How much is your company paying to finance New Jersey’s nuclear plants? Business leaders who are unable to answer the question can be forgiven as most media coverage of the Zero Emissions Credit (ZEC) subsidy debate largely ignored the subsidy’s significant financial impact on the business community. The limited reporting that identified the four-tenths of a cent per kilowatthour subsidy rate likely did not set off alarm bells with company bookkeepers. However, when you do the math and multiply this small, charge by the significant number of kilowatthours of electricity our businesses consume each year, you get numbers that are eye-popping.
I am co-president of the Kuehne Chemical Co., a small, century-old manufacturing company in Kearny.
Kuehne manufactures commodity chemicals used to purify potable water and wastewater and is considered critical to the state’s water infrastructure. Kuehne is a large energy user, so for us the four-tenths of a cent subsidy translated into an annual charge of several hundred thousand dollars. What did we receive in return? We received the same service from PSE&G as before, but at a significantly higher cost. Because the nuclear subsidy issues have now returned and threaten to provide windfall profits to the nuclear plants, I urge businesses to communicate a simple message to their elected representatives: Enough.
DEPOSIT PHOTOS
The nuclear subsidy saga began with an acrimonious, multi-year legislative battle in which a broad array of business and other interests actively opposed bills backed by PSE&G and Exelon Corp. that ultimately authorized the $300 million per year subsidy for eligible nuclear plants. The Board of Public Utilities then conducted a controversial hearing in which all independent experts and the BPU’s professional staff agreed that the nuclear plants were profitable and did not warrant subsidies. Unfortunately, an 11th-hour threat by PSE&G to close the plants unless all received subsidies coerced the BPU commissioners to disregard the record and award $300 million in subsidies to both companies.
Recently, in a surprising move, the companies have now offered to give up their hard-won subsidies in return for a “new deal.” Toward that ed, the companies seek to leverage the state’s concern that recent federal actions would increase the cost of renewable energy and undermine the state’s clean energy goals. The details of the proposal are complicated. Essentially, the companies advocate adoption of a risky and unproven form of regulation that would enable the state to declare its independence from certain federal rules and assume greater control over the procurement of electric capacity now obtained through auctions conducted by the PJM interstate power grid.
The proposal would abandon the many consumer protections and active oversight available through the PJM auction and require the state to instead obtain power through negotiated long-term contracts with local generators, primarily PSE&G and Exelon. While the proposal may have surface appeal to some, in states like Virginia where the proposed approach has been adopted, prices for electric capacity are typically 3- to 4-times higher than New Jersey’s already high levels. It has been projected by experts that if Virginia-level rates were adopted in New Jersey, overall power costs could increase by a staggering $2 billion annually.
But that’s not the end of it. The PJM Independent Market Monitor, the overseer of the wholesale electric markets, has for many years reported that PSE&G and Exelon have substantial market power in New Jersey—PSE&G has controlled up to 90 percent of the generation in its service territory—which the companies could leverage to further increase costs for ratepayers above Virginia levels. Many will recall that concerns regarding the companies’ combined market power provided the basis for the state’s rejection of the companies’ proposed merger in 2005.
The companies’ market dominance is a continuing concern that, in this context, should again give the state considerable pause. Under the companies’ proposal, the state would have no choice but to obtain its power from the companies. This could put the state in a position of having to pay inflated, monopoly prices for power or be susceptible to the companies’ threats to withhold needed generation and sell it elsewhere. If you don’t think this could happen, remember that PSEG leveraged a threat to close the nuclear plants to get the ZECs in the first place.
As business people, we fully understand the danger of dealing with greedy counterparties having substantial market power and a willingness to exploit that power to their advantage, regardless of the consequences to others. It is therefore not hard to understand why PSE&G and Exelon would volunteer to walk away from their hard-won $300 million annual subsidies: the alternative they are peddling will make them a lot more than $300 million each year, and potentially for many years to come. This scenario should be acceptable to no one. This time around, the business community is on notice and must be heard—loudly—should the companies’ proposal find its way to the Legislature and Governor’s Office. Enough is enough.
William Paulin is co-president of the Kuehne Chemical Co. in Kearny.
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