By Rory D. Sweeney

Public Service Enterprise Group CEO Ralph Izzo last week asked New Jersey legislators to approve subsidies for the company’s three in-state nuclear facilities, warning they may otherwise be shuttered.

Testifying at a joint session of the General Assembly’s Telecommunications and Utilities Committee and the Senate Environment and Energy Committee on Dec. 4, Izzo said PSEG’s three nuclear units at the Salem and Hope Creek facilities remain profitable but are threatened by low natural gas prices and could become uneconomic within two years. He said the plants’ finances have been propped up by hedging over the past three years, but most of those contracts are set to expire by the end of next year.

“Unless market prices change, we will no longer be covering our costs within the next two years. Without intervention — without a thoughtful economic safety net — PSEG will be forced to close its New Jersey nuclear plants,” he said. “It would be an extraordinarily painful decision because of how much we value the importance to New Jersey, but it is a cut-and-dry decision.”

A Brattle Group study produced for PSEG and Exelon found that allowing the facilities to close would increase New Jersey power bills by $400 million annually over the next decade while reducing state tax receipts by $37 million, eliminating 1,400 jobs and increasing carbon dioxide emissions by 13.8 million metric tons annually.

Izzo requested state subsidies like the zero-emission credits approved in Illinois and New York for units owned by Exelon, which also owns 43% of the two Salem units.

Opposition Coalescing

Opponents questioned Izzo’s prediction that the plants will become unprofitable.

“It is not enough to simply accept PSEG’s assertions regarding the plants’ profitability, and that even if the plants are shown to be at risk of losing money in the future, the solutions must be found within the federally administered markets and not through out-of-market payments for plants that are already profitable,” said Stefanie Brand, the director of New Jersey’s Division of Rate Counsel. “Just because nuclear plants in other parts of the country are not profitable, doesn’t mean that plants in New Jersey — the state with the highest prices in PJM — are also unprofitable.”

PSEG’s units benefit from constraints in New Jersey’s EMAAC locational deliverability area (LDA) that traditionally put its clearing prices near the top in PJM. Capacity prices for delivery year 2020/21 during May’s Base Residual Auction fell to $76.53/MW-day in most of the RTO, while EMAAC jumped to $187.87 from less than $120 for 2019/20. (See Analysts See End to New Builds in PJM Capacity Results.)

Brand urged legislators to wait for FERC to act on the U.S. Department of Energy’s proposed price supports for nuclear and coal plants. (See related story, McIntyre Takes FERC Chair; Wins Delay on NOPR.) PJM responded to the DOE plan with a proposal to allow inflexible units to set clearing prices. (See related story, “Questions Remain as PJM Continues Push for Price-Formation Revisions,” PJM Markets and Reliability/Members Committees Briefs: Dec. 7, 2017.)

PJM sent identical letters to Sen. Bob Smith, chair of the Senate committee, and Wayne DeAngelo, chairman of the Assembly committee, urging lawmakers to consider a regional approach rather than having the state act on its own. “As a state within PJM, New Jersey need not address these challenges alone or in a vacuum. Being located within PJM — a regional organization with a multistate market — allows for solutions and alternatives that can augment, enhance and amplify the means by which you meet your state policy priorities.”

“There is no evidence that PSEG’s nuclear plants are uneconomic and facing a retirement signal from the PJM markets,” said Joe Bowring, PJM’s Independent Market Monitor. “Neither plant is defined as at risk according to the criteria that the IMM applies to all units in the IMM’s annual PJM State of the Market Report.”

He argued that subsidizing the units would also deter investment in newer technology.

“Subsidies suppress energy and capacity market prices and therefore suppress … investment incentives for innovation in the next generation of energy supply technologies and energy efficiency technologies. These impacts are large and long lasting,” he said. “If subsidies are provided to one generating plant, this will suppress prices for all generating plants and create a need for additional subsidies for the remaining units. Competition in the markets will be replaced by competition to receive subsidies.”

Other Opponents

Also opposing PSEG’s proposal are AARP, which launched an anti-subsidy ad campaign, and the New Jersey Coalition for Fair Energy — whose members include Calpine, Dynegy, NRG Energy and the Electric Power Supply Association — which released a TV spot.

The New Jersey Coalition Against Nuclear Taxes includes AARP, environmental groups, the New Jersey Petroleum Council and other groups. Over the summer, one of its members — Dennis Hart, executive director of the Chemistry Council of New Jersey — criticized PSEG for “trying to build support in the New Jersey Legislature for another government handout that may cost all New Jersey ratepayers about $350 million annually over a 10-year period, or $3.5 billion.”

In a press release announcing its formation about a week before last Monday’s hearing, the Coalition for Fair Energy upped that estimate to “the range of $475 million a year or more, or in excess of $4 billion total” based on analysis of the New York and Illinois initiatives.

“There is no need for the Legislature to rush to pass a bill of such magnitude in a lame duck session without a full and thoughtful examination of a subsidy and its implications on the cost of electricity and its impact on a fair, level and competitive electric marketplace,” coalition spokesman Matt Fossen said in the release. “The public deserves complete transparency and a review of PSEG’s finances to see if there is any basis for a ratepayer-financed subsidy.” In his testimony, Izzo promised to open his company’s financial books for an independent examination.

After the Dec. 4 hearing, Smith said that legislation supporting the plants could be enacted during the lame-duck session, which ends early in January. “I learned enough today to begin the discussion,” he told NJ Spotlight.

Outgoing Gov. Chris Christie said he would sign a bill to save the nuclear plants, but only if it does not include incentives sought by environmentalists.