Nuclear Subsidies Push Seen Spreading to New States

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By Stephen Joyce

Connecticut and Ohio could be the next states to grant financial concessions to the nuclear power industry despite fierce opposition from a coalition of oil, natural gas, manufacturing and environmental interests.

Lawmakers in those two states this fall are expected to revive nuclear bills, which could benefit FirstEnergy Corp. and Dominion Energy Inc. Those moves would follow the enactment of policies by Illinois and New York that essentially provide ratepayer-financed subsidies to keep struggling nuclear power plants from being shut down even though they are licensed to operate for another decade or more.

The debate over the subsidies has the potential to impact the push for increased use of clean, renewable energy sources as well as influence state energy policies, including the reliance that states place on nuclear generators. The issue has surfaced now primarily because low natural gas prices have flipped formerly profitable nuclear plants into ones that aren’t economically viable.

Marvin Fertel, the Nuclear Energy Institute’s former president and chief executive officer, warned a 2016 conference that 15 to 20 reactors face premature shutdown within 10 years due to economic pressures. NEI spokesman John Keeley told Bloomberg BNA that figure remains accurate.

Opponents of nuclear subsidies are preparing to fight expected proposals in Pennsylvania and New Jersey. Manufacturers, speaking through their trade associations, say the subsidies increase their cost of electricity.

“We’re expecting the ambush at any moment,” David Taylor, president of the Pennsylvania Manufacturers’ Association, told Bloomberg BNA.

Trump Push

The Ohio legislature held a hearing in May—but didn’t act on—a bill to grant nuclear-generator assistance benefiting Akron, Ohio-based FirstEnergy Corp. before adjourning for its summer recess June 30. In Connecticut, the state Senate in May approved a bill (S.B. 106) which would grant help to a nuclear plant operated by Richmond, Va.-based Dominion Energy Inc., but the House did not act on the measure before its summer break.

The state activity comes as the Trump administration continues to encourage the development of the U.S. nuclear power industry. On June 27, Energy Secretary Rick Perry touted nuclear power as a low-emissions energy source and told reporters “no clean energy portfolio is truly complete without nuclear power.” And President Donald Trump pledged his administration will conduct a “complete review of the U.S. nuclear energy policy that will help us find new ways to revitalize this crucial energy resource.”

That connection to carbon-free energy production complicates the issue for many interest groups. Traditional nuclear-power foes such as environmental organizations sometimes favor legislation providing nuclear-plant subsidies if they’re part of a comprehensive plan to move a state toward longer-term use of renewables. But the Natural Resources Defense Council and other environmental groups don’t view nuclear power as a viable long-term solution to climate change because of public health and safety risks, including the unresolved issue of nuclear waste disposal.

Legislators representing constituents living near nuclear facilities typically favor the subsidies. Keeping the plants open means preserving good-paying jobs and meaningful economic activity. The Nuclear Energy Institute said in a 2014 study that nuclear reactors generate $40 billion to $50 billion in annual electricity sales, with more than 100,000 workers contributing to production.

Large oil and gas companies as well as big energy consumers such as manufacturers generally oppose the subsidies. Martin Durbin, the American Petroleum Institute’s chief strategy officer, told Bloomberg BNA states providing nuclear power with financial support means the governments are choosing winners and losers and therefore distorting energy markets and their pricing.

“Bailing out a handful of power plants, I just don’t think that’s going to be the sustainable solution going forward,” he said.

Strange Bedfellows

Those organizations’ positions can lead to strange bedfellows. The Illinois legislation, for instance, was supported by the country’s largest operator of nuclear reactors, but the Illinois Chamber of Commerce opposed it.

Environmental groups have more nuanced positions. The Environmental Defense Fund, for instance, supports nuclear power subsidies to keep nuclear plants operating under certain conditions. “We support their continued operation as long as it’s part of a larger, clean-energy package,” Dick Munson, EDF Midwest clean energy director, told Bloomberg BNA.

And the Natural Resources Defense Council championed the Illinois legislation but opposes Ohio’s proposed bill.

While disagreement exists over the use of subsidies, John Shelk, the Electric Power Supply Association president and chief executive officer, told Bloomberg BNA most energy specialists agree the problem highlighted by the subsidies has surfaced because of the sustained low price of natural gas in addition to a failure to establish a cost for creating carbon emissions or a benefit for not creating them. The association is a trade group representing power supply companies.

National Conference of State Legislatures data shows that 22 states considered bills, resolutions, and legal measures that in some way would impact nuclear energy facilities in 2016-2017.

Rewarding Carbon-Free Generation

Subsidy supporters see the payments as a way to reward nuclear’s carbon-free emissions status, just as other carbon-free energy sources such as solar and wind have benefited from incentives for years.

Indeed, Dean Murphy, a Brattle Group economist who specializes in energy markets, said he doesn’t like the word “subsidy” because most states contemplating assisting nuclear plants describe the assistance as providing a payment for the carbon-free attributes of nuclear power.

“The largest source of zero-emission energy is nuclear, so what those states did is just treat the nuclear fleet like they treated a variety of other resources of subsidy programs: wind, solar, geothermal, you name it,” David Fein, Exelon Corp. vice president for state government affairs, told Bloomberg BNA.

Exelon announced May 30 that it plans to prematurely close Three Mile Island near Middletown, Pa., due to financial losses at the plant from low wholesale power prices tied to the natural gas shale boom. Joseph Dominguez, Exelon’s vice president of governmental and regulatory affairs and public policy, told Bloomberg BNA that he saw “a sense of urgency in terms of starting to introduce [state] policymakers to the subject.”

Emissions Credits

Several state legislatures are contemplating taking steps to support their nuclear power industry. In Ohio, Rep. Anthony DeVitis (R) in April introduced H.B. 178, which would create a zero-emissions nuclear credits regime requiring electricity distribution companies to buy the credits in proportion to the amount of electricity purchased from nuclear installations. Distribution companies would thus push the cost of the credits to ratepayers, effectively creating a ratepayer-financed subsidy for the nuclear plants.

FirstEnergy, owner of two nuclear power plants that would qualify for the Ohio subsidies under the bill, estimated the cost of the credits to electricity customers to be about $305 million in its first year, or about an extra $5 per month per customer. The plan as outlined in the legislation would run for eight two-year periods, or 16 years. The cost of credits could be adjusted every two years.

The bill was referred to the House Public Utilities Committee but then stalled. Ohio Rep. William Seitz (R), the committee’s chairman, told Bloomberg BNA in an email his committee is “taking a break” from considering the legislation after 12 hours of testimony involving about 40 witnesses.

“We are at the point where the arguments pro and con have been exhaustively addressed to the point of repetition,” he said, and there’s little resulting appetite to vote on the proposal. The committee could, however, resume deliberations in the fall, he said.

Politics is Local

In Connecticut, state Sen. Paul Formica’s (R) bill contains several energy-related proposals, including what amounts to a power purchase contract for up to five years that would have three energy generators competing for the contract: trash to energy plants, biomass plants, and eligible nuclear plants.

The bill was crafted so that only one plant, Dominion Energy’s Waterford-based 1.2 gigawatt two-unit reactor installation, would quality for the contract, which could be worth $305 million a year for five years.

The bill was approved by the state Senate, but House members didn’t vote on it. In 2016 a similar bill was approved by Connecticut’s state Senate but was never voted on by the full state House. The plant is located in Formica’s district.

Court Challenges

Regulators in New York and legislators in Illinois were the first in the nation to approve zero-emissions credit regimes that require virtually all ratepayers in their states to subsidize in-state nuclear plants.

Though approved in 2016, they are not in force because of court challenges.

The New York Public Service Commission, at the direction of Gov. Andrew Cuomo (D), on Aug. 1, 2016, issued an enforceable order that requires electricity providers to purchase zero-emission credits for at least 12 years from two eligible nuclear power plants along with their electricity purchases.

The cost, borne by all state electricity ratepayers, is expected to reach at least $7.6 billion. The company that stands to gain the lion’s share of the subsidy: Chicago-based Exelon.

The rule is being challenged by NRG Energy Inc., Dynegy Inc., other energy companies, and professional associations claiming in a Oct. 19, 2016, complaint the order intrudes on Federal Energy Regulatory Commission authority to regulate interstate commerce in electricity ( Coal. for Competitive Elec. v. Zibelman, S.D.N.Y., No. 16-cv-08164, complaint 10/19/16 ).

Cheers in Illinois

A few months after New York acted, Illinois Gov. Bruce Rauner (R) was greeted in by a school band, cheerleaders and nuclear plant workers when he walked into a school in Port Byron to sign the Future Energy Jobs Bill (S.B. 2814), which contains a zero emissions credit regime. Port Byron will benefit from the continued operation of a nearby nuclear facility once threatened with closure due to its economic troubles.

A disparate coalition of energy producers, environmental groups and energy trade associations challenged the law in a Feb. 14 complaint, claiming similar behavior alleged in the New York case; indeed some of the plaintiffs are the same in both cases ( Electric Power Supply Assn. v. Star, N.D. Ill., No. 17-cv-01164, complaint 2/14/17 ).

In a victory for Exelon, the owner of the two nuclear installations scheduled to receive the credit subsidies, Judge Manish Shah on July 14 granted motions to dismiss the case, which was filed in the U.S. District Court for the Northern District of Illinois. Plaintiffs promptly challenged that decision, filing an appeal on July 17 with the U.S. Court of Appeals for the Seventh Circuit.

A decision in the New York federal district court case is imminent.

As written, the Illinois legislation would offer around $235 million per year in ratepayer subsidies to the state’s Clinton and Quad Cities nuclear plants, both owned by Exelon. The contract for purchasing the emissions credits runs 10 years.

Next: Pennsylvania and New Jersey

While Ohio and Connecticut will likely continue their debate over nuclear-related bills that have already been introduced, the energy specialists said discussions about subsidies will likely spread to Pennsylvania and possibly New Jersey in late 2017 or 2018.

“It’s one of those topics that will crop right back up in January and we’ll see a number of states introducing some type of policies that support nuclear generation in their states,” Kristy Hartman, National Conference of State Legislatures program manager, told Bloomberg BNA.

Action already has begun in Pennsylvania, where a bicameral and bipartisan caucus supporting legislative assistance for the state’s nuclear industry has formed.

Opponents have begun mobilizing as well. “They’re looking to get the same kind of bailout here in Pennsylvania that they got in Illinois. The industrial energy consumers are adamant they are not going to get bailouts,” said Taylor, the Pennsylvania Manufacturers’ Association executive.

In New Jersey, Public Service Electric and Gas Co. operates two nuclear installations, and Munson of the Environmental Defense Fund said the utility has an effort underway to make the case for obtaining subsidies in the future. PSEG spokesman Michael Jennings declined to comment.

In addition to opposition from competing industries and environmentalists, nuclear advocates face another potential hurdle: public opinion. A March 2016 Gallup poll showed 54 percent of Americans opposed nuclear power and 44 percent favored it—the first time that a majority of Americans expressed opposition since the polling firm began asking the question in 1994.

Possible Path Forward?

Eventually the nuclear plants now operating will shut down. What’s not known is what energy sources will replace them.

Several environmental groups are hoping to use the retirements as a catalyst to satiate the nation’s electricity demand with clean, renewable energy sources, perhaps using as a model a 2016 California regulatory and statutory package that will keep the San Luis Obispo County-based Diablo Canyon nuclear plant operating while energy efficiency and renewable sources ramp up to take its place.

The nuclear station is scheduled to shut down in 2025, providing regulators eight years to make the transition.

“What the Diablo Canyon proposal shows is that if you have a forward-looking utility that considers the interests of all stakeholders, including the labor and environmental communities and the local municipalities and counties, you can avoid standing on the edge of a cliff, facing choices of either providing subsidies for aging and expensive nuclear facilities or suffering increases in pollution and electricity system costs,” Jackson Morris, the Natural Resources Defense Council’s Eastern Energy Project director, told Bloomberg BNA.

—With assistance from Rebecca Kern.

To contact the reporter on this story: Stephen Joyce in Chicago at sjoyce@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

For More Information

A list of nuclear plants' permit expiration dates is available: http://src.bna.com/qRD

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