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Nuclear Power Subsidies Inch Forward in Pennsylvania As Natural Gas Industry Digs In

A bipartisan group of Pennsylvania lawmakers has advanced recommendations for supporting five nuclear power plants in the state that face stiff competition in wholesale electricity markets, setting the stage for a continued battle with the natural gas industry and other interests opposed to any kind of government intervention.

The policy prescriptions were included in a 42-page report authored by the Nuclear Energy Caucus that was sent to all members of the general assembly and Democratic Gov. Tom Wolf as 2018 came to an end. According to the report, the current federal, regional and state landscape leaves Pennsylvania with only a handful of options to help its nuclear power plants compete with other fuels such as natural gas, including subsidies.

“As state lawmakers, we take seriously our obligations to set energy policies that help promote Pennsylvania’s economy and protect our environment,” said Republican state Sen. Ryan Aument, who co-chairs the caucus along with another Republican and two Democrats. “The loss of these plants would be a devastating and permanent blow to Pennsylvania’s communities, economy and environment, so we took a hard look at what could and should be done to prevent this, and future, devastation.”

Exelon Corp. and FirstEnergy Corp. have said that without state or federal policy reforms they would close the Three Mile Island Generating Station (TMI) and the Beaver Valley Power Station in Pennsylvania by 2021. Both companies have been pushing for assistance for the nuclear plants, which the natural gas industry staunchly opposes as it’s gained market share with abundant, low-cost supplies that have prompted power generators to burn more of the fuel.

The caucus was formed in March 2017 to explore the role nuclear energy plays in the state and the problems it faces as wholesale energy markets have shifted dramatically to favor natural gas and renewables. It now has more than 79 members. Other states in the region are exploring the issue as well. Ohio lawmakers have floated similar proposals for nuclear subsidies. 

Meanwhile, four courts in Illinois and New York have upheld subsidies for nuclear power plants. Under zero emission credit (ZEC) programs in those states, utilities or power producers that generate with coal or natural gas are required to purchase a certain number of credits from nuclear facilities that produce zero-emissions electricity. Subsidized nuclear generators receive the value of their credits in addition to what they earn in the wholesale markets. Connecticut and New Jersey have passed similar legislation.

Opponents argue that the ZEC programs allow subsidized generators to bid below cost during power market auctions, putting other generators at a competitive disadvantage. John Shelk, CEO of the Electric Power Suppliers Association, which mainly represents independent gas-fired power generators, warned a shale industry conference in Pittsburgh in October that the Appalachian Basin is the new battleground for power market subsidies after the nuclear energy industry waged successful campaigns in the other states. 

“It’s important at the outset just to make sure everyone is aware of how serious the threat is and how terribly important it is for all of you to get engaged in this effort with all of us and the broad coalition we have to prevent your hard-earned market share and the benefits you’re bringing to this three-state region from being eroded by folks outside the region trying to use politics,” Shelk said during remarks at the Marcellus Shale Coalition’s Shale Insight conference, referring to Ohio, Pennsylvania and West Virginia.

Gas-fired power plants are proliferating in the region. In PJM, which operates the nation’s largest wholesale power grid in all or parts of 13 states and the District of Columbia, including shale-rich Appalachia, there are 26 gas-fired facilities under construction or being upgraded.

ZEC programs and similar legislation in other states were designed to preserve the baseload electricity produced by nuclear facilities. Proponents argue that the credits better value the resiliency, consistency and smog-free attributes of nuclear facilities.

According to the Nuclear Energy Caucus report, Pennsylvania’s five nuclear facilities provide nearly 40% of the state’s electricity production and just over 93% of its zero-emissions energy. The report said the state can do nothing to help the plants, but cautioned that such a move would put them “on a trajectory to early retirement.”

Among the other recommendations put forward by the report is a proposal to modify the state’s alternative energy portfolio standard (AEPS) to “put nuclear generation on equal footing with other zero-emission electric generation.” The report also suggests modifying the AEPS with a “safety valve” that would allow the state to adopt a new capacity construct proposed by FERC that is designed to accommodate state programs that support preferred generation resources. The latter would largely depend on the outcome of a closely-watched proceeding before the Federal Energy Regulatory Commission that involves PJM and efforts by the grid operator to better accommodate state subsidies.

The report also recommends establishing a ZEC program or a carbon pricing program.

More recently, Shelk told NGI that some of the data the caucus used to author its report is outdated. He pointed to an analysis released in November by PJM’s independent market monitor that found Pennsylvania’s nuclear facilities, with the exception of Exelon’s TMI, were all on track to generate millions of dollars in surplus funds by the end of 2018.

Citizens Against Nuclear Bailouts, a group whose members include more than 20 organizations and companies, including the Marcellus Shale Coalition and the American Chemistry Council, was equally critical of the report, saying the caucus heard primarily from the nuclear industry during meetings and testimony.

“While we appreciate that the Nuclear Energy Caucus was formed to better understand Pennsylvania’s competitive energy markets, this report takes a singular view of a complex issue without input from consumer groups, state and federal regulators, independent power generators and, most important, ratepayers, who are benefiting from the state’s deregulated electricity markets.”

While a fight over subsidies has been shaping up for years in Pennsylvania and other parts of the basin, a decided turn could be ahead in 2019 as the caucus pushes the state legislature to consider taking action, which might be a stretch for some lawmakers in the nation’s second-largest gas producing state.   

“The report is incredibly thorough and clearly reflected the hard work the caucus has done over the past year learning as much as they can about nuclear energy and the potential impacts of closure,” said Christine Csizmadia, director of state governmental affairs and advocacy at the Nuclear Energy Institute. “The report does provide legislative suggestions, which the legislature will absolutely have to consider and act on if it wants to avoid the devastation of losing TMI and Beaver Valley.”

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