Environment & Energy Report

Nuclear, Coal Groups Target Tax Bill After Subsidies Rejected

Jan. 9, 2018, 9:28 PMUpdated: Jan. 9, 2018, 11:09 PM

A tax extension bill is the next target of the coal and nuclear industries after federal energy regulators rejected a plan to subsidize some of those power plants in the wholesale energy markets.

The Federal Energy Regulatory Commission issued a unanimous decision Jan. 8 rejecting Energy Secretary Rick Perry’s proposal directing the energy regulators to make wholesale market pricing reforms to aid certain coal and nuclear plants deemed necessary to ensure the resilience of the electric grid.

In response, the coal and nuclear industries are looking to other federal efforts, like the tax credit extenders bill being worked on over the coming weeks, as well as state efforts for nuclear subsidies.

“We think it’s likely Congress will look at tax extenders to help the coal fleet, particularly now that FERC has kind of punted for a while about what to do about valuing resiliency in the wholesale markets,” said Paul Bailey, CEO and president of the American Coalition for Clean Coal Electricity, a trade organization that lobbies on behalf of the coal industry.

Planning for Retirement

Currently, 23 coal plants totaling 14,000 megawatts of electricity in the wholesale energy markets are set to retire between 2018 and 2020, he told Bloomberg Environment.

The tax extenders bill (S. 2256), which was introduced Dec. 20, includes an extension of the nuclear production tax credit that currently only applies to new nuclear plants that open before Dec. 31, 2020. The bill would remove the deadline altogether, so that Southern Co.'s Vogtle nuclear plant in Georgia would be able to apply the tax credits to its units, which are expected to begin operation in 2021 and 2022.

Between 2019 and 2025, six nuclear plants in the wholesale energy markets totaling nearly 7,200 megawatts of electricity are set to retire, according to the Nuclear Energy Institute.

Exelon Corp. operates 16 nuclear plants. Two of them—Three Mile Island and Oyster Creek—are set to prematurely retire in 2019. The company said it supports the nuclear tax credit extension in the tax bill, Paul Adams, an Exelon spokesman, told Bloomberg Environment.

The tax extender bill isn’t expected to be included as part of upcoming spending legislation to keep the government running, House Ways and Means Committee Chairman Kevin Brady (R-Texas) told Bloomberg Tax.

The first real opportunity for the tax extenders is in an omnibus spending bill, expected later this winter, two GOP House aides told Bloomberg Tax. The tax bill also extends the credits for what are known as “orphan tax credits” which were left out of 2015 package, including those for small wind turbines, geothermal energy, fuel cell technologies, and carbon dioxide sequestration technologies.

Former Chair Wants Action

FERC Commissioner Neil Chatterjee, who formerly served as the FERC’s chairman, had favored a program where grid operators would pay some plants to keep running. He ultimately voted for the FERC proceeding, but said he still wants quick action.

“I insisted on an interim step,” he told Bloomberg Environment. “I know these other processes take a longer time. One of the key things of the new docket is we set it up with a tight timeline so it’s not something that will linger on forever.”

In the order, FERC directed the regional transmission and independent system operators—which run the electric grid—to evaluate grid resilience and report to the commission in 60 days. This would be followed by an additional 30 days to respond to the grid operators’ comments.

“A unanimous commission said, ‘Yes, Secretary Perry has asked the right question and started the right dialogue but he proposed the wrong remedy,’” Chatterjee said. “We will work through our process to come up with the right remedy.”

Fair Warning?

FirstEnergy Corp. owns six coal plants, two of which are set to retire in 2020. The firm also runs three nuclear plants and company representatives were strong proponents of the Energy Department proposal.

“Without timely action, more of these facilities will close prematurely, jeopardizing the ability to provide clean, reliable, and affordable power to customers while harming economies across the region,” Jennifer Young, a FirstEnergy spokeswoman, told Bloomberg Environment.

Likewise, Murray Energy Corp., a coal mining production company, also was a strong proponent of the department’s proposal. Its CEO, Robert Murray, forecast more plant closures after FERC directed further study of the issue to the grid operators. Murray called the FERC move “a bureaucratic cop-out.”

“I fear that we will now immediately observe the announcement of further decommissioning of nuclear and coal-fired electricity generation that will further exacerbate this critical situation,” he said.

— With assistance from Stephen Lee, Laura Davison, and Allyson Versprille.

(Updated to include comments from coal and nuclear companies. )

To contact the reporter on this story: Rebecca Kern in Washington at rkern@bloombergenvironment.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bloombergenvironment.com

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