New York’s Nuclear Fork in the Road: Subsidizing Old Reactors Is a Dead End

New York is striving to implement one of the most aggressive renewable energy strategies in the nation. Yet at the same time, Gov. Cuomo wants to bail out the upstate and uneconomic FitzPatrick and Ginna reactors--which would only slow the deployment of renewables and would cost NY ratepayers billions.

New York is striving to implement one of the most aggressive renewable energy strategies in the nation. Yet at the same time, Gov. Cuomo wants to bail out the upstate and uneconomic FitzPatrick and Ginna reactors–which would only slow the deployment of renewables and would cost NY ratepayers billions.

Last week, we let you know about New York’s new proposal to subsidize most of the state’s existing nuclear reactors. And we promised you a more in-depth piece after we had a chance to digest the idea. So here you have it: It’s a really bad idea.

There’s a lot more to say, of course, but it’s good to start there and not lose sight of the big picture. As a reminder, here are the basics of what the state’s utility regulators are proposing: New York will establish a renewable energy standard to reach 50% renewable energy by 2030—this could be even better and the state still seems to be underestimating its renewable energy and efficiency potential, but YAY! At the same time, it’s packaged with a massive subsidy to nuclear power plants, to try to prevent four of the state’s six nuclear reactors from closing during that time.

If the proposal ends up being implemented as the state’s Public Service Department is proposing, it could end up costing New Yorkers from $2 billion to $6 billion by 2030. And that is just the extra cost of subsidies, above and beyond the market price of electricity. Between buying the reactors’ electricity and paying subsidies, New Yorkers would spend a total of at least $18 billion on the four reactors, rather than on renewables and efficiency. And that is assuming the reactors’ operating costs don’t rise, and that the state wouldn’t need to guarantee them a profit margin to continue operating.

The wide range of our estimate is because the cost of the subsidies would depend on two factors:
• The cost of operating the reactors, which is rising. That is the main reason the industry is pushing so hard for subsidies.
• The market price of electricity, which is hard to predict over so long a period.

The gap between nuclear costs and energy prices could very well get wider by 2030. On the one hand, reactors are getting more expensive to run as they get older, and New York has some of the oldest and most uneconomical reactors in the world. Nuclear operating costs have been going up by about 5% per year on average for over a decade now.

On the other hand, energy prices have been trending lower in New York and around the country for nearly a decade, even with occasional spikes. That trend is not likely to reverse as renewables and efficiency ramp up: energy efficiency reduces demand and market prices, the cost of renewables is very stable in the long run but is expected to continue declining, and volatile fossil fuel prices will have less and less of a role in determining energy prices. If nuclear costs and energy prices continue going in opposite directions, $6 billion could be an underestimate.

Here’s how the regulators are proposing it would work:
• Each year the reactors’ owners would tell the Public Service Commission what each reactor’s “going forward costs” are projected to be, and how much money they could expect to make selling the power each reactor generates.
• The reactors’ owners would be paid the difference between the “going forward costs” and the projected sales revenue, by selling “zero emissions credits,” or ZECs, to utilities and electricity retailers in the state.
• The utilities and other retailers would be required to buy credits according to their proportion of the state’s total electricity consumption. That is, if a utility’s customers represent 10% of total electricity consumption in New York, then the utility would have to buy 10% of the total number of ZECs.

Keep in mind, New York still wants to close the two reactors at Indian Point, close to New York City. The subsidy would, ostensibly, only apply to the four reactors in Central and Western New York, on the shore of Lake Ontario: FitzPatrick, owned by Entergy, the same company as Indian Point; and Ginna, Nine Mile Point 1 and Nine Mile Point 2, owned 50-50 by Exelon and Électricité de France (EdF), the American and French nuclear giants. (Well, technically, Nine Mile 2 is still 18%-owned by the Long Island Power Authority, but Exelon and EdF control the other 82%.)

Entergy says the subsidy is too little too late to keep FitzPatrick from closing at the end of the year, and is promising to fight to have Indian Point included in the subsidy scheme. If the company wins that argument, this policy could be a lose-lose-lose for the state: New Yorkers would get socked with higher electric bills to subsidize old, dangerous, and dirty reactors; the state would lose its fight to close Indian Point by subsidizing all of the equipment upgrades Entergy needs to comply with its water permits; and there would be less money and market share to invest in long-term emissions reductions by expanding renewable energy and efficiency.

This is actually worse, in many respects, than Exelon’s proposal for nuclear subsidies in Illinois, which we have roundly criticized in these pages. The structure is similar: utilities would have to buy a specified amount of electricity credits from nuclear plants each year. But in Illinois, the total cost of the subsidy would be capped at around $300 million per year. The New York subsidy would be essentially a blank check: the only cost control would be the PSC’s review of the reactors’ projected operating costs each year. Even if Exelon and Entergy didn’t fudge the numbers, if the costs of the reactors continue to go up more than energy prices do, so would the subsidies. But even in the best case scenario, the cost to New Yorkers for just four reactors could be as much or more than for all eleven reactors in Illinois.

At the same time, there is literally nothing to prevent reactors from closing if their owners decide they just aren’t making enough money. And in that case, the subsidies would have been a huge waste of ratepayer dollars: a corporate giveaway for however long Exelon and Entergy were willing to take it, while generating more nuclear waste, risking nuclear accidents, and diverting billions of ratepayer dollars from efficiency, renewables and long-term investments in emissions reductions. In addition, Exelon has already indicated it believes the state will have to provide an additional incentive to continue running uneconomical reactors: a guaranteed profit margin, over and above the operating costs. Read, even greater subsidies.

The ostensible reason for the costly endeavor is ironic, at best: the Public Service Department says the state can’t meet its goal to reduce carbon emissions by 2030 if the nuclear plants close.

That is a false assumption, predicated on a false choice. Reducing carbon emissions is the long-term goal, one that we need to begin right away and to do so as quickly as possible. The end goal is not to reduce emissions 40% by 2030, though. It’s to eliminate them entirely and permanently, at the latest by 2050.

And the reality is that New York’s reactors (and nearly all others in the U.S.) are going to close by the time we need to reach zero carbon emissions. Two of the reactors in question—Nine Mile 1 and Ginna—are among the oldest (and smallest) reactors in the world, turning 47 and 46 this year; their already-extended licenses would both expire in 2029. FitzPatrick would close in 2034, not much later than 2030 anyway. And if the governor doesn’t get his way and Indian Point 2 and 3 are relicensed, they would shut down in 2033 and 2035, respectively. Nine Mile 2 would close in 2046.

All of that would be predicated on reactors running until their 60-year operating licenses expire. The reality is quite different. Not a single reactor in the U.S. has ever run until its license expired, and no commercial power reactor in the world has run for 50 years, let alone 60. Nine Mile 1 and Ginna are the 4th and 7th oldest reactors still operating in the world, and the older ones are only a few months ahead of them. What’s more, every reactor in the U.S. that has closed has done so long before its license expired (most, more than a decade before).

So whether now or later, New York is going to need to ramp up efficiency and renewables enough to take nuclear’s place. Since Ginna and FitzPatrick are already poised to close because they are no longer economical or competitive, why not just let them shut down and invest the resources in cheaper renewables and efficiency that will be needed to reduce emissions in the long run, anyway?

That is where history comes into play again. Our post last week put Gov. Andrew Cuomo’s proposal in some historical context, praising his efforts to close Indian Point and hearkening back to his father, the late Gov. Mario Cuomo’s decision to close the Shoreham reactor on Long Island in the 1980s. Those are two of the best similarities between the governors Cuomo: taking on powerful corporations to protect the public health and safety. The elder Cuomo also pulled the plug on siting a radioactive waste dump, which was targeted at some of the same communities more recently targeted for hydraulic fracturing (fracking) for natural gas. We saw the same laudable streak in Gov. Andrew Cuomo again a little over a year ago, when he announced New York would ban fracking, in a sincere and moving statement:

“I am not going to put the health at risk for jobs. I’m not going to make that choice. I’m not going to make it in the Southern Tier. I’m not going to make it anywhere in the state. I believe we can have jobs, and they can be in healthy communities, and we don’t have to run the risk of hurting our children or creating health hazards to create jobs. That’s a false choice.”

That is the Gov. Cuomo that New Yorkers voted for in 2014, and that is the one they will want to remember.

In light of that, Gov. Cuomo’s proposal to subsidize the other four reactors in New York is at best a head-scratcher. But, unfortunately, it is not without precedent in the Cuomo dynasty either.

You see, even while the late Gov. Mario worked admirably to close the $5 billion Shoreham reactor ($10.8 billion today), he allowed its twin to be completed –Nine Mile Point 2, even more expensive at $6.4 billion ($13.8 billion today)—and he allowed the rest of the state’s troubled fleet of reactors to continue operating despite major safety, operational, and financial problems which kept most of them offline nearly half the time, sometimes for years on end. Nine Mile 2 alone nearly bankrupted several of the state’s utilities, and Nine Mile 1 required a billion dollars in upgrades at the same time. Altogether, utilities’ pursuit of nuclear power resulted in New Yorkers paying the highest electricity prices in the country, while the economy and tax base in most of the state was withering.

This nuclear subsidy proposal would basically repeat that history. The proposed subsidies to keep FitzPatrick, Ginna, and Nine Mile 1 and 2 from closing could easily cost as much as what Nine Mile 2 cost to build. Such subsidies would raise electricity prices statewide, putting economic pressure on families, businesses, and government services alike, without any net economic benefit.

Gov. Andrew Cuomo has a chance to take a positive lesson from his father’s legacy, and not repeat the past. If Gov. Mario Cuomo had stopped Nine Mile 2 and laid the groundwork for phasing out the state’s other reactors, it might have saved ratepayers billions of dollars, or enabled New York to lead the nation in renewable energy a quarter of a century earlier. Back then, renewables were much more expensive than fossil fuel sources, but energy efficiency certainly wasn’t. But now, wind, solar, and efficiency are all affordable, and investing in them now will make it possible to replace reactors without increasing carbon emissions.

As we showed in a report we published last fall, renewables and efficiency are so much cheaper than nuclear that New Yorkers could do more than replace FitzPatrick and Ginna: for the same cost as continuing to operate the reactors, New York could develop even more renewables and efficiency, close additional fossil fuel power plants, reduce total carbon emissions, keep nuclear workers employed, and provide a just transition for the reactor communities. That’s the path Gov. Cuomo should choose. To pave the way to a real clean energy future, one in which we have good jobs, live in healthy communities, and our children are safe.

Tim Judson

February 9, 2016

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4 thoughts on “New York’s Nuclear Fork in the Road: Subsidizing Old Reactors Is a Dead End

  1. Don Richardson

    I am afraid the governor needs professional help. He seems to be in over his head when it comes to energy and survival. We’ve already made big moves toward human extinction. Politicians don’t seem to know anything important.

    Don Richardson With rare exceptions, our government is a stinking cesspool of corruption.

  2. Peter Sipp

    Nice article Tim. You got it right. New York’s economy and tax base withered in the past because of the high electric rates foisted upon rate payers from the inherently expensive nukes. This is sure to happen again, what with 2 old rocking and puffing reactors, Gina & FitzPatrick. They will be needing their reactor vessels replaced soon, along with lots of other irradiated parts.This is going to cost many hundreds of millions of $$$. Does the good governor know this? Companies will leave for cheaper electric rates, making the rate payers that stay in NY pay still higher rates to make up for the rate payers that left. The tax base will shrink too, again leaving the remaining tax payers to pick up for those who left the state. Whew !!! Glad I don’t live in the empire state. The good people of NY need to tell the good governor what the consequences are going to be of keeping nukes going waaay past their useful lives.
    Time will tell. Keeping the rocking and puffing reactors going will be so expensive that other states will see what not to do.


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