In a Time of Cheap Fossil Fuels, Nuclear Power Companies Are Seeking — and Getting — Big Subsidies
The energy company PSEG had a simple message for the New Jersey Legislature as it weighed the fate of three nuclear plants in the state.
“What’s good for New Jersey is what’s good for PSEG,” Ralph Izzo, the company’s chairman, president and CEO, told the Legislature at a December 2017 hearing in Trenton. “What’s bad for New Jersey is bad for PSEG.”
And with rock bottom natural gas prices, costly safety upgrades looming and energy usage flat, the outlook for the plants was bleak, he said. Within two years, the Salem 1, Salem 2 and Hope Creek nuclear plants in South Jersey would be “cash negative” and the company would have to close them, Izzo said.
Hundreds of people would lose their jobs. And the state would lose a source of cleaner energy generation, forcing it to rely more heavily on natural gas. But the Legislature could avert that, Izzo said. To keep the plants open, PSEG would need about $300 million in subsidies over the next three years.
It would be a “safety net” for the company’s nuclear operations in New Jersey, Izzo said. It would not, he emphasized, be “a bailout.”
On Thursday, regulators in New Jersey are scheduled to decide whether PSEG has shown that it needs the subsidies, which would be paid for through a surcharge on all customer bills in the state. If the Board of Public Utilities approves the requests, New Jersey would join two other states, Illinois and New York, in giving nuclear power plants hundreds of millions of dollars in order to stay competitive in the wholesale energy market.
The campaign for the subsidies took to the pages of the state’s largest newspaper, The Star-Ledger, this week. A full-page ad on Monday signed by the employees of the Salem and Hope Creek plants, and another on Tuesday, signed by eight former New Jersey governors, praised the subsidy plan and warned of the consequences of not acting.
“We have seen the devastating impacts to families, communities and the environment as nuclear plants in other states have closed,” the employee ad said. “At the end of the day, we believe that the contributions made by Salem and Hope Creek are much too important to live without.”
The payments are designed to compensate nuclear plants for the clean energy they supply to the state.
“New Jersey has been given an opportunity to preserve its safe, productive nuclear plants,” the former governors wrote. “We would be wise to take it.”
A spokeswoman for PSEG, Marijke Shugrue, said the company had paid for the ads but that the idea to show support for nuclear energy came from the employees and the former governors.
Nuclear Power Comes of Age
The nuclear power industry is grappling with a new reality, brought on by the natural gas boom of the early 2000s.
The country began commercially generating electricity from nuclear power in the late 1950s. Production ramped up in the ’60s, which means many of the nation’s plants are nearing the end of their 40-year licenses or operating under 20-year extensions.
Today, there are 98 nuclear reactors at 60 plants in the United States, according to the federal Energy Information Administration. Seven plants have been retired since 2013, including the Oyster Creek plant in New Jersey. More plants have announced plans to close in the coming years.
“Given how rapidly things have changed, even for the nuclear industry that’s been pretty stable and just operating in the United States for the last 40 years or so, they’re caught off guard by these changing market conditions,” said Kristy Hartman, of the National Conference of State Legislatures, and co-author of a report on state efforts to keep nuclear plants open.
Natural gas use has grown in part, because of the shale revolution, where technology allowed developers to use fracking to extract previously untappable deposits of the fossil fuel, flooding the market and driving down prices.
“Natural gas has been so cheap, it’s driven down the cost of wholesale power overall,” said Mark Szybist, senior attorney at the Natural Resources Defense Council. “That makes it difficult for nuclear power to be profitable. There is a trend — that’s real.”
In 2018, the United States generated about 4.18 trillion kilowatt hours of electricity from all sources of energy. Some 64% of that came from fossil fuels, including 35% from natural gas. Collectively, renewables, such as solar power, provide about 17% of the nation’s energy. Roughly 19% came from nuclear energy, according to the EIA.
The industry has maintained its foothold in large part by finding more efficient ways to operate and shortening the amount of time required for maintenance and refueling. But it has had to adapt on other fronts as well. In recent years, the nuclear power industry has ramped up efforts to cultivate influence with legislators and alliances with environmentalists.
The industry’s gains thus far haven’t been easy, or cheap.
In New Jersey, PSEG spent nearly $4 million over the course of 2017 and 2018 lobbying the Legislature on the nuclear subsidies. By comparison, groups lobbying on marijuana legalization, the other big issue of the last two legislative sessions, spent $1.7 million, according to the state Election Law Enforcement Commission.
New York and Illinois put in place subsidies in 2017, and New Jersey established a nuclear subsidy last year as part of a package of legislation aimed at meeting the state’s goal of 100% clean energy by 2050. Legislators in Pennsylvania and Ohio are considering similar measures, and this month, Maryland authorized a study to consider if nuclear energy should be eligible for clean-energy credits.
In each state, the push for subsidies has come after warnings that the plants would have to close. But critics of the programs say that in many instances, the plants are profitable, and the companies are using scare tactics to bully legislators into subsidizing shareholder profits.
“They rattled their saber many times,” said Abe Scarr, state director of Illinois Public Interest Research Group, a consumer organization that opposed the subsidies. “Regardless of whether it was a bluff or not, certainly their threats were a ploy to build pressure on Illinois decision makers.”
Threatening to close plants in the name of shareholder profits is a tactic Stefanie Brand, director of the New Jersey Division of Rate Counsel, a state-appointed advocate for utility customers, said she hadn’t seen before.
“It’s a level of coercion that is really unprecedented,” Brand said.
In an emailed response, PSEG spokeswoman Shugrue said the company believes the applications “demonstrated unequivocally that all three of our plants meet the requirements” to receive the zero emissions credit or ZEC.
“And as we have previously announced, if we don’t get the [credits] for all three plants we will shut them down,” Shugrue wrote in the email.
On Monday, PSEG said it would not participate in the upcoming auction to provide power to the wholesale market. Without assurances it would receive the subsidies, the company said its plants would close before the end of the three-year-period for which it would be bidding at the auction, Shugrue said. She said PSEG had to decide by Tuesday whether to participate in the auction, and that the timing of the company’s announcement, three days before the BPU decides on the subsidies was “merely coincidental.”
A Market Trend
If New Jersey becomes the model for a nuclear industry perfecting its survival strategy, the plans in New York and Illinois were prototypes.
Those states took different paths to bolstering the nuclear power industry — one by gubernatorial fiat, the other through legislative battle — yet both secured massive payouts for nuclear companies.
New York went first.
In November 2015, New Orleans-based power company Entergy announced plans to close the James A. FitzPatrick Nuclear Power Plant, an 838 megawatt facility in Oswego with more than 600 employees. The move came after negotiations with state officials came up empty.
Within weeks, Gov. Andrew M. Cuomo directed the state Department of Public Service to create a Clean Energy Standard to ensure that by 2030, half of the power in New York would come from renewable sources. He also directed the agency to prevent nuclear plants upstate from retiring early. The agency implemented the zero emissions credit program, which would impose a monthly surcharge on customer bills to pay nuclear utilities subsidies totaling $7.6 billion over a 12-year period.
Entergy ultimately sold the FitzPatrick plant to Exelon, one of the largest power companies in the country.
Utilities used to be monopolies: producing the power and selling it to customers. But in the 1990s, several states decided to restructure their markets, requiring companies to sell the power they generate on a wholesale market, where utility companies shop for the best deal. PSEG, for example, generates electricity through its PSG Power subsidiary, and sells it to consumers through its utility arm, PSE&G. The market is run by power-grid operators, which ensure the grid has power available when utilities need it. New York operates its own market, while New Jersey is in PJM Interconnection, along with several other mid-Atlantic states and parts of Illinois.
In Illinois, Exelon executives had watched its plants’ profits decline for years. In 2013, it said two facilities — Quad Cities, a 1,900 megawatt plant along the Mississippi River, and Clinton, a 1,069 megawatt plant in DeWitt County — were in financial trouble and might need contracts or other support to ensure the plants remained opened. A Chicago Tribune analysis months later showed that none of the six plants the company owned in Illinois had turned a profit since 2008.
“It’s not that nuclear power is very expensive to operate, it’s just natural gas is much cheaper,” said Doug Vine, senior fellow at C2ES, a climate change think tank. “The market has done a good job for consumers, delivering low-cost electricity. But it’s missing out on the environmental part of the equation. The market doesn’t reward any particular generator for having the attributes we desire.”
Exelon pushed for a subsidy for its Illinois nuclear plants, backing a bill that would have created a zero emission standard to keep the plants online. Then-Attorney General Lisa Madigan denounced the legislation as “outrageous,” harmful to consumers and a bailout for the nuclear provider and its subsidiary utility company, ComEd.
“The legislature has more important matters to address than padding ComEd and Exelon’s profits,” she said at the time. The day after that bill failed, Exelon announced plans to retire the Clinton and Quad Cities plants.
But before that could happen, the company took one last shot at securing a subsidy. Some environmental and consumer activists, worried that they might miss an opportunity to influence the legislation, were willing to enter negotiations with the utility and other groups to try to make the subsidy idea viable.
“From a political point of view, they couldn’t pass what they wanted without our coalition, which included a whole bunch of environmental groups, consumer groups and labor groups as well,” said David Kolata, executive director of the Citizens Utility Board of Illinois, a consumer advocate organization. The board was opposed to the plan initially, but over the course of negotiations, it came on board as protections for consumers and plans to bolster energy efficiency were added, he said.
“It’s not like we liked every element of it, but at the end, we felt it was something worthy of our support,” Kolata said.
In December 2016, the Assembly passed the Future Energy Jobs Bill, which, in addition to other energy reforms, offers $235 million in annual subsidies to nuclear power plants.
The plans in New York and Illinois both have been challenged by opponents who say the programs interfere with the wholesale energy markets. But courts have allowed the plans to proceed, and on Monday, the Supreme Court declined to hear the challenges.
New Jersey Enters the Fray
In New Jersey, Brand’s office saw the fighting coming its way.
“We knew that the company was going to be seeking subsidies, but we didn’t know … exactly what it was going to look like,” said Brand, who has led the office since 2007.
PSEG was watching closely, too. It had seen what states had done for other nuclear companies.
A few things were already in the company’s favor. The state had a long history with nuclear power, as home to Oyster Creek in Lacey Township on the Jersey Shore, which, for 49 years, was the oldest operating nuclear plant in the country before it closed in 2018. The Exelon-owned facility, which began operating in 1969, was so integral to the area that the township has an atom on its coat of arms.
On the other side of the state, PSEG’s Hope Creek and Salem plants sit along the Delaware River in Salem County. They make up the second-largest nuclear facility in the country, generating around 3,500 megawatts of electricity — enough to power 3 million homes. PSEG owns Hope Creek outright, and it shares ownership of Salem with Exelon. Those plants employ more than 1,500 people and are economic anchors in the county, which is represented in the state Legislature by the Senate president, Stephen Sweeney.
Since 2015, however, natural gas has accounted for the majority of the state’s electricity generation, according to the EIA.
Nuclear companies, feeling the squeeze from natural gas, are looking to state and federal regulators for potential solutions.
The Trump administration has tried unsuccessfully to secure bailouts for coal and nuclear plants, citing national security concerns. On the state front, PSEG, Exelon and FirstEnergy, which owns two nuclear plants in Ohio, spent around $5.2 million in 2017 and 2018 lobbying in New Jersey over the nuclear plant legislation, according to the state election commission.
Opponents, including AARP, the NJ Petroleum Council and the NJ Coalition for Fair Energy, spent about $4.7 million lobbying against the subsidy. AARP state advocacy director Evelyn Liebman said the group lobbied against the subsidy because it prioritized nuclear energy over lower energy prices from natural gas for customers.
The surcharge would add an additional $35 to $45 a year to typical residential bills, according to Brand’s office. The state’s largest commercial customers, who pay millions of dollars in a year in energy costs, would see their annual costs go up, on average, by $570,000, according to comments from the New Jersey Large Energy Users Coalition.
“What we’re seeing in these other states and now in New Jersey was the industry coming to the state and asking for a handout not because they were losing money on these plants, but because their profits weren’t as high as they wanted them to be,” Liebman said.
Corporate political contributions aren’t allowed in New Jersey, but PSEG employees have established PSExec PAC, a state political action committee that supports state and local candidates.
Senate President Sweeney and Assemblyman John McKeon were among the main sponsors of legislation aimed at subsidizing the state’s nuclear plants. During the 2017 election cycle, PSExec PAC contributed $15,000 to Sweeney, who was running for reelection against Fran Grenier, an employee at PSEG’s Salem plant. The $20 million legislative race was the most expensive in state history, experts said. The PAC contributed $900 to McKeon during that period.
PSEG ratcheted up the pressure, announcing that it would cancel any investments in Salem that weren’t required by law or necessary for safe operation. In calls to investors, Izzo said that PSEG welcomed a test to prove they needed a subsidy, but that if states wouldn’t sufficiently value the benefits of nuclear energy, PSEG would close the facilities.
“We’re not trying to pull a wool over anybody’s eyes,” Izzo said in a call on March 6, 2017, “I’m just telling you that it’s not a difficult decision for us as a company to retire the assets if they’re not achieving their cost of capital.”
Brand, who routinely does battle with utility companies seeking higher rates, said in an interview this month that the tactics used in the subsidies fight felt different.
“They always argue, ‘Give us what we want, and we’ll create jobs,’” she said. “But [now] it’s, ‘Give us what we want, or I’m going to close these plants.’”
Though the subsidy would go to PSEG’s nuclear power arm, the surcharge would be collected from all New Jersey electricity customers, no matter who provides their power, Brand said.
A bill in late 2017 had proposed collecting $0.004 per kilowatt hour from customers to compensate nuclear plants for being a cleaner energy source. Outgoing Gov. Chris Christie, a Republican, said he would sign the bill as long as it wasn’t “larded up” with any environmental initiatives.
Brand’s warning language became more urgent with each successive version of the legislation. She called the plan a “flagrant transfer of wealth” and lambasted lawmakers for the “rushed process and sloppy legislative language” that would “come back to haunt us.” She invoked images of residential customers — constituents — squeezed by high utility bills who can’t afford to cool their homes in the summer, or businesses priced out by the cost of electricity bills.
“I wish [PSEG] cared more about their customers, but I understand that they consider their shareholders their first priority,” she told legislators. “But you were elected by your constituents. Your job is to put them first.”
New Jersey Decides
The bill that ultimately became law reflected the changing political climate in New Jersey.
The stand-alone plan to benefit nuclear power never made it to Christie’s desk. Instead, newly elected Gov. Phil Murphy, a liberal Democrat whose campaign championed restoring environmental protections, signed a pair of bills in May 2018 aimed at bolstering the state’s efforts to rely wholly on clean energy by 2050.
One bill sought to expand the state’s renewable energy programs by, among other things, setting goals for offshore wind, energy storage and energy efficiency, and creating a community solar program. The other required the state Board of Public Utilities to create a zero emissions certificate program to provide a subsidy for nuclear plants that are at risk of closing within three years.
The strategy that worked in Illinois and New York had worked in New Jersey.
“Signing these measures represents a down payment to the people of New Jersey on the clean energy agenda I set forth at the beginning of my administration,” Murphy said, signing the bills in May.
The law laid out a tight timetable: less than a year to hold public hearings, set up the program, accept applications and identify eligible plants. Brand’s office was not given automatic access to the documents PSEG was submitting to prove it deserved the subsidies. Instead, she had to petition the attorney general to see the documents; ultimately, Brand and a consultant were given access.
If approved, the payments would begin this month and run at least until 2022, with a potential three-year extension.
Already, the industry is taking its lessons to other states. In Pennsylvania, lawmakers introduced legislation proposing a $500 million subsidy that could benefit the state’s five nuclear plants, including Three Mile Island, the site of a 1979 partial meltdown.
Exelon said it plans to close that plant in September unless it receives support.
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