Nuke Subsidies Under Review Just Months After Contentious Approval

Tom Johnson | September 5, 2019 | Energy & Environment
In April, Board of Public Utilities awarded $300 million in annual surcharges on utility customers’ bills to aid three PSEG plants; officials are taking a fresh look at the subsidies

Salem nuclear power plant
Less than half a year after the state awarded lucrative ratepayer subsidies to keep three nuclear power plants from closing, regulatory officials are beginning to explore whether the subsidies should be extended, or perhaps reduced.

In April, the New Jersey Board of Public Utilities approved roughly $300 million in new annual surcharges on utility customers’ bills to prevent Public Service Enterprise Group from prematurely retiring the Salem I and II units and Hope Creek nuclear plants on Artificial Island in South Jersey.

The decision has had huge implications for New Jersey’s long-term energy policy. Controversy over the subsidies led the Legislature to approve the incentives only after approval was tied to a companion bill promoting clean-energy initiatives, including measures to boost energy efficiency, offshore wind, and solar. All of this was done before the administration of Gov. Phil Murphy adopted a new energy master plan, laying out a blueprint to achieve ambitious clean-energy and climate goals.

PSEG argued the plants, providing 90 percent of the state’s carbon-free electricity, would be shuttered within three years unless it received the financial incentives because of a steep drop in energy prices. The company yesterday, along with a handful of consultants, claimed at a BPU hearing in New Brunswick that the financial challenges facing the units are even bigger now than last spring when the initial subsidies were awarded.

Joseph Accardo, vice president of regulatory affairs and deputy general counsel of PSEG, said the plants should retain the subsidies at the same level, given the state of energy markets, which have seen prices paid to power suppliers continue to drop.

Under pressure from natural gas

Cheap natural gas has flooded the market, analysts said, increasing uncertainty about the economic viability of the nuclear units. Nuclear energy provides about 40 percent of New Jersey’s electricity, about the same as gas-fired power plants provide.

Without carbon-free power from the three nuclear units, New Jersey will never achieve the Murphy administration’s goals of 100 percent clean energy by 2050, according to Ed Salmon, chair of the New Jersey Energy Coalition and a former president of the BPU.

Those subsidies, dubbed zero emission credits (ZECs), are scheduled to end in May 2022, but the proceeding initiated yesterday is designed to determine not only whether to extend them, but also whether to reduce what ratepayers pay.

In approving the subsidies last April, at least two of the five BPU commissioners expressed concerns at the price set by legislators in a law authorizing the program. The law allows the agency to reduce the subsidies once they expire; the current subsidies last only three years. The BPU cannot increase the incentives, according to the law.

Only the New Jersey Division of Rate Counsel questioned whether the subsidies need to continue, and at the same level during the initial stakeholder meeting in New Brunswick. The Rate Counsel had opposed the initial granting of the subsidies and appealed the issue in court.

Argument for reducing the subsidies

“Ratepayers are not an endless source of capital,’’ said Brian Lipman, a litigator in the Rate Counsel’s office. “ZEC subsidies are going to have a major impact on ratepayers.’’

He suggested the board explore reducing the size of the zero emission credits, based on actions at other levels that could increase prices consumer pay for both energy and ensuring there is enough capacity to keep the lights on.

But others defended the subsidies, arguing they are far less than what customers in New York and Illinois are paying to avert the early closing of nuclear power plants in their states.

“Without these ZECs, these plants face uncertain economic conditions in a market flooded by fracked natural gas,’’ said John Kotek, a vice president of the Nuclear Energy Institute.

Frank Huntowski of the Northbridge Group agreed. The financial conditions of the three nuclear power plants in New Jersey and other units in the PJM Interconnection do not merit a reduction in the ZECs, he said. (PJM operates the power grid stretching from the Eastern Seaboard to Illinois, serving more than 55 million customers.)

No one at the hearing raised the issue of just how long the New Jersey plants will continue receiving the financial incentives. At the time BPU awarded the ZECs, it generally was assumed the subsidies would continue for up to 10 years.

However, in modeling done by BPU staff and consultants on a new draft energy master plan, projections seem to indicate the plants will remain open until 2050 — well beyond the expiration of their licenses, which begin to end in 2036, and then later in the next decade.