A Bailout For Nuclear Power Plants Would Be An Economic Explosion

Mark Perry | Professor at Flint Campus of The University of Michigan

The most ludicrous thing about a bailout for money-losing nuclear plants in Minnesota, which Xcel Energy is seeking under the guise of a reactor improvement program and which the state legislature is now considering, is that it purportedly relies on regulatory oversight and would be a good deal for electricity users and prevent the loss of jobs.

To save financially-ailing nuclear plants, state legislatures in Illinois and New York last year approved subsidies to keep the plants operating after utilities made appeals about protecting consumers and jobs. But other proposed bailouts of nuclear plants have stalled in New Jersey, Connecticut, Massachusetts, Ohio and Pennsylvania. By doing the right thing – adhering to free-market principles – these states have managed to steer clear of similar bailouts.

What’s particularly remarkable about the situation in Minnesota is that it seems disconnected from the needs of the state’s economy and consumers. Under a bill that’s been sharply criticized by the Minnesota Chamber of Commerce and ratepayer advocates, Xcel would submit its nuclear plant improvement tab – an additional $1 billion to keep its 45-year-old Prairie Island nuclear plant running and at least $420 million for its even older Monticello nuclear plant – to the Minnesota Public Utilities Commission (PUC) for approval.

The tab would be for capital investments as well as operations and maintenance expenses over the next 17 years. Although it would be handled in the same way as a traditional rate case, the approval process would actually weaken PUC’s power by allowing Xcel to get approval up front for future expenses, in effect giving Xcel a blank check.

The cost of nuclear plant improvements would be added to electricity users’ bills. Xcel says that carbon-free nuclear power is needed to meet the company’s carbon-mitigation goal, which is to obtain 85% of its electricity from zero-carbon sources by 2030.

But the claim that using subsidies to keep financially-ailing nuclear plants on line would be good for consumers and the environment is questionable at best. Switching to clean natural gas, wind and solar power would be much cheaper.

The simple truth is that the nuclear improvement program – or bailout – is really an effort to protect the company from the cost of having to shut down two nuclear plants that can no longer compete in electricity markets with natural gas and renewables.

In this regard, the Prairie Island and Monticello plants are plagued by some of the same financial problems that are typical of many other nuclear plants around the country. While the cost of producing natural gas as well as wind and solar power has dropped dramatically, replacement costs for nuclear-plant components like turbines and steam generators has soared. Since 2013, five U.S. nuclear plants have closed and eight others are scheduled to shut down in the next few years. Experts say that many other nuclear plants are at risk of closing.

Subsidizing nuclear power is poor public policy. It is disconnected not only from the real interest of electricity users but also from the efficient and cost-effective operation of the electricity system itself. Natural gas can generate electricity more cost-effectively and also meet surge needs during extreme weather. This is why an effort to bail out the financially-troubled Prairie Island and Monticello nuclear plants in Minnesota is a bad idea. The nuclear industry knows that its days are numbered.

Mark J. Perry is a scholar at The American Enterprise Institute and professor of economics at the Flint campus of The University of Michigan.


The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.

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