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Playing chicken with Illinois’ electric rates won’t improve the climate

By: PETER BRADFORD |

The recent demand by Illinois’ nuclear power plant owner, Exelon, for a breathtaking $580 million per year in rate increases to keep running its plants raises serious questions as to wise ways to fight climate change and ensure energy security. Illinois customers have paid dearly to bail these same reactors out of past economic peril. They should understand that bailing them out a second time will be more expensive and less effective than charging for the emissions that cause climate change.

When Illinois turned power generation from a monopoly to a competitive industry in the 1990s, the nuclear plants seemed too costly to compete effectively. Illinois legislators and regulators included measures ensuring that customers, rather than investors, would bear the risk that reactor costs could not be recovered under competition.

Consequently, the nuclear units needed only to recover their relatively low operating costs through competition to be profitable. For a decade, the reactors did so well that many in the industry trumpeted them as “cash cows” producing cheap electricity in an expensive marketplace.

Goodbye to all that. Nuclear economics have gotten so shaky that yesterday’s cash cows are said to be today’s vulture bait.

The U.S. nuclear industry has benefited immensely from government expenditure ever since the Manhattan Project gifted it with reactors, fuel enrichment and trained personnel. It also has the advantages of a limit on liability for accidents and the unique governmental commitment (as yet unfulfilled) to take its most radioactive wastes.

The $580 million in rate increases sought by Exelon amounts to several hundred dollars per customer, much of it paid in the electric bill, some of it in the cost of other goods and services.

THE RIGHT ANSWER

The price of putting carbon into the skies must reflect the reality of climate change.

This reform will raise the price paid for the natural gas-fired power that has undermined nuclear profitability. Nuclear profits will increase, but so will those of all other low-carbon measures, especially energy efficiency and renewable energy. The lowest-cost measures will win out. They may include the existing reactors, but—given the lower costs of energy efficiency and some renewables—they may not.

Targeting subsidies to reactors instead of taxing carbon may well pay too much for too little climate improvement. The claim that nuclear reactors provide unrewarded reliability benefits does not reflect the reality of today’s power markets, which are capable of providing round-the-clock electricity in other ways. As to jobs and property taxes, paying higher-than-necessary electric rates merely transfers jobs and taxes from electricity-consuming companies and other power producers to nuclear power plant sites. This will not improve Illinois’ economy.

Closing many nuclear plants abruptly is not in the climate’s best interest, but neither is lobbying-induced subsidy panic in Springfield or Washington. Charging to use the sky as a carbon sink protects the environment while preserving reliable power markets. That’s the reform worth enacting.