PSEG Warns That Without Subsidies Nuclear Plants Could Go Dark
CEO tells energy analysts ‘We are not saber rattling. We are not bluffing’
Public Service Enterprise Group is continuing to make the case that it needs help to keep its fleet of nuclear power plants afloat, this time to a roomful of energy analysts.
Chief executive Ralph Izzo said yesterday that if the plants are not economically feasible to operate, the company will not continue to keep the units in service, a prospect that could occur within three years. Nuclear provides nearly half the electricity used by customers in New Jersey.
“We are not saber rattling. We are not bluffing. We are not trying to be alarmists,’’ said Ralph Izzo, who also serves as chairman and president of PSEG, telling analysts at the company’s annual investors’ conference at the New York Stock Exchange. “We will not operate those plants long term if they are not earning their cost of capital.’’
The nuclear sector has been rocked by early plant closings across the nation, battered by low-price natural gas, which has made it difficult for the nuclear units to compete. Some states, including Illinois and New York, have approved generous subsidies to keep nuclear plants afloat, an optionwith legislators, regulators, and policymakers at the state and federal levels.
PSEG Power, a subsidiary, operates three nuclear units at its Artificial Island complex in South Jersey and also owns part of Peach Bottom in Pennsylvania. For months, the company has been talking with officials about economic conditions.
Currently, PSEG Power invests $100 million in new capital each year at its nuclear plants. Even with hedges in place to reduce financial risk, the plants are not earning their cost of capital, according to PSEG. As those hedges roll off, the plants could go cash-flow negative, Izzo said.
While the company is talking with state and federal officials about the problem, as well as with PJM Interconnection, the grid operator, officials indicated a solution at the state level is most likely.
“In the near term, a solution is more likely to come from a state initiative,’’ said Tamara Linde, an executive vice president. Initial talks with officials at all levels have found widespread support for keeping the plants open, Linde said.
No legislation has been introduced, but Bill Levis, president and chief operating officer of PSEG Power, described the financial incentivesand Illinois, as “very helpful.’’ In New York, ratepayers will shell out about a half-billion dollars a year in so-called zero-emission credits to keep plants open.
In New Jersey, talk of giving financial incentives to PSEG is alarming to consumer advocates and environmentalists.
“PSEG’s plants are clearing the auction,’’ noted Stefanie Brand, director of the Division of Rate Counsel, referring to the units being selected to provide capacity in the PJM energy market, a lucrative source of revenue for power plants.
“These plants have been enormously profitable over the years,’’ Brand said, adding that consumers just finished paying off $2.9 billion to PSEG for “stranded costs’’ stemming from energy deregulation.
Doug O’Malley, director of Environment New Jersey, agreed, saying the plants in state are not in the same shape as those in New York or Illinois. “PSEG has failed to make the case these plants are going out of business,’’ he said. “It doesn’t make sense to give them a handout.’’
In the past, Izzo and others have hoped a national policy would recognize the benefits of carbon-free nuclear power, but that has not proved to be the case.
“The economic handwriting is on the wall. They’re trying to let people know this is a serious issue,’’ said Paul Patterson, an energy analyst with Glenrock Associates. “Without the states stepping up, these plants are in jeopardy, no question.’’
PSEG laid out an aggressive capital-spending program over the next five years at the conference, projecting the company will spend between $12.3 billion and $13.8 billion in that timeframe, and possibly more. As in recent years, the bulk of the investment will flow through Public Service Electric & Gas, its gas and electric utility.
The spending will be on new transmission projects, a continuing gas modernization program, upgrades to its electric grid and replacement of 80-year-old substations, and energy efficiency and renewable energy.