- - Monday, May 22, 2017

ANALYSIS/OPINION:

Should utility bills and taxes be used to subsidize money-losing nuclear power plants so they can compete with renewable energy and low-cost natural gas?

New York and Illinois, bowing to pressure from a powerful nuclear utility, believe the answer is yes. Several other states, including Connecticut, New Jersey, Ohio and Pennsylvania, may follow suit, arguing that the subsidies will save nuclear power-plant jobs and help electric utilities meet environmental mandates to reduce carbon emissions.

That’s just one side of the story. The other side is this: The bailouts (subsidies by another name) reward poor management and bad judgment and would cost homeowners and businesses billions.

New York and Illinois already have bought into the dubious bailout scheme, which is being pushed by Chicago-based Exelon, the nation’s largest nuclear utility. Exelon’s plants have been losing money owing to competition from cheap natural gas and wind power. Without the financial aid, Exelon says, the plants won’t be able to operate at a profit and will have to be closed.

So close them; rather than shelling out as much as $10 billion in subsidies, close the plants and shift to natural gas.

I can’t help seeing the similarity between the Exelon bailout and what happened following the deregulation of electricity in the 1990s, when states allowed utilities to charge higher rates to cover some of the costs of “stranded assets” — capital investments made in a regulated environment that were no longer worthwhile in a competitive environment.

Propping up the utilities was wrong then and it’s wrong now.

There’s no point in preventing the shutdown of nuclear plants, since the claim that they’re needed for carbon mitigation is dubious at best. Thanks to the shale revolution, which has produced an abundance of low-cost, clean-burning natural gas, carbon emissions from electric power plants have been plummeting as gas-fired plants replace coal-burning facilities.

Moreover, while gas prices are likely to stay low, the operating costs of nuclear plants are almost certain to rise in the years ahead. Southern California Edison closed its San Onofre nuclear plant after deciding it would not be worthwhile replacing steam generators that cost more than $600 million. Duke Power shuttered its Crystal River plant in Florida for much the same reason.

Since 2015, six nuclear plants have been closed, utilities have announced plans to shut down another eight, and still others may face early retirement. We should allow that to happen in an orderly, businesslike fashion.

Cost, efficiency, availability, security and other factors should determine the best energy source for electric power plants, not lobbying power and the willingness of politicians to hand out favors.

When government picks winners and losers in energy markets, consumers are stuck with the bill because regulators pass electricity costs on to them in the form of higher rates. Utilities should compete to provide electricity without government assistance.

Today’s nuclear power plants typically use technologies that are a half-century or more old. Ironically or not, keeping these plants up and running delays the introduction of more modern and much safer alternatives, such as small modular reactors, which are the nuclear industry’s future.

As for saving jobs, policymakers need to think more broadly. The United States is currently seeing a manufacturing revival. The main reasons for this are increased labor costs in China and lower electricity costs at home — the result of cheap natural gas. The best way to create even more jobs in manufacturing and other industries is to keep electricity costs down. Propping up unprofitable nuclear plants does the opposite.

• William F. Shughart II, research director of the Independent Institute, is J. Fish Smith Professor in Public Choice at Utah State University’s Huntsman School of Business.

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