The New Jersey Board of Public Utilities on Tuesday awarded annual subsidies totaling $300 million a year to the state’s three nuclear power plants; board members said they had little choice but to make the award as the state strives to achieve 100% clean energy by 2050.

The board’s unanimous vote approved the three-year subsidy agreement, running from June 2022 to May 2025, under the state’s Zero-Emission Certificate program. The subsidies of $10/MWh will go to the Hope Creek nuclear power plan, which is owned and operated by Public Service Enterprise Group, and the Salem 1 and Salem 2 plants, which PSEG operates and co-owns with Exelon.

The ZEC program provides subsidies to nuclear power plants at risk of closure so they can remain open to generate carbon-free power. The New Jersey legislature created the program in 2018, and in 2019 the board awarded ZECs totaling $300 million to the three South Jersey nuclear plants. (See NJ Approves $300M ZECs for Salem, Hope Creek Nukes.) State law now allows the BPU to set the size of the award, but as discussions on the 2022-2025 subsidy unfolded, PSEG said it would close the plants unless it received the $10/MWh rate, which is the maximum the program allows.

The award triggered vigorous criticism from the New Jersey Division of Rate Counsel, the state’s consumer advocate, and environmental activists, some of whom said PSEG had exploited its market dominance to extract an unnecessarily large payoff.

“It puts New Jersey ratepayers at the mercy of an unregulated market entity that is looking to get more profit,” said Stefanie Brand, Rate Counsel director. “And that is really not how this is supposed to work.”

However, BPU commissioners who balked at the size of the award said the environmental and financial cost of not awarding the ZECs would be too great.

Commissioner Bob Gordon said he had hoped, “somewhat naively,” that PSEG and the BPU could reach an agreement on a subsidy level that was lower than the maximum but would “provide adequate support” for the plants.

“Unfortunately, that never happened,” Gordon said.

Gov. Phil Murphy has said he wants to boost the state’s share of energy generated by carbon-free resources to 50% by the end of the decade and reduce greenhouse gas emissions 80% below 2006 levels by 2050. But at present, nuclear power accounts for 90% of the state’s carbon-free power, said BPU President Joseph L. Fiordaliso.

“The reality is that we need the nuclear plants to minimize harmful emissions,” he said. “If the nuclear power plants were to be retired today, that retirement would significantly and negatively impact New Jersey’s ability to comply with state air emissions reductions.”

PSEG welcomed the board’s decision, releasing a statement that said “The BPU’s actions today helped the environment, saved jobs and avoided higher energy costs.” The company did not respond to a request from RTO Insider for a comment on the criticisms about the size of the award.

Market Dominance

The BPU made the latest award based on information gathered from several sources — a public hearing in March, a study by consultant Levitan & Associates and an evaluation by BPU staff. Executive Director Paul Flanagan told the board that based on the agency staff review, “there is financial risk in the continued operation of the units pursuant to the ZEC Act, and an award of less than the full authorized ZEC amount may not be sufficient to prevent the closure of the unit.”

But Gordon expressed disappointment with “the level of intransigence and this exercise of market power” by PSEG. “We were told in testimony by the senior leadership of Public Service, and then [in] statements issued by the company’s board of directors, that unless the maximum ZEC subsidy of $10/MWh were provided, the nuclear plants would be shut down.”

He called on the legislature to rethink the way that ZECs are awarded.

However, Commissioner Mary-Anna Holden saw no viable alternative to maintaining the nuclear plants in operation. Regardless of the state’s support for wind and solar power, those industries are still immature, and not ready to meet the state’s requirements, she said. The $10/MWh subsidy to the nuclear plants would be much smaller than the subsidies needed to build up solar and wind energy sources to rapidly take the place of nuclear generation, she said.

The BPU’s decision came as the Division of Rate Counsel seeks a ruling from the state Supreme Court to overturn the BPU’s 2019 award of $300 million in ZECs to the three power plants. After that award, the Rate Counsel filed suit, arguing that the awards were arbitrary and capricious and that none of the plants needed them to remain financially viable.

That argument was dismissed by the state Appellate Division in March (see Appeals Court Backs NJ Nuclear Subsidies), and the Rate Counsel filed a petition with the Supreme Court to overturn the ruling. (See NJ Rate Counsel Turns to State Supreme Court over Nuke Subsidies.)

In awarding the ZECs in 2019, the board rejected a conclusion by its staff evaluation team, which had found that all three units would operate profitably through May 2022 and were, therefore, ineligible for the subsidies. PJM’s Independent Market Monitor also said the plants are profitable, an assessment it reiterated in its State of the Market report in March. (See PJM Monitor Sounds Market Power Alarms.)

But the BPU said the evaluation team improperly excluded from its calculations consideration of PSEG’s operational and market risks, as required by the legislation creating the ZEC program.

‘Akin to Hostage Taking’

Brand said the BPU’s decision to award the subsidies suggested that all the studies and evaluations of the plants’ financial position were a “meaningless exercise.” PSEG used its “market and political power” to obtain the subsidies by saying that without them it would close the plants, she said.

Doug O’Malley, state director of Environment New Jersey, said the lack of transparency in the process made it difficult for those outside the proceeding to assess whether the ZECs are warranted or not. “Instead of practicing transparency, PSEG continues to exert a lobbying strategy that is akin to hostage taking,” he said.

Jeff Tittel, director of the New Jersey Sierra Club, called the subsidies “unnecessary” and said the awards could have long-term negative implications for the state.

“This will take money away from offshore wind, solar and energy efficiency programs in New Jersey,” he said. “We are concerned that it will prevent this state from moving forward with our 100% renewable goals by 2050.”