Sen. Bob Smith called it greener than Ireland – a bill that aims to bolster a thriving solar sector, enhance state efforts to cut energy use, and promote carbon-free electricity that powers more than 40 percent of New Jersey homes and businesses.
But the legislation (S-877) also may be one of the costliest measures taken up by lawmakers, a bill that when the tallying is done 15 years from now could end up costing utility customers more than $4 billion, according to an economic analysis for the New Jersey Division of Rate Counsel.
“It’s a huge cost and whatever we spend here, it means we are going to have less to spend on other things,” said Stefanie Brand, director of the division, and an opponent of the nuclear subsidy. Brand will outline the results of the economic analysis today in Trenton, where the Senate Budget Committee is scheduled to vote on the legislation.
Totaling up the subsidies
The analysis projects the exposure to ratepayers, offering a scenario estimating the $3.4 billion cost of the nuclear subsidy over a 10-year period, as well as the added $958 million costs ratepayers could assume by expanding subsidies for the solar sector from 2018 until 2033 under other provisions in the bill.
The $3.4 billion factors in the direct costs associated with the nuclear subsidy paid by ratepayers of all the electric utilities in the state and indirect costs associated with money customers will not have to spend because of less disposable income, according to Brand.
The nuclear subsidies are not guaranteed, but must be approved after going through a review process by the state Board of Public Utilities.
In the meantime, the debate over the bill hinges on policymakers trying to juggle and understand the vagaries of the competitive energy markets, a world New Jersey entered back in 1990 when it broke up its energy monopolies
Perhaps more than anything else, however, the controversy revolving around the bill centers on whether the three nuclear units expected to benefit from the measure are in such dire straits ratepayers may pay $300 million a year to keep them open.
To proponents, the bill is attributed to the competition nuclear plants face from those being operated on natural gas, at near-historic low prices because of new drilling in nearby Pennsylvania and elsewhere. “It’s being outcompeted by fracked gas,” said Smith, who has guided the bill through the Legislature so far.
The result has been premature closing of six nuclear plants around the country. Oyster Creek in New Jersey, the oldest commercial unit in the nation, had been scheduled to close down under a prior agreement at the end of next year, but announced it would close this October this past Friday.
Public Service Enterprise Group, which runs the plants, has threatened to shut them down in two years if it does not secure financial incentives to keep them open, as happened in New York and Illinois.
Joseph Bowring is the independent market monitor for the PJM power markets, the operator of the nation’s largest electricity grid. He, too, is against the subsidy, arguing in written testimony submitted at last month’s hearing on the bill that the nuclear units are in no risk of being retired early.
In a telephone interview, Bowring questioned why PSEG is seeking subsidies. “This is a market they signed up for,” he noted. “These guys are asking for special treatment.”
When the state deregulated the sector, the rationale was competition in an unregulated market would bring down prices for consumers and businesses. Bowring insists those markets have worked for both customers and power suppliers, like PSEG.
“The proposed legislation in New Jersey would provide subsidies to units that are demonstrably financially viable,” wrote Bowring, an economist who once worked for the state Board of Public Utilities and former public advocate’s office. “Prices are not too low. There is no market-design problem that requires subsidies.”
Using historical public data, Bowring’s own analysis found that PSEG’s nuclear plants covered their annual avoidable costs – sometimes called operating or going-forward costs – over the past five years by an excess of $1.5 billion. In 2016, however, the company suffered a shortfall of $81 million, Bowring noted.
In just the first 17 days of 2018, PSEG covered their avoidable costs by an excess of $163.4 million, according to Bowring’s analysis, based on forward energy prices.
Michael Jennings, a spokesman for PSEG said the market monitor’s statements are off base in many respects, including the subsidies already existing in the market for solar, for product tax credits, and investment tax credit.
“The Independent Market Monitor’s analysis is flawed and does not accurately depict the future viability of the plants,” Jennings said. Among other things, the analysis claims the average energy price at Hope Creek, one of the units, was $29 in 2017 when it was $27. If the correct number was used, the plant’s profitability evaporates, Jennings said.