Millstone Controversy Heats Up While Awaiting Connecticut Budget Agreement

The following post was written by Regulatory Research Associates, a group within S&P Global Market Intelligence. For further information on the full reports, please request a call.

As we await the budget bill in Connecticut, the controversy surrounding legislative accommodations to reduce the risk of the closure of the Millstone nuclear facility, owned by Dominion Energy Inc., continues.

The Connecticut Legislature wrapped up its 2017 regular session on June 7, without passing a measure that would have reduced the risk of the closure of the Millstone nuclear facility. However, a special session to address budgetary issues is expected to convene on or after July 18.

Dominion remains optimistic that Millstone support provisions will be part of the state budget deliberations. However, Eversource Energy subsidiary Connecticut Light and Power Co., or CL&P; Avangrid Inc. subsidiary United Illuminating Co., or UI; Calpine Corp.; Dynegy Inc.; NRG Energy Inc.; the Electric Power Supply Association; and others are vehemently opposed to the adoption of any nuclear support measures. Dominion Energy owns 100% of Millstone Unit 2 and 93.47% of Millstone Unit 3 which are licensed to operate through 2035 and 2045, respectively.

Nuclear plants provided about 20% of the electricity generated in the U.S. in 2016. In Connecticut, about half of the state's electricity is generated from the 2,111-MW Millstone nuclear power plant.

During the 2017 regular legislative session, two nuclear measures were considered but failed to be enacted. S.B. 778 passed the Senate on June 7 by a 23-9 vote, but the House did not vote on it prior to adjournment. Another measure, S.B. 106, "An Act Concerning Zero-Carbon Electric Generating Facilities and Achieving Connecticut's Greenhouse Gas Emissions Mandated Levels," was passed by a couple of legislative committees, including the Connecticut Joint Energy and Technology Committee on March 21 by 17-7 vote, but the full Senate never considered it.

Opponents urge against Millstone support measures

In a letter to Connecticut state legislative leaders, Eversource Energy, Avangrid, Calpine Corporation, Dynegy, NRG Energy, the Electric Power Supply Association, Connecticut Petroleum Council, and Competitive Power Ventures stressed their opposition to S.B. 106 and S.B. 778, or "any other legislation or budget implementer bill that will provide unnecessary financial benefits for Millstone."

In the letter, these organizations state that "they don't agree on many issues." However, "opposition to providing unnecessary financial support for the nation's most profitable nuclear plant at the expense of ratepayers" brought them together.

According to the Millstone opponents "Connecticut faces very tough choices as it looks to adopt a budget. Whenever a budget is reached, the end result will be painful cuts to many services that residents count on. Why would Connecticut make a situation like that even worse by raising resident's electricity bills when they can least afford it?"

To support their position, the opponents cite three research reports: a "working paper" from a graduate student at the Massachusetts Institute of Technology (MIT), whose research projects Millstone to be the most profitable plant among more than 60 nuclear plants operating in the U.S.; a study performed by the New England States Committee on Electricity that concluded that "under every hypothetical scenario" Millstone will continue to be profitable through 2030; and a finding in a report from an industry analyst that determines "Connecticut ratepayers would be on the hook for any financial support given to Millstone costing them more than $300 million extra each year."

In addition, the opponents note that "there is no impending danger that Dominion will close Millstone, despite its implied threat," noting that ISO-New England has indicated that Millstone has an obligation to continue operating through May 2022.

The opponents argue that "the environmental benefits of the plant are often overstated," the facility "produces large volumes of highly radioactive waste," and the plant "is not a renewable resource like wind and solar." As such, "allowing nuclear to compete for contracts against genuine renewable technologies will foreclose the opportunity for Connecticut to invest in the lower-carbon grid of the future."

In addition, the opponents opine "Millstone is but one provider in the complex energy landscape." The opponents, therefore, recommend that the General Assembly examine the findings of the DEEP's anticipated Comprehensive Energy Plan before making a determination with respect to Millstone.

While the opponents recognize that Millstone is "an important energy resource and an important employer in Southeastern Connecticut", they state that Dominion Energy "has offered no evidence that it needs a special deal from the state in order to remain economically viable." According to the opponents, "It would be wrong to saddle ratepayers with additional costs when they can already expect painful cuts in the state budget."

Dominion Energy claims opponents are misleading lawmakers

In a letter dated July 7 to Gov. Dan Malloy, a Democrat, Dominion claims that Millstone opponents "are purposefully misleading policymakers for their gain at the expense of Connecticut ratepayers."

Dominion takes issue with the reports that the opponents cited. With respect to the MIT report, Dominion notes that the opponents "fail to mention" that, of the top ten most profitable plants over the next three years that the author identified, six of them have announced premature retirements "due to unfavorable economics." The company opines that the state "should not take solace that Millstone is one of the remaining four plants in the author's top ten most profitable that has not announced an early retirement yet."

With respect to a claim that ratepayers would be "on the hook" for $300 million, Dominion states: "How could anyone come up with a figure if they do not know what Millstone would bid in the process?" The company notes the legislation would create a competitive solicitation for power, with state regulators determining whether the bids is a "good deal for ratepayers." Dominion is "confident Connecticut's energy regulators would protect ratepayers from a $300 million surcharge."

Dominion finds it "surprising" that CL&P and UI "have signed this misleading letter lamenting the high cost of electricity." According to Dominion, these utilities "have continuously failed Connecticut ratepayers providing them some of the highest electric rates in the continental United States."

For further information regarding the average price paid for electricity by retail customers of the major investor owned electric utilities in the U.S. in 2016, 2015 and 2014, see RRA's Topical Special Report,"Regulated Retail Price of Electricity: Average retail price per kWh drifts lower in 2016 after slipping in 2015."Dominion indicates that the opposing parties "wrongly claim" that ISO-NE indicated Millstone "has an obligation to operate through May 2022." Instead, according to Dominion, the ISO confirmed that Millstone has a capacity supply obligation through 2021, but the company may transfer the obligation. In addition, ISO-NE stated the ISO does not have the authority to prevent a resource from retiring.

Senate Bill 778

S.B. 778 would have required the Connecticut Department of Energy and Environmental Protection, or DEEP, to conduct "an appraisal on nuclear power generation facilities" and decide whether to conduct a competitive procurement process for nuclear generating facilities and in some cases, large-scale hydropower.

Under S.B. 778, the DEEP would have been required to report to the legislature, by Jan. 1, 2018, on the results of the appraisal and the Department's choice of competitive procurement process. If the legislature did not reject the DEEP's report by a simple majority vote in each house by March 1, 2018, the report would have been approved.

The DEEP's appraisal would have been required to assess how nuclear facilities retiring before July 1, 2027, would impact the following: electric markets, fuel diversity, energy security and grid reliability; the state's greenhouse gas emission requirements; and the state, regional and local economy.

S.B. 778 would have allowed the DEEP commissioner to elect whether to change the standard service procurement or issue a solicitation for baseload, zero-carbon generation resources, including eligible nuclear power facilities and large-scale hydropower. The procurements would have been for at least three years, but not more than 10, and at least six million MWH, but not more than 12 million MWh annually.

If the DEEP commissioner selected one of the procurement processes, S.B. 778 would have required the commissioner to initiate the process by May 1, 2018.

S.B. 778 would have required a determination that any changes made or contracts or agreements entered into would be in the ratepayers' best interest, following an evaluation of the impacts on electric system operations and reliability; the extent to which the proposal or contract would contribute to ISO New England's local sourcing requirement, the state's greenhouse gas emissions requirements, and the state's air quality improvement requirements; fuel diversity; and whether the proposal is aligned with the state's integrated resource plan and comprehensive energy strategy, including environmental impacts.

If the DEEP conducted a solicitation and selected one or more proposals, the state's electric distribution companies (EDCs) e.g., CL&P and UI, would have been required to enter into agreements to purchase energy, capacity, and environmental attributes under the selected proposal. The agreements would have been subject to CT Public Utilities Regulatory Authority, or PURA, approval, and the EDCs would have been permitted to recover the costs associated with the agreement their net costs of the agreement through a component of ratepayer bills.

Senate Bill 106

Under S.B. 106, beginning October. 1, the DEEP, in consultation with the attorney general and the Connecticut Office of Consumer Counsel, or OCC, would be required to issue a solicitation for power for certain types of generating facilities to sell power, capacity, or environmental attributes. The facilities would include Class I renewable facilities, large-scale hydropower, nuclear power licensed to operate through 2029 or later — e.g., the Millstone units, or trash-to-energy facilities. S.B. 106 appears to limit bids from the Millstone facility to 8.3 million MWhs, or about half of the power generated from the facility.

S.B. 106 would have called for the DEEP, in consultation with the OCC and AG, to consider several factors, including whether the project is in the best interests of ratepayers and the benefits outweigh the cost, the delivered prices of such sources compared to the forecast price of energy, the impacts on electric system operations and reliability, the extent to which such proposals contribute to the local sourcing requirements set by ISO-New England, fuel diversity, and the goals established in the state-wide solid waste management plan.

S.B. 106 would have expanded the state's renewable portfolio standard, which currently requires Class I renewable resources, such as solar and wind, to comprise 20% of the state's energy mix by 2020. Under S.B. 106 the requirement further increases by 1% each year beyond 2020 to achieve a 40% target by 2040.

The state's electric distribution companies would have required them, subject to PURA approval, to enter into a long-term contract for the associated nuclear energy and capacity for up to a five-year period. Non-nuclear contracts would be for periods of up to 20 years.

Costs associated with the contract would have been permitted to "be recovered from customers on a timely basis through a fully reconciling component of electric rates for all customers of electric distribution companies."

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