A dirty battle for a nuclear bailout in Ohio

Last July, Ohio’s governor signed House Bill 6 (HB6) to provide FirstEnergy (now Energy Harbor), a large electric utility, with subsidies of nearly $150 million per year to keep its Perry and Davis-Besse nuclear power plants operating. Ohio is only the fifth US state to offer such subsidies; other states include New York, Illinois, New Jersey, and Connecticut. Although the subsidies are justified by some as necessary for climate mitigation, in the latter four states, electricity generation from natural gas, which results in greenhouse gas emissions, has increased since 2017, when these subsidy programs started kicking in. Moreover, in Ohio, subsidies are also being extended to coal power plants, providing the clearest illustration that what underlies the push for subsidies to nuclear plants is not a result of a real commitment to climate mitigation but a way to use climate concerns to bolster the profits of some energy corporations.

The enormous lobbying effort that won the subsidies used dark money–backed organizations that spent millions of dollars to sway voters and politicians. But it didn’t stop with the bill being signed into law—the lobbying also thwarted the ability of citizens to put the proposal to a democratic vote through a referendum, including by funding television advertisements that falsely claimed that China was “intertwining themselves financially in our energy infrastructure” and threatening “national security,” implying that not going through with the nuclear bailout would somehow lead to Chinese control of Ohio’s power grid. As confronting climate change gets in the way of corporate profits, such dirty battles are sure to emerge more often.

Electricity economics. It has been known since the late 1970s that the cost of constructing nuclear plants in the United States is very high, but the cost gap between nuclear electricity and other alternatives has increased dramatically in the last decade. In its most recent estimate, the Wall Street firm Lazard estimated that a new nuclear plant will generate electricity at an average cost of $155 per megawatt hour, nearly four times the corresponding estimates of around $40 per megawatt hour each for new wind and solar energy plants. The average cost for natural gas plants is $56 per megawatt hour.

The gap will only grow larger. While the costs of nuclear power have been increasing, the costs of wind and solar power have declined by around 70 to 90 percent in the last decade. Even solar projects that offer some amount of storage to meet demand when the sun no longer shines are becoming cheaper. Last year, the city of Los Angeles signed such a contract at $33 per megawatt hour. So new nuclear power plants are simply not competitive in the US electricity market.

But what about already operating nuclear plants, those that don’t have to worry about borrowing money for construction or repaying the money they have already borrowed? Herein lies the real cost problem for electric utilities that own nuclear plants. For each megawatt hour of electricity generated in 2019, the average nuclear power plant in the United States spent $30.42 on fuel, repairs and maintenance, and wages; some spent much more. Those costs are comparable to the overall generation costs (including the cost of construction) of solar and wind power listed above.

Renewable energy plants, of course, cost very little to operate since they don’t need any fuel. Thus, already existing renewable plants will remain far cheaper than nuclear plants. With natural gas plants, the comparison with nuclear plants depends on the cost of natural gas; thanks to fracking, for the last many years, natural gas plants have also lowered their operational costs to way below that of nuclear reactors.

The net result is that nuclear electricity is no longer competitive, and that is a problem for utilities that operate in states where electricity is traded on the market. (Other states, where a state regulator approves electricity projects, allow utilities to pass on the high costs of nuclear power to rate payers.) The number of nuclear plants this trend affects is quite large. In 2018, Bloomberg analysts estimated that “more than one quarter of all nuclear plants don’t make enough money to cover their operating costs.”

Political games. This state of affairs has led electric utilities in various states to try and get taxpayers and ratepayers to pay more to keep up their profits. Ohio’s FirstEnergy started early, in 2014, when it asked Ohio regulators to allow its distribution utilities to enter into agreements to purchase the outputs of its coal and nuclear plants at a set price that significantly exceeded wholesale electricity market prices. Ohio ratepayers would end up paying for electricity from these plants even if the distribution companies could have purchased electricity from other providers at cheaper prices. The proposal was approved in 2016, but the Federal Energy Regulatory Commission blocked the deal because it would have been unfair to consumers.

Since then, FirstEnergy has regularly tried to get subsidies in one form or another—until it succeeded in 2019 with HB6. In summary, that bill forces electricity consumers in Ohio to pay a surcharge on their monthly bills, and the resulting amounts go to subsidizing two nuclear power plants owned by FirstEnergy—Perry and Davis-Besse—and two coal-fired plants owned by Ohio Valley Electricity Corporation. The bill also weakens (and will eventually gut) Ohio’s requirements for a minimum amount of electricity to be provided by renewable sources and reduces its targets for improving energy efficiency.

There has been a recent history of growth of renewables in Ohio, albeit from a pitifully low base. According to the US Energy Information Administration, between 2011 and 2017, Ohio’s wind and solar production grew by factors of 7.6 and 4.3 respectively. The reasons for this growth presumably have to do with the economic factors mentioned earlier. Likewise, energy efficiency programs saved twice as much as was spent on implementing them, and were projected to save $4 billion over 10 years. An increase in renewable energy production combined with energy efficiency improvements was shown to be the most economical way to reduce Ohio’s emissions by over 30 percent between 2012 and 2030 as part of the 2014 proposed Clean Power Plan of the US Environmental Protection Agency.

What do those in favor of the bill say? The arguments being used by pro-nuclear groups can be categorized into two sets of claims: economic and environmental. The environmental argument is that nuclear power is a clean power source and a source of “clean air,” a claim made by, for example, Judd Gregg, former governor and senator from the state of New Hampshire and a member of the advocacy council of Nuclear Matters. The problem with that argument is two-fold. First, it does not explain why the bill would support the continued operation of old coal power plants. Second, it doesn’t fit well with the fact that renewables and energy efficiency are far cheaper sources of clean air, and this bill guts both of those.

The economic argument has to do with the fact that nuclear power plants are a source of employment among those communities living near the facilities. When they are shut down, those jobs would obviously disappear. Naturally, some labor unions, those with many members working in the nuclear industry, supported the bill. The International Brotherhood of Electrical Workers website, for example, proudly announced that its “activists have been hard at work, pressing representatives from both political parties to support this job-saving bill and urging all of their Buckeye State brothers and sisters to do the same,” with a union official going on to offer the tip: “No form letters or petitions, but one-on-one contact with the people that vote for them… It’s the personal touch that works.”

But, as with the environmental argument, the economic argument is dubious. The Perry and Davis-Besse nuclear power plants employ an estimated 700 workers each. Even generous estimates that include “additional  jobs … that result from the overall economic boost associated with lower electricity prices and more in-state production” assert that the two plants create a combined 4,270 jobs. While these claims don’t square with the higher electricity costs that drive the need for subsidies, even these figures are just a fraction of the “over 81,000 workers” employed in the energy efficiency sector in the state.

More to the point, the number of jobs at these nuclear plants is very small when viewed in the context of the millions of dollars offered as subsidies to FirstEnergy, which, if invested in other energy resources, would create work for many more people. Per unit of electricity generated, nuclear power creates somewhere between one-half and one-sixth the number of jobs created by solar photovoltaic electricity. Because solar energy costs much less to install or generate, nuclear power employs even fewer on a per dollar basis.

The big fight. None of these arguments is exactly rocket science, and the fact that HB6 amounted to a corporate bailout was clear to many. Coalitions of Ohio companies, the state’s manufacturers’ association, environmental groups, and economists testified against the bill. A consumer group ran targeted radio advertisements pointing out how the bill was intended “to subsidize FirstEnergy’s failing investments.” All to no avail.

FirstEnergy’s lobbying power was overwhelming. Politicians were targeted directly and were offered campaign contributions. FirstEnergy and a political action committee they created contributed millions to political candidates and parties in Ohio. Although the details remain murky, much of the funding is documented by two main sources: state and federal campaign-finance filings and records from bankruptcy proceedings that FirstEnergy had entered into. Among the more egregious examples of this funding was the use of payroll deductions from FirstEnergy’s roughly 15,000 employees to raise and pay nearly a million dollars in political contributions between 2017 and 2019, most of it going to Republicans. The effort also included at least $9.5 million in television advertisements, much of which came from a dark money group. There is evidence, however, that FirstEnergy paid at least $1.9 million to this group.

Although Republicans received the majority of the financial contributions, Democrats were also recipients, and therefore support for (and opposition to) the bill was not strictly along party lines. On the Democratic side, those who supported the bill typically cited “a desire to retain union jobs at the endangered plants.” On the other side of the aisle, those Republicans who opposed it invoked problems with subsidies in general.

The raw political and economic power of the industry was on display even after the bill was passed. Having been defeated within the legislature, grassroots organizations such as Ohioans Against Corporate Bailouts and Ohio Consumers Power Alliance took to the streets and tried to collect signatures on a petition calling for a referendum question about HB6 to be included in the 2020 elections. It was a tough task, since those opposing the bailout had less than two months to gather over a quarter of a million valid signatures.

FirstEnergy tried to stop them with a two-pronged approach. The first was a legal trick. It went to the state’s supreme court and argued that the monthly charges on customers “should be considered tax increases, which cannot be challenged by a referendum.” But the court dismissed the case, saying there was “no ‘justiciable controversy’ for it to decide.” For the main part, though, the response from FirstEnergy and other beneficiaries was more of the same: dark money–backed organizations spending millions to undo the grassroots efforts by urging voters to refuse signing the petition.

Among these organizations was one called Ohioans for Energy Security, which sponsored television advertisements that falsely claimed that China is “intertwining themselves financially in our energy infrastructure,” threatening “national security,” and implying that not going through with the bailout campaign would lead to Chinese control of Ohio’s power grid. The watchdog organization Energy and Policy Institute quickly identified that some of the people featured in the TV advertisement were in fact FirstEnergy employees. In other words, there was reason to suspect that FirstEnergy was behind the advertisement. Ohioans for Energy Security also mailed thousands of letters to state residents with bold lettering behind a Chinese flag imploring, “Don’t give the Chinese government your personal information.” The hyperbolic allegations about China apparently are connected to natural gas-fired power plants in Ohio that were partially financed by a Chinese government-owned bank, although FirstEnergy has itself borrowed money from the same bank.

There were also accusations that the law’s supporters were trying to buy off circulators and take their petitions. Another front group, Protect Ohio Clean Energy Jobs, whose spokesperson was registered as a lobbyist for FirstEnergy Solutions, used “targeted ads on social media” to urge people who had already signed the referendum petition to withdraw their names.

The point of all these actions by FirstEnergy and its front or allied organizations was to dissuade voters from participating—and they succeeded. In October of last year, Ohioans Against Corporate Bailouts announced that it would not file the referendum petition, and HB6 went into effect.

Lessons. What happened in Ohio is a clear example of corporate power combined with the growth of “dark money” organizations following the 2010 Citizens United Supreme Court decision to shape public policy decisions. The reasons why FirstEnergy engaged in such activities are not hard to guess. Any entity that invests so heavily in these dark money organizations, media strategies, lobbyists, and political contributions will be expecting a sizeable return on its investments. And indeed, it has been rewarded handsomely. The irony is that an industry that acknowledges that it is not economically competitive is spending massively on lobbying. It is the ratepayers and taxpayers who bear the cost of these twisted priorities.

Although they have not been so egregious in their strategies and the energy and environmental policy outcomes have not been so detrimental, electricity utilities in New York, Illinois, New Jersey, and Connecticut have also pursued profits at a financial cost to customers. As in the case of Ohio, the concerned electricity utilities all have investments in fossil fueled plants as well, and they have a vested interest in maintaining those plants for as long as possible.

Adding up all the bailouts to utilities with nuclear plants in the five aforementioned states would result in roughly $15 billion going from consumers to these corporations over the next several years. Although such a sum might seem small when compared to the much larger bailouts that have been paid out in the aftermath of the economic crashes in 2008 and 2020, it is nevertheless a large amount of money within the electricity sector. More important, the funds go to maintaining the profits of large energy corporations, often under the guise of climate mitigation, but without delivering the real and rapid reductions of emissions that are urgently needed.

Climate change is a serious concern, and finding ways of rewarding electric utilities for maintaining the status quo is not the way to tackle it. Even worse, by diverting much-needed resources and investment away from renewables and related technologies, these subsidies undermine efforts to decarbonize the electricity sector and further entrench companies that invest in high-risk energy sources, be they nuclear or fossil-fueled.