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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--A political storm is brewing in New Jersey over nuclear power plants owned by Public Service Enterprise Group Incorporated (PSEG) (NYSE:PEG) (Newark, New Jersey). Still in its early stages, this nuclear nor'easter could upend the energy landscape in the Garden State, driving up the already high electric bills residents and businesses pay.
"In our earnings calls, our chairman has been pretty clear that our nuclear plants are not making an adequate return," PSEG spokesperson Paul Rosengren said in an interview. "We're investing $100 million to $200 million in those plants each year, but we're not getting the returns we would get from other investments. When Wal-Mart has under-performing stores, they close them. Absent a change in the market, we couldn't continue" operating their nuclear plants in New Jersey.
Rosengren said the nuclear plants in question--Salem Nuclear Power Station and Hope Creek Nuclear Generating Station--are still cash positive, "but that could change in the next one to two years. The output is pre-sold through hedges, but as those hedges expire we need to find other counter-parties for the plant's output." He could not provide specifics on the plants' profitability.
He said both Salem and Hope Creek cleared the most recent power auction held by the PJM Interconnection (Audubon, Pennsylvania), adding: "We're trying to get ahead of this by having conversations with a broad range of groups, including lawmakers, regulators, business groups and community groups. We're explaining the consequences of having those plants close. It's cheaper to preserve these plants than it would be to replace them."
Combined, Salem and Hope Creek have about 3,500 megawatts (MW) of generating capacity. The plants provide about 50% of all the electricity generated in New Jersey and about 90% of all the non-emitting electricity in the state, Rosengren said. The plants support about 6,000 direct, indirect and induced jobs, he estimated.
Salem Unit 1 is licensed through 2036, while Salem Unit 2 can operate through 2040. Both units are pressurized water reactors (PWR) that began operating in 1977. The combined generating capacity of the Salem plant is about 2,296 MW. PSEG unit Public Service Electric and Gas (PSE&G) is the operator and 57% owner of Salem; Exelon Corporation (NYSE:EXC) (Chicago, Illinois) owns the remaining 43% of that plant. The one-unit Hope Creek plant, a boiling water reactor (BWR) with total generating capacity of about 1,172 MW, came online in 1987. It has been relicensed to operate through 2046.
"The plants are a jobs engine," Rosengren commented. "They provide valuable fuel diversity. And they are a critical part of helping New Jersey meet its environmental targets." He said the company is not preparing a draft bill in the state legislature, and he added it was too early to say what level of financial support the company was seeking.
As falling prices for natural gas and renewables have scrambled the economics of power production, nuclear operators have sought financial support that recognizes the non-emitting characteristics of nuclear plants. Exelon was able to win sizable financial support from Illinois and New York. FirstEnergy Corporation (NYSE:FE) (Akron, Ohio) has been trying to win passage of legislation along those same lines in Ohio and Pennsylvania, and Dominion Energy Incorporated (NYSE:D) (Richmond, Virginia) is seeking financial support for its Millstone plant in Connecticut. For more on these issues, see December 20, 2016, article - Exelon Wins Financial Aid for Two Uneconomic Nuclear Plants; August 3, 2016, article - Cash on the Barrel: New York Clean Energy Standard Includes Multibillion-Dollar Support for Nuclear Power's Carbon-Free Generation; May 30, 2017, article - Down but Not Out? FirstEnergy Still Seeking $300 Million Per Year in Nuclear Support; and July 27, 2017, article - Fate of Millstone Hangs Over Connecticut and New England.
Earlier this year, on May 30, Exelon said it would close its Three Mile Island Nuclear Generating Station by September 30, 2019, unless "needed policy reform" is put in place. The plant reportedly has not made money for five years. In a statement, Exelon said it was informing key stakeholders of its plans, including sending PJM a deactivation notice and sending permanent shutdown notifications to the Nuclear Regulatory Commission. It also said it was taking one-time charges of between $65 million and $110 million for 2017, and accelerating approximately $1 billion in depreciation and amortization through the announced shutdown date. Further, it said it was terminating capital investment projects required for long-term operation of Three Mile Island and canceling 2019 fuel purchases and outage planning.
Nuclear operators' efforts to win financial support for nuclear power comes after nuclear plants in Wisconsin, Vermont, Massachusetts, Nebraska and California have closed or announced they will close when their licenses expire. All said their economic viability was undermined by low-cost gas-fired generation. In some cases, market structure, specifically whether a plant received capacity payments, also contributed to some plants' economic woes. For more on that, see November 10, 2016, article - As Fort Calhoun Shuts Down, Analysts ask, 'Are Nuclear's Days Numbered?' PSEG's Rosengren said PJM makes capacity payments to generators for their readiness to generate electricity if needed.
Jeff Tittel, director of the Sierra Club of New Jersey, has a far less charitable view of what PSE&G was doing. "This is all about greed, not need," he said in an interview. "They're seeking a multibillion-dollar bailout. The B.S. they're peddling is the size of an iceberg. Their mendacity is audacious. Saying they need a subsidy is like saying Donald Trump saying he needs lessons in how to use Twitter."
Tittel said a nuclear-support bill is being developed in the New Jersey State Senate, in the office of Senator Bob Smith, chairman of the Environment Committee. A source at the New Jersey legislature told Industrial Info that Sen. Smith "is currently exploring the issue."
The Sierra Club leader predicted a "lame-duck" bill with financial support for nuclear power will be introduced sometime after the November 2017 state elections but before the next governor and legislature are sworn in in January 2018. "It's going to be the biggest Thanksgiving turkey you've ever seen," he predicted.
What particularly galls Tittel is what he said was PSE&G's goal of creating zero-emission credits to reflect the non-emitting characteristics of nuclear power. "If they really wanted to support the environment, they'd support a carbon tax in the state legislature, or expanding the Regional Greenhouse Gas Initiative (RGGI). We oppose nuclear subsidies because they undercut renewable energy." Tittel's group wants New Jersey to get 100% of its electricity from renewable sources by 2040.
And for PSE&G to complain about low natural gas prices is "hypocrisy" since the company is building gas-fired generation in New Jersey and Maryland, Tittel said. "They're making money at those nuclear plants, maybe not as much as they'd like, but they are making money," he continued. He criticized the company for not "opening its books" to show declining profitability at Salem and Hope Creek.
A coalition of New Jersey businesses, consumer advocates and environmentalists reportedly also oppose financial aid to the state's nuclear plants, arguing that would drive up the state's already high electric costs.
The U.S. Energy Information Administration (EIA) (Washington, D.C.) said New Jersey residential customers paid about 16 cents per kilowatt-hour (kWh) for their electricity this past June, less than in New York but more than in Pennsylvania. Across the U.S., residential customers are paying about 13 cents per kWh for their electricity. Industrial customers in New Jersey paid an average of about 11 cents per kWh of electricity in June 2017, nearly double the price paid by those customers in New York and Pennsylvania, and significantly more than the national average. On average across the nation, industrial customers paid slightly more than 7 cents per kWh for electricity in June 2017, EIA said.
According to a New Jersey newspaper account, Steven Goldenberg, a lawyer representing the New Jersey Large Energy Users Coalition, part of the New Jersey Coalition Against Nuclear Taxes, said, "PSEG is pursuing a bailout simply because it is not earning enough from its nuclear fleet.'' He speculated the subsidies could range up to $400 million a year.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
"In our earnings calls, our chairman has been pretty clear that our nuclear plants are not making an adequate return," PSEG spokesperson Paul Rosengren said in an interview. "We're investing $100 million to $200 million in those plants each year, but we're not getting the returns we would get from other investments. When Wal-Mart has under-performing stores, they close them. Absent a change in the market, we couldn't continue" operating their nuclear plants in New Jersey.
Rosengren said the nuclear plants in question--Salem Nuclear Power Station and Hope Creek Nuclear Generating Station--are still cash positive, "but that could change in the next one to two years. The output is pre-sold through hedges, but as those hedges expire we need to find other counter-parties for the plant's output." He could not provide specifics on the plants' profitability.
He said both Salem and Hope Creek cleared the most recent power auction held by the PJM Interconnection (Audubon, Pennsylvania), adding: "We're trying to get ahead of this by having conversations with a broad range of groups, including lawmakers, regulators, business groups and community groups. We're explaining the consequences of having those plants close. It's cheaper to preserve these plants than it would be to replace them."
Combined, Salem and Hope Creek have about 3,500 megawatts (MW) of generating capacity. The plants provide about 50% of all the electricity generated in New Jersey and about 90% of all the non-emitting electricity in the state, Rosengren said. The plants support about 6,000 direct, indirect and induced jobs, he estimated.
Salem Unit 1 is licensed through 2036, while Salem Unit 2 can operate through 2040. Both units are pressurized water reactors (PWR) that began operating in 1977. The combined generating capacity of the Salem plant is about 2,296 MW. PSEG unit Public Service Electric and Gas (PSE&G) is the operator and 57% owner of Salem; Exelon Corporation (NYSE:EXC) (Chicago, Illinois) owns the remaining 43% of that plant. The one-unit Hope Creek plant, a boiling water reactor (BWR) with total generating capacity of about 1,172 MW, came online in 1987. It has been relicensed to operate through 2046.
"The plants are a jobs engine," Rosengren commented. "They provide valuable fuel diversity. And they are a critical part of helping New Jersey meet its environmental targets." He said the company is not preparing a draft bill in the state legislature, and he added it was too early to say what level of financial support the company was seeking.
As falling prices for natural gas and renewables have scrambled the economics of power production, nuclear operators have sought financial support that recognizes the non-emitting characteristics of nuclear plants. Exelon was able to win sizable financial support from Illinois and New York. FirstEnergy Corporation (NYSE:FE) (Akron, Ohio) has been trying to win passage of legislation along those same lines in Ohio and Pennsylvania, and Dominion Energy Incorporated (NYSE:D) (Richmond, Virginia) is seeking financial support for its Millstone plant in Connecticut. For more on these issues, see December 20, 2016, article - Exelon Wins Financial Aid for Two Uneconomic Nuclear Plants; August 3, 2016, article - Cash on the Barrel: New York Clean Energy Standard Includes Multibillion-Dollar Support for Nuclear Power's Carbon-Free Generation; May 30, 2017, article - Down but Not Out? FirstEnergy Still Seeking $300 Million Per Year in Nuclear Support; and July 27, 2017, article - Fate of Millstone Hangs Over Connecticut and New England.
Earlier this year, on May 30, Exelon said it would close its Three Mile Island Nuclear Generating Station by September 30, 2019, unless "needed policy reform" is put in place. The plant reportedly has not made money for five years. In a statement, Exelon said it was informing key stakeholders of its plans, including sending PJM a deactivation notice and sending permanent shutdown notifications to the Nuclear Regulatory Commission. It also said it was taking one-time charges of between $65 million and $110 million for 2017, and accelerating approximately $1 billion in depreciation and amortization through the announced shutdown date. Further, it said it was terminating capital investment projects required for long-term operation of Three Mile Island and canceling 2019 fuel purchases and outage planning.
Nuclear operators' efforts to win financial support for nuclear power comes after nuclear plants in Wisconsin, Vermont, Massachusetts, Nebraska and California have closed or announced they will close when their licenses expire. All said their economic viability was undermined by low-cost gas-fired generation. In some cases, market structure, specifically whether a plant received capacity payments, also contributed to some plants' economic woes. For more on that, see November 10, 2016, article - As Fort Calhoun Shuts Down, Analysts ask, 'Are Nuclear's Days Numbered?' PSEG's Rosengren said PJM makes capacity payments to generators for their readiness to generate electricity if needed.
Jeff Tittel, director of the Sierra Club of New Jersey, has a far less charitable view of what PSE&G was doing. "This is all about greed, not need," he said in an interview. "They're seeking a multibillion-dollar bailout. The B.S. they're peddling is the size of an iceberg. Their mendacity is audacious. Saying they need a subsidy is like saying Donald Trump saying he needs lessons in how to use Twitter."
Tittel said a nuclear-support bill is being developed in the New Jersey State Senate, in the office of Senator Bob Smith, chairman of the Environment Committee. A source at the New Jersey legislature told Industrial Info that Sen. Smith "is currently exploring the issue."
The Sierra Club leader predicted a "lame-duck" bill with financial support for nuclear power will be introduced sometime after the November 2017 state elections but before the next governor and legislature are sworn in in January 2018. "It's going to be the biggest Thanksgiving turkey you've ever seen," he predicted.
What particularly galls Tittel is what he said was PSE&G's goal of creating zero-emission credits to reflect the non-emitting characteristics of nuclear power. "If they really wanted to support the environment, they'd support a carbon tax in the state legislature, or expanding the Regional Greenhouse Gas Initiative (RGGI). We oppose nuclear subsidies because they undercut renewable energy." Tittel's group wants New Jersey to get 100% of its electricity from renewable sources by 2040.
And for PSE&G to complain about low natural gas prices is "hypocrisy" since the company is building gas-fired generation in New Jersey and Maryland, Tittel said. "They're making money at those nuclear plants, maybe not as much as they'd like, but they are making money," he continued. He criticized the company for not "opening its books" to show declining profitability at Salem and Hope Creek.
A coalition of New Jersey businesses, consumer advocates and environmentalists reportedly also oppose financial aid to the state's nuclear plants, arguing that would drive up the state's already high electric costs.
The U.S. Energy Information Administration (EIA) (Washington, D.C.) said New Jersey residential customers paid about 16 cents per kilowatt-hour (kWh) for their electricity this past June, less than in New York but more than in Pennsylvania. Across the U.S., residential customers are paying about 13 cents per kWh for their electricity. Industrial customers in New Jersey paid an average of about 11 cents per kWh of electricity in June 2017, nearly double the price paid by those customers in New York and Pennsylvania, and significantly more than the national average. On average across the nation, industrial customers paid slightly more than 7 cents per kWh for electricity in June 2017, EIA said.
According to a New Jersey newspaper account, Steven Goldenberg, a lawyer representing the New Jersey Large Energy Users Coalition, part of the New Jersey Coalition Against Nuclear Taxes, said, "PSEG is pursuing a bailout simply because it is not earning enough from its nuclear fleet.'' He speculated the subsidies could range up to $400 million a year.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
