The Market and Financial Position of Nuclear Resources in Ohio
This report looks at the financial position of the Davis-Besse and Perry nuclear plants that are currently seeking a taxpayer funded bailout, and finds that both plants will actually be profitable moving forward. In addition, it finds that subsidizing these plants at a cost to Ohioans would not provide a new source of, or an increase in, avoided emissions, while noting that even if both plants retire, CO2 emissions in the entire PJM region will continue to decrease due to continued coal plant retirements. The study was done by Paul Sotkiewicz, Ph. D., of E-Cubed Policy Associates. Paul was the Chief Economist at PJM for nearly a decade, and also previously worked for FERC (Federal Energy Regulatory Commission).
Additional topline findings are below:
- Unit specific cost data and revenue projections how Davis-Besse and Perry are profitable and will remain so into the future: The results of this report differ from the conclusions reached by the PJM Independent Market Monitor (IMM). This report uses unit specific costs, whose relative accuracy has been verified by examining FirstEnergy financial statements in Securities and Exchange Commission (SEC) filings. In contrast the PJM IMM used industry average costs for single unit nuclear facilities that are much higher than the publicly available unit specific costs for Davis-Besse and Perry.
- Nuclear facilities in Ohio can easily cover their costs through 2028 and would not rationally be forced to retire: As single unit reactors, the costs for both Davis-Besse and Perry are nearly 25 percent below the industry average, making these units among the best single unit performers in the U.S nuclear fleet.
- Recent statements confirm the idea that nuclear facilities in Ohio are profitable and will not retire: As FirstEnergy Solutions emerges from bankruptcy proceedings, it will no longer have the debt service that it once had and has stated that the revised bankruptcy plan just announced April 21, “will significantly strengthen our financial position and allow FES to emerge as a fully integrated independent power producer.” The Ohio nuclear units have no intention of retiring if FES is aiming to emerge as an independent power producer.
- Out-of-market financial support to profitable Ohio nuclear plants only raises consumer rates and increases owner profits and does not lead to avoided emissions: The Ohio nuclear units are operating profitably and there is no rational economic reason for them to retire. Retiring would lead to losses if there are any sunk costs that have not yet been recovered through the market. Under the version of HB 6 that was being considered at the time of the report’s drafting, the nearly $300m in riders ($2.50/month residential; $20/month commercial; $250/month industrial) are equivalent to a $2.18/MWh increase in energy prices in Ohio.
- Out of market financial support for Ohio nuclear facilities would wipe out the cost savings from participating in PJM’s markets: According to PJM, its markets save consumers in the PJM footprint about $2.3 billion annually. This translates to a savings of approximately $2.85/MWh with a PJM administrative cost of $0.32/MWh, for a cost benefit ratio of about 8.9-to-1 in 2018. But the equivalent of $2.18/MWh charge to load would nearly eliminate these benefits to Ohio consumers.
- PJM wholesale energy and capacity markets are not “broken”: The PJM market remains highly successful with a healthy reserve margin above the target reserve margin, attracting new entry from new efficient and low-cost resources, improved reliability and relatively low prices that are reflective of underlying economic fundamentals.
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