Dive Brief:

• Two nuclear plants owned by Public Service Enterprise Group will not be profitable within two years and will have to shut down if they do not receive financial support, the company's CEO said Monday. 

• CEO Ralph Izzo  told a joint committee of New Jersey legislators that PSEG’s Salem and Hope Creek nuclear plants are at risk, but said closing them could raise power prices and carbon emissions. He urged lawmakers to approve a subsidy package similar to programs in Illinois or Connecticut. 

• Izzo’s proposal drew immediate criticism from groups ranging from the PJM Independent Market Monitor (IMM) to the New Jersey chapter of the American Petroleum Institute. The plants are not unprofitable, the IMM said, but aren't making the margins PSE&G would like. 

Dive Insight:

PJM's IMM has notably described power subsidies as contagious, and New Jersey could be the latest to catch the bug. 

Izzo told a joint session of the Senate Environment and Energy Committee and Assembly Telecommunications and Utilities Committee that even though the Hope Creek and Salem nuclear plants are profitable now, they will be unprofitable in two years.

As existing contracts expire that the utility uses to hedge the output of the plants three years into the future, they will have to be replaced with more expensive contracts that would erode plant profits.

“It is my fiduciary responsibility as CEO of the company to close those plants at that time,” Izzo told the legislators.

PSEG does not make financial data from its power plants public, but Izzo said he would be willing to open the books for state regulators.

Opponents of nuclear subsidies question PSEG’s analysis.

“There is no evidence that PSEG’s nuclear plants are uneconomic and facing a retirement signal from the PJM markets,” Joseph Bowring, president of Monitoring Analytics, the PJM IMM, told the legislators.

Both Salem and Hope Creek did not cover their “avoidable” costs in 2016, but over the past six years the plants on average earned a “substantial” margin, according to Bowring. Avoidable costs are the annual out of pocket expenses the plants would incur if they did not run.

The plants are not uneconomic, Bowring told Utility Dive. Using numbers from the Nuclear Energy Institute, Bowring estimated the nuclear plants have $31/MWh of operating expenses, while energy and capacity costs in PJM come to $37/MWh.

They are not losing money, he said, but “they are not making the rate of return they want.”

Using data from a study PSEG commissioned from The Brattle Group, Izzo said closing the nuclear plants would cause electricity prices to rise, costing New Jersey ratepayers on average $400 million a year for 10 years.

Nuclear plants bid into the PJM wholesale power market as price takers, so they provide supply while keeping prices low, Dean Murphy, a principal at Brattle, told Utility Dive. Closing the nuclear plants would also cause PJM capacity prices to rise, but not enough to attract new entry, he said.

According to the Brattle report, the closures would also increase pollution and carbon dioxide emissions by almost 14 million tons and add $733 million a year in environmental and human health costs. They estimate closures would reduce New Jersey’s GDP by $809 million a year, eliminate 5,800 jobs in the state and reduce tax receipts by $37 million.

Brattle in 2016 did a similar study for Exelon that examines the benefits of nuclear plants in Pennsylvania, which ranks second in the nation in terms of the number of nuclear plants.

In addition to the two PSEG plants, New Jersey has only one other nuclear plant, Exelon’s Oyster Creek, which is scheduled to close in 2019.

PSEG has been talking about the need to shore up its nuclear plants for about a year and a half, waging an advertising campaign extolling the benefits of nuclear power. But it has not won over opponents of the nuclear subsidies, such as AARP and the New Jersey Petroleum Council.

Those critics cite a poll commissioned by AARP from the Eagleton Center for Public Interest Polling. The poll found 51% of New Jerseyans say they are not willing to pay a nuclear subsidy and another 24% say they are not “too willing." Another 16% said they are “somewhat willing”, and just 3% said they would be “very willing” to pay a subsidy.

PSEG’s participation in the PJM market, which is under federal jurisdiction, complicates the issue. In 2011, New Jersey passed a law establishing a long-term capacity agreement pilot program (LCAPP) that would to provide incentives to encourage the development of 2,000 MW of power plants in the state.

The plan was challenged in court and eventually went all the way to the Supreme Court, which ruled in Hughes v Talen Energy Marketing that incentive programs such as New Jersey’s violated the Federal Power Act.

The fatal flaw noted by the Supreme Court was entanglement with wholesale power markets. Since then, nuclear generators and their allies have crafted zero emission credit (ZEC) programs in Illinois and New York that have so far not been found to run afoul of federal law. The programs have been challenged, but two district court rulings have upheld the programs. 

The question of generation compensation is raging in power policy circles. PJM is drawing up plans to revise how it sets prices, and the Federal Energy Regulatory Commission is in the midst of a rulemaking process that aims to find ways to keep aging coal and nuclear plants online. 

Proponents of those efforts argue that certain types of power plants should be compensated for reliability or fuel diversity. But using markets to do that is “a heavy lift,” Paul Patterson, an analyst with Glenrock Associates, told Utility Dive. “Competitive markets are not designed to provide those benefits.”

In his comments to lawmakers, Izzo cited the Illinois program as well as an initiative in Connecticut, passed by lawmakers in October, to support Dominion's Millstone nuclear plant. 

PSEG is not recommending any specific incentive program to the legislature. “We are looking for a solution, but not any particular solution,” spokesman Mike Jennings told Utility Dive. “The next step is up to the legislature,” he said.

PSEG has not said how much it is looking for in subsidies, but in an April op-ed, Steven Goldenberg, an attorney with Fox Rothschild and counsel to the New Jersey Large Energy Users Coalition, said PSEG is looking for subsidies of about $350 million a year over 10 years.

Goldenberg, whose client is a prominent critic of nuclear subsidies, also pointed out that when New Jersey passed its LCAPP program, PSEG was one of the opponents of the law.