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NY's historic bailout of nuke plants explained: Why ratepayers could pony up $7 billion

NY regulators are poised to approve subsidies that would guarantee roughly $7 billion in additional revenue to Upstate nuclear plants, including the Nine Mile Point plant in Oswego County. (Constellation Energy)

SYRACUSE, N.Y. -- New York energy regulators are poised to approve the nation's first clean-air subsidies for nuclear plants, a controversial move that would guarantee about $7 billion in new revenue to three Upstate nukes that have threatened to close.

Utility customers statewide would pay for the bailout to ensure the plants' continued production of carbon-free power.

The state Public Service Commission is scheduled to vote Monday on a proposed "clean energy standard.'' Besides promoting renewable energy, the new rule includes large subsidies for the financially distressed FitzPatrick and Nine Mile Point nuclear plants in Oswego County, and the Ginna plant in Wayne County.

The commission appears almost certain to adopt the nuclear provisions when it meets Monday, although it might make amendments during the session.

As it stands, the clean energy standard guarantees a whopping $7 billion in new revenue over 12 years to Exelon Corp., the nation's largest utility company and nuclear operator, assuming that Exelon keeps all three plants running.

Utility customers would pay electric bill surcharges based on usage. For an average household, the surcharge is estimated at about $2 a month. Commercial and industrial customers would pay much more.

Industry watchers say New York would be the first state to establish nuclear subsidies based on environmental attributes, a benefit typically reserved for renewable energy sources such as wind and solar. The "zero emission credits'' would be paid to nuclear plants based on a calculation of the economic value of avoiding greenhouse gas emissions that contribute to climate change.

The dramatic deal would rescue Oswego County's nuclear industry from the brink of disaster. Exelon has threatened to shut down Nine Mile Point Unit 1, the smaller and older of two reactors at the site, if the subsidies are not approved quickly. The company also said Ginna would likely close.

Now there is hope in Oswego that even the FitzPatrick plant next door to Nine Mile Point will survive. Exelon said it would try to buy FitzPatrick – whose owner, Entergy, plans to close it in January -- if the subsidy plan is adopted.

Nuclear power advocates from around the country, who see an important role for nukes in the worldwide effort to control carbon emissions, are cheering for New York to adopt the plan. Environmental Progress, a pro-nuclear group that includes former NASA scientist and climate activist James Hansen, is urging the PSC to vote yes.

But the proposal also has drawn searing criticism from a wide assortment of interests, most of whom object to the cost and to the speed with which it has been debated. PSC staff analysts first unveiled details of the nuclear subsidies just three weeks ago.

Lawyers for Nucor Steel company in Auburn echoed many commenters last week when they accused the Public Service Commission of a "pell-mell rush to judgment.''

PSC officials said the expedited review is necessary to prevent any nuclear plants from closing. Exelon pushed for a decision by Monday.

PSC analysts downplay cost of subsidies

Gov. Andrew Cuomo directed the PSC to create subsidies for Upstate reactors. Here's why:

The CNY nuclear plants provide 20 percent of all electricity generated in New York. If they retire, much of that capacity might be replaced by carbon-spewing power plants that burn natural gas, hindering Cuomo's ambitious plan to cut greenhouse gas emissions 40 percent by 2030.

Cuomo and energy officials say they want to keep the nukes running during a transition period while large amounts of renewable power sources like wind and solar are developed.

The governor also wants to save Upstate jobs. He has actively encouraged Exelon's efforts to buy the FitzPatrick plant from Entergy Corp. The nuclear plants in rural Oswego County employ more than 1,500 people, whose average pay and benefits exceed $100,000.

PSC analysts have downplayed the cost of the nuclear subsidies, which are capped and could be offset by a rise in wholesale energy prices. If Exelon's wholesale revenues increase, the subsidies decrease by the same amount. PSC officials are projecting a 60 percent rise in wholesale prices over the next six years, which would cause the subsidies to fade out entirely.

The PSC staff also maintain that electric prices would jump if the nuclear plants closed and caused a decrease in supply. They cite an Exelon-funded study that estimates consumers would pay $15 billion more over for electricity over the next decade if the Upstate nukes shut down.

But critics, including a consultant to the state power grid, say the PSC forecasts underestimate the likely cost of the subsidies. And Upstate utility company National Grid points out that long-range forecasts are inherently unreliable.

"A dozen years . . . appears to be too long'' for the state to guarantee subsidies, utility lawyers wrote in response to the proposal.

Business interests have told the PSC they see value in preserving nuclear power, but dispute the cost. The Business Council of New York State complained that the cost of subsidies could cripple energy-intensive industrial companies.

The subsidy plan "is placing the state's energy intensive businesses and the jobs and the communities that they support in mortal danger,'' the council wrote.

Steel company questions how much subsidy Exelon needs

Lawyers for the Nucor Steel plant in Auburn say the PSC has vastly overestimated the amount of revenue required to keep the nuclear plants running. Analysts for the steel plant say the PSC subsidy plan guarantees Exelon 70 percent more revenue than required to operate its nuclear plants.

The subsidy will result in "massively excessive costs to New York consumers,'' Nucor officials said.

Exelon said the PSC proposal provides "the minimum revenue necessary'' to sustain the nuclear plants.

The Illinois legislature this year rejected a nuclear subsidy plan pushed by Exelon, which has lobbied for green-energy subsidies in Illinois for several years. After the effort failed this year, Exelon announced in June that it will close two nukes, the 1,069-megawatt Clinton plant and the dual-unit Quad Cities plant, which produces 1,871 megawatts. Those plants employ 1,500 workers.

Chicago-based Exelon, the nation's largest utility company with $29 billion in annual revenue, announced profits of $2.2 billion in 2015. CEO Chris Crane was paid nearly $16 million in cash, stock and benefits, 7 percent more than the $15 million he earned in 2014.

Exelon's stock price has risen 30 percent since the first of the year, more than four times the rise in the Dow Jones Industrial Average.

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