New York — Leadership at investor-owned utility Public Service Enterprise Group said Wednesday that a state regulatory decision to support PSEG's nuclear power plants is expected to survive appeal, while additional support also is likely from pending ISO market changes.
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"We are very confident that our application met all the requirements of the zero-emissions credit act and that we provided all requirements for the [New Jersey] Board of Public Utilities to make their decisions," Tamara Linde, executive vice president and general counsel, said during PSEG's investor conference at the New York Stock Exchange.
ZECs were awarded to subsidiary PSEG Power's three New Jersey nuclear units -- Hope Creek and Salem-1 and -2 -- on April 18 to preserve the plants for their clean air attributes, according to Linde's presentation.
On that day, New Jersey's electric distribution companies began collecting a $0.004 non-bypassable charge to purchase ZECs at a cost of ~10/MWh until May 31, 2022. "We operate those plants with a return expectation that we don't disclose except to say that it should exceed the utility regulated rate of return," PSEG Chairman, President and CEO Ralph Izzo said in an interview at the conference. "And that's a 9.6% ROE."
The market and operational risks of running the plants cannot be ignored, Izzo added.
The last day to appeal the NJBPU's decision is June 3 and one appeal has already been filed, Linde said. The New Jersey Division of Rate Counsel filed an appeal May 15.
Because of the confidential nature of the proceeding, "there have been misstatements," Linde said, pointing to arguments from opponents who filed comments suggesting the merchant plants should retire if they are not making enough money in the competitive wholesale power markets.
However, the current market is not designed to value the environmental or resilience attributes associated with the nuclear generation, Linde said. Additionally, retiring the plants, which PSEG said they would do without ZECs, would have run counter to the state's greenhouse gas emissions reduction goals because natural gas would likely have been the replacement fuel, Linde said.
PSEG Power President and COO Ralph LaRossa had a slide showing that when Exelon's Oyster Creek nuclear plant shut down in September 2018 there was almost one for one on a TWh-basis power replacement from nuclear to gas based on US Energy Information Administration data.
MARKET DESIGN CHANGES
"We continue to try to influence the wholesale power markets to improve the energy market so they properly value the generation that's being relied upon through price reform activities," Linde said. And while they are seeing "slow backlogged activity" on market issues at the Federal Energy Regulatory Commission, PSEG was pleased to see the recent fast start pricing decision, he added.
FERC in April ordered PJM Interconnection and the New York Independent System Operator to change their rules so that fast-start resources can set prices, a move that could boost market prices when these resources are called on for reliability.
The passage of fast-start pricing did not appear to move the forward power price curve, Izzo said, and noted this could be because the changes have already been "baked in." It could also be because the forward market is not sure how the changes will impact prices or because the 18-month forward market is less liquid and it will take time for the changes to take effect, he said.
"Hopefully a more efficient market will help improve prices, but that is not a game changer for nuclear power," Izzo said. If power prices go up, New Jersey has to rethink ZECs, but PJM's power market reforms alone are probably not enough to provide a material market improvement without a price on carbon, he said.
There are other energy market rule changes pending before FERC and Linde called PJM's operating reserve demand curve filing a "good important step," but also noted uncertainty with the timing of PJM's upcoming August capacity market auction.
FERC has yet to rule on some major capacity market reforms filed by PJM, but the commission did say the existing rules are unjust and unreasonable which has created uncertainty.
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