Fossil generators object to New York’s nuclear protection proposal

Several companies, including ones with fossil-fired power plants, filed a July 22 objection at the New York State Public Service Commission over a July 8 proposal from the staff of the Department of Public Service to provide billions of dollars of subsidies under 12-year contracts with potentially four uneconomic nuclear generation facilities in New York to retain their zero-emissions attributes and other environmental and economic benefits.

The objection was jointly filed by Astoria Energy LLC, Astoria Energy II LLC, Calpine Corp. (NYSE: CPN), Mercuria Energy America Inc., Direct Energy Services LLC, BP Energy Co., Shell Energy North America, Sithe/Independence Power Partners LP, US Power Generating Co. LLC, Cogen Technologies Linden Venture LP, Roseton Generating LLC, CCI Rensselaer LLC and Selkirk Cogen Partners LP.

  • Astoria Energy and Astoria Energy II are privately held wholesale power generation companies. Each company owns and operates a natural gas (primary fuel) and ULSD (secondary fuel) combined cycle power plant, with a nominal summer/winter rating of 550/630 MW. The plants are located in the New York Independent System Operator Zone J power market, and the companies produce, on a combined basis, approximately 13% of the electricity consumed in New York City.
  • Calpine subsidiaries own several generating facilities in New York, are active in the NYISO’s wholesale power markets, and serve retail customers through a PSC-approved energy service company (ESCO) in New York.
  • Mercuria Energy America is an independent energy marketing and trading company wholly-owned by Mercuria Energy Co. LLC.
  • Direct Energy Services is wholly-owned by Centrica plc, a global fortune 500 company and one of the world’s leading integrated energy companies. Direct Energy is one of the largest retail suppliers in the United States and is a load serving entity and market participant in MISO, PJM, NYISO and ISO-NE.
  • BP Energy is a leading marketing and trading company in North America in natural gas, natural gas liquids and power.
  • Shell Energy North America is an indirect subsidiary of Royal Dutch Shell plc. Shell Energy is an electricity and natural gas marketing and trading company.
  • Sithe/Independence Power Partners is the owner and operator of a 1,060 MW cogeneration facility located in Oswego, New York, and an indirect subsidiary of Dynegy (NYSE: DYN).
  • US Power Generating is a wholly owned subsidiary of Eastern Generation LLC, and is the owner and operator of 52, primarily gas fired, generating units in New York City.
  • Cogen Technologies Linden Venture owns a natural gas-fired combined cycle cogeneration facility in Linden, New Jersey, which sells approximately 777 MW into the NYISO Zone J market via a 1.6-mile 345-kV underwater cable directly connected to Consolidated Edison’s Goethals Station on Staten Island.
  • Roseton Generating is the owner and operator of the Roseton facility, a 1,242-MW natural gas and fuel oil-fired generation facility located in Newburgh, New York.
  • CCI Rensselaer is the owner and operator of the Rensselaer facility, an 80-MW combined cycle natural gas-fired facility located near Albany, New York.
  • Selkirk Cogen Partners owns Selkirk Cogen, which is a natural gas-fired combined cycle cogeneration facility located in Selkirk, N.Y., with a net winter capacity of 432 MW and a net summer capacity of 346 MW.

The companies told the PSC in the July 22 objections: “The Indicated Suppliers are not opposed to the State’s efforts to reduce carbon dioxide (‘carbon’) emissions so long as they do not undermine the competitive electricity markets, do not violate state and federal law and provided that they encourage reductions in carbon emissions from all fuel-type resources fairly and efficiently. The Commission should reject the Responsive Proposal because its implementation would violate the following fundamental principles.”

  • “First, the Responsive Proposal will significantly harm the NYISO wholesale competitive electricity market by artificially suppressing installed capacity (‘ICAP’) prices thereby disincenting development of new capacity. According to Staff, the suppression of energy and capacity prices is a substantial benefit that supports its proposal to retain the uneconomic nuclear facilities in the electricity markets with zero emission credits (‘ZECs’).
  • “Second, the Commission is preempted by the Federal Power Act (‘FPA’) under the Supremacy Clause of the U.S. Constitution from approving the Responsive Proposal because it interferes with the FERC’s exclusive jurisdiction under the FPA to set rates for the wholesale sale of energy and capacity. The proposal also conflicts with FERC’s policy that the NYISO’s ICAP auctions be the tool to incent the construction of new resources and maintenance of existing resources in order to satisfy the demand for electricity in New York. It is difficult to understand why Staff would issue a proposal that runs headlong into the jurisdictional boundary recently established by the Supreme Court of the United States in Hughes v. Talen Energy Marketing, LLC (‘Hughes’). If the Commission adopts this proposal, it will create tremendous regulatory uncertainty for all market participants including, specifically, the status of the nuclear facilities.
  • “Third, the Responsive Proposal is discriminatory because it rewards uneconomic nuclear facilities for their carbon emissions reductions benefits based on the social cost of carbon but does not similarly reward any other resources for providing the same benefits. The Commission should not provide preferential payments to keep uneconomic nuclear generation facilities on line that are failing financially in order to meet its environmental and other policy goals. Instead, the Commission should pursue a market-based approach that would incorporate the cost of carbon into wholesale energy prices to provide the necessary price signals to encourage resources of all fuel types to compete fairly to ensure the most efficient investments are made to achieve the State’s carbon emission reduction goals and meet the demand for electricity.”

The commission initiated this case in June 2015 to consider a report filed by the New York State Energy Research and Development Authority (NYSERDA) that examined several options to serve as the model for the continued development and procurement of large-scale renewable (LSR) energy resources. In December 2015, New York Gov. Andrew Cuomo directed staff to design and enact a Clean Energy Standard (‘CES’) mandating that 50% of all electricity used in the state be generated from renewable energy resources by 2030 (“50 by 30 mandate”) as identified in the 2015 State Energy Plan (SEP).

The governor specifically instructed staff to design the CES “to ensure emissions free sources of electricity remain operational” because “elimination of upstate nuclear facilities, operating under valid federal licenses, would eviscerate the emissions reductions achieved through the State’s renewable energy programs, diminish fuel diversity, increase price volatility, and financially harm host communities.”

On Jan. 21, the commission expanded the scope of the LSR proceeding to include the CES and ordered staff to develop a White Paper in which it would propose a CES program for comment and the commission’s consideration. In its White Paper, which staff filed on Jan. 26, staff made a variety of recommendations to achieve the 50 by 30 mandate, a 40% reduction in greenhouse gas emissions from 1990 levels by 2030, and 600 trillion Btu in energy efficiency gains by 2040. Staff stated that these goals will assist the state in achieving its longer-term goal of decreasing carbon emissions from all sources within the state by 80% below 1990 levels by 2050.

As for the upstate nuclear plants, staff proposed that the commission require load serving entities (LSEs) to acquire ZECs from certain nuclear facilities that are “operating pursuant to a fully renewed license by the [Nuclear Regulatory Commission] until 2029 or beyond” and that face financial difficulties to recognize their value as a source of zero-emission electric generation, “something which is not adequately captured in the energy market today.”

Staff proposed that its ZEC requirement begin on April 1, 2017, which staff stated is the approximate date that the Reliability Support Services Agreement for the Ginna nuclear facility will expire and the owner of the FitzPatrick nuclear facility announced it will deactivate the facility. Staff proposed that the price of ZECs “be administratively set by the Commission and should be updated every year based upon the difference between the anticipated operating costs of the units and forecasted wholesale prices.” Staff stated that “[i]n this manner the Commission will be only setting an appropriate and fair value of the environmental attribute and will be acting independent of the actual wholesale prices for energy and capacity in the NYISO administrative market.” Staff’s Responsive Proposal Staff stated that it drafted its Responsive Proposal after considering the numerous comments it received on its proposed ZEC requirement.

Staff proposed that nuclear facilities be subsidized “when there is a public necessity to encourage the preservation of their zeroemission environmental values or attributes for the benefit of the electric system, its customers and the environment.” Staff claimed that the benefits of paying subsidies to retain nuclear facilities will “far exceed the costs.” Staff calculated that total subsidies during the first two years of the program will be approximately $965 million, yet it claimed a net benefit of $4 billion, said the objecting companies. Staff claimed a $5 billion benefit in the form of avoided higher energy supply costs and carbon emissions and the retention of significant property taxes and high-paying jobs.

Staff proposed that the commission determine, at the inception of the program, whether a public necessity to subsidize a nuclear facility exists on a plant-specific basis considering the following: the facility’s historic contribution to the clean energy resource mix consumed by the state’s retail consumers; the degree to which wholesale electricity market revenues projected to be earned by the facility are below the level needed to preserve the zero-emissions attributes historically provided by the plant; the costs and benefits of such a subsidy in relation to other clean energy alternatives; ratepayer impacts; and “the public interest.”

Staff anticipated that the commission would find a public necessity for subsidies for the Fitzpatrick, Ginna and Nine Mile nuclear facilities at this time. Staff proposed that nuclear units located in the same NYISO Zone and that share costs at the same site are treated as a single facility in the commission’s public necessity determination, and, therefore, it recommended that Nine Mile Units 1 and 2 be treated as a single facility.

Staff proposed that NYSERDA would enter into a 12-year contract (April 2017 to March 2029) to acquire ZECs from each nuclear facility for which the NYPSC determines a public necessity exists to retain with subsidies. Staff proposed that LSEs be required to purchase ZECs from NYSERDA in an amount based on the ratio of their load to the entire load in the state.

Staff proposed that the commission administratively set the contract price of the ZECs at the U.S. Interagency Working Group’s projected average social cost of carbon over each of six, two-year tranches through 2029, as adjusted for inflation, less a fixed baseline portion of the social cost of carbon already captured in the market revenues received by the facility due to the Regional Greenhouse Gas Initiative (RGGI) program (the “RGGI offset”). Specifically, for the first two-year tranche of the contract, staff calculated a ZEC price of $17.48/MWh. For each of the subsequent five two-year tranches, staff proposed that the ZEC price be reduced to the extent that average forecasted energy prices in Zone A and capacity prices in the Rest of State ICAP region during each tranche exceed the forecasted energy and capacity prices during the first tranche, which staff calculates at $39/MWh.

Said the objecting companies: “Staff’s Responsive Proposal is a blatant exercise of buyer-side market power that will severely harm the competitive electricity market in NYISO. The exercise of buyer-side market power occurs when a net buyer or its agent ‘invests in capacity and then offers that capacity into the auction at a reduced price.’ While the net buyer pays an above-market price for the capacity, the reduction in ICAP market clearing prices resulting from the participation of the ICAP in the market allows the net buyer to meet its ICAP needs from the market at a distorted price that is much lower than the cost of its investment.”

Nuclear operators say the staff plan is a good idea

Constellation Energy Nuclear Group LLC (CENG) said in its own July 22 comments that staff’s Responsive Proposal offers a constructive framework to advance the state’s environmental interests by preserving existing sources of emissions-free generation.

CENG added: “The Nuclear Tier program contemplated by the Responsive Proposal, when adopted by the Public Service Commission (the ‘Commission’), will bring billions of dollars of net benefits each year to New York’s consumers and result in lower rates. As the Responsive Proposal correctly notes, the loss of the upstate nuclear facilities would result in increased air pollution carrying a social cost of nearly $750 million per year. In addition, these facilities produce approximately $1.7 billion annually in direct economic benefits and $144 million in tax benefits, beyond the value of the environmental benefits.

“In fact, the total benefits of the Responsive Proposal exceed the costs by a ratio of 5 to 1.5. Indeed, two separate studies demonstrate that the benefits of the proposed Nuclear Tier program vastly exceed its costs: one study by the Brattle Group and one by DPS Staff. A third study by Navigant Consulting confirms that, without the upstate nuclear plants, New York’s system costs will be significantly higher, and New York will go from being one of the Nation’s leaders in producing zero-emissions energy to being unable to meet Clean Air Act requirements without relying on imports from neighboring states.

“All in all, the environmental benefits and direct economic benefits over the life of the program total approximately $25 billion. Thus, Staff correctly concludes that ‘[t]he benefits of paying for the zero-emission attributes far exceed the costs.’ Despite overwhelming support from climate scientists, New York’s utilities, business groups, labor, communities, and zero-emission generators, a handful of entities oppose the program. These fall into three groups.

  • “The first is nuclear energy opponents, who will never support the program because they want to see the plants closed—even in the face of Staff’s data and climate scientists’ warnings that the loss of the plants would cause devastating harm by increasing carbon pollution. A number of these opposing entities are hoping that, by forcing delays in the Commission’s work, they will be able to seal the fate of a number of units slated for retirement.
  • “A second group of opponents, which include fossil-fueled generators, is motivated by the profits its members would earn if the plants close and energy prices spike. Price increases mean more revenues for fossil-fueled generators. While their desire to profit is understandable, it is also at odds with the State’s environmental goals and customers’ interests.
  • “Finally, some parties argue that the Responsive Proposal will increase costs to consumers, based on a false status quo in which all the plants continue to operate. The real status quo is that plants will close without this program, and New York will face billions of dollars annually in higher costs and lost revenues as a result, not to mention dirtier air.”
About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.