SLIDESHOW: Nuclear “Bailout” Trend Gains Traction in More States

Several U.S. states have passed, or are mulling, programs that expand state aid to financially distressed nuclear reactors in a bid to keep them open for economic and environmental reasons. Generators that operate in competitive wholesale markets are perturbed by these measures, which they say amount to nuclear “bailouts.”

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)

Since 2013, low natural gas prices, market dynamics, technical issues, and policies that favor renewables have precipitated the closure or announced retirement of several nuclear reactors. More retirements are in the offing: Over 80 commercial reactors have garnered federal licenses to operate for 60 years—but 41 of these are more than 40 years old. For more on reactor closures, see <u>"<a href="http://www.powermag.com/big-picture-nuclear-retirements/">THE BIG PICTURE: Nuclear Retirements</a>" </u> in <em>POWER</em>'s August 2016 issue. <br> <br> <em>Source: POWER magazine </em> <strong>Illinois</strong>. The so-called <a href="http://www.powermag.com/exelon-gets-its-christmas-wish-illinois-legislation-will-save-nuclear-plants/"><u>Future Energy Jobs Act</u></a>, passed on the final day of the Illinois General Assembly's 2016 legislative session in Springfield after two years of protracted and contentious negotiations, was signed into law by Republican Gov. Bruce Rauner on December 7. The measure, designed to help Exelon Corp. keep its <a href="http://www.powermag.com/exelon-makes-good-on-threat-quad-cities-and-clinton-nuclear-plants-to-close/">financially struggling Clinton and Quad Cities plants</a> open, will take effect on June 1 of this year. Exelon aggressively lobbied for the bill, saying it was crucial to prevent the premature shutdown of the plants for economic reasons. <strong>New York</strong>. <a href="http://www.powermag.com/generators-sue-to-block-lifeline-for-new-york-nuclear-plants/"><u>Dynegy and NRG Energy in October 2016 also filed a similar suit</u></a> in federal court seeking to block New York's Clean Energy Standard, <a href="http://www.powermag.com/n-y-approves-nuclear-subsidies-and-mandates-50-renewables-by-2030/"><u>an incentive program</u></a> approved by the New York Public Service Commission in August 2016 that would use ZECs to help three of that state’s nuclear power plants—R.E. Ginna in Ontario, Nine Mile Point in Oswego, and FitzPatrick in Scriba—remain economic over the next decade. The program requires owners of eligible ZECs to enter into long-term contracts with the New York State Energy Research and Development Authority (NYSERDA). Under those contracts, the owners sell the zero-emissions attributes associated with power produced by the plants. Starting in April 2017, New York load-serving entities will be required to buy various amounts of ZECs from NYSERDA each year.
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The measure has been opposed by environmental and citizen groups, which say it would result in a $965 million dollar increase in rates. Supporters of the measure argue—citing a Brattle Group study—that electricity consumers in New York would be subject to about $15 billion of additional electricity costs over the next 12 years if the nuclear plants were to close. However, the plan has been seemingly stalled by the New York General Assembly, which recently added a moratorium to its budget bill suspending implementation of the New York ZEC program through December 2018—or at least until state officials appear before the legislature to explain the PSC's controversial decision to approve the ZECs.
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<em>R.E. Ginna Nuclear Power Plant. Courtesy: Exelon Corp. </em> <strong>Ohio.</strong> FirstEnergy Corp., a company that is looking to exit the competitive generation business by mid-2018 and close its uneconomic nuclear plants in Ohio, <a href="http://www.powermag.com/firstenergy-looks-to-exit-competitive-business-shutter-or-sell-ohio-nuclear-plants/"><u>in February announced that it will back state legislation that would establish a "zero-emission nuclear program"</u></a> (ZEN).
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The company’s top priority, said FirstEnergy President and CEO Chuck Jones in a February earnings call, “is the preservation of our two nuclear plants in the state, and legislation for the zero-emission nuclear program is expected to be introduced soon.” FirstEnergy will pursue environmental credits and push for the continued operation of the 908-MW Davis-Besse nuclear plant in Oak Harbor, Ohio, and the 1.3-GW Perry nuclear plant in Perry, Ohio, through the ZEN program, he said.
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<em>Davis Besse nuclear station. Source: FirstEnergy Corp.</em> <strong>New Jersey.</strong> On March 6, three Democratic lawmakers in New Jersey introduced SB 3061 in the state Senate, a bill that directs the state's Board of Public Utilities to study ZECs of about $500 million per year for the state’s nuclear power plants, and requires the board to report back to the governor and legislature with its findings.
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In a comment on the New Jersey bill submitted on March 20, industry group <a href="https://www.epsa.org/forms/uploadFiles/41D2200000002.filename.NJ_EPSA_ZEC_Study_Testimony_FINAL.pdf"><u>EPSA commended the bill's sponsors</u></a> for "not rushing to judgment as ZECs are highly controversial." Public Service Enterprise Group—the state's largest electricity provider—"only started claiming that its nuclear plants may not be recovering their cost of capital to justify future investments and could be cash flow negative by 2020," it noted.
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"This is apparently based on a comparison with illiquid forward power prices that <em>may or may not </em>accurately measure future revenues from these plants," it added (EPSA's emphasis). "For starters, if revenues below cost of capital and need to fund future investments are the standards to trigger consumer subsidies, many <em>non-nuclear </em>power plants (including those of EPSA members) would also qualify for out-of-market subsidies. Where would subsidies end?"
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The national trade association for independent power producers and marketers also pointedly noted that ZECs are being pushed by utility holding companies that "own both market-based generation and cost-based retail distribution utilities to finance new corporate strategies to boost earnings by exiting competitive generation to focus on more assured earnings from their retail rate-regulated utilities."
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<em>The Oyster Creek unit is the oldest operating reactor in the U.S., having begun commercial operations Dec. 23, 1969. Exelon announced the retirement of the 625-MW plant on Dec. 8, 2010. The Ocean County, N.J.–facility is expected to be permanently closed in 2019. Courtesy: Exelon Nuclear</em> <strong>Connecticut</strong>. On March 21, meanwhile, Connecticut's General Assembly energy and technology committee voted 17–7 to approve SB 106, legislation that would establish ZECs for its only nuclear power plant, Dominion Energy's Millstone nuclear station in Waterford. Dominion, which notes that the nuclear plant accounts for 59% of power consumed by the state's utility customers, says the bill would give it the ability to compete with plants fueled by cheap, plentiful natural gas. The vote means the full Connecticut state House of Representatives and Senate will now hear the bill.
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<em>Millstone Unit 2 nuclear power plant in Connecticut. Courtesy: Dominion </em> <strong>Pennsylvania</strong>. Similar measures may soon come to Pennsylvania, too, where Exelon owns three of the state's five nuclear power plants. On March 16, lawmakers in the state formed the General Assembly's first bipartisan and bicameral caucus, which will promote nuclear power's economic benefits. Notably, the caucus, which currently has 67 members, will also advocate for the commonwealth to recognize "nuclear energy's zero-carbon emission attributes, similar to other zero-carbon technologies." The group will hold its first meeting on March 22.
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"This will be the first nuclear caucus in a state legislature in the history of the United States," a statement from Pennsylvania's General Assembly noted.
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<em>Beaver Valley nuclear power plant Courtesy: FirstEnergy</em>
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New Jersey. On March 6, three Democratic lawmakers in New Jersey introduced SB 3061 in the state Senate, a bill that directs the state's Board of Public Utilities to study ZECs of about $500 million per year for the state’s nuclear power plants, and requires the board to report back to the governor and legislature with its findings.

In a comment on the New Jersey bill submitted on March 20, industry group EPSA commended the bill's sponsors for "not rushing to judgment as ZECs are highly controversial." Public Service Enterprise Group—the state's largest electricity provider—"only started claiming that its nuclear plants may not be recovering their cost of capital to justify future investments and could be cash flow negative by 2020," it noted.

"This is apparently based on a comparison with illiquid forward power prices that may or may not accurately measure future revenues from these plants," it added (EPSA's emphasis). "For starters, if revenues below cost of capital and need to fund future investments are the standards to trigger consumer subsidies, many non-nuclear power plants (including those of EPSA members) would also qualify for out-of-market subsidies. Where would subsidies end?"

The national trade association for independent power producers and marketers also pointedly noted that ZECs are being pushed by utility holding companies that "own both market-based generation and cost-based retail distribution utilities to finance new corporate strategies to boost earnings by exiting competitive generation to focus on more assured earnings from their retail rate-regulated utilities."

The Oyster Creek unit is the oldest operating reactor in the U.S., having begun commercial operations Dec. 23, 1969. Exelon announced the retirement of the 625-MW plant on Dec. 8, 2010. The Ocean County, N.J.–facility is expected to be permanently closed in 2019. Courtesy: Exelon Nuclear