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Ohio legislator files nuclear subsidy bill that limits rate impact

A new bill filed in the Ohio General Assembly looks to limit the impact to customers while still providing a subsidy for in-state nuclear generation.

Ohio Rep. Anthony DeVitis introduced legislation Oct. 11 in the legislature that essentially modifies a previous bill he filed earlier this year. House Bill 381 creates a zero-emissions nuclear, or ZEN, resource program that implements credits for in-state nuclear capacity within the PJM Interconnection market. The legislation is designed to compensate FirstEnergy Corp.'s 908-MW Davis-Besse and 1,268-MW Perry nuclear plants for their carbon-free generation.

The credits under the proposals would start at an initial set price of $17/MWh for the first two-year period of the ZEN program, which would run for successive two-year periods through Dec. 31, 2030, unless extended by the General Assembly.

Unlike H.B. 178, which DeVitis introduced in April, the new legislation sets a residential customer's nonbypassable charge at $2.50 per month and limits a nonresidential customer's charges at the lesser of $3,500 per month or 5% of the customer's total bill.

Under ZEN legislation that has surfaced in the House and state Senate this year, Ohio's electric distribution utilities would be obligated to buy the zero-emissions nuclear credits, or ZECs, that are submitted by the nuclear resources to the ZEN program. The Public Utilities Commission of Ohio would administer the program and determine the amount of credits the distribution utilities must purchase. The utilities would then recover "all direct and indirect costs for the purchase of zero-emissions nuclear credits through a nonbypassable rider charged to all of its retail electric service customers."

FirstEnergy's initial estimates indicated the zero-emissions credits would bring in about $300 million each year.

Sen. John Eklund, primary sponsor of S.B. 128, a bill similar to DeVitis' proposal, said in an April interview that lawmakers have put "bumpers" around the nuclear subsidy proposals to protect the state and ratepayers in the event a nuclear asset is sold to an out-of-state entity. The bills allow the nuclear credits to be transferred to a new owner of a nuclear resource, without penalty, if the sale or transfer of the facility occurs under the U.S. Bankruptcy code. Otherwise, a transfer or sale of a nuclear resource would reduce the credits by 50% of the asset sale price during the program period and possibly successive program periods.

"We've tried to put some bumpers around it to make sure that if there's a sale ... it's not just going to be because some company can walk away with pockets full of money," Eklund said.

FirstEnergy plans to sell its unregulated nuclear plants as part of its commitment to exit competitive operations by mid-2018.

The company, however, has pushed for the subsidies to prevent the early closure of baseload generation assets. Still, the legislation faces an uphill battle, with Ohio Gov. John Kasich indicating he could not support subsidies for the nuclear plants.

"[W]e are unsure what would cause him to change his view of ZEN 2.0," Jefferies LLC analyst Anthony Crowdell wrote in an Oct. 13 flash note on H.B. 381.

Crowdell also noted that H.B. 178 included a $5 per month charge for residential customers, so it is unclear under the new ZEN legislation how a difference between what a utility pays for the credits and what it can charge customers would be handled.

In addition, in a move cheered by FirstEnergy, the U.S. Department of Energy on Sept. 28 issued a rough proposal directing the Federal Energy Regulatory Commission to adopt a new rule requiring operators of organized markets to "ensure that certain reliability and resiliency attributes of electric generation resources are fully valued." If adopted, the new market rules would allow generating units with at least a 90-day fuel supply on site and not subject to cost-of-service regulation to fully recover their costs.

"We question if the Ohio legislature will want to act, and be responsible for approving a rate increase, when FERC is trying to respond to DOE's request to provide relief for nuclear and coal assets in regions with an energy and capacity market," Crowdell wrote.