in the country, and 20th worst per capita).

What you call "innovation" is not only a scam, it's an environmental disaster. It's about time the folks at EDF stuck their noses in a history book and learned a bit about where all this anti-nuclear, "unprofitable" BS is originating. Focused their efforts where it will make a difference: by re-instating PUHCA. Here's a start, written by former FERC attorney Lynn Hargis:

https://www.citizen.org/documents/puhcafordummies.pdf

Bob Meinetz
April 26, 2016 at 1:26 am

In reply to by dmunson

Re. "What, except in the minds of anti-nuclear activists, is remotely 'dirty' about carbon-free nuclear energy?"

Well, the emissions may be carbon-free, but since we're considering remotely dirty, I'd say that all the spent fuel being generated is certainly a problem.

The spent fuel pools at the nations nuclear plants are either already full or near full. With no long-term repository available to receive said waste, it is being stored in casks on site. The NRC had to extend the time frame for safe storage of casks from 120 to 300 years, and, yet, the casks have not been evaluated for use with newer high-burn up fuels. (All this info is available on the NRC website.)

While it is true that no source of power (coal, gas, renewables) is more energy-dense than uranium, it is equally true that there is no greater consequence for error in nuclear power.

I believe if we look at total cost, nuclear power (cradle to grave) racks up the dollars more than wind turbines and solar panels.

llamawalker
April 27, 2016 at 7:00 am

In reply to by Bob. Meinetz

Great article. Now is not the time to subsidize dirty power plants. Keep up your effective and important work.

Kathryn Tandy
April 23, 2016 at 12:14 pm

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