Another Expert Casts Doubt on Need for NJ to Subsidize Nuclear Plants

Tom Johnson | February 11, 2019 | Energy & Environment
Economist also disputes PSEG’s contention that South Jersey plants will have to close within three years unless given subsidies

Salem nuclear power plant
New Jersey should hold off awarding ratepayers’ subsidies to nuclear power plants until a federal agency decides whether to boost energy prices under a pending proposal from the regional grid operator, according to an independent economist.

The Independent Market Monitor for PJM urged a state agency to hold off a decision on granting subsidies to PSEG Nuclear and Exelon Generation who are seeking financial incentives — dubbed zero emission certificates — to keep three nuclear units in South Jersey from closing.

In a heavily redacted filing with the state Board of Utilities, Joseph Bowring, who oversees the competitiveness of the PJM market, also disputed the contention that the plants will have to close within three years unless given the subsidies. His rationale echoed the contention of an earlier filing by Stefanie Brand, director of the state Division of Rate Counsel.

“PSEG overstates its need for subsidies of Hope Creek and Salem I and Salem II units,’’ Bowring said. “PSEG understates forward energy revenues, understates capacity revenues, overstates costs and overstates the risk.’’

Decision expected in April

Bowring and Brand are the only two intervenors in the case that have been granted access to the companies’ financials, which will determine whether PSEG and Exelon are awarded the zero emission certificates. The subsidies are projected to cost ratepayers up to $300 million annually, if approved by the BPU.

The agency is expected to make a decision in the case in April. Nuclear power plants across the country have closed prematurely because of failing economics. Some states, including Illinois and New York, have approved similar financial incentives to avert shuttering nuclear units.

Nuclear plants, however, are not the only generating facilities facing economic challenges. Low natural gas prices have led to a push from the power sector for regulatory changes that will boost the prices they get to provide electricity and reserve capacity to keep the lights on at times of high demand.

Those proposals are cited by Bowring, noting that PJM is expected to forward to the Federal Energy Regulatory Commission long debated regulatory changes that would boost revenues power suppliers earn for providing electricity and reserve capacity.

PSEG and Exelon want quick action

PJM estimates the proposed changes could increase energy prices by 5 percent to 10 percent, said Bowring, a projection the economist believes is conservative. If adopted, those new revenues could alter the nuclear plants’ viability, he suggested.

“In order to provide a subsidy, the BPU must determine the plant is at risk of closing unless the nuclear power plant experiences a material financial change,’’ the filing said. “There are multiple paths under consideration by FERC under which nuclear plants could experience a material change in the next 12-18 months.’’

That probably is not fast enough for PSEG nor Exelon. Last month, the CEOs of both companies urged PJM to move faster on the reforms to the pricing model that have been under consideration, although they added the changes fall short of the fundamental changes needed.

Like the Rate Counsel, Bowring’s filing concluded the three units are not in jeopardy of closing, and as a result, none meets the standard for a subsidy under the so-called ZEC program.

Power suppliers also are opposed

In a separate filing by the PJM Providers Group, a coalition of power suppliers opposed to the subsidy, also urged the BPU to reject a subsidy it said “is not necessary and would serve nothing more than to pad the coffers of the plant owners and their shareholders.’’

A consultant retained by the group, Paul Sotkiewicz, a former PJM chief economist, projected the plants will make profits between $377-$477 million every year for the next 10 years.

In its own application, also heavily redacted, PSEG said it would close the plants within three years, arguing the units are not projected to cover hundreds of millions of dollars in annual expenditures.

In its application, PSEG said power prices for electricity showed some upward movement in 2018 but added that future projected prices will remain low while regulatory and compliance costs remain high.