PSEG Closing in on What It Wants: Panels Approve Nuclear Subsidy Bill

Tom Johnson | December 21, 2017 | Energy & Environment
At contentious meeting of joint legislative committees, opponents continue to argue that company hasn’t demonstrated nuclear units are in financial distress

nj nuclear
With no dissent, a pair of legislative committees yesterday unanimously voted out a bill that could give Public Service Enterprise Group up to $300 million a year in ratepayer subsidies to prop up its nuclear power plants.

The approval followed a contentious five-hour hearing on legislation made public just five days earlier, as a diverse coalition argued the Newark company had failed to prove its case that its nuclear units are in such economic distress it faces no choice but shut them down without a financial safety net.

Lawmakers largely brushed off those concerns, saying the plants, which provide about one-third of the state’s electricity and are a critical economic engine in South Jersey, are too important to be retired prematurely.

Under the bill, up to $200 million in subsidies could go to PSEG, and another $100 million to Exelon, the part owner of the plants.

“It’s not about helping PSEG out,’’ said Senate President Steve Sweeney, who sat in on the Senate Environment and Energy Committee joint hearing and voted for the bill (S-3560) he is sponsoring. “To close these plants would be irresponsible.’’

Competition from natural gas

Under pressure from cheap natural gas, the nation’s nuclear fleet is having trouble competing in energy markets, a trend that has led to the early closing of six plants since 2013. Some states, like Illinois and New York, already are subsidizing nuclear units to avert their closing, a strategy PSEG has pursued for more than a year behind the scenes.

Ralph Izzo, PSEG’s CEO, president, and chairman, disputed arguments that the plants were not in jeopardy, noting he has been warning about the challenges faced by the units for years in Security and Exchange Commission filings. “Not one person understands the economics of these plants more than I do,’’ he told the legislators.

The subsidies, which need to be approved by the state Board of Public Utilities, would boost rates by about $31 a year for residential customers, but much more for businesses that use large amounts of energy in their operations. Industry lobbyists say the cost for some members could top $400,000 a year, and as much as $1.5 million in one case.

If plants go dark …

If the nuclear plants close, however, Izzo argued it would cost as much as $400 million to replace that power. “When you don’t change demand and you lose 40 percent of supply (the PSEG units and Oyster Creek nuclear plant scheduled to close in 2019) prices go up,’’ he said.

Other proponents said the state needs nuclear power to provide a carbon-free source of electricity until renewable sources of power like solar and offshore wind can meet the state’s power demand. The state provides the solar industry with more than $500 million in subsidies, Izzo noted, and yet it supplies just 3 percent of the state’s electricity.

There also is no automatic handout to the company with the BPU overseeing a process to determine whether a subsidy is required to keep the plants open, according to Sweeney. “It doesn’t guarantee anything but a review,’’ he said. “It ain’t going to happen if they don’t need it.’’

Flawed process

But critics said the oversight process is flawed. They questioned the company’s assertions the plants are in financial difficulty and noted no independent review has been conducted to justify the surcharge, which will cost ratepayers anywhere from $280 million to $300 million.

“The consumer protections in this bill are really an illusion,’’ said Stefanie Brand, director of the Division of Rate Counsel, noting the surcharge in the bill is already established without any justification.

Joseph Bowring, the PJM independent market monitor, told the committees the three South Jersey units were to recover their operating costs, clearing $1.4 billion over five years, until falling $80 million short in 2016.

The proposed subsidy, Bowring said, would result in a significant overcompensation of PSEG’s costs. “If the Legislature wants to do a subsidy, this is the wrong way to do it,’’ he said.

The legislation is likely to be taken up by lawmakers at their final scheduled session of the current term, when they return to Trenton on January 4. Gov. Chris Christie has signaled he would sign it, provided it does not include incentives for clean energy, which many environmentalists argue should be part of the package.