Connecticut Moves Closer to a Nuclear Subsidy

On October 31 Connecticut Governor Dannel Malloy signed into law Senate Bill 1501. This bill would give the state’s only nuclear generator, the Millstone nuclear facility, the chance to prove that it would be in the public’s interest to subsidize the plant.  Under this legislation, Millstone would bid for power purchase agreements (PPAs) against hydro generators, Class I renewable generators (mainly solar, wind, and small-scale hydro) and New Hampshire’s Seabrook nuclear facility.

Once all interested parties place their bids, public interest will be evaluated based off a rubric supplied within the legislation.  Based off the evaluation of Public Utility Commission (PUC), the General Assembly will vote on the purchase.  If the Assembly decides it would be in the public interest, the PUC would be authorized to purchase up to 12 million megawatt-hours (MWh) of annual generation for up to twenty years.  The costs would then be distributed between the state’s two regulated utilities, Connecticut Light and Power and United Illumination.

The rubric that is used to evaluate “public interest” includes 3 factors:

• Current economic condition of nuclear facilities within ISO-NE
• Projected economic condition of nuclear facilities within ISO-NE
• The projected impacts of nuclear retirements prior to July 2027 on

        o   Electric markets

        o   Fuel diversity

        o   Energy security

        o   Grid reliability

        o   Greenhouse gas emissions

        o   State, regional and local economic conditions

Analysis

While the bill does not explicitly subsidize the Millstone facility, it does give the generation asset a decided edge in the bidding process.  The rubric used to determine public interest is written in a way that questions the costs of nuclear energy, then openly weighs these costs against the benefits created.  What it does not ask, however, are costs to the market of implementing these subsidies.

According to the U.S. Energy Information Administration, 12 million MWh is approximately two-thirds of Millstone’s total annual generation and one-third of the state’s total generation.  Also according to EIA, the facility’s average cost to generate is roughly $25 per MWh.  Therefore, the ratepayer cost to make Millstone whole for 67% of their generation would be $300 million.  Assuming that this money was the difference between the plant shuttering or remaining in operation, and that the 12 million MWh were replaced exclusively by natural gas generation, the payoff would be:

• 2.1 GW of stable generation capacity
• Employment for the plant’s 3,900 employees
• 10.5 million fewer few tons of CO2 produced annually
• 230,000 MMBtu per day less natural gas consumed

While other resources could offer some of these benefits at less cost, none could accomplish them all.  Particularly hard to accomplish via other technologies would be the stable generation and employment numbers.  The only major competitor to Millstone would be New Hampshire’s Seabrook nuclear plant, but it is in another state, rated at one half of Millstone’s capacity and costs roughly four times as much per megawatt-hour generated.

As to the costs of implementing SB 1501, the most obvious is the additional monetary cost.  If $300 million is used as a rough cost and the state’s 2016 generation of 36 million MWh is assumed, $8.33 per MWh in ratepayer funds would be collected by Millstone.  More substantial, however, are the costs to the ISO-NE market.  Subsidizing 2.1 GW of generation capacity effectively makes 2.1 GW of generation no longer cost-competitive, meaning that generators that were previously economical could be forced to close.  Additionally, since Connecticut is part of ISO-NE, a pool in which every generator in five states is paid the same price for energy, this means that some of the generation (and thus jobs) lost will almost certainly be in other states.

For this reason, if Connecticut elects to actually purchase this power, ISO-NE is very likely to take action to level the market, something we are currently seeing considered as PJM reacts to Illinois’ Future of Energy Jobs Act.  In the case of PJM, nuclear subsidies in one state could lead to a more complicated system for annual capacity auctions, as nuclear generators under subsidy will possibly not be eligible for receiving capacity payments.  While ISO-NE may elect to use a different mechanism to accomplish the same goals, they could choose to alter the market in some way.

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