Op-Ed: The Nuclear Subsidy Battle Is Not Over

Steven S. Goldenberg | January 24, 2018 | Opinion
New Jersey citizens and businesses can ill afford the massive wealth transfer and regulatory capitulation that PSEG's bill would impose

Steven S. Goldenberg
Opponents of PSEG’s nuclear subsidy bill applauded former Assembly Speaker Vincent Prieto’s refusal to post the bill for a vote in the Legislature’s lame-duck session, effectively killing the bill. However, the PSEG subsidy fight is far from over, as the identical bill has already been reintroduced and scheduled for a hearing in the new legislative session. It now falls to the Murphy administration to decide whether to support this badly flawed, one-sided bill that would provide unjustified regulatory perks, including billions of dollars in unwarranted subsidies, to PSEG’s profitable nuclear plants. For the reasons that follow, Gov. Murphy should follow the lead of the former speaker and reject the bill.

It is a sad truth that literally every provision in the bill favors the interests of PSEG over ratepayers and competitors, with no apparent effort having been made to strike a fair balance between them. The bill would shift all financial risks associated with the future operation of the nuclear plants to ratepayers, and the out-of-market subsidy created would wreak havoc on the functioning of the interstate wholesale energy markets, paving the way to even higher energy costs in the future. The bill would afford PSEG a continuing $320 million per year subsidy — an amount arbitrarily established by PSEG without regard to the alleged future losses of the nuclear plants, while conveniently sidestepping the Board of Public Utilities’ century-old ratemaking processes that are used to establish just and reasonable rates. It is noteworthy that the bill is devoid of any provision that would obligate PSEG to provide a single tangible benefit to anyone in return for the financial windfall it would receive.

While PSEG professes to be willing to open its books to justify the subsidy, this is a hollow gesture. The bill accords PSEG broad discretion regarding the scope of its financial disclosures, requiring only projections of the plants’ future losses, rather than their actual annual financial results. As the stranded-cost debacle clearly demonstrated, projections of future performance are highly speculative, and can easily be incorrect or gamed. Nevertheless, based on only this minimal showing, the bill would provide a massive subsidy to PSEG on an irrevocable basis, even if the projected losses fail to materialize. The bill would therefore create (some might say preserve) the potential for the same unwarranted financial windfalls previously provided to the nuclear plants as stranded costs.

To make matters worse, the bill would undermine the BPU’s ability to conduct a meaningful review of the PSEG-controlled financial disclosure, rendering the bill’s purported consumer protections illusory. The bill would afford the BPU a woefully inadequate period of time to conduct its review and exclude interested parties from the process. The bill’s broad confidentiality provisions would deny anyone other than the BPU access to any information provided by PSEG regarding the nuclear plants, thereby removing the public from the bill’s “public hearing” provisions.

The bill would also eviscerate the regulatory treatment afforded to the nuclear plants as part of the restructuring of the electric industry in 1999. The restructuring permitted PSEG’s generation fleet to earn unregulated, market-based rates in exchange for relieving ratepayers of any further cost responsibility for those plants, once the ratepayers’ $3 billion stranded cost obligation was fulfilled. However, although ratepayers have long since paid the stranded costs, PSEG’s bill would impose a new, more onerous requirement that ratepayers guarantee that the “deregulated” nuclear plants will not only recoup their costs but also earn a return on investment. At the same time, the bill would preserve the plants’ ability to earn uncapped profits through market-based rates, effectively bypassing the rate caps formerly imposed by cost-based regulation. Although the bill would obligate ratepayers to offset the plants’ future losses, no provision is made for ratepayers to share the plants’ upside potential should they remain profitable, through offsets against the subsidies or otherwise. Affording PSEG this “best of both worlds” outcome would again force ratepayers to assume all market risks associated with these supposedly deregulated plants, guarantee their future profitability, and be exposed to the potential payment of windfall profits to PSEG — all without receiving any benefit in return.

Further, the PSEG-only subsidy would create market distortions that could adversely affect competition and the long-term reliability, resiliency, and functioning of the interstate wholesale markets, creating the potential for future rate increases to ratepayers. The prospect of such market-distorting effects recently led the Federal Energy Regulatory Commission to reject a similar proposal to subsidize coal and nuclear generation plants for their purported contributions to electric grid reliability, fuel diversity, and resiliency. The reliability and resiliency issues will now be addressed by PJM, which has consistently opposed the type of out-of-market subsidies for preferred generators that this bill would create.

Because there is no issue regarding the nuclear plants’ current profitability, the relief the bill would provide is unwarranted. New Jersey should follow Connecticut’s recent example and require PSEG, as a condition precedent to the receipt of any future relief, to make comprehensive financial disclosures regarding the current and projected profitability of the nuclear plants. The BPU should test the merits of such disclosures in contested proceedings in which interested parties are permitted to intervene with full rights as litigants. There is no reason why contested proceedings cannot be utilized in this context, as they were utilized years ago to litigate the analogous stranded-cost issues.

It is particularly noteworthy that Connecticut ultimately determined that despite the utility’s similar tale of woe, the plants at issue were profitable and would remain so for many years to come. It is therefore not surprising that several months ago, PSEG essentially vetoed a similar legislative effort here that would have directed the BPU to study whether New Jersey’s nuclear plants should be subsidized. PSEG likely already knew what Connecticut had to discover for itself — that the plants at issue (in both states) are and will remain profitable and that subsidies are unnecessary.

New Jersey ratepayers deserve better treatment than this. Our citizens and businesses can ill-afford the massive wealth transfer and regulatory capitulation that PSEG’s bill would impose. The threat of windfall profits is real, as illustrated by the payment of $3 billion in nonexistent stranded costs to PSEG when its generation fleet was highly profitable. Those who are justifiably concerned about the potential for job losses should therefore also consider the jobs lost when New Jersey’s businesses are forced to make the kind of wealth transfers that the bill would require. This is not crying wolf. The record is clear that the New Jersey business community has already shed an untold number of jobs, product lines, and occasionally the businesses themselves due to New Jersey’s high cost of energy vis-à-vis other states.

In sum, the reintroduction of the nuclear subsidy bill should not invite more sympathetic treatment by the Murphy administration. Indeed, the administration should be concerned regarding the potential for massive nuclear subsidies to “crowd out” the significant renewable-energy initiatives advocated by Gov. Murphy. Because ratepayers are not a bottomless pit of money, the administration must establish its energy priorities wisely and avoid creating a tax, designed to benefit a single, undeserving company, that would significantly deplete the pool of available funding to support the administration’s other worthy energy goals. Vote no on nuclear taxes!