The Department of Energy is "on the right track" when it comes to potential coal and nuclear power plant retirements, Public Service Enterprise Group CEO Ralph Izzo said in an interview with S&P Global Platts.
But Izzo doesn't believe DOE can offer a long-term fix to what is essentially a fuel diversity issue. He said a long-term fix must come from the Federal Energy Regulatory Commission, which should be moving "more expeditiously” in addressing the issue.
Izzo said DOE is tackling "fuel diversity in the system,” but is not looking at a key market externality, the absence of a price on carbon.
"It doesn't appear that FERC has the authority to act on the carbon agenda by imposing a price on carbon,” he said.
Izzo is a strong believer in competitive markets, but also recognizes that markets are flawed. Flaws in the PJM Interconnection's wholesale power market include the absence of a carbon price and a valuation on fuel diversity, which supports reliability and helps mitigate price spikes.
Nuclear facilities, which are carbon free, would be "lost forever” if they are closed, Izzo said. Coal-fired units can at least be mothballed for future use if needed.
When the DOE issued its Notice of Proposed Rulemaking last September, calling for cost recovery for power plants that maintain 90 days of fuel onsite, Izzo said PSEG submitted documents in support. The DOE had argued that select nuclear and coal-fired facilities needed financial support to remain operational and support the resilience of the power grid.
In January, however, FERC rejected the NOPR, saying that US power markets were not facing a supply risk. FERC agreed, though, to study the resilience of the US power system.
The New Jersey state legislature acted
In the interim, the political stars aligned in the New Jersey state capital and legislation was signed into law May 23 that established a zero emissions certificate program that the state's governor, Phil Murphy, a Democrat, said should save the three nuclear facilities that PSEG operates. Exelon has a stake in two of the facilities.
At the time of the signing of the new ZECs program it was estimated that utility customers would be asked to spend $280 million a year to rescue the facilities.
Izzo said that both PSEG and Exelon have yet to submit their ZEC applications with the Board of Public Utilities, and rules have not been completed. However, he expects to provide the BPU with "prospective” three years of financial data.
"We will propose some parameters on cash flow,” he said. "Our top line is known, as is our cost structure." He said it was enough to say that PSEG is not going to run its nuclear plants at a loss.
Energy efficiency also should be top priority
The state legislature also passed measures this year calling for a boost in energy efficiency and mandating that half the state's energy come from renewable energy by 2030.
Izzo said energy efficiency "should be the number one goal in New Jersey and the nation.” It is the least-cost way to benefit customers as well as shareholders, he said, noting that PSEG has spent $400 million on energy efficiency over the past 10 years.
A week following the passage of the energy legislation, PSEG announced it would spend an additional $2.5 billion on energy efficiency over the next five years, and will spend $300 million building a smart electric vehicle infrastructure and $100 million for utility-scale energy storage systems that will enhance the resiliency of renewable resources.
Currently, Izzo said, PSEG has roughly 400 MW of renewables located outside of New Jersey that are supported by power purchase agreements. Inside the state, it has 200 MW of renewables supported by rate-base rates of return.
In his view, though, renewables, particularly wind generation that receives production tax credits that result in zero to negative power pricing, undoubtedly have an impact on baseload generation margins, including those of natural gas-fired facilities.
He pointed for example to California where the large build-up of renewables has made it difficult for gas-fired units in the state to receive adequate financial compensation and avoid shutdown.
The valuing of externalities
Izzo, who earned a PhD in plasma physics from Columbia University and who worked in Princeton's physics lab for five years, said today's power markets have "done a terrible job of valuing externalities,” such as carbon. "Until the federal government puts a price on carbon, states have to decide.”
Izzo testified before the US Congress in 2010 in favor of cap and trade legislation that ultimately was not passed.
He says he has been an advocate for putting a price on carbon because he believes that the environmental impact of a fuel should factor into its price.