New York Just Proved Why Bailing Out Nuclear Power Is a Bad Idea

Yesterday, New York became the first state to adopt a policy to subsidize aging, uncompetitive nuclear reactors. The state’s Public Service Commission, which regulates utility companies, passed a Clean Energy Standard that combines a 50% renewable energy standard by 2030 with massive subsidies to prop up uneconomical reactors. (You can download the whole PSC order here.)

Prepare yourself for loud celebrations from the nuclear industry, heaping praise on New York Governor Andrew Cuomo and calling for other states to emulate the Empire State with lucrative incentives to insulate the nuclear industry from competition and to postpone closures of uneconomical reactors.

We hate to throw water on the parade, but the move actually proves what a bad idea it is to provide subsidies like this to prop up nuclear power. Let’s jump to the punch line, then we can fill in the blanks: New York just committed to spending twice as much money propping up old nuclear reactors than on new renewable energy, to get 2-3 times less energy from nuclear as renewables in the end.

Spend more, get less electricity, get more carbon emissions–and get a lot of radioactive waste.

Basically all of the $7.6 billion in nuclear subsidies will leave New Yorkers’ bank accounts and go to companies headquartered in Chicago and Paris: Exelon and Electricite de France, which jointly own the company that will own all of the bailed-out reactors. The money will produce not one more job for unemployed New Yorkers, put not one more solar panel on a roof, provide not one more dollar of economic development. And by soaking up so much of New Yorkers’ energy dollars, the subsidies could prevent them from investing in energy efficiency and renewables.

There is going to be a lot of pain—economic, human, and environmental—for no real gain, and possibly a lot of political blowback for Governor Cuomo in the next election. Power bill hikes will start in May 2017, as New Yorkers get hit with $480 million per year in surcharges for nuclear power.

Incentive proposals for existing reactors have been debated in Illinois and Ohio since 2014, and cropped up in Connecticut, New Jersey and Pennsylvania this year. However, pumping hundreds of millions of dollars a year into supporting aging reactors–most of which are supposed to be in competitive energy markets–has had difficulty gaining traction, resulting in Exelon’s announcement in June that it will close the Clinton and Quad Cities 1 and 2 reactors in Illinois.

Nuclear boosters will argue that New York is setting a precedent for other states to prop up the industry by “valuing” nuclear power’s role in combating climate change. But to those close paying attention, it proves just the opposite: bailing out aging, uneconomical reactors is a massive diversion of time and money needed to invest in renewable energy, energy efficiency, and other strategies for reducing emissions.

Here’s why.

Other states won’t all be able to replicate the unique circumstances that enabled New York to ram through such a massive bailout in just a few months. In most other states, nuclear subsidy proposals have been proposed legislatively or through adjudicated processes where there has been a full, transparent review. In Illinois, Exelon requires legislation to be enacted authorizing a nuclear subsidy program, and has been unable to convince legislators that the billion-dollar cost of the program is justified, even though it would be far less expensive than the subsidies proposed in New York ($300 million/year for eleven reactors, compared to $480 million/year for four reactors). In Ohio, a massive “black box” subsidy for FirstEnergy’s nuclear and coal plants has been challenged by extensive litigation, resulting in the company closing several coal units, and still may not survive a federal legal challenge.

In New York, Governor Cuomo ordered the PSC to create the nuclear subsidies through a fast-tracked proceeding, in which there was no transparency and the public had limited time to participate. The governor has a reputation for overstepping his authority to get the commission to do what he wants. Both the governor’s office and the PSC are under investigation by the US Attorney’s office and the New York Attorney General in similar cases, none of which involve anywhere close to the amount of money the nuclear subsidies would direct to a single corporation: Constellation Energy Nuclear Group (half-owned by Exelon).

The amount of support needed to reverse nuclear energy’s fortunes dwarfs what is needed to expand renewables, and actually requires states to prioritize nuclear over clean energy solutions. The New York Public Service Commission approved $7.6 billion subsidy to nuclear power plants as part of a Clean Energy Standard that also sets a goal of generating 50% of the state’s electricity from renewable energy by 2030. The policy will lock in nuclear subsidies for 12 years (into 2029), for four reactors in one region of the state–Ginna, FitzPatrick, and Nine Mile Point 1 and 2–by declaring them a “public necessity.”

Subsidies for nuclear would be priced according to a measure the EPA uses to evaluate the social and environmental impacts of carbon emissions–the Social Cost of Carbon. The subsidies will increase over time, from 1.75 cents per kilowatt-hour (kWh) in 2017 to 2.92 cents per kWh by 2027. The cost of subsidizing nuclear would go up from $480 million per year in the first two years to around $800 million per year in the final two years–assuming all of the reactors last that long, which is not a good bet given that no reactor in the world has run for more than 47 years and the PSC wants to push two of them all the way to 60.

It is not clear that EPA ever contemplated the Social Cost of Carbon being used this way. In effect, New Yorkers are being asked to pay for the full impact of greenhouse gas (GHG) emissions that are NOT being produced, while fossil fuel generators that are releasing far more actual GHG emissions are not bearing the cost of actual environmental and social harms resulting from their business. The entire benefit of the ratepayer charges will derive to the owner/s of nuclear power plants, not toward mitigating the harms caused by greenhouse gas pollution.

By the end of the 12-year subsidy period, New York will end up spending twice as much money propping up old nuclear power plants as on developing renewable energy–for what will turn out to be half as much energy, at the most. In addition the nuclear subsidy program could expand to include the two reactors at Indian Point under the same “public necessity” designation within the next couple of years, increasing the total cost to more than $10 billion and reversing the state’s longstanding policy of closing those reactors.

The subsidies are intended to keep the four upstate reactors operating, since Ginna and FitzPatrick are now too expensive to operate without a lot of subsidies. Together, the four reactors can generate at most 27 million megawatt-hours (MWh) of electricity per year (27 billion kWh, about 15% of the state’s total electricity consumption). To meet the 50% renewable energy goal, the PSC estimates it will develop at least enough new wind, solar, and other renewable energy sources to generate about 34 million MWh per year. That is 25% more renewable energy than nuclear, at half the cost of the nuclear subsidies.

And here’s the kicker: the state will still have to replace almost all of the nuclear with renewables and efficiency by 2030, anyway. The ostensible purpose for the nuclear subsidies is to ensure the state meets its goal to reduce greenhouse gas emissions by 40% by 2030. The governor claims that closed nuclear plants would be replaced with natural gas plants, increasing CO2 emissions and making it impossible to meet the emissions goal.

But half of the nuclear reactors covered by the subsidies aren’t even licensed to operate until 2030 and will close down before then, regardless of how much money New York throws at them in the mean time. Nine Mile Point 1 and Ginna are two of the oldest reactors in the world, and their 60-year licenses expire in 2029. Their closures would reduce the amount of nuclear power online in 2030 to at most 17 million MWh, half as much as the new renewable energy sources would be generating.

FitzPatrick is already slated to close in January 2017, a decision the nuclear subsidies are intended to reverse (more below). There is no reason to believe that reactor would continue operating after the subsidies expire in March 2029, which would leave Nine Mile Point 2 as the only reactor licensed to operate past 2030, and generating at most 10 million MWh per year–less than one-third as much as the new renewables.

That’s $7.6 billion in subsidies, twice as much as for renewables, resulting in three times less energy. This is the kind of logic that prevails in overpriced New York neighborhoods, where people living off of trust funds or Wall Street gigs can afford to pay a fortune to live in a closet.

If the electricity generated by nuclear power really is needed to keep emissions down, then almost all of it will need to be replaced by 2030, anyway. And if 25% more renewables can be built for half the cost of the nuclear subsidies, then the state could reduce emissions even more by implementing lower cost renewable energy. In fact, just by following the examples of other states that are growing renewables and improving efficiency faster than New York, the state could easily exceed its targets for renewables and GHG emissions. A study commissioned by environmental groups found that just expanding energy efficiency in New York–which would not require subsidies and would actually save consumers money–could reduce electricity demand by as much as the bailed-out nuclear reactors can generate by 2030. So why even bother with a bailout?

Governor Cuomo and the PSC had to ignore all of these facts in order to justify subsidizing the nuclear industry. The PSC didn’t do any studies to see if the closure of reactors would actually affect the state’s emissions goals, and it considered no alternatives to propping up nuclear reactors—such as investing more in renewables and efficiency. The commission only considered different methods subsidizing reactors to prevent them from closing next year.

They also had to ignore the voices of New Yorkers, who resoundingly oppose the governor on this. Despite a full-court press by Exelon and the labor unions to drum up public support for nuclear, more than 80% of the public who spoke out at public hearings and filed comments in the case are against the nuclear subsidies, as are local elected officials, state legislators, and big businesses.

The policy the PSC adopted lacks any way out of the subsidies: no plan to phase reactors out, no back-up plans in case reactors close anyway. In fact, it’s actually an all-or-nothing policy. The whole 12-year commitment is tied to just one reactor: FitzPatrick. The current owner, Entergy, decided last year that it will close FitzPatrick in January 2017 and has been making the necessary preparations: notifying all of the relevant agencies, withdrawing applications for license amendments needed to continue operating, and canceling plans to refuel in September (next month). Entergy’s plan to run FitzPatrick until January was made to “burn up” more of the unused fuel in the reactor before the final shutdown.

Before announcing the final nuclear subsidy proposal less than a month ago, the governor brokered a negotiation for Entergy to sell FitzPatrick to Exelon. Entergy has stood firm in its plan to close FitzPatrick regardless of what subsidies the state provides, so the only possible option to keep the reactor operating is for another company to take it over, for which Exelon is the only candidate. The August 1 decision by the PSC actually requires Exelon to do it or else the 12-year subsidy commitment will be cancelled. So, in fact, it appears that the whole nuclear subsidy plan is really about preventing one reactor from closing–FitzPatrick, which will probably shut down before 2030, anyway, even with the subsidies.

One has to ask, if the money on the table is not enough to convince Entergy to keep operating FitzPatrick, then why on earth would Exelon agree to take it over and run it for 12 more years? One simple answer: it’s the price of a precedent. Exelon has become increasingly desperate to get someone, somewhere to provide the bailout necessary to restore its increasingly uncompetitive nuclear fleet to profitability, and the other watering holes in the desert have been drying up. Illinois has not come through for going on three years, and even potential compromise legislation is not likely to include the game-changing subsidies Exelon really wants. The massive subsidies approved by New York yesterday are large enough to do that, and the price for Exelon appears to be taking on the risk of owning and operating FitzPatrick.

Unfortunately for New Yorkers, a deal good enough to be worth Exelon’s while is going to be a terrible deal for the state. $7.6 billion in subsidies, all to be paid by electricity customers, is going to strain everyone, but especially low-income consumers, businesses, local governments and school districts. The burden on local communities is likely to be especially painful. Because the state imposed caps on local property tax increases a few years ago, higher costs are likely to force additional cuts in school programs and other vital services.

Observers believe Governor Cuomo’s real motivation for the nuclear subsidies is to avoid being held accountable for job losses in rural upstate counties, where he performed poorly in 2014. If that’s the case, then he may go down in history as Governor Ahab, who chased the nuclear white whale but lost his ship. The full impact of the electricity bill hikes will hit starting in May 2017–more than a year before the next gubernatorial election in 2018.  Every community and business in New York will be feeling the pain from the nuclear bailout long before then—and Governor Cuomo will be the only person to blame.

Breakdown of the NY PSC’s Clean Energy Standard Policy

Renewables

• Sets an enforceable requirement that New York obtain 50% of its electricity from renewables by 2030. The policy is actually less ambitious than it seems, because the definition of renewables includes old, large-scale hydropower facilities that generate about 15% of the state’s electricity. Other leading states on renewables, including California, Oregon, and Washington, do not include large hydro as renewable (which it is not). So New York’s RPS is only a 35% RPS, by comparison.
• Includes two “tiers” of renewable energy subsidies, in the form of Renewable Energy Credits (RECs) –– one for new renewable energy sources, and one for existing renewable energy sources, excluding the large hydro facilities, which are owned by the New York Power Authority (NYPA).
• RECs will be priced by competitive auctions administered by the New York State Energy Research and Development Authority (NYSERDA).
• Requires all “Load-Serving Entities” (LSEs) to purchase RECs. LSEs include all entities that sell electricity to end users: distribution utilities and third-party electricity supply companies (ESCOs).

Nuclear

• Creates a third tier to subsidize nuclear power through Zero Emissions Credits (ZECs). The nuclear tier is separate from the renewable energy standard.
• Nuclear reactors become eligible for ZECs when their “preservation” is designated a “public necessity” by the PSC. The PSC decision declares four reactors eligible for the program: James A. FitzPatrick, R.E. Ginna, and Nine Mile Point 1 and 2. The other two reactors, Indian Point 2 and 3, could become eligible after the first two years.
• Characterizes nuclear power as a “bridge” to clean energy. Of course, the last time a dirty energy source (natural gas) was labeled a bridge to clean energy or “transition fuel,” we ended up with more of that than anything else, a widespread, toxic extraction industry (fracking), and a worsening global warming trend.
• Subsidies are provided for twelve years, from April 1, 2017 to March 31, 2029.
• ZECs are priced based on the EPA’s social cost of carbon (SCC), with adjustments every two years. Subsidies start at $17.48/MWh for the first two years and escalate to $29.15/MWh in the last two years.
• The 12-year subsidy commitment is void if the FitzPatrick reactor stops operating. The requirement is further conditioned on Exelon completing the purchase of FitzPatrick in September 2018.
• ZEC cap: The total amount of ZECs is capped at 27.6 million MWh. That is equal to about 94% of the maximum amount of electricity the four reactors could generate in a single year.
• ZEC floor: Reactors must generate at least 23.5 million MWh per year, or their owners face penalties.
• Reactor Closures: The PSC is effectively mandating all reactors to operate for the entire 12 years. Whenever a reactor closes, the ZEC cap is reduced by one-third, or 9.2 million MWh. That is twice as much electricity as Ginna and Nine Mile Point 1 each generate (4.6-4.8 million MWh/year), and significantly more than FitzPatrick (6.6 million MWh). So the closure of any one of them would leave fewer subsidies available than the remaining ones would, ostensibly, need to continue operating.

— authored by Tim Judson

Tim is the Executive Director of Nuclear Information and Resource Service.