These Power Companies Fought for a $300 Million Nuclear Subsidy. Now They Want a New Deal

Exactly what it will cost customers is unclear and it might change the way New Jersey gets its electricity
Credit: Norqin from Pixabay
Utility bills are likely to increase — no matter how the dispute is settled, according to some observers.

Two of New Jersey’s largest energy companies are offering to give up a hard-won $300 million annual subsidy for their South Jersey nuclear power plants.

But, if a deal is to be struck, the state needs to buy into a plan by Public Service Enterprise Group and the Exelon Generation Company on how New Jersey responds to a federal decision that critics say undermines the Murphy administration’s clean-energy agenda.

The offer apparently hinges on the state agreeing to a plan proposed by the two companies to significantly restructure how New Jersey goes about securing the electricity it needs to keep lights on for residents and businesses. The proposal has stoked widespread opposition from other energy suppliers, consumer advocates, and large energy users.

The emerging battle stems from an adverse series of rulings by the Federal Energy Regulatory Commission that the Murphy administration views as jeopardizing its efforts to convert to a clean-energy economy. The outcome of the debate is likely to increase utility bills for customers — no matter how the dispute is settled, according to some observers.

The new rule approved by FERC would increase the cost of buying electricity capacity, according to critics, and undermine efforts to promote cleaner energy sources like offshore wind.

The New Jersey Board of Public Utilities is trying to advance clean-energy goals while minimizing costs to ratepayers. It initiated a process to evaluate several options, including one that would have the state stop buying the capacity it needs to provide power reliability through the regional power grid. Instead it would develop a system that gives greater preference to securing state-supported clean-energy sources in New Jersey, primarily offshore wind and nuclear power.

PSEG/Exelon, in a joint filing to the BPU argued their proposal, tailored after that option, if properly structured, could cut the total paid by all its customers by hundreds of millions of dollars a year as the state increases its procurement of renewable energy sources, such as solar and offshore wind.

Critics dispute the companies’ projections

Critics dispute those projections, and instead say the proposal could increase costs by as much as $386 million to $700 million annually, estimates decried as flawed by PSEG.

To some, the most surprising feature of the PSEG/Exelon proposal is their willingness to replace the $300 million in subsidies paid by ratepayers. PSEG threatened to close the plants if the subsidies were not awarded, which ended up being approved after a bitter, two-year legislative battle.

“The notion that the companies would forego $300 million in annual ZEC (zero emission credits) subsidies and instead offer customers discounted capacity prices and reasonable costs for the environmental attributes associated with their generation is one worthy of Alice in Wonderland,’’ said Steven Goldenberg, attorney for the New Jersey Large Energy Users Coalition.

Glen Thomas, on behalf of the PJM Providers Group, a coalition representing energy suppliers, agreed. He argued the approach is so advantageous to PSEG that it is willing to put on the table the $300 million annual subsidy on top of its current profits as no longer necessary.

“After the board has gotten over the shock of such a self-serving, consumer-fleecing proposal, it should reject the PSEG proposal outright for this proposal alone,’’ Thomas wrote in the group’s filing.

“The only possible answer is they think they are going to get way more than the $300 million payout,’’ said Todd Snitchler of the Electric Power Supply Association, referring to the PSEG/Exelon proposal.

But two prominent environmental organizations — the Natural Resources Defense Council and the Sierra Club — endorsed the approach, dubbed the Fixed Resource Requirement (FRR), taken by PSEG and Exelon. Jeff Tittel, director of the New Jersey Sierra Club said the changes ordered by FERC in its new rule means consumers pay more for fossil fuels, undercutting renewable energy.

‘Glaringly void’ of consumer protections

“The only real alternative is that BPU needs to move forward with FRR,’’ he said. “We believe it can be done in a way that keeps competition up and can keep prices down.’’

Critics, however, worry prices will go up under such a scenario since PSEG/Exelon — two of the biggest players in the energy market in New Jersey — will have the ability to exercise market power in setting prices.

“Not surprisingly, the PSEG proposal is enormously complex, brazenly tilted in the company’s favor and glaringly void of any protections for consumers,’’ Thomas argued.

“It all depends on market power,’’ said Stefanie Brand, director of the New Jersey Division of Rate Counsel, who is urging the state to move very cautiously before deciding to restructure how it purchases power. Her main concern, however, is an assertion — at least according to the independent market monitor for PJM, the regional power grid — that market concentration is high in New Jersey and power prices would likely reflect that.

Goldenberg agreed. “The market power concerns are real and they doomed the PSEG/Exelon merger years ago,’’ he said, when the BPU refused to approve the proposed deal unless the companies divested significant power plants. PSEG argued its proposed FRR structure would prevent the exercise of market power.

Most commenters urged the BPU to work within the current framework to seek changes that would modify or eliminate concerns that would undercut efforts to pursue New Jersey’s aggressive clean-energy efforts.

The proposed changes to PJM’s capacity markets would primarily affect offshore wind projects, making it unlikely those wind farms would be able to secure lucrative capacity payments for the energy they generate under the new proposal. In New Jersey, those facilities are not projected to be online until 2024 at the earliest.

“We’ve got four years to fix this,’’ Brand noted, adding it is a possibility that by then, FERC will be under new leadership that is more conciliatory to New Jersey and other states  seeking to clean up their energy mix.