POLICY

EPA's big bet on nuclear put U.S. climate goals at risk

The second in a series. Click here for part one.

In the spring of 2013, Exelon Corp. Executive Joe Dominguez briefed President Obama's new energy secretary, Ernest Moniz, on a slow-burning energy and climate threat.

Rising operating costs and declining revenues were starting to cripple nuclear power across the Midwest and in the East, he told the secretary, a nuclear physicist himself and an industry ally.

If premature closures of the large, carbon-free sources of energy snowballed, Dominguez said, it could reverse a national trend of declining power-sector carbon emissions. The nation's reactors produce two-thirds of its carbon-free electricity. Dominguez said he laid out the same case to former White House adviser John Podesta and U.S. EPA Administrator Gina McCarthy.

A memo from top federal advisers to Podesta the following summer would bolster Dominguez's argument. Massachusetts Institute of Technology professors John Deutch and Richard Lester in an August 2014 email hacked from Podesta's account deemed the U.S. Energy Information Administration's model forecasting a full nuclear fleet for decades into the future "unrealistic."

The second E&E News story about the link between at-risk nuclear plants and U.S. climate goals examines how EPA responded to warnings of possible plant closures that could threaten Clean Power Plan targets. The agency's decision to leave the nuclear issue to politically divided states heightens concerns about U.S. emissions just as President-elect Donald Trump prepares to jettison the EPA plan and U.S. climate commitments.

That summer of 2014, members of the Nuclear Energy Institute descended on EPA's Pennsylvania Avenue headquarters — shortly after the draft Clean Power Plan was released — to sharpen the warning. They told McCarthy and her top aides that up to 18 carbon-free nuclear reactors, their profits squeezed by low electricity prices and equipment upgrades, were at risk of closing before their 60-year licenses expired. If EPA was betting financially struggling reactors would be in business long enough to see their 80th birthdays and be a bridge to deeper emissions cuts under the proposed climate rule, they said McCarthy's agency was sorely mistaken.

"You explain the position, and you hope you're making traction," Dominguez said, "but the administrator and her team did a lot more listening than they did talking."

When the agency rolled out the final Clean Power Plan in the summer of 2015, it became clear the Obama administration decided against a deeper analysis of the nuclear industry's troubles. The scenario of cascading plant closures had been rejected, and EPA rested on the most optimistic assumption it had on hand — the United States would keep producing the same amount of nuclear power into the 2030s.

If nuclear teeters, the agency assumed states that need the carbon-free baseload generation would step in with nuclear-friendly regulatory solutions and subsidies for ailing plants.

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A legal morass

EPA acknowledged nuclear power's role in staving off rising carbon emissions. But in the end, agency officials left out the industry's major request: a rule that encourages states to support existing nuclear plants by giving them credit for the zero-carbon energy that relicensed reactors would produce in the future.

To be sure, the White House — at some political risk — had already declared that President Obama favored a role for nuclear in the long-term effort to "decarbonize" an electricity industry that tallies 40 percent of the nation's carbon emissions. During a 2010 speech in Lanham, Md., Obama challenged the notion that environmentalism and nuclear power must be at odds and doubled down by calling for a larger nuclear footprint to avoid the worst consequences of climate change.

In the summer of 2015, EPA was under pressure to issue the Clean Power Plan, with or without a nuclear carve-out. The rule would be Obama's centerpiece as the United States urged China and India to commit to emission targets at the global climate summit in Paris last December.

Attorneys and top officials at the agency weren't eager to wade into the regulatory, political and legal pricker bushes attached to nuclear power. EPA had environmental and political allies concerned about radioactive waste, safety issues and the surging capital costs of building and upgrading reactors. On top of that, the agency's attorneys had already concluded that the Clean Power Plan simply wasn't the right avenue for the industry's targeted fix.

On Capitol Hill, nuclear power hadn't seen the light of day since 2005, when Congress created loan guarantees to jump-start a "nuclear renaissance" that quickly dissolved as the shale gas revolution scrambled energy markets.

"I don't think they ever thought nuclear needed the help. And I don't think it was malevolent," ClearView Energy Partners LLC analyst Christine Tezak said of EPA. "As this administration has gotten 'greener,' the definition of what's acceptable has gotten narrower. And in a post-Fukushima world, nuclear is not as benign as wind and solar."

Today, as Obama prepares to leave office and Trump zeroes in on scrapping EPA's landmark rule and exiting the Paris Agreement, nearly two-thirds of the nation's existing carbon-free generation is in limbo, according to dozens of nuclear experts inside and outside of the industry interviewed by E&E News.

Years of cheap gas-fired generation has forced nuclear power to sell its electricity at cut rates. And in the absence of federal support, state governments — outside of New York — haven't jumped at the chance to subsidize the nuclear industry.

If as much as 15 percent of the U.S. nuclear fleet shuts down ahead of schedule in the next decade, as some analysts predict, and the majority of its energy is replaced by coal- and gas-fired power plants, then America could fall behind its commitments to cut greenhouse gas emissions. If retirements hit the top-end of possible scenarios, reaching long-term climate goals could be beyond reach, leaving the United States a bystander on a central global issue.

Exelon's Dominguez — whose company says it will close reactors in Illinois if legislators in Springfield don't act fast to save them — partially blames that on EPA. The agency, he contends, didn't take warnings about nuclear's troubles seriously as it crafted the climate change regulation. Add to that, he asserts, the fact that the U.S. Energy Information Administration, the research arm of Moniz's department, also failed to second-guess conventional wisdom around existing plants — that they'd continue operating.

'Crisis mode'

Making the nuclear industry's case to EPA on Clean Power Plan provisions fell to longtime nuclear lobbyist Marvin Fertel, a broad-shouldered native of Brooklyn, N.Y. He'll be stepping down next month as the Nuclear Energy Institute's longest-serving leader, having joined when the group was first formed in 1994 to give the industry a united voice. Former Exelon executive Maria Korsnick has been picked to lead NEI going forward.

Sitting in his downtown Washington, D.C., office last month, Fertel eagerly showed off photos of his three grandchildren and voiced his concerns about what the future holds for his family given the warnings of increasingly severe storms, rising sea levels, heat waves and droughts tied to the planet's changing climate.

Fertel recalled bluntly asking McCarthy and her staff in the summer of 2014, after the agency released a draft of the Clean Power Plan, if they had assumed all 100 of the nation's nuclear reactors would operate for decades after their licenses expired around 2030. Did the agency assume aging reactors would glide seamlessly into their seventh and eight decades of operation?

"Their body language as opposed to their words told me that they had all assumed we were going to 80 with all the plants," Fertel said of his meeting with EPA officials. "I said, 'I don't know how many will and how many won't right now, but if you're assuming they all will, that's not correct.'"

Fertel at the time was pitching an industry proposal for the final EPA rule that would allow states to treat upgrades at existing plants — extending their life to 60 or 80 years — the same as building a new reactor and adding to the nation's portfolio of carbon-free energy.

The draft version of the Clean Power Plan gave states two ways to comply with carbon reduction requirements, a "rate-based" plan that set a target of carbon dioxide emissions per megawatt of power generated and a "mass-based" standard that limits the amount of CO2 coming from each state's power plants.

The draft had thrown a limited lifeline to at-risk reactors by allowing states following a rate-based plan to count 6 percent of their nuclear generation in a compliance formula and bring them closer to their targets.

In the end, EPA turned down Fertel's pitch for increased support and scrapped the 6 percent provision as well. The Clean Power Plan declared that states could include new nuclear power in their plan to meet carbon dioxide emissions targets, not the output from a relicensed plant.

Agency officials insist they heard the industry's warning and that they understood the implications of losing a large chunk of the nation's fleet of nuclear reactors. They also maintain the industry's proposal simply didn't work out on paper.

"We considered it, certainly, we thought about it. To say we didn't is false in my opinion," said one EPA official who was present at the high-level agency meetings surrounding the rule but asked not to be named for this article. "What you're seeing here is the nuclear industry is struggling and they're looking for what they can to help their economic situation. Hanging it on the hat of the Clean Power Plan is like chasing your tail."

The plan, the official said, improves the overall standing of nuclear power in the marketplace. The industry's pitch to credit life extensions wasn't accompanied with a policy blueprint that made sense within the constraints of the Clean Air Act, said the EPA source.

"A workable solution [on how to credit existing nuclear generation in a rate-based plan] was never obvious," the EPA official said. "It was never made clear to us nor could we make it clear on our side."

'Back of the envelope'

Today, nuclear industry leaders complain that the inclusion of the 6 percent calculation and then its deletion shows the off-hand calculation did not reflect the implications of the industry's warnings.

"We're doing back-of-the-envelope calculations on the economics of these plants. That was our main criticism," Exelon's Dominguez said. "We have to get more sophisticated in the way we look at this largest segment of zero-carbon electricity."

In fact, EPA drew the 6 percent figure from the 2014 Annual Energy Outlook by the Energy Department's EIA, a figure that EIA says was only a rough estimate based on recent announcements of reactors whose companies had targeted them for closure.

EIA's Jeffrey Jones, one of the authors of the nuclear plant retirement review, said the figure was not based on an analysis of any specific plant's profitability. "It was not intended to say nuclear plant 'A' would retire," he said in an interview.

But one of the highest hurdles to a better analysis is the nuclear industry itself, according to EIA. Exelon and other nuclear power plant owners are reluctant to share information about operation and maintenance costs. "They guard that with their lives," Jones said.

In 2014, EIA assumed that new reactors opening up in Georgia, South Carolina and Tennessee would replace the plants that retired, so that nuclear output would remain constant, year-after-year, through 2040. That projection was grafted into the Clean Power Plan.

The EIA report also included two alternative scenarios in which higher costs and lower revenues caused a tide of reactor retirements, so that carbon emissions actually increased long-term. But those "worst case" scenarios were not noted by EPA.

When EPA published its final rule, the 6 percent was stripped out and no credit was given in the rate formula for states that support existing reactors.

EPA's acting air chief, Janet McCabe, defended the agency's analysis during a White House summit last November but quickly added the Clean Power Plan was never meant to save ailing reactors.

"The Clean Power Plan is not all powerful," McCabe said. "We also didn't just pick a number and stick it at the end of our regulatory impact analysis. That number came from an analysis that we did using a variety of actors and models and data people are familiar with."

'I asked for the right thing'

Fertel said he sometimes wonders if NEI's pitch to EPA was too aggressive. Perhaps he should have asked for partial credit when a reactor's life is extended. But he doesn't question whether his request was legally and politically appropriate.

"I don't think I asked for the wrong thing, I asked for the right thing," he told E&E News. "I think they just believed everybody was going to continue to operate the plants."

Fertel shares other executives' sense that the climate rule could have been an important lever for aging plants at risk of closing.

"It was critically important because it was a signal that, from the federal government's standpoint, the retention of the nuclear plants and the benefits they provided were important enough to protect them in the policy space," Dominguez said. "Had that been in the Clean Power Plan, it would have been a stronger signal to the states to take efforts to retain the plants."

Nuclear power, faced with steadily rising costs and aging infrastructure, has seen its political influence diminished since the meltdown of Pennsylvania's Three Mile Island No. 2 reactor in 1979. In the late 1980s, Congress turned the issue of nuclear waste and spent fuel into a perennial fight over the proposed Yucca Mountain repository in Nevada. Today, the emerging battles are around competing energy technology and the tangled and complex role of electricity markets in achieving emissions goals established under the Obama administration.

EPA gambled that states would act to keep nuclear plants open for decades to come or come up with other strategies to replace the electricity generation with other forms of carbon-free power.

Even before the EPA plan was issued in final form, the administration's climate initiative was a wedge issue in state capitals, with 27 states challenging the rule in federal court and 18 states and the District of Columbia defending EPA.

For many in the nuclear industry, EPA's decision to leave the heavy lift to governors, utility commissions and other local officials created more uncertainty about the climate regulation and more risk that nuclear plant operators would give up on plants in the red.

Yet Fertel expressed skepticism during the interview, saying he is unsure a policy answer will materialize in the aftermath of a presidential campaign that pitted Trump's view that climate change is a "hoax" against Democrat Hillary Clinton's flirtation, but ultimate rejection, of a direct price on carbon emissions.

"We don't see at the federal level a price on carbon occurring at least any time soon," he said. "A price on carbon has become like a four-letter word on the Hill, and you can push for it, but it almost stops them from hearing anything else they could do."

In the waning months of the Obama administration, the cost of saving the nation's plants looms large. Just last month, an expert panel appointed by Moniz found the fate of such plants hinges on the success of a carbon emissions charge on electricity, or, alternatively, a production credit of $27 per megawatt-hour of electricity, worth about $213 million a year for a 1,000-megawatt nuclear plant. The calculation is based on the Obama administration's estimate of the "social cost of carbon," related to avoided future economic losses to the United States from climate change impacts.

"Now we're in crisis mode with tremendous resistance, decades of people saying things on either end," Fertel said. "It makes it really hard to get to a rational compromise."

Twitter: @HMNorthey Email: hnorthey@eenews.net

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