April 10, 2017

In nuke debate, dueling claims fly

The Millstone Power Station nuclear plant is the largest generator in Connecticut.
Brian Gaynier, operation shift manager at Millstone, working in one of the plantís control rooms in 2012.

What do power plants, environmentalists and the largest association of Americans aged 50 and up have in common?

They're all fiercely opposed to a bill that would allow Waterford's Millstone Power Station nuclear plant to sell a large amount of its electricity in a new and possibly more profitable way.

Major operators of natural-gas-fired power plants — including NRG, Dynegy and Calpine — have linked up with AARP and the Connecticut Fund for the Environment (CFE) to form an unusual coalition against the legislation.

The opponents often have divergent objectives, but their joint aim is to paint Millstone as an already profitable plant seeking millions of dollars in additional revenues — which would eventually be shouldered by individual and commercial energy ratepayers — through a specially designed state-run bidding process.

"This is an unusual constellation of different folks that don't get together every day," said Dan Hendrick, director of external affairs for NRG, which owns nine Connecticut power plants.

During a recent interview with Hartford Business Journal, Hendrick was seated near other power plant representatives, AARP in-house lobbyist John Erlingheuser, and CFE's Claire Coleman, who despite her shared opposition to the nuclear bill, wasn't afraid to speak her nonprofit's position in front of energy industry lobbyists.

"We oppose natural gas infrastructure growth," said Coleman. "We don't see natural gas as the bridge to a renewable future. We think we're close enough where if we devoted the right resources both in state and through regional resources, we could ramp up our renewables significantly."

It was a slightly awkward moment, but the sort that the coalition is willing to look past if it means defeating Senate Bill 106.

The bill aims to give Millstone the option to sell up to 8.3 million megawatt hours of electricity (equivalent to 28 percent of all retail electricity sales in the state) directly to utilities through the sort of state-run bidding process that lawmakers have used over the past decade mostly to encourage and secure renewable energy sources like solar, wind, fuel cells, biomass and hydro. Under the bill, Millstone would compete with higher-priced biomass and trash-to-energy plants for long-term contracts. The state has also held a bidding process to secure natural gas infrastructure, but that was put on hold.

Millstone said it should be allowed to participate in those energy procurement efforts because it would help secure its financial future, and those of its more than 1,000 workers, at a time when many other U.S. nuclear plants are closing because of high costs and steep competition from natural gas plants. In Connecticut, natural gas prices helped drag down wholesale power prices to record lows last year, which hurt Millstone.

"When you look at the legislation that's proposed this year, it essentially just continues that policy of the state authorizing resources that are allowed to compete for those procurements," said Kevin Hennessy, Dominion's director of state policy, during a recent interview at HBJ.

However, the amount of nuclear energy the bill would allow Dominion to sell in this new market is massive. It would be nearly enough to power one million Connecticut households for a year and the largest such energy procurement in state history.

Dominion argues that allowing Millstone to sell its power to utilities would help the company and ultimately reduce Connecticut's high energy costs.

"It will reduce rates," Hennessy said.

But there aren't many Connecticut businesses or organizations, outside of those that have relationships with Dominion, that have publicly agreed with that statement.

AARP's Erlingheuser said the bill, which recently made it out of committee, will lead to higher electricity prices for its members, and other power plants agree.

"There's no way that this thing could in any way reduce rates," said Jim Ginnetti, a lobbyist for Dynegy, which has plants in Milford and Dayville.

Meanwhile, the Connecticut Fund for the Environment argues the legislation could undercut the development of renewables.

There are powerful interests on both sides of the issue that potentially have much at stake and they're making many divergent claims on the bill's potential impact.

The complexity of how power is bought and sold in New England, and uncertainty over future natural gas prices — a major factor in New England's energy costs — is sure to make the matter a tough one to parse for most lawmakers and the public.

Parsing the debate

A key part of the debate is what the future holds for Millstone.

Most agree that if the plant closed it would be bad for energy prices and the environment because nuclear produces a large amount of steady power and doesn't emit greenhouse gases like gas and oil plants.

But it remains unclear whether Dominion actually intends to close Millstone, and if so, when and under what conditions.

Bloomberg reported in December that roughly half of the U.S. nuclear fleet had become unprofitable. Over the past five years, approximately a dozen nuke plants across the country have closed or announced they would close, including two in New England.

Nuclear plants in other states have sought subsidies or other favorable contract arrangements, but there have been legal challenges over some of those deals.

Dominion doesn't disclose Millstone's earnings, but the two-reactor plant is profitable and doesn't have plans to close (it has already promised to provide power to New England grid operator ISO-England into mid-2022).

In recent years, Millstone has sold most or all of its energy via long-term contracts to financial institutions like hedge funds, similar to the way other commodities like grain, cattle or even crude oil are traded. That business model helps producers reduce the risk of daily price volatility. It also transfers risk to financial institutions, which can profit or lose money based on the difference between what they pay for the energy and future wholesale market prices.

Last year, Millstone sold all of its output for nearly $52 per megawatt hour. That turned out to be a good deal for Dominion as electricity prices on the wholesale market in Connecticut averaged a record low $29.73 per megawatt hour for the year.

If Senate Bill 106 passes, some worry it would be the utilities and their ratepayers taking the financial risk, instead of hedge funds or other financial institutions.

Kenneth Holt, Dominon's manager of nuclear communications, acknowledged that there could be some risk for ratepayers, but he said the bill would also give Eversource, which will ultimately purchase the power through the proposed bidding process, price certainty over a large chunk of its power for the next five years.

"As far as Eversource taking that electricity and putting it through the wholesale market and having some risk for consumers, I think you also have the potential for reward for consumers," Holt said.

But Eversource also has concerns about the bill and its potential impact on rates.

"There's no way it can be a savings to customers under any construct other than if the power plant was to shut down," James Daly, Eversource's vice president of energy supply, said in an interview.

Hennessy thinks Eversource has expressed concern about the nuke bill because Millstone's future success could hurt several of the utility's own proposed projects, such as natural gas pipeline and transmission line expansions.

'Crazy' estimate

While Millstone may be seeking to sow doubts about its financial future, a report released last week and commissioned by the Electric Power Supply Association contends that Millstone will continue to profit, though at a lower level than in recent years, even if New England's wholesale prices remain suppressed.

Energyzt used a series of estimates and publicly available data to calculate that Millstone earned $150 million in after-tax income last year and has been profitable since Dominion bought it in 2001 from Eversource.

The report also claimed that the nuke bill, if passed, could generate $1.2 billion from ratepayers over five years, a calculation Dominion called "crazy" because it assumed the nuclear plant would sell its energy for $85 per megawatt hour.

Hennessy said ratepayers should trust in state regulators to make sure any nuclear power purchase is in the best interest of ratepayers.

"They're going to be looking at us to give them a deal," Hennessy said. "If we bid in at $80, they will laugh us out of that room."

Dennis Schain, a spokesman for the Department of Energy and Environmental Protection, said Millstone is important, but that DEEP's current position is Dominion should have to prove a financial need for the bill to pass.

Correction: The original version of this story misspelled John Erlingheuser's last name.

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