Arguments Heat Up as PSEG Fights for State to Subsidize Nuclear Plants

Tom Johnson | March 11, 2019 | Energy & Environment
Company claims South Jersey plants uneconomic otherwise. Rate Counsel Stefanie Brand accuses it of ‘holding a gun to the regulators’ head’

Credit: Creative Commons
salem creek nuclear
PSEG’s threat to shut down its plants unless it “gets every penny’’ of a proposed $300 million ratepayer subsidy is “effectively holding a gun to the regulators’ head,” according to a brief filed by Rate Counsel director Stefanie Brand.

In responding to the company’s own filing last month, Brand sharply rebuked the former’s assertion it will close all its nuclear plants in South Jersey if the full subsidy, dubbed a zero-emission certificate (ZEC), is not paid to all three units there.

“The ZEC statute was not intended to provide a guarantee that these plants will not be retired, only a process for nuclear plant owners to seek subsidies based on a demonstration of economic necessity,’’ Brand said in the brief. The Rate Counsel contends PSEG has failed to make a compelling case on need.

PSEG countered that it has demonstrated in its filings that none of the plants are economically viable and their closure would be catastrophic for New Jersey’s clean-energy goals, according to Ralph LaRossa, president of PSEG Power, the owner of PSEG Nuclear.

“Ratepayer Advocate’s overheated rhetoric aside, her comments largely ignore the very specific matter before the Board of Public Utilities (BPU),’’ LaRossa said in an e-mailed response to Brand’s brief. “Her comments amount to rewrite New Jersey’s new law and redirect focus to the past or future, while ignoring the coming three-year period the BPU has been asked to review.’’

Another twist in the tale

The Rate Counsel’s filing is the latest twist in an ongoing proceeding undertaken by the New Jersey Board of Public Utilities to decide if PSEG’s three plants — Salem I, Salem II, and Hope Creek — qualify for subsidies to be paid by ratepayers. Without the subsidies, PSEG has decided to close the plants, beginning as early as this fall with Hope Creek, according to an earlier company filing.

PSEG contends in its filings that the financial information it has provided to the state proves the plants will not cover future costs and risks, qualifying it for ZECs. That information, however, has been redacted in public filings, in what has been largely an opaque process leading up to a decision on the subsidy, expected to be made next month.

Nevertheless, there has been intense behind-the-scenes lobbying pro and con the proposed subsidies. BPU president Joseph Fiordaliso, apparently responding to the rampant speculation over the issue, declared at the agency’s monthly meeting last month, “We’re not here to destroy any industry.’’ He declined to say who he thought was making that accusation.

A crucial debate occurring during the proceedings concerns how much leeway, if any, the state has in establishing the amount of the subsidy, if awarded. PSEG argues none, saying, if the board establishes the plants are in economic distress, it must award the full amount — at least for the first two years.

The ZEC legislation established a $0.004 rate, which, based on the amount of electricity typically produced by the plants, would amount to $300 million a year in subsidies. Brand argued such an interpretation would deprive the BPU of its authority and obligation to ensure that rates are just and reasonable.

That argument has been made by others, too. Why award the full $300 million subsidy to the company if it only requires $100 million, or far less, to keep them open, opponents have argued?

‘…an extortionate threat’

“The fact is that there is nothing in this legislation that preempts all of the other statues governing BPU’s jurisdiction over how rates are developed and charged to ratepayers,’’ Brand said.

“An extortionate threat of closure based on a corporate decision to seek additional revenues for a plant that is profitable, but not deemed profitable enough, does not meet the statutory standard,’’ she added.

But LaRossa argued the Rate Counsel’s own comments demonstrate that she now agrees the plants are projected to be cash-negative — by acknowledging that it would require increases in market prices for one or more plants to turn cash-positive. Her comments also ignore the sizable operating and market risks, which are in the legislation, he said.

In a previous filing, the Rate Counsel argued that PSEG overstated its costs and underestimated its revenues in trying to demonstrate a financial hardship. PSEG contends her office is minimizing the environmental repercussions — huge increases in global warming emissions — if the nuclear plants shut down.

Finally, Brand argued the state would be ceding its authority to PSEG’s board of directors, which the company said in its last filing had decided to close all three units if the full subsidy is not awarded.

Who protects the public interest?

Brand even questioned whether the competitive structure of the energy market, adopted 20 years ago, and deregulation of generation are still viable. “Most importantly, whose obligation it is to protect the public interest — the BPU or the Board of Directors of PSEG,’’ asked Brand.

New Jersey has not been shy about subsidizing energy in the past, including $2.9 billion in ratepayer payments to PSEG for stranded costs of power plants, when the state deregulated the energy sector. Brand noted those payments in her latest filing.

“The timing of PSEG’s efforts to secure passage of the ZEC statute suggests that the threat of nuclear plant closures may be more related to a desire to replace an expiring revenue stream rather than to genuine economic need,’’ her filing said.

The state sought to provide more than $2 billion in subsidies to natural gas plants during the Christie administration (a strategy blocked by the Supreme Court) and more than double that to the solar energy industry. Now again, a deregulated company is seeking a billion-dollar handout from ratepayers, not to mention offshore-wind developers.

With states like New Jersey aggressively ramping up renewable energy targets, it has led the traditional suppliers in the sector to press for support for their coal and nuclear units at a time when power prices are flat and dropping and demand is down.

“Without subsidies, you have to wonder about the long-term viability of the nuclear industry given the ambitious renewable energy targets being established around the country, not just in New Jersey,’’ said Paul Patterson, an energy analyst at Glenrock Associates in New York.