New Jersey Considers Nuclear Subsidies to Forestall Plant Closures -- Update

New Jersey lawmakers are considering subsidies, paid by customers, to prop up the nuclear-power industry after the state's largest operator threatened to shut two plants.

Public Service Enterprise Group Inc., which owns and operates two nuclear power plants in the state's southern Salem County, said low natural-gas prices will force the plants' closure unless market prices change or ratepayers subsidize operations.

Environmental and ratepayer groups say the proposed subsidies are being unnecessarily rushed through the legislature during a lame duck session, would undermine the state's progress toward increased reliance on renewable energy and would be costly to taxpayers.

Lawmakers are scheduled to hold a joint-committee hearing Wednesday on the bill, which was introduced last week. Supporters hope the legislation will be passed before Republican Gov. Chris Christie leaves office in January.

Sen. Jeff Van Drew, a Democrat, said the subsidies are necessary to preserve "desperately needed, decent paying, good jobs" in southern New Jersey. He said nuclear power is critical to maintaining energy diversity in the state.

"If the nuclear plants go down, in the long run the price of electricity is going to go up," said Mr. Van Drew, who represents parts of Atlantic, Cape May and Cumberland counties.

Mr. Christie, who was prevented by term limits from running for re-election, indicated earlier this month that he was open to subsidies. "I think having nuclear power in the state is an important thing to have, " he said. Mr. Christie's successor, Democrat Phil Murphy, said he supports keeping the plants open and the associated jobs intact, but wouldn't want that goal to come at the expense of the state's renewable-energy efforts.

Nuclear-plant operators have struggled to remain profitable in recent years as rising natural-gas supplies have sent wholesale electricity prices plummeting. Several plants in New York, California and Michigan are scheduled to close by 2025 due to competition from cheaper electricity sources.

New York Gov. Andrew Cuomo's administration is moving forward with plans to subsidize some of the state's struggling nuclear plants. In South Carolina, Scana Corp. said in August that it was abandoning a project to build two nuclear reactors. And in Illinois, lawmakers voted last year to allow operator Exelon Corp. to collect up to $235 million annually from customers to keep two plants open.

The ratepayer subsidy currently under consideration in New Jersey would cost at least $300 million a year, according to an analysis by Stefanie Brand, director of the state's Division of Rate Counsel. At that cost, the average residential customer bill would increase by about $41 a year, and for some large business customers it could be as much as $1 million a year, Ms. Brand said. "I think it's ridiculous, frankly," Ms. Brand said.

A spokesman for Public Service Enterprise Group said it calculated that the average residential bill increase would be closer to $31 a year.

In testimony before lawmakers in Trenton earlier this month, Ralph Izzo, chief executive of Public Service Enterprise Group, said the company's nuclear power plants are currently profitable but the utility will be unable to cover their costs within two years unless market prices change.

Mr. Izzo said a "safety net" is needed to avoid closing the nuclear facilities, which cost about $675 million to operate annually and employ about 1,600 workers.

"I am here to tell you that those plants are in trouble and that, if nothing changes, I will close them," Mr. Izzo said.

Shutting down nuclear power plants is a lengthy and expensive process. Exelon estimates it will cost more than $1 billion to decommission New Jersey's Oyster Creek generating station, which is scheduled to be retired in 2019.

Ms. Brand and other critics say Public Service Enterprise Group hasn't done enough to prove that its plants need subsidies. New Jersey deregulated its electricity and natural-gas market in 1999, and as a result generators aren't subject to extensive public financial disclosures when they want to raise rates. Ms. Brand called for an independent study to determine whether subsidies are justified.

In order to be eligible for the subsidies, nuclear power plant operators would have to provide financial proof that their plants are in danger of closing within three years. The operators wouldn't be required to disclose this financial information publicly. Subsidy eligibility would be subject to renewal every three years, according to the bill.

In addition to the economic impact of closing its two nuclear plants, Mr. Izzo said the subsidies would help protect an important source of carbon-free energy. He also said if New Jersey was left largely reliant on natural gas, the state would be vulnerable to price fluctuations and power disruptions.

Sierra Club's New Jersey director, Jeff Tittel, said the group is opposed to the subsidies and is worried about their economic impact. He said subsidizing the nuclear-power industry would be akin to "throwing a wet blanket" on the state's efforts to rely more on renewable energy, such as wind and solar power. "If you subsidize nuclear power plants and we have cheap natural gas, it means we push out renewable energy," he said.

Write to Kate King at Kate.King@wsj.com

(END) Dow Jones Newswires

December 19, 2017 18:13 ET (23:13 GMT)