Absent Robust Process, Program May Undermine Biden’s Commitment to Competition
By: Brian George, senior director, strategic policy and government affairs, EPSA
In his first formal State of the Union address last week, President Biden said “capitalism without competition is exploitation.” This echoes the sentiment from an Executive Order issued last year, wherein the President said, “robust competition is critical to preserving America’s role as the world’s leading economy.” Not in a generation has the preservation of this role been more critical. Americans are increasingly concerned about the mounting impacts of inflation, particularly on the cost of energy.
At EPSA, we applaud President Biden’s commitment to competition. Perhaps nowhere is the impact of competition more evident than in the power sector where it has proved to be a powerful tool to benefit consumers by improving reliability, lowering carbon emissions, and keeping electricity rates affordable. It’s why we’ve called on this administration and Congress to enact an economy-wide price on carbon or a well-designed clean energy standard that would allow all resources to compete to cost effectively and reliably reduce carbon emissions.
Unfortunately, in lieu of an inclusive, market-based approach to combating climate change, resource-specific policies have prevailed as the politically appealing, but less optimal alternatives. This has been particularly true for America’s existing nuclear generation fleet, where a zero-air emissions generation profile combined with strategic national security benefits, fuel diversity, and job creation have done the unthinkable: united Democrats and Republicans.
Over the next several months, the U.S. Department of Energy will implement the Civil Nuclear Credit program, which was included in the bipartisan Infrastructure Investment and Jobs Act. The program allocates $6 billion through 2031 to existing nuclear reactors deemed to be at risk of “closure due to economic factors.” Or, in other words, less economically viable, often as a result of competition.
While the retention of nuclear reactors has been identified as a priority for the Biden administration, the Civil Nuclear Credit program – a federal subsidy – is counter to his pro-competition agenda because it targets reactors specifically located in “competitive electricity markets.” To help ease this tension, we’ve submitted comments to DOE today that identify ways to implement the program in a manner that strikes a balance between limited, economically justified financial relief to nuclear reactors truly at risk of closure and the preservation of vibrant competitive wholesale electricity markets.
Foundational Recommendations: Separating Wants from Needs
It’s worth remembering that many of the nation’s nuclear resources may not truly be in need of additional taxpayer support to stay in operation, with some expected to yield a profits exceeding $279 million last year. But this is not another musing about the continued profitability of the existing nuclear fleet; we’ve seen and written enough of those, and the financial position of these resources is captured succinctly here.
However, it is important to establish a rigorous and objective certification process to ensure funds are allocated to the resources most in need, consistent with the intent of Congress. When determining need, DOE should only consider nuclear reactors truly exposed to market risk. For example, if a nuclear reactor is in a “vertically integrated” state, which allows generation owners to seek and receive cost-recovery from captive ratepayers, it should not qualify for support, as it is exposed to little or no market risk. There are several other mechanisms that can mitigate exposure to market risk, as indicated in our comments. We elaborate further on this in our comments.
When considering how to evaluate the economic position of a funding applicant, DOE proposed a comprehensive list of costs, revenues, and risks to be considered. Our comments encourage DOE to consider the revenues an applicant already receives from existing state-level programs, such as Zero Emissions Credit programs, that provide out-of-market compensation for several nuclear reactors. These revenues reduce the amount of money needed from the federal subsidy program. There is no need for plant owners to be able to double dip both a state and federal subsidy.
Additionally, given the broad set of “risks” that a nuclear reactor could claim to face, we encourage DOE to include an independent expert, such as an independent market monitor, on its advisory panel to review applications. The inclusion of an expert with the technical expertise and market knowledge to assess the veracity of costs, revenues, and risks facing a nuclear reactor, will help inform the Secretary’s ultimate decision. While it is not explicitly included in our recommendations, a requirement for an applicant to submit an affidavit attesting that they face imminent retirement absent program funds would be a good way to avoid spurious threats of closure.
After funds have been allocated, DOE should post publicly the following information: reactor name, date certified, the dollar value of the allocated funds, and the Civil Nuclear Credit termination date. Finally, we do not believe the Infrastructure Investment and Jobs Act provides the legal authority for DOE to provide additional funds through an “adjustment” mechanism, as proposed by DOE. Instead, should the economic conditions facing a resource change such that it requires additional financial assistance, the resource should be required to reapply to the program and have its full economic picture reevaluated.
Avoid Unnecessary Cost Increases to American Consumers
A thriving and competitive power sector that unleashes American capital and entrepreneurship will be key to continued global energy leadership. Through competition, markets can provide the incentives to deploy the resources necessary to meet the Administration’s clean energy and decarbonization goals. And it will do so affordably and reliably, ensuring consumers aren’t stuck with higher energy bills as prices for everything else continue to skyrocket.
In his State of the Union, the President emphasized a need to lower costs. Our recommendations provide a good way for DOE to do just that. Without a robust and transparent process, the Civil Nuclear Credit program will force Americans to pay unnecessarily higher energy bills at a time when they can least afford it. We urge the administration double down on – not retreat from – the commitment to competition. A balanced approach here can maintain the most at-risk reactors in the existing nuclear fleet while preserving well-functioning competitive markets that will be key to an affordable, reliable, and sustainable clean energy transition.