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Three Mile Island shut down would be detrimental to Pennsylvania electricity consumers, according to Bates White study

May 9, 2008

Bates White economists analyzed the potential economic and system reliability impacts of closing the Three Mile Island (TMI) nuclear generating station and concluded that doing so would raise wholesale electricity prices, increase emissions of CO2, and likely degrade reliability of the electrical system.

The study, “The Economic and System Reliability Benefits of the Three Mile Island Generating Station,” was conducted in connection with Amergen Energy Company’s application to the Nuclear Regulatory Commission for a 20-year extension of an operating license for the TMI facility. Amergen Energy is a subsidiary of Exelon Corp., which released the report this week.

Bates White economists Jonathan Lesser, Collin Cain, and Spencer Yang, authors of the report, concluded that TMI generation lowers wholesale electricity prices in Pennsylvania and in the surrounding region. Lesser and Cain estimated that the direct economic benefit of lower electricity prices averages $288 million per year for Pennsylvania and $1.1 billion per year for the region.

Highlights from the study

  • Substantial electricity price increases would occur for Pennsylvania electric utilities during peak hours if TMI were shut down. In the absence of TMI generation, Pennsylvania consumers would likely pay an additional $570,000 for electricity in just a single peak hour, based on power flow modeling.
  • CO2 emissions would increase, because the electricity TMI provides would be replaced primarily with increased natural gas-fired or coal-fired generation. If TMI’s output were replaced with generation from coal, the annual increase in CO2emissions would be the equivalent to that of about 1.3 million cars. Replacement with natural gas generation would cause an annual increase in CO2 emissions equivalent to about 640,000 cars.
  • TMI provides critical support to maintain regional electric reliability, which consists of the maintenance of uninterrupted electric service and prevention of transmission network overloads. Shutting down TMI could accelerate and exacerbate overload conditions on several of the transmission facilities that have been identified as requiring upgrades.
  • TMI contributes $99 million per year directly to the Pennsylvania economy through employee compensation, in-state expenditures on goods and services needed to operate the plant, and local and state property tax payments.
  • TMI employs 507 full-time non-security employees at the plant. It also employs hundreds of temporary contract employees during refueling outages.

Jonathan Lesser, PhD, is a Partner with Bates White LLC with 25 years of experience working for regulated utilities, government, and as an economic consultant. He has addressed critical economic and regulatory issues affecting the energy industry, including gas and electric utility structure and operations, mergers and acquisitions, cost allocation and rate design, resource investment decision strategies, cost of capital, depreciation, risk management, incentive regulation, economic impact studies, and general regulatory policy.

Dr. Lesser has testified before utility commissions in numerous states, before the Federal Energy Regulatory Commission (FERC), before regulators in México and Puerto Rico, in commercial litigation cases, and before numerous state legislative committees. He is the coauthor (with Leonardo Giacchino, PhD) of Fundamentals of Energy Regulation, published in 2007 by Public Utilities Reports, Inc. Dr Lesser has written numerous academic and trade press articles, and he is a contributing columnist and Editorial Board member for Natural Gas & Electricity.

Collin Cain, MSc, has expertise in RFP design and evaluation, forensic analysis in litigation support, and auction development and implementation. He has developed risk analysis and energy market pricing models and applied these models in the assessment of damages, power supply contracts, infrastructure investment opportunities, divestment and buyout options, and hedging strategies. Mr. Cain has provided expert testimony in regulatory and private legal proceedings and has performed strategic advisory work on asset divestment, stranded cost recovery, and rate unbundling.

Spencer Yang, PhD, is an expert in transmission modeling, computer simulation techniques, economic and statistical analysis, and quantitative and predictive modeling. Dr. Yang provides attorneys and senior management with strategic advice and litigation support in electric transmission business and regulatory market power disputes. Prior to joining Bates White, he served as a Staff Scientist at California Institute of Technology and as a Senior Postdoctoral Scholar at California Institute of Technology, where he synthesized abstract research results into meaningful recommendations to government reviewers.