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FitzPatrick deal could ease political pressure on Indian Point

Forall the discussion around ExelonCorp.'s proposedbid for EntergyCorp.'s James A.FitzPatrick nuclear plant, and related subsidies for upstatenuclear plants, the political dynamics behind the scenes may suggest that theAndrew Cuomo administration and regulators are taking a more measured approachto nuclear assets in the state, including Indian Point, despite longstandingenvironmental opposition.

Embattledupstate nuclear assets FitzPatrick, R.E. Ginna and Nine Mile Point have existed in relative opposition,both politically and geographically, to the downstate Indian Point plant, asevidenced by the New York Public Service Commission's omission of theEntergy-owned plant in language from the initial Clean Energy Standard issuedin January.

Sincethen, state regulators have taken a seemingly more inclusive approach tofolding Indian Point into its calculus for achieving carbon emissionsreductions called for under the CES, a sign that the commission's staff hasbecome more amenable to carbon-free qualities of the facility, and moreover,keen to consider the potential legal sensitivities around both how and whenzero-emissions credits, or ZECs, are priced and awarded to the state's nuclearplants.

Staffnoted in its July 8proposal that Entergy "has not claimed that the zero emissionsattributes of the Indian Point facility are currently at risk," oreffectively, that Indian Point operates in the green, unlike upstate plants,and therefore does not require a subsidy, though notably left the door open tosuch eligibility down the road.

"Wewere pleased to see in the white paper issued by the DPS last week that itincluded an opportunity for Indian Point to potentially be included in a CES inthe future, as the company has a demonstrated commitment to pursuing a renewedlicense for that facility," Entergy spokesman Jerry Nappi said.

Butwith Entergy looking to unload FitzPatrick, the possibility that it may berelinquishing some tacit leverage in its negotiations over Indian Pointrelicensing may overlook a simple reconciliation that the plant is indeednecessary to hitting the state's CES down the road, all the while avoiding somefuture litigation around the subsidies for otherwise uncompetitive facilities,a possibility flagged by UBS analysts this week.

"Itreflects a more equitable view and reflects a position that is legallydefensible," said Darren Suarez, director of government affairs for theBusiness Council of New York State. "New York state can't just pickwinners and losers."

Despitethe governor's repeated appeals to close Indian Point over safety concerns, andstaunch backlash from environmental opponents, a deal between Entergy andExelon, predicated on the ultimate approval of the nuclear subsidy, might bethe spark that lessens the political posturing toward shutting the plant.

Thedeal appears to have greased the skids for inclusion of Indian Point in CESlanguage, all the while positioning Exelon to be the savior of upstate plantsand upstate jobs, and the foremost benefactor of sizeable subsidies to boot.

Meanwhile,PSC staff have demonstrated a prudent reserve as they gallop along a politicaland legal tightrope toward implementing policies set out by the governor, whois likely surveying the costs and benefits of an aggressive clean energy agenda.

"Theadministration has to make big decisions about what its energy future is goingto look like, and you can't always please everyone when you aregoverning," New York Affordable Reliable Electricity Alliance chairmanJerry Kremer said on a call. "This deal providesmomentum for the parties to like Entergy and the state to sit down and havesome discussions, because they cannot just ignore the amount of power generatedby Indian Point."

Withthe PSC staff agreeing to push back a comment deadline to July 22 on their ZECproposal, the timeline for deliberating final contents of the CES appears underduress for a likely early August ruling, a move that is critical to givingExelon and Entergy further clarity on refueling and subsidies that underpin theFitzPatrick deal.

As aresult, the political onus for deciding whether and how to include Indian Pointfairly in the CES may rest with state regulators, unless the governor'sadministration exerts pressure in the other direction.