What ratepayers will pay in subsidies for NJ’s nuclear power plants

Source: By Tom Johnson, NJ Spotlight • Posted: Monday, April 26, 2021

PSEG pushing state regulators to move forward on a yearly subsidy of about $300 million

Credit: peretzp via Creative Commons CC BY-SA 2.0. File photo: Hope Creek nuclear plant

The state is poised once again to decide whether to subsidize New Jersey’s three remaining nuclear power plants, but unlike two years ago, the question is not so much about whether ratepayers should fund the program, but how much they should pay.

Public Service Enterprise Group, the operator of the three plants in South Jersey, is urging state regulators to approve another yearly subsidy at the same level of roughly $300 million, awarded in April 2019. This time, however, the New Jersey Board of Public Utilities can reduce the level of subsidy, an option not available previously to the annoyance of a couple of BPU commissioners, who nevertheless went along with approving the subsidy anyway.

The nuclear subsidies cost the typical residential ratepayer about $70 on their annual bill. But costs escalate greatly for large users of energy, sometimes costing companies an additional $500,000 or more per year.

On Tuesday, the BPU confronts the issue again at its bimonthly meeting but in a somewhat different context: Just how valuable are New Jersey’s three remaining nuclear power plants, units that provide roughly 37% of customers’ electricity and more than 90% its carbon-free electricity in the state?

If the plants close, as PSEG has repeatedly threatened, that would essentially undermine the Murphy administration’s goal of reaching 100% clean energy by mid-century and also hinder efforts to curb greenhouse-gas emissions contributing to climate change. The plant closings also would raise costs to consumers, according to the company.

READ: Board was right to allow $300M nuclear subsidy, appeals court rules

WATCH: New acting DEP commissioner lists NJ’s tough environmental challenges

New Jersey is still trying to figure out how to move forward without nuclear power. The state’s Energy Master Plan, a document that officials tout as providing a road map to achieving those goals, anticipates the plants will still be operating in 2050, a decade or more after the units’ operating licenses expire and when some units will be 70 years old.

But that largely hinges on economics beyond the plants’ ability to control.

Nuclear power plants closed prematurely around the country in recent years because they are unable to compete with cheap natural gas-fired plants. Those closures included Oyster Creek, New Jersey’s first and oldest nuclear plant. To avert shutdowns of the remaining nuclear plants and with the resultant loss of jobs and clean, carbon-free electricity, some states have opted to provide subsidies.

How other states have dealt with nuclear subsidies

In Illinois, Exelon Generation has threatened to shutter two of its power plants. The governor of Illinois released an analysis earlier this month that recommends $350 million in ratepayer subsidies over five years be approved to keep them open.

Meanwhile in Ohio, nuclear plants were originally awarded ratepayer subsidies of $150 million annually, but they were repealed this spring. That happened after a scandal concerning the speaker of the Ohio House of Representatives and others over bribery allegations involving subsidies intended for FirstEnergy Solutions, a former subsidiary of FirstEnergy, to be approved.

For some critics, all of that raises the question of how long states will have to subsidize these plants.

“This is a habit that won’t go away and only increase over time,’’ said Steven Goldenberg, an attorney for the New Jersey Large Energy Users Coalition, and a participant in the last two zero-emissions credits (ZEC) cases. As the nuclear plants age, the companies will keep asking ratepayers to fund huge capital investments, he said.

In New Jersey, the biggest dispute over the subsidies revolves around whether the PSEG plants, partially owned by Chicago-based Exelon Generation, are profitable. In a reversal of their stance two years ago, both the board-hired consultant and agency staff are suggesting that is no longer the case. The consultant, Levitan & Associates, however, suggested the state could significantly reduce the subsidies.

PSEG claims plants deserve even more

That could push PSEG to decide to close the plants. In its briefs to the board, the company argued it qualifies for the current subsidy, established at $10 per MWh (megawatt hour), in detailed financial information it provided to the board but didn’t make public. Moreover, the company also claims it has proved the plants deserve even more. The law enabling the nuclear subsidies in New Jersey does not allow the BPU to increase the amount of the subsidy.

PSEG contended the current subsidy is not enough to cover the risks inherent in the plants’ operation. It views the current subsidy as a “justifiable bridge’’ to a longer-term solution, presumably by the federal government or the regional power grid.

“But anything less — which necessarily would be accompanied by a finding that the plants do not even need $10 MWh, when in reality they need significantly more — cannot be justified, and PSEG will take steps to close the plants if that is the board’s conclusion,’’ the company said in its final brief to the board.

Opponents of the subsidy dispute the company’s claims. The Division of Rate Counsel’s review of PSEG’s applications claims the company overstates its projected costs and underestimates projected revenues.

But PSEG asserted the Legislature, board and a state appeals court have previously rejected those arguments in a ruling challenging the original award of subsidies to the companies. Rate Counsel is appealing the decision to the New Jersey Supreme Court.

Given the circumstances, at least one analyst is guessing PSEG will once again receive subsidies, at least at some level. “I think the BPU seems to be leaning on not second guessing the company’s proposal,’’ said Paul Patterson, an energy analyst at Glenrock Associates.