The West Virginia Legislature voted overwhelmingly this week to allow FirstEnergy Solutions to avoid paying an annual $12.5 million business and occupation tax to the state for operation of the Pleasants Power Station in Pleasants County.

The company, which is a subsidiary of FirstEnergy and is going through bankruptcy, argued it needed the tax break to keep the coal-fired plant open.

The many supporters in the Legislature, as well as Governor Jim Justice, argued that forgoing the tax was worth it to save the 160 employees at the plant. Opponents criticized it as corporate welfare for a failing plant.

The truth is a little more complicated.

The Pleasants Power Station is a merchant power plant, meaning its rates are not regulated (or guaranteed) buy the government. Its power is sold on the open market, where it must compete with other electricity generators.

That market has become increasingly competitive because of plentiful and low-cost natural gas. Pleasants Power is feeling the squeeze from the competition. Free market purists can argue that if the power plant cannot compete then it deserves to go out of business.

However, Pleasants Power is not exactly on a level playing field since no other merchant plant in West Virginia is subject to the B & O tax.

The future of the plant is unclear. FirstEnergy Solutions President and CEO John Judge told me on Talkline that without the break on the tax, the plant could close in a matter of months.  With the break the expectation is the plant can remain open for years, but there’s no guarantee. FirstEnergy Solutions must find additional savings.

Critics of the deal also argued against the math: The average plant salary with overtime is  $80,000. $12.5 million to save 160 positions comes out to $78,000 per job.  However, that math is misleading because it does not consider the jobs at coal mines and other companies that supply the plant or the impact on the local economy when massive layoffs occur.

Opponents have also called it a “bailout,” and that’s not exactly fair.  If you want to see a true bailout, look at Ohio where the legislature just approved a bill adding a monthly surcharge to every Ohio electricity customer to keep several power plants, including two owned by FirstEnergy Solutions, operating.

By contrast, West Virginians will not see any impact of the waiving of the B & O tax for the Pleasants Power Station.  There will be $12.5 million less going to the state treasury. However, forgoing a business tax that is limited to one entity is not the same as a taxpayer bailout.

In fairness, public policy makers should always be on guard when a private sector business comes to the Capitol, hat-in-hand, saying they will have to close if the government doesn’t help.  Government cannot save every failing business, nor should it.  The market is more efficient at weeding out failing businesses.

But there are exceptions, and this is one of them.  If forgoing the tax helps keep the plant open, the financial security of those 160 workers and their families, along with the employees and families of the plant’s suppliers, makes it worth the money.

If FirstEnergy Solutions is unable to make a go of it, then the plant was destined to fail and the state wouldn’t have gotten the B & O tax money anyway.

 

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