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A Regulatory And Economic Review Of State Subsidies To Keep Uneconomic Nuclear Plants Operating

The following post was written by research groups within our Energy offering, including Regulatory Research Associates, or RRA. For further information on the full reports, please request a call.

On April 1, New York's Clean Energy Standard, calling for 50% of New York's electricity to be procured from renewable energy sources by 2030 and creating a zero-emissions credit, or ZEC, framework, took effect. The objective of this framework is to preserve the environmental attributes of zero-emission, nuclear-powered generating facilities operating within the state.

In addition to New York, a handful of states including New Jersey and Ohio are taking steps to forestall the potential closure of nuclear facilities. However, the passage of the ZEC framework in New York has been fraught with challenges. A group of independent power producers filed suit against the nuclear subsidies and oral arguments are scheduled to begin March 29.

Following the direction of New York, policymakers in Illinois have since pursued a similar "around market solution" to preserve the benefits of nuclear energy. In December 2016, Illinois Governor Bruce Rauner, a Republican, signed S.B. 2814, legislation establishing a zero emission standard. And similar to the situation in New York, certain generators filed a lawsuit challenging Illinois' program in February 2017, calling the program an "illegal bailout" that violates FERC authority.

Electricity generated by nuclear top 15 states in 2015

Nuclear operators say market-related factors, primarily persistently low natural gas prices, have made their plants economic. We conducted a plant-level analysis for 14 nuclear plants in states where subsidies have been, or may be approved, to see how each fared on a cash flow basis over the past five years. The analysis considered energy revenue and capacity revenue that those facilities earned, as well as SNL Energy-modeled operating and maintenance costs, including nuclear fuel and capital expenditures.

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The analysis estimates that for the past two years, nuclear plants in New York and Illinois have been operating on a negative free cash flow basis. Other plants generated positive cash flow in 2015, but most turned negative in 2016. The only plant in the analysis that generated positive cash flow in each of the five years was Millstone, owned by Dominion Energy Inc., a unit of Dominion Resources Inc. Connecticut lawmakers are currently considering legislation to allow the 2,100-MW Millstone plant in Waterford, Connecticut to bid for a state-supervised, long-term power supply contract for about 8.3 million MWh of electricity, roughly half of Millstone's generation.

Based on current market projections, the New York ZEC program is expected to cost about $7.6 billion over its 12-year life, according to an analysis by critics. The Illinois program will offer around $235 million per year in ratepayer subsidies to the Clinton and Quad Cities nuclear plants, which Exelon planned to close by 2018 without support. The premise of both programs is to compensate nuclear operators for helping meet state goals of reducing carbon emissions, paying plants through a formula that considers the "social cost of carbon." The New York program takes effect starting in April. The Illinois program known as the Zero Emission Standard is set to take effect June 1.

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NY nuclear subsidies and developments in other states

Nuclear plants subject of subsidy talk are bleeding cash.

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