RunnerStone, LLC. Page1 M E M O R A N D U M

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1 RunnerStne, LLC 3709 N. High Street, Suite 100, Clumbus, OH M E M O R A N D U M Date: Octber 13, 2017 T: Ohi Manufacturers Assciatin Energy Grup Frm: Jhn Seryak, PE (RunnerStne, LLC) Kim Bjk, Energy Cunsel fr the OMAEG (Carpenter, Lipps, & Leland) RE: Analysis f H.B. 381 Zer-Emissins Nuclear (ZEN) Credit Prgram Huse Bill 381 (HB 381), recently intrduced in the Ohi General Assembly, prpses t change Ohi s plicy regarding electricity generatin resurces. Ohi s current plicy regarding electricity resurces states: Ensure diversity f electricity supplies and suppliers, by giving cnsumers effective chices ver the selectin f thse supplies and suppliers and by encuraging the develpment f distributed and small generatin facilities. But HB 381 wuld alter this state plicy, mandating the peratin f nuclear generatin, even if it is inefficient r mre cstly in the cmpetitive market: Nuclear generatin technlgy wuld be given special status that n ther technlgy enjys, as it wuld be state plicy t specifically ensure diversity f resurces, including zer-emissins nuclear resurces. The state wuld n lnger limit itself t ensuring diversity thrugh chice and encuragement, but instead wuld encurage diversity by recgnizing the need fr nuclear energy resurces. State plicy wuld als be changed t ensure diversity f, and recgnize need fr, a mre generalized categry f electricity resurces that prvide fuel diversity and envirnmental and ther benefits. HB 381 is very similar t the previus legislatin (Senate Bill 128 and a cmpanin bill, Huse Bill 178), which required electric distributin utilities t purchase Zer-Emissins Nuclear (ZEN) credits that wuld be bught frm Ohi s nuclear generatrs, as well as generatrs perating ut f state, and paid fr by Ohi s custmers in FirstEnergy s service territries. HB 381 prvides fr the fllwing mdificatins frm prir versins: HB 381: Zer-Emissin Nuclear Credits HB 381 mdifies the duratin f the ZEN prgram and cst recvery frm custmers, ZEN = Attributes f 1 MWh nuclear generatin Cst: greater than $100 millin/yr, fr at least 12 years, r mre than $1.2 billin ttal Allws ut-f-state ZEN credits t meet mandates Shifts state plicy frm supprt fr cmpetitive markets t specific generatr need Limits custmer interventin at PUCO Wuld cst a small manufacturer ~$60,000 thrugh 2030 Wuld cst large, intensive manufacturer $500,000 thrugh 2030 Page1

2 RunnerStne, LLC 3709 N. High Street, Suite 100, Clumbus, OH guaranteeing that the prgram and cst recvery cntinue fr at least 12 years, thrugh 2030, with an pprtunity fr the General Assembly t extend after receiving a reprt frm the PUCO in HB 381 clarifies that the credits are first allcated t each distributin utility, and then the distributin utility cllects revenues frm all f its custmers thrugh a nn-bypassable rider in the amunt assciated with its allcatin f the ZEN credits. HB 381 mre clearly explains hw the state f Ohi (PUCO) perates the prgram as a middle man in rder t transfer ZEN credits and funds frm an unregulated nuclear generatr t a regulated distributin utility. The mdificatins in the bill are an attempt t create the illusin that FirstEnergy s custmers are nt subsidizing FirstEnergy s unregulated affiliate that wns nuclear generatin (FES) t avid any FERC scrutiny ver such affiliate transactin. HB 381 deletes the cst cap included in the prir versin f the bill and sets the rider rates similar t thse in the OVEC legislatin. Residential custmers will be charged $2.50/mnth and nnresidential custmers will be charged the lesser f 5% f the custmer s ttal bill r $3,500/mnth. There is n indicatin f whether the 5% calculatin is referencing a custmer s ttal annual bill r ttal mnthly bill, which culd affect the custmer s mnthly charge. The distributin utility may adjust these rider amunts dwnward if a lwer rate wuld still allw full recvery f the cst assciated with btaining the ZEN credits that the utility is required t purchase. With this change, the deferral was eliminated. HB 381 als appears t have deleted recvery f indirect csts assciated with the purchase f the ZEN credits. HB 381 remved the PUCO review f the prgram in years 6 and 11 and a recmmendatin as t whether the prgram shuld cntinue. Thus, the prgram is guaranteed t cllect revenues assciated with ZEN credits fr 12 years, thrugh 2030, with an pprtunity t extend. HB 381 sets frth hw the state wuld meet the new plicy gal f recgnizing a need fr nuclear generatin by creating ZEN credits purchased frm nuclear generatrs fr distributin utilities and paid fr by sme Ohi custmers. Details f the ZEN credit mechanism: ZEN credit definitin: A ZEN credit wuld equal the attributes assciated with ne megawatt hur (MWh) f nuclear generatin. Attributes is nt defined, but presumably refers t emissins attributes, meaning the lack f emissin pllutants. Hwever, attributes culd extend t include ther envirnmental externalities f electric generatin that may smeday be priced in, such as water use r spent fuel strage. ZEN credit price: SB 128 mandates that the initial price f a ZEN credit be $17.00, and that the PUCO shuld peridically adjust the price fr inflatin. ZEN credit quantity: The number f ZEN credits t be purchased will equal 1/3 f a distributin utility s custmer lad, prvided that the distributin utility has a qualified nuclear resurce within its certified territry. Additinally, if that distributin utility is wned by a hlding cmpany, which in turn wns ther distributin utility cmpanies in Ohi, all f that hlding cmpany s Ohi distributin utilities wuld be required t participate in the ZEN credit prgram. Page2

3 RunnerStne, LLC 3709 N. High Street, Suite 100, Clumbus, OH In plain terms, this wuld include all three f FirstEnergy Crp. s distributin cmpanies (Cleveland Electric Illuminating, Tled Edisn, Ohi Edisn), but nt AEP Ohi, DP&L, r Duke. The ttal annual distributin lad f the FirstEnergy Ohi distributin utilities is apprximately 54 millin MWh. ZEN credit prgram duratin: The ZEN credit prgram, including cst recvery frm custmers, will last fr at least 12 years and there is an pprtunity fr the General Assembly t extend that perid. ZEN credit cst: The custmers f the FirstEnergy Ohi distributin utilities wuld be required t purchase 18 millin ZEN credits at a price f $17.00 per ZEN, ttaling ~$300 millin per year (plus any increases fr inflatin). The cst t Ohi ratepayers ver the 12-year term wuld be at least $3.6 billin withut a cst cap, thugh with the cst cap, the csts wuld still likely result in ver $1 billin fr the 12-year term. ZEN credit availability, Out-f-state ZEN credits: Ohi s tw nuclear pwer plants, Davis-Besse and Perry, fall shrt f prducing 18 millin ZEN credits per year. In fact, accrding t the US Energy Infrmatin Administratin, nt nce has nuclear generatin in Ohi prduced 18 millin MWh since In the mst recent 5 years, Ohi nuclear plants prduced n average 16.7 millin MWh. Thus, an additinal 1.3 millin ZEN credits wuld need t be purchased frm ut-f-state nuclear resurces. If the prductin trend cntinues, Ohi custmers wuld cnsistently send $21.5 millin each year t ut-f-state nuclear resurces. Because the cst cap wuld limit annual cst t cnsumers by a magnitude greater than the ut-f-state ptential, it is nt clear hw the PUCO will decide which nuclear resurce, be it in-state r ut-f-state, wuld receive the subsidies. In 2003, nuclear generatin in Ohi fell t apprximately 8.5 millin MWh. In such a year, Ohi wuld spend apprximately $160 millin n ut-f-state ZEN credits. HB 381 further amends the state plicy t extend lng-term envirnmental and ther benefits t the regin, nt just the state. Nuclear plant eligibility: HB 381 prvides remarkably specific criteria arund which pwer generating resurces are eligible. In and Out-f-State Eligibility: Imprtantly, separate definitins exist fr in-state nuclear energy resurces, and fr all ther nuclear energy resurces. Hypthetical Envirnmental Baselines: In-state nuclear resurces wuld be eligible by cmparing the emissins f the nuclear plant t that f the predminant electric generatin surce as f the time the resurce cmmenced peratin. The impact f thse hypthetical emissins wuld assume the then predminant electric generatin surce was lcated in the exact same place as the nuclear plant. The intent f this prvisin seems t be t cmpare the emissins impact f nuclear plants nt against what wuld currently likely replace the nuclear plants a mix f natural gas, renewable energy, and energy efficiency, all sited at different lcatins but instead against year ld generatin technlgy, which was likely predminantly inefficient calpwer plants with high emissins. This wuld have the effect f blstering the alleged Page3

4 RunnerStne, LLC 3709 N. High Street, Suite 100, Clumbus, OH envirnmental benefits t the regin f nuclear technlgy, but wuld be whlly untethered t reality. ZEN prgram prcess: HB 381 dictates that financial data and statements submitted by nuclear plant wners desiring t sell ZEN credits t Ohi custmers wuld nt be made public. ZEN prgram cst recvery wuld be cllected frm custmers f FirstEnergy s Ohi electric distributin utilities thrugh a nn-bypassable rider fr at least 12 years. The nn-bypassable rider fr nn-residential custmers will be set at the lesser f 5% f the custmer s ttal bill r $3,500/mnth. This may be adjusted dwnward if a lwer rate wuld still allw the distributin utilities t cllect the full amunt assciated with the ZEN credits allcated t the distributin utility. The PUCO wuld have nly 50 days t designate a nuclear plant as an eligible nuclear resurce after the resurce files a written ntice, r any nuclear resurce that ntifies the PUCO wuld be autmatically eligible. Interested stakehlders may file cmments within 20 days after the ntice is filed. Since presumably ut-f-state nuclear resurces culd be eligible, and there are specific envirnmental requirements fr all nuclear resurces, the list f participating plants is nt bvius, and culd be pen t challenge based n the requirements HB 381 sets frth. Hwever, it is unlikely a rbust prcess culd take place at the PUCO within 50 days. Thus, even ut-f-state nuclear plants culd receive defact eligibility withut the full review f the PUCO and intervening stakehlders. Transfer f ZEN eligibility t ther cmpanies: If a current nuclear plant wner sells r transfers its nuclear pwer plant, the amunt f ZEN credits allcated t the distributin utilities frm the transferred nuclear resurce wuld be reduced by half f the dllar amunt f any net prceeds therwise available frm the resurce s knwn bligatins. It appears that even with this reductin, the requirement fr the Ohi distributin utilities t purchase ZEN credits equal t 1/3 f their lad remains, implying that Ohi custmers wuld simply need t purchase mre ut-f-state ZEN credits. Page4

5 Impact n Manufacturers RunnerStne, LLC 3709 N. High Street, Suite 100, Clumbus, OH The cllectin f revenues assciated with ZEN credits wuld currently be limited t FirstEnergy s Ohi custmers, even thugh HB 381 clearly states that the benefit f the prgram is t the regin. The table belw shws the annual and 12-year impact t small, medium, large, and extra-large manufacturers lcated in the service territries f the FirstEnergy Ohi distributin utilities. The ttal cst, annually and fr the full term, is shwn, as well as the prtin f the cst that culd g t ut-f-state nuclear plants. A small manufacturer culd pay apprximately $60,000 extra ver the 12-year term, where as a large manufacturer with significant lcal emplyment culd pay apprximately $500,000 extra ver the curse f the ZEN prgram. Manufacturer Size Small (~$100k/yr in electricity csts) Medium (~$600k/yr in electricity csts) Cnsumptin (kwh/year) Ttal ZEN Cst Annual With Cst Cap Ttal ZEN Cst 12-year Term With Cst Cap 1,000,000 $ 5,667 $ 5,000 $ 68,000 $ 60,000 7,500,000 $ 42,500 $ 33,750 $ 510,000 $ 405,000 Large (~$6 millin/yr in electricity csts) 100,000,000 $ 566,667 $ 42,000 $ 6,800,000 $ 504,000 Extra Large 1,000,000,000 $ 5,666,667 $ 42,000 $ 68,000,000 $ 504,000 Page5