PSEG Nuclear Subsidy Bill Could Cost Customers $350M Annually

Tom Johnson | December 15, 2017 | Energy & Environment
Made public today, bill is expected to be heard by committee next week and come up for final vote early in January, before end of lame duck

PSEG Power's nuclear generating facility on Artificial Island
The state’s more than 3 million electric customers could be slapped with a huge new surcharge of up to $350 million a year to keep three of New Jersey’s nuclear plants open under a controversial bill introduced late Thursday and made public today.

The legislation (S-3560), the subject of months of behind-the-scenes negotiation, is expected to be the subject of a legislative committee hearing next week and be voted on by the full Legislature before the end of the lame-duck session on January 9.

Sponsored by Senate President Steven Sweeney (D-Gloucester), the measure would increase the average residential customer bill between $30.72 to $40.88 a year, depending on estimates from PSEG and the Division of Rate Counsel. Businesses would pay much more in a state long saddled with a reputation as one of the highest energy-cost states in the nation.

PSEG pushes for subsidies

But Public Service Enterprise Group, the owner of three nuclear units in South Jersey, appears to have convinced legislative leaders it would shut down the plants, which supply 40 percent of the state’s electricity and are a major employer in the region, if it does not receive financial incentives.

Even though the bill was only made public today, it has generated enormous opposition from businesses, consumers, and energy competitors as unnecessary, as well as too complicated to be rushed through in a three-week time span, especially with a new governor taking office in mid-January.

PSEG welcomed the proposal, which they noted has been under discussion for 18 months. “The same financial pressures that have forced other nuclear plants around the country to close are knocking on New Jersey’s door,’’ said Michael Jennings, a spokesman.

The legislation, if enacted, establishes a $0.004 charge per kilowatt hour on customers’ bills to pay for the nuclear subsidy, which translates to a total cost of about $350 million annually, according to projections by the state Division of Rate Counsel. PSEG puts the cost at $280 million.

‘Manufactured deadline’

“It is going to cost too much money at a time when are a lot of things we need to do, but we won’t be able to afford,’’ said Rate Counsel Director Stefanie Brand. “There is no rush here other than a manufactured deadline.’’

Overseeing imposition and the establishment of the so-called Nuclear Diversity Certificate would be the New Jersey Board of Public Utilities. Once approved, the surcharge would be effective for four years, subject to renewal for another three-year period.

The subsidy is similar, although not in total cost, to incentives given to operators of nuclear plants in New York and Illinois to avert plant closures. In a deregulated energy environment, nuclear power has found it difficult to compete with cheaper natural gas plants, leading to the premature retirement of six facilities around the country.

Opponents of the subsidy have argued PSEG has not proven the plants are not profitable. In fact, the company acknowledges the units are making money, but may not have a positive cash flow within the two years given trends in the energy sector.

“The is an outrageous stocking stuffer for PSEG that is going to wreak havoc on ratepayers and undermine Gov.-elect Murphy’s clean-energy agenda,’’ said Doug O’Malley, director of Environment New Jersey.

The bill requires owners of nuclear facilities in New Jersey to provide certified cost projections over three years to the state BPU, including operation, maintenance, and fuel expenses. It also would submit confidential financial information — not subject to public disclosure — demonstrating it would not meet its cost of capital on an annual basis.

“The public process is insufficient to protect the rights of the people who are going to pay these high charges,’’ Brand said, adding the confidential provision makes public hearings on companies seeking subsidies almost meaningless.

‘Safety net’ for nuclear?

Jennings disputed that argument. “We have suggested a safety net for New Jersey nuclear — a temporary framework to prevent the closure of plants, which also includes strong consumer protections,’’ he said. “To qualify, a plant operator should open its books to state regulators to demonstrate its financial need.’’

To critics, however, it underscores the flaws inherent in a deregulated market. With so much volatility, power suppliers are asking states, the federal government in a petition pending before the Federal Energy Regulatory Commission, and PJM Interconnection for price increases in what they charge customers above and beyond what they get from the competitive marketplace.

It is a policy PSEG opposed in the past.

When the Christie administration in its first term proposed awarding billions of dollars to encourage construction of new natural-gas plants, PSEG was among those leading the charge to successfully block them in court. Subsequently, three new natural-gas plants have opened in New Jersey, and another one built by PSEG Power, a company subsidiary, is due to open this year. All were built without subsidies.

“This is the system they wanted,’’ said Jeff Tittel, director of the Sierra Club of New Jersey. “They wanted deregulation so they could make more money. Now they aren’t making as much as they want and are asking for the biggest corporate subsidy in history.’’