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Op-Ed: PSEG, Open Your Books!

To protect ratepayers against the potential for zero-emission credits to become a source of windfall profits for PSEG, it is essential the Legislature demand an “open-book” approach

steven s. goldenberg
Steven S. Goldenberg

For several months, PSEG has urged legislators to authorize zero-emission credits (ZECs), a nuclear tax that would offset losses that PSEG’s nuclear plants allegedly will sustain in coming years. PSEG now wants to fast track an 11th hour ZEC bill through the lame-duck session of the Legislature that apparently has yet to be seen by anyone. However, it should be evident to all that nuclear subsidy issues do not lend themselves to fast-track resolution as they are exceedingly complex and require extensive analysis, due in part to the multibillion-dollar price tags that have accompanied nuclear bailouts and the significant policy issues involved.

In fact, although parallel proceedings that could provide the financial relief PSEG seeks are now occurring before the Federal Energy Regulatory Commission and PJM, PSEG nonetheless appears determined to rapidly move its preferred ZEC bill in a calculated effort to limit the opportunity legislators and stakeholders will have to vet and understand the bill, its policy implications, and cost impact on ratepayers. If authorized, the ZEC subsidies would amount to a huge, multibillion-dollar tax imposed on all New Jersey citizens who receive electric service (not just PSE&G customers), that will not be paid to the state to advance a state purpose, but rather to the coffers of PSEG, a company whose stock is currently achieving record highs.

The Legislature should not be complicit in this effort. The numbers are too large and the issues too important to be given short shrift in an abbreviated legislative session. PSEG’s professed need for expedited action is particularly illusory given its acknowledgement that its nuclear plants are profitable and will remain so for years to come. Legislators who are concerned that PSEG will make good on its apparent threat to close the plants must understand that this will not happen any time soon because PSEG obviously will not shutter profitable plants — particularly when the billion-dollar price tag associated with their decommissioning and the need to store spent nuclear fuel are taken into account. Further, PJM has authority to prevent their closure if the plants are needed for reliability purposes. Moreover, the ongoing federal proceedings now studying potential forms of nuclear relief likely will be concluded long before the plants experience their alleged losses. It should therefore be evident that there is abundant time to address the issues in the responsible and deliberate manner they require, and not under a false sense of duress fanned by fears of imminent plant closures and job losses.

PSEG playing coy

PSEG has been coy about valuing the ZEC recovery it seeks, and for good reason. It is anticipated that PSEG will seek between $350 million and $400 million annually over a 10-year period, totaling a whopping $3.5 billion to $4 billion. These subsidy levels, while breathtaking, are consistent with utility proposals to bail out nuclear plants in other states that, unlike the PSEG plants, are not financially viable.

However, despite its assumed multibillion dollar ask, PSEG has not volunteered any expert reports, market analyses, or projections to justify the imposition of this massive new tax. Nor have PSEG Power, the PSEG unregulated affiliate that owns the plants, or PSEG offered to open their financial books and records for inspection by the state, including the Board of Public Utilities and Rate Counsel, regarding data that would establish the current and projected financial condition of the nuclear plants, project their alleged future losses, or demonstrate that the proposed ZEC subsidies would merely offset the projected losses and not become a separate profit center for PSEG.

To protect ratepayers against the potential for ZECs to become a source of windfall profits, it is essential that the Legislature require an “open-book” approach as a precondition to authorizing ZECs under any bill. As part of the open-book approach, PSEG and PSEG Power should be required to make appropriate financial disclosures, supported by authoritative market analyses by PJM and the PJM Market Monitor, regarding the current and projected financial performance of the nuclear plants throughout the entire period of time in which ZEC recovery is requested, and establishing a nexus between the ZEC recovery sought and the actual losses that the plants incur.

Stranded-cost claims

The critical need for an open-book approach is underscored by past experience with PSEG’s stranded-cost claims in connection with the state’s restructuring of the electric industry. In arguments reminiscent of those it now advances in support of ZECs, PSEG claimed that its electric generation fleet would not be profitable in the newly created competitive generation markets. However, as it turned out, the PSEG generation units, and in particular the nuclear plants, were extremely profitable in those markets and the plants quickly became the primary driver of PSEG’s corporate profits for a decade. PSEG’s forecasted plant losses never materialized, and in fact the plants earned windfall profits throughout most of the stranded-cost recovery period. However, ratepayers remained obligated to pay the $3 billion in stranded costs — in addition to these windfall profits — because the restructuring law made the payment of stranded costs irrevocable. It is noteworthy that at no point has PSEG offered to refund to ratepayers any portion of the significant windfalls associated with the recovery of its nonexistent stranded costs.

To avoid the potential for another such giveaway here, it is imperative that any ZEC bill require PSEG to provide full disclosure of the critical information necessary to assess the merits of any proposed ZEC program, including the quantification of proposed subsidies. In particular, PSEG must disclose whether the ZECs requested are designed merely to offset, on a dollar-for-dollar basis, any actual, provable losses incurred by the nuclear plants, or whether the ZECs would not be tethered to actual losses, thereby raising the specter of another decade of unjustified windfall profits.

PSEG’s potential eligibility to receive ZECs must therefore be conditioned upon competent proof of the actual losses sustained by each nuclear plant in each year in which ZEC recovery is sought. Appropriate ratepayer protections must also be implemented, including the creation of regulatory “off-ramps” that would relieve ratepayers of their obligation to pay ZECs in specified circumstances. The circumstances should include years in which the nuclear units are profitable without resort to ZECs due to, among other reasons, increases in market-clearing prices due to increases in the price of natural gas, extreme weather, or changes in regulation.

In order to ensure that PSEG and PSEG Power provide the necessary financial transparency, PSEG and PSEG Power should be required to produce authoritative, market-based information that affirmatively establishes, at minimum 1) whether the nuclear plants are currently profitable and able to recover all operating costs; 2) the years in which the nuclear plants are projected to be profitable and able to recover all operating costs; 3) the annual losses currently projected for each year during the period 2017 through 2027; 4) the amount of ZEC subsidies requested in each year during the period 2017 through 2027 to offset projected annual losses; 5) the formula for establishing the value of ZECs, including how wholesale market prices established by the PJM auctions would be taken into account; 6) the percentage of total output from the nuclear plants that is projected to be consumed by customers located outside the state of New Jersey in each year during the period 2017 through 2027; and 7) whether such out-of-state customers will be required to pay ZECs or any other form of subsidy. PSEG should also produce information regarding the decommissioning costs PSEG would incur should it elect to close the nuclear plants, identify all sources of funding to pay the decommissioning costs, and describe how it would dispose of spent nuclear fuel.

Quick to reap benefits

In sum, it is evident that PSEG is content to reap the benefits of the competitive markets (and stranded costs) while conditions are favorable, but is quick to attempt to wrongfully shift market risks back to ratepayers when market conditions become challenging. While this best-of-both-worlds approach would certainly benefit PSEG and its investors, it clearly does not serve the interests of ratepayers, who were relieved of this responsibility by the restructuring law in return for their payment of billions in stranded costs. The Legislature should not be complicit in PSEG’s attempt to achieve this result through the implementation of ZECs, particularly not in the lame-duck session of the Legislature. Just say “no” to nuclear taxes!

Steven S. Goldenberg is the co-chair of the Energy and Public Utilities Practice Group at Fox Rothschild LLP and serves as counsel to the New Jersey Large Energy Users Coalition.

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