Grid Operator Counsels Caution About PSEG Nuclear Subsidies

Tom Johnson | December 11, 2017 | Energy & Environment
In letter to Senate committee, PJM says PSEG must demonstrate need for subsidies, suggests alternative solutions can be pursued

nj nuclear
The operator of the nation’s largest power grid is urging New Jersey to consider a regional solution to bolstering the economics of the state’s nuclear industry, an approach so far ignored by legislators.

In a letter delivered to the chairman of the Senate Environment and Energy Committee, PJM Interconnection urged policymakers to consider a regional approach rather than having the state act on its own, an approach being touted by Public Service Enterprise Group.

The proposal, likely to be fast-tracked in the remaining sessions of the lame-duck Legislature, is pitting the company, the operator of three nuclear units, against consumer advocates, other business interests, and environmentalists over whether the plants needs lucrative subsidies to remain open.

The subsidies likely would be paid by utility customers, and could end up costing ratepayers billions of dollars over a decade if the state follows similar programs enacted by New York and Illinois to rescue its nuclear sector.

Even though no bill has been introduced, prospects appeared to grow for legislative action when Gov. Chris Christie last week signaled he would sign a bill supporting the sector — provided it was not loaded up with other costs for other environmental programs.

PJM urges caution

PJM’s letter urged caution, a strategy frequently voiced by foes of the concept. They argue the company has yet to demonstrate subsidies are needed and should wait and see what approach is taken by the grid operator to enhance the plants’ revenues, or other alternatives advanced by the federal government.

PSEG has told lawmakers the plants could turn unprofitable within two years. It contends the units are not being fairly valued for providing fuel diversity to bolster reliance of the power grid, or for being a carbon-free source of electricity.

In its letter, PJM notes it already has provided enhancements that have provided benefits to owners of power plants and others are under consideration for units within the power grid. The power grid is reliable and will continue to be so in the future, according to the letter.

PJM also argued its proposed changes in energy pricing will provide additional incentives to power suppliers to more accurately reflect their costs. Much of the power sector is facing steep economic challenges as energy prices have fallen because of plentiful and cheaper supplies of natural gas.

If the state opts to wait for a regional solution, it has the benefit of spreading the cost of any financial incentives for the plants to the entire region, not just New Jersey electric customers.

The grid operator noted the changes occurring in the industry, but added “New Jersey need not address these challenges in a vacuum.’’ It argued being located within PJM, allows for solutions that can enhance the state’s policy priorities.

No skin in the game

Opponents of the subsidies welcomed the PJM letter, noting that the grid operator is an independent entity and has no ‘’financial skin’’ in the game.

“It completely undermines the self-serving arguments that PSEG presented at the recent joint (legislative) hearing to justify a multibillion-dollar subsidy scheme, the details of which remain secret,’’ said John Sheik, president and CEO of the Electric Power Supply Association, an industry trade group.

The Legislature has sessions scheduled today and Thursday, but so far no hearings on any legislation have been announced publicly.