By Rich Heidorn Jr.

CAMP HILL, Pa. — Pennsylvania, which was among the first states in the U.S. to abandon cost-of-service electric regulation, now finds itself at ground zero of a debate that could largely reverse the process. So last week’s 7th Annual Pennsylvania Energy Management Conference couldn’t have been more timely.

FERC Chief of Staff Anthony Pugliese, who grew up just a few miles from here, praised the Department of Energy’s Notice of Proposed Rulemaking to support struggling coal and nuclear generators, while promising it would not destroy PJM’s competitive market.

Exelon’s Kathleen Barron continued her ongoing debate with NRG Energy and other critics over subsidies for the company’s nuclear plants. (See EBA Panelists Talk ‘Wacky’ NOPR, ‘Modest’ ZECs, ‘Rent Seeking’.)

And PJM Independent Market Monitor Joe Bowring, who shared a panel with Barron and NRG’s Abe Silverman, continued his attack on the RTO’s proposed alternative. (See related story, NOPR Reply Comments Bring More Criticism of PJM Proposal.)

Stranded Costs

Pamela C. Polacek, an attorney with McNees Wallace & Nurick, one of the conference’s sponsors, joined in the criticism. Her firm has long represented industrial customers and was central to Pennsylvania’s move — following California and Massachusetts — to customer choice in 1996.

Pennsylvania consumers paid $12.3 billion in stranded costs to Exelon’s PECO Energy and other nuclear plant owners between 1996 and 2010 as part of the bargain to unbundle generation from distribution. Polacek said subsidies for all of Pennsylvania’s nuclear plants could cost $1.2 billion per year — raising the annual electric bill for a small industrial user (12 million kWh/year) by more than $100,000, and that for a steel mill (330 million kWh/year) by $2.8 million.

“We can’t afford this in Pennsylvania,” she said. “We rank 48th in manufacturing job creation. … We can’t continue to pile costs onto our industrials. Right now, our average industrial electric rate is about the middle [of the states]. But remember, we did this [retail choice] back in 1996 to get competitive advantage, not just to be in the middle.”

Polacek said Three Mile Island Unit 1, the only planned nuclear retirement in Pennsylvania, doesn’t deserve a rescue.

“As Joe has said, other Pennsylvania nuclear plants continue to clear the [capacity] auction. For the most part, they are not at risk of retirement.”

Investment

She acknowledged that as a single-reactor plant (following the partial meltdown of Unit 2 in 1979) TMI does not have the labor economies of scale of multi-unit plants. But she said saving TMI’s 750 workers would cost jobs in manufacturing because of higher electric rates.

“Three Mile Island didn’t really take the opportunities to do upgrades that other Pennsylvania-based plants did. So those plants were looking at investing in their infrastructure to expand their capacity, to be more efficient. And Three Mile Island didn’t do that.”

Exelon, which purchased the plant from GPU in 1999, said in May it would shutter TMI in September 2019 “absent needed policy reforms.” (See Seeking Subsidy, Exelon Threatens to Close Three Mile Island.)

Barron disputed Polacek’s claim of underinvestment. “I can tell you we continue to invest very heavily in Three Mile Island, having replaced the steam generator … and [made] other investments,” she said.

She cited a Brattle Group study that predicted early retirement of the state’s nine nuclear generators would increase prices by $788 million per year, a 5% increase.

Resilience

The two also sparred over nuclear power’s value to the grid’s resilience.

“Looking at the idea of having onsite fuel supply as being something that is going to help us if all four gas pipelines serving the Northeast go down, I have to ask: Well if the terrorists do that, what’s going to stop them from also targeting the nuclear plants, which would seem to be a pretty attractive, World Trade Tower-type targets?” Polacek said.

Barron said nuclear plants’ defenses against terrorists are second to none. “We are so heavily regulated by a number of regulators, including the [Nuclear Regulatory Commission], on this specific point, on the amount of security we have to have in our plants and the ways that we need to protect them,” she said. “There are more people who [are carrying] guns than people who are operating the plant. … We do not have anywhere near that kind of protection on the natural gas supply system.”

That is beside the point, responded Bowring, saying the vulnerabilities of gas pipelines also apply to electric transmission. “It doesn’t matter what the fuel type is if the transmission grid is not there,” he said. “So, you have to be careful how far you extend this argument.”

ZECs

NRG’s Silverman said that he agreed with the DOE on the need for price-formation reforms. But he said zero-emission credits for nuclear plants are not a good solution. ZEC prices in New York and Illinois will produce half as much carbon-free electricity as equivalent spending on renewables, he said.

He was critical of a Brattle study commissioned by NYISO and state regulators to evaluate the impact of ZECs. (See NYISO Study Sees Little Cost Impact from Carbon Charge.)

“It completely ignores the energy market response. Completely ignores the power of competition to find cheaper solutions and drive down the price,” he said.

“We have these price-formation initiatives at FERC that have now been pending, in some cases, for four or five years. They need to be acted on. I mean come on guys, yes or no.”

And he said the issue is broader than price formation. The challenge, he said, is creating incentives for what NRG calls the “four-product future,” which envisions renewables providing most energy, supported by storage, controllable demand and fast-ramping gas. NRG says it will reduce the carbon emissions from its generation 50% by 2030 and 90% by 2050.

“A [gas-fired] power plant built today is already going to be lasting until 2050 and [will] be emitting too much carbon” to address climate change, Silverman said. “So, we end up with this long-term stranded cost environment where today’s gas plants are tomorrow’s coal plants.”