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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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New York Nuclear Plants Deemed A “Public Necessity”

Last week the New York Public Service Commission approved a Clean Energy Standard for the state. The two key components are a mandate for 50 percent renewables by 2030 and a subsidy mechanism for four, and possibly six, aging nuclear facilities upstate.

The renewables standard is not controversial. Not so the planned nuclear subsidies. The new directive will require all electricity buyers in the state to purchase power from these nuclear facilities at a relatively high price in the interest of carbon reduction. The state does not use its own money.

The need for nuclear subsidies, at least in the minds of state officials, appears to be fairly straightforward. Entergy Corp., which owns the FitzPatrick nuclear facility, has decided to shutter the unit permanently on the grounds that it is no longer economic to operate. Entergy has also arrived at a similar conclusion for its older, smaller nuclear facilities in Vermont and Massachusetts. But with the subsidy passed, Exelon, which owns two other stressed nukes upstate, may buy FitzPatrick and keep it open.

The subsidies on offer run for a period of 12 years starting April 2017, and begin at about 2 cents for every kilowatt hour of electricity produced and escalate to almost 3 cents per kwh by the end of the deal. Published reports set a $7.6 billion price tag for these subsidies, but the amount could be much higher since the agreement provides for the subsequent inclusion of the Indian Point nuclear units.

There being no apparent economic rationale for the continued operation of these units, given low natural gas prices, the state has justified its economic intervention by designating these facilities a “public necessity”. However, as far as we know, there is neither a looming power shortage nor a particular systems engineering requirement necessitating the ongoing operation of the units. More likely there is a political motive. Perhaps the Governor is using energy policy to shore up support with upstate constituencies where local economies have enjoyed less of the finance-fueled dynamism of downstate. Related: Oil Soars 6 % As Andy Hall Warns Of A “Violent Reversal”

After all, large power generating facilities provide economic benefits to communities through hundreds of well-paying jobs at the power plant and property tax payments to communities where the tax base is often limited. Plant closures would significantly hurt the local economy.

One might argue that this nuclear subsidy simply bails out no longer competitive generators who made bad business decisions. It rescues them by putting the burden of risk back on consumer and vitiates one of the chief purposes of deregulation. But leave aside the morals of the rescue and the merits of keeping aging nuclear plants operating for twelve more years. The question is whether there is a cheaper way to save these NY nukes.

We believe there is a much simpler, cheaper way to accomplish this--a state takeover. The present owners plan to close these nuclear plants. That suggests they believe these facilities no longer has any positive economic value to the corporation whatsoever. They might give the units to New York State for a token amount especially if the state assumed all liabilities with respect to fuel storage, disposal and dismantling. State electricity consumers bear responsibility for these expenses in any event. Related: Six Weeks In A Row – Rising Rig Count Pushes Oil Down

The State of New York has been involved in the electricity business since Franklin Roosevelt was governor. The New York Power Authority has both the expertise and financial wherewithal to operate these plants. The FitzPatick plant was in fact named after a former head of the Power Authority. And for a time it was owned by them as well. This is actually the second bailout of this plant for those keeping score.

The state can raise money more cheaply than the existing power plant owners and accept a far lower profit. Implementing an expensive, complicated subsidy scheme is merely testament to political weakness and the broken state of our so-called power markets. This PSC plan socializes market risk yet again. Why not just "socialize" these nukes as well?

By Leonard Hyman and William Tilles

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  • Noel Wauchope on August 07 2016 said:
    It is pretty stupid for the State to take over an uneconomic business, just in order to provide jobs. Even more absurd, considering the costs, to ignore the opportunity to develop genuinely clean jobs in renewable energy and energy efficiency.

    Is this new journal also continuing to mindlessly perpetrate the nuclear lobby lie, that nuclear power combats global warming?
  • Erica Gray on August 08 2016 said:
    No one with any brains would knowingly purchase a car that is old and at the end of it's life.
    Plus we already have more than enough reactor waste. The most hazardous waste known to mankind, that will need to be isolated for thousands of years.
    It's way past time to stop the nuke con job!

    Too costly and too risky.

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