What happens to Beaver Valley if Ohio subsidizes nuclear power?

As FirstEnergy Corp.’s chances for getting Ohio residents to subsidize its nuclear plants seem dimmer in recent days, the future of the Beaver Valley nuclear power station is murkier still.

The Beaver County power plant, which employs about 800 people, is a few hours and a state line away from FirstEnergy’s other nuclear power stations — Davis Besse, near Oak Harbor, and Perry, east of Cleveland

When the Akron-based company propelled a plan in the Ohio legislature to emulate programs in New York and Illinois that award zero-emission credits for nuclear generation, FirstEnergy initially said it was envisioning that Beaver Valley would be part of it.

“It is important that resources outside the state are eligible,” said FirstEnergy spokeswoman Stephanie Walton in February. “Whether Beaver Valley qualifies is yet to be determined, but we are hopeful that it would be eligible.”

When the legislation was drafted, Beaver Valley and other out-of-state nuclear plants were indeed considered eligible — in theory.

Identical bills in the Ohio House and Senate chambers leave room for the possibility of plants outside of the state qualifying for the credits, but only if they confer the same or greater environmental benefits. And it’s how the legislation defines those benefits that puts Beaver Valley out of reach — something that FirstEnergy’s CEO Chuck Jones has repeatedly assured Ohio legislators, while maintaining a more neutral tone with analysts and investors.

“The legislation does not prohibit out-of-state purchase of energy, but I can tell you I know the Beaver Valley plant doesn’t have the attributes and would not qualify for this legislation,” Mr. Jones said on Thursday before the Ohio Senate Public Utilities Committee.

This is quite a consequential semantic exercise — FirstEnergy has said it will either sell or close its nuclear plants by mid-2018 or earlier, or plunge some or all of its competitive generation subsidiaries into bankruptcy. Whether Beaver Valley is subsidized may decide if anyone else is willing to step in and operate the plant.

Efforts in Pennsylvania to explore subsidies are still nascent, which means tea leaf readers must look across the border to the west.

Environmental benefits

The Ohio legislation determines environmental benefits this way: if a nuclear plant were shuttered and replaced with a generation plant running on the area’s predominant fuel source, what would happen to the air quality?

This is not how the electric grid works, however. Power plants feed into a grid that spans 13 states — the largest in the U.S. Even if all the nuclear plants were to shut down, there’s no guarantee that new fossil fuel plants would pop up in their stead at the exact same spot.

The formula also ignores the fact that PJM Interconnection LLC, the regional grid operator, currently has a reserve margin of 22 percent — meaning it has 22 percent more electric capacity than it thinks will be needed to satisfy its highest demand, said Bill Seitz, the chairman of the Ohio House Public Utility.

“You wouldn’t necessarily have to build a new gas plant if these two (Ohio) plants go down,” he said in an interview last week.

Mr. Seitz said the legislation was written to allow the possibility of out-of-state resources only to comply with the Commerce Clause, which is supposed to prevent protectionist state policies from excluding out of state businesses.

So crafting the environmental benefits provision to consider a hypothetical coal plant instead of a nuclear station was meant to close the border without running afoul of the law.

Mr. Seitz said he’s asked FirstEnergy executives,”You’re not trying to pull anything over on us?” by including Beaver Valley — and was assured they were not. One of the assurances came during a hearing on April 25, in which Mr. Jones told Mr. Seitz and other committee members that Beaver Valley would not qualify.

Yet when Mr. Jones was asked by an analyst during the company’s April 28 earnings call whether the zero emission credit scheme would cover Beaver Valley, he wasn’t nearly as emphatic.

“Assets from outside of Ohio are eligible to apply,” he said. “And then it would ultimately be, if the legislation’s approved the way it is, up to the Public Utilities Commission as to whether or not they qualify.”

‘Keep working it’

None of this might matter, since Mr. Seitz announced Wednesday that he has called off any further hearings on the zero emission credit legislation and said there’s no appetite for a vote in the near future.

Nevertheless, Mr. Jones on Thursday sought to keep the momentum in the Ohio Senate.

“I don’t think it necessarily puts an end to it (in the House), but I didn’t think anything was going to get done in the short term here either,” he said testifying before the Senate Public Utilities Committee.

“We’re going to keep working it,” he said. 

Sen. Bill Beagle (R., Dayton), chairman of the Senate committee, plans to continue hearings through June, knowing that they may have to take a back seat to budget hearings. 

The bills seek to generate approximately $300 million a year for FirstEnergy’s two nuclear plants in Ohio, with the cost to be borne by the customers of its electric utilities in the state — some 2 million ratepayers.

A fiscal note attached to the House bill says that including Beaver Valley in the credit program would mean Ohio ratepayers might have to pay as much as 68 percent more per year to subsidize the plants.

“Instead of incurring $5.25 billion in charges over a 16-year program period, ratepayers would instead owe $8.82 billion,” the note says.

Long-term viability?

The issue of a potential FirstEnergy Solutions bankruptcy hovered over the Senate hearing on Thursday as senators questioned the long-term viability of the power plants on the other end of that process. Once valued at $11 billion, Mr. Jones said the two plants are now on FirstEnergy’s books at just $1.5 billion while carrying about $3.5 billion in debt.

If they close, they will never be ramped up and put back into service again, he said.

After the hearing, Mr. Jones stressed FirstEnergy Solutions has been spun off with its own board of directors that will make such decisions about bankruptcy.

“They’re looking at that right now,” he said. “That decision could come at anywhere between today and six months from now … Even if that happens, and there’s no future for these plants to be part of FirstEnergy, I will continue to fight for this legislation because it’s still the right thing to do.”

Opponents of the bill and its equivalent House Bill 178 counter that it asks FirstEnergy customers to bail out the company for poor decisions to double down on nuclear and coal power before hydraulic fracturing opened up abundant reserves of shale natural gas.

They also argue that it would interfere with a competitive electricity market that is currently driving investment in natural gas plants.

Anya Litvak: alitvak@post-gazette.com or 412-263-1455; Jim Provance: jprovance@theblade.com or 614-221-0496.

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