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NY PSC staff proposes up to $7.6B in subsidies for upstate nuclear plants

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NY PSC staff proposes up to $7.6B in subsidies for upstate nuclear plants

TheNew York State Public Service Commission issued a proposal to subsidize NewYork's upstate nuclear power plants with up to roughly $7.6 billion over a12-year period through 2029 in order to prevent their early retirements.

The PSC'sstaff, in its July 8 proposal, estimated payments for the zero-emissionscredits for upstate nuclear plants will be approximately $482 million annuallythe first two years starting in April 2017 at a rate of $17.48/MWh beforegradually increasing to almost $805 million annually in the final two years ata rate of $29.15/MWh.

Pricingfor the subsidy factors in the "social cost of carbon" and is basedon a wholesale electric price of $39/MWh, with credits decreasing if marketprices rise above that baseline. The initiative is part of New York Gov. AndrewCuomo's proposed clean energy standard to subsidize renewable energy and threeexisting upstate nuclear plants to ensure the state meets its goals of cuttingcarbon dioxide by 40% from 1990 levels and generate 50% of its electricity fromrenewable energy by 2030.

"Overtime, it is expected that rising natural gas prices will lead to higherforecasted energy and capacity prices in New York," the staff proposalsaid. "This will result in reductions of the attribute payments since thevalue of the carbon-free generation will be internalized into the forecast ofmarket prices. Under Staff's approach, the zero-emission attribute paymentswill never exceed the calculated value they produce."

Accordingto a July 11 research note by Guggenheim Securities LLC, the proposal'sestimated $7.6 billion cost to subsidize upstate nuclear plants is vastlylarger than the PSC staff's estimated $270 million figure presented in anApril 8 cost-benefitanalysis, which reported a net benefit of $2.8 billion to keep the ,R.E. Ginna andNine Mile Pointnuclear plants online.

Asconsistent with the costs-benefit report, the staff's proposal also calculatedbenefits measured by the social cost of carbon. According to the staff,subsidizing an expected 27.6 million MWh of emissions-free nuclear generationwill avoid 31 million metric tons of CO2 at a cost of $965 million during thefirst two years of the program and result in about $5 billion of economic andenvironmental benefits for a net benefit of $4 billion.

Environmental Progress, a pro-nuclear group, welcomed the "low-cost"proposal and compared the costs to New York's renewable energy subsidies thataverage $22/MWh under 20-year contracts on top of federal subsidies renewablessuch as the $23/MWh production tax credit. Environmental Progress alsocommended the proposal for placing price constraints that limit the impact onratepayers. "At the initial ZEC maximum of $17.48 per MWh, the subsidy forupstate plants would raise electricity rates by about 0.32 cents per kilowatt-hourstate-wide, an increase of just 1.8 percent for residential rate-payers and 5.4percent for large industrial customers," Environmental Progress said in astatement.

JessicaAzulay, program director for the anti-nuclear Alliance for a Green Economy, attackedthe "bailout" and its $7.6 billion costs. "This outrageousproposal would protect nuclear generators from any market competition andguarantee them 12 years of profit on the backs of consumers," Azulay saidin a statement.

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Theonly nuclear plant to be excluded from the clean energy standard is 's Indian Pointfacility, which is located about 50 miles north of New York City. Cuomo opposesthe relicensing of the 1,031-MW IndianPoint 2 and 1,047-MW IndianPoint 3 reactors over safety concerns. However, thePSC staff, in its proposal, suggested that if Indian Point becomes eligible,the credit price for it should reflect the difference between upstate anddownstate market revenues as Indian Point "enjoys a much higher level ofmarket revenues" due to grid constraints.

Entergyspokeswoman Patricia Kakridas did not comment on the future of its almost852-MW FitzPatrick plant or the exclusion of the Indian Point plant from theproposal. She said Entergy is reviewing the proposal and intends to filecomments by July 18, when public comments are due. Entergy has repeatedly it will retire theFitzPatrick plant by 2017 regardless of a nuclear subsidy.

also warned inJune that it will shutterits majority-owned 582-MW Ginna and 1,937-MW Nine Mile Point plants ifregulators fail to approve the PSC's proposalby the end of September.

Exelonspokeswoman Lacey Dean said in a statement the program is a "fair andaccurate analysis of our energy climate and must be promptly implemented tofacilitate critical business decisions surrounding upstate nuclear facilities'refueling."

GuggenheimSecurities believes it is likely the PSC will rule on the proposal at its Aug.1 meeting.