Subsidies Proposed for New York’s Upstate Nuclear Power Plants

The New York Department of Public Service has proposed subsidizing zero-emissions attributes from zero-carbon electric generating stations, namely nuclear power plants, in order to encourage the preservation of the facilities.

In an 11-page document titled “Staff’s Responsive Proposal for Preserving Zero-Emissions Attributes,” a formula that starts with published estimates of the social cost of carbon (SCC) is used to value and pay for zero-emissions attributes. The proposal attempts to lock-in 12 years of carbon emission reductions at a cost that it says is “a fraction of the benefit to be achieved.”

According to the staff’s analysis, low natural gas prices are causing forecasted wholesale market prices to be significantly lower than the average operating costs of the upstate nuclear units.

“Given the current economic realities, every baseload MWh of zero-emission power from these units that is lost would be replaced with power generated with significant levels of CO2 and other unwanted air emissions from existing mothballed fossil-fueled units in the State or new gas-fired generation,” it said.

The staff projected that at the time of program inception there would be “a public necessity for subsidies” at the FitzPatrick plant, which Entergy has already announced will be retired in January 2017; the Ginna plant, which had long been rumored as a target for closure but was spared when a reliability support service agreement was reached with Rochester Gas & Electric last year; and the Nine Mile Point facility, one of the oldest plants in the country. Staff noted, however, that the Indian Point Energy Center did not have a “current public necessity for subsidies.”

The Brattle Group, an independent consulting services and expert testimony provider, estimates that electricity costs would increase by $1.7 billion per year, averaged over the period 2015–2024, if the upstate nuclear plants were closed. It said the result would be an increase of more than one cent per kilowatt-hour averaged across all customer classes—or about a 7.2% increase over current rates. For that reason, the subsidy (capped at $482 million per year in the first two years) would actually save customers money in addition to curbing carbon emissions, according to the group.

The zero-emissions credit (ZEC) would be administered in six 2-year tranches, beginning April 1, 2017. The price to be paid for ZECs would be determined administratively by the Public Service Commission.

For the Tranche 1 contract period, the price of the ZEC would be based upon the average April 2017 through March 2019 projected SCC as published by the U.S. Interagency Working Group in July 2015 (nominal $42.87/short ton). A fixed baseline portion of that cost already captured in the market revenues received by the eligible facilities due to the Regional Greenhouse Gas Initiative (RGGI) program, based upon the average of the April 2017 through March 2019 forecast RGGI prices embedded in the Congestion Assessment and Resource Integration Study Phase 1 report (nominal $10.41/short ton), would be deducted. The formula yields a net cost of carbon of $32.47 (nominal $/short ton). That value is multiplied by a short-ton-to-MWh conversion factor (0.53846) to obtain a ZEC price of $17.48 per MWh for the contract period of Tranche 1.

Over time, the staff expects that rising natural gas prices will lead to higher forecasted energy and capacity prices in New York. For Tranches 2 through 6, if the combination of Zone A’s forecast energy price and the rest-of-state’s forecast capacity price exceeds $39/MWh, the excess would also be deducted from the subsidy. Under the staff’s approach, “the zero-emission attribute payments will never exceed the calculated value they produce,” it said.

Aaron Larson, associate editor (@AaronL_Power, @POWERmagazine)