Another Nuclear Bailout?

As pulp fiction aficionados, we love a good hostage situation.

By Leonard S. Hyman and William Tilles:

Last week, New Jersey joined the list of states seemingly eager to bail out politically well-connected nuclear power plant operators. Governor Phil Murphy signed a bill that would grant subsidies of up to $300 million per year to the owners of the Salem and Hope Creek nuclear power stations, two plants in southern New Jersey approaching the end of their useful lives.

PSEG Nuclear, an affiliate of the state’s largest utility, owns 100% of Hope Creek and 57% of Salem. It made clear that it would not put any new investment into these large, aging power stations without a subsidy, threatening a full closure within a brief period.

As pulp fiction aficionados, we love a good hostage situation. In this case the “hostages” are several thousand utility employees and presumably voters.

The potential adverse economic impact of a power plant closures is regionally significant. State and local governments have become dependent on property and related taxes levied on these facilities. Not surprisingly for this genre the hostages, so to speak, have relatives.

The state legislature’s bill would add a surcharge on electric utility customer bills. This would amount to about $40 per year for a typical residential customer, adding a not inconsiderable 3% to the average electric bill in the state. A ransom is also typical in these dramas.

The nuclear plant’s owners commissioned a study that laid out the supposed costs of a plant closure. It concluded that average electric bills would increase by 3-4%. Retiring plants of this size and type entails two types of expenditures that would be passed along to ratepayers:

  • The cost of replacement power.
  • Accelerated expenditures for nuclear plant closure.

However, the legislature voted to keep the nuclear plants open and raise customer electric bills by almost the amount that closure would have cost.

The study also claimed that the two power stations provided direct and indirect employment of between 1,400 and 4,400 jobs – a significant number in the South Jersey region. No state official or politician wants to see unemployment rise. But presumably the bulk of a highly skilled workforce could find gainful employment elsewhere. And whatever power producing facility replaces the nuclear stations would have to employ workers as well although perhaps not in the same place.

But what of the actual subsidy?

It saves power-plant jobs at a cost of $214,000 per employee per year – if we assume that the direct jobs are the real ones, and $52,000 per year for both direct and indirect jobs. Need we point out that many consumers paying higher electric bill do not earn anything like those figures?

However, there are other issues here, a backstory if you will. At this point our story shifts dramatically and becomes a love affair between the utility industry and ostensibly free markets.

The progeny of this love affair between utilities and markets was the deregulation movement. In New Jersey the regulated utility transferred these two nuclear facilities to the company’s unregulated generation arm. The intent was to remove the financial risk of bad decisions from consumers. Hopefully under the new free market regime, the plant owner would absorb financial risks in an effort to earn significant rewards, if any.

We have to admit this jump into markets certainly took guts. Taking a uniquely inflexible, extremely high-cost nuclear power generating asset and expecting it to compete in an emerging wholesale power market was, to put it politely, unrealistic.

One risk of placing these plants within a deregulated framework was the possibility that the wholesale power market itself was badly designed for nuclear plants. Another was the possibility that a change in technology or public attitudes about nuclear energy would render these plants less useful or profitable. It seems safe to say, in retrospect, that neither possibility got much consideration.

What has ensued, rather than a shifting of risk to generators, was an asymmetric profit arrangement tilted heavily to the generators. In periods of relatively high power prices, the unregulated generator raked in the profits at the expense of consumers. But in lean years when power prices softened, the consumers still had to pay for the generator’s bad business judgment.

That was the old regulatory formula where the customer was on the hook, so to speak, for all prudently incurred costs but at least somebody kept a lid on profits.

Nuclear power plant owners today argue the markets (as constituted) do not take into account the costs of global climate mitigation. Therefore, old nuclear power plants should be given special consideration because electricity produced by nuclear fission does not emit greenhouse gases.

That is true. But the answer should be to fix the markets. A carbon tax would do that, but nobody likes taxes so regulators permit surcharges on electric bills and pretend those surcharges are not taxes in disguise.

Closing down those nuclear facilities may raise carbon emissions if they are replaced in whole or in part by fossil-fuel power plants. But we are entitled to ask if paying a subsidy to the nuclear stations is or is not the most economical way to keep down carbon emissions. That $300 million per year could go a long way to reducing carbon emissions in other ways.

Furthermore,  the electricity market is stagnant in the US. Keeping old plants in service crowds out or hampers the introduction of new technologies. To keep carbon emissions level, old nuclear plants should be replaced by a combination of renewables and energy storage. Shuttering aging nukes could provide incremental local demand for renewables. Perhaps some of the developers might even set up facilities in New Jersey.

Imagine what would have happened if, in the early 1900s, the government had announced that it would subsidize the ownership of all horse drawn carriages in order to maintain employment at stables, carriage manufacturers, and buggy whip makers? Or to subsidize vaudeville theaters to prevent displacement of numerous performers following the introduction of talking pictures?

Disruptions of this sort occur regularly in a competitive, technology driven marketplace. The question is whether the state has better ways to deal with the consequences of disruption than by propping up failing, uncompetitive nuclear power generation businesses.

We imagine the legendary actor Edward G. Robinson in a strutting tough guy role might’ve summed up the situation as follows: “I told those Jersey pols I was gonna shut those nuke plants, see? They better cough up 300 large or else the plant was gonna get it. And you know what, they all folded like a cheap suit at Macy’s, nyah.” End scene. And Jersey electricity customers? Pay up. By Leonard S. Hyman and William Tilles

Should consumers be forced to rescue competitive businesses from the consequences of their own profit-motivated but failed decisions? Read… FirstEnergy Seeks US Gov Rescue. Who Should Pay for Bad Decisions by Capitalists? Not the Capitalists, Obviously

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  43 comments for “Another Nuclear Bailout?

  1. Gershon says:

    New Jersey voters have sanctioned corrupt governance with their votes for decades. They have lost the right to complain about patronage, graft, and crony capitalism.

    • Rates says:


      Muppets go to college but I bet they can’t spell “consequences”.

      Might as well vote the Sopranos into office. At least it will be entertaining.

  2. raxadian says:

    That money could be used for solar or wind power but money for my friends dear boy.

  3. Ed says:

    Deregulating power generation is asking for lemon socialism. The same system we — or at least “I” — learned our banks enjoy a decade ago.

    • BTilles says:

      Hi Ed,
      “Lemon socialism” is good. But we think of it as “twilight capitalism”, making large financial concessions to an industry on its way out but with outsized political clout.

  4. 2banana says:

    Imagine what would have happened if, in the early 2000s, the government had announced that it would subsidize the ownership all solar panels as it made no economic sense to buy and install solar panels without them.

    And those solar companies made massive political contributions to keep the taxpayer gravy train going…

    Oh wait…

    • Gibbon1 says:

      Flip side is as a result of those subsidies the cost of solar and wind plants declined bigly.

      Where the cost of nuke plants keeps going up. Also running those old plants is just dancing with the Devil.

    • BTilles says:

      Hi 2banana,

      Re gov’t subsidizing solar in early 2000s: We don’t disagree with the impulse esp. re helping along new, clean tech. But you could end up like like Germany which decided to go big or go home–solar subsidies and they closed their nukes. The result was more, and dirtier coal fired power gneration at the margin, clearly a suboptimal outcome from an envirnmental perspecrive.

      • d says:

        The decision to dump Nukes in Germany was not a simple Nuke V Green, Energy issue. CND also played a big part in it.

        Germany was to become “nuclear free”, not just a “nuclear weapons free” zone.

        How the Nuclear Generation was to be replaced, was an, after the no more nukes decision, issue.

        Just as not every divorcing couple, has two new partners, waiting in the wings.

        Realistically Mainland Europe and England are to small, area wise for nuclear Generation. America has it in all the wrong places due to its lack of a decent and functional national Electricity supply grid.

  5. Kaz Augustin says:

    Speaking of energy storage, makes me wonder why Elon Musk is setting up large batteries (that allegedly reduce contingency costs by 90%) in relatively remote S Australia. Wouldn’t a pet project of his of that magnitude reap much on mainland USA? Or is there something aromatic tinging the air Down Under?

    Full disclosure: I am NOT an Elon Musk fan.

    • d says:

      SA wants a Green Fail over Redundancy/contingency.

      Musk has the technology and the people to Provide that, in record time.

      He isnt chinese, and although SA and AU, is not dead straight, it is nowhere hear a crony corrupt as the US.

      That US Crony Corruption still keeps musk out of many places his technology should be IN. At the expense of the American consumer.

      Somebody better than the chinese, still needs to be found, to help them improve their supply grid now, as it really needs it.

    • Maximus Minimus says:

      The real question energy storage subsidizers might have to answer is, why couldn’t storage be done by 100-year old, cheap led-acid batteries. Why did we have to wait for expensive lithium storage? It’s not that you mount it on an airplane. There is a nagging realization among millenials that something have gone terribly wrong with world. Elon Musk satisfies the need for an answer, but some problem simply have no solution.

      • BTilles says:

        Hi Max,
        That’s a really good point. There are a lot of technologies out there that constitute “storage” including pumped hydro and compressed air just to name two.

      • fajensen says:

        You will get, maybe, 10 years of service life out of lead-acid. The chemistry is noxious, needing special “battery rooms”. Recycling the lead and electrolyte is getting increasingly expensive. Power drops off a cliff in cold weather. Efficiency in terms of charge in and charge out is quite low (that, and maintenance is probably what kills Lead-Acid for grid storage).

        Li-Ion is clean, sealed, and has a very high energy density. Might catch the holy spirit and spontaneously self-combust, though. The Li-Ion cells are still riding on the “cost goes down 20% every time production doubles”-curve.

        NiFe are very, very long-lived and robust but with only 1 volt per cell energy density is lacking and they become expensive.

        NiFe is still used as backup for cell-phone towers and railway equipment – things that sit in a long forgotten hut out in the boonies, but has to work. When I get my shot-gun shack out in the forest it will have NiFe.

        Every problem has a solution. Maybe not always a very good or an elegant one, but, pseudo-requirements like “base-load” are going away with the buildout of “smart-grid” and FACTS (Flexible Alternating Current Transmission Systems).

    • fajensen says:

      I am guessing that:

      He has got a lot of batteries not going into Tesla 3’s right now and he needs to dump all that inventory before Flow-Batteries show up and cleans up the grid-scale storage market.

      Tesla can’t just store them, they show up on the books and eventually the warehouse will catch fire because, statistically, one battery pack will fail and set off the others.

      Lithium-Ion’s are not at all the best battery for grid-scale; expensive, flammable, fragile, meaning these systems won’t last for the 20, 30, 40 years timescales that the utilities run on. But, Tesla has good sales people.

      Available Now:

      In 10 years, maybe:

    • BTilles says:

      Hi Kaz,

      Regardless of whether it is Mr. Musk or GE or Siemens, the value of a battery (especially in a remote location like the one in Australia) is rather high because it typically permits the avoidance of other big expenditure for things like miles of transmission lines.

  6. Paulo says:

    Think about the ransom conditions. Nukes. It’s the technology people bought into (excuse the pun) decades ago. And how long must the radoactive waste be held for? And where must it be held? Oh wait a minute, there is no long term storage facility in the World, yet. Oh well, we’ll just hold it on site and under water like Fukishima.

    Question for Google, “And how long must nuclear waste be safely stored”?

    Answer: “The challenge of making nuclear power safer doesn’t end after the power has been generated. Nuclear fuel remains dangerously radioactive for thousands of years after it is no longer useful in a commercial reactor. The resulting waste disposal problem has become a major challenge for policymakers.”

    Right now they are extorting to keep the plant open. Then, they will extort to remain on site for storage and decommission. Then, they will extort to complete and maintain Yucca Mtn. (Maybe).

    A 3% surcharge is nothing. Call it a warm up, an introduction of sorts. This will go on until the Country goes down, and then there will be three winged birds and two headed fish for all the survivors to hunt.

    I call it over reach. A power plant exec just calls it the cost of doing business. Boosters said nuke power would be so cheap it is nearly free. And they are still building plants. Like I said, 3% is nothing. Get used to it because it will go on until the golden goose dies.

    • John says:

      If you don’t mind my asking,Mr.Paulo-

      What is there NOT to like about so-called radioactive waste (except that it sounds bad and,being mentioned,makes environmentalists squirm).

      U-238 is pretty harmless.They make armor-piercing projectiles from this stuff which not only pierce armor (as they certainly should) but even produce beautiful sparks and flashes.Boys and girls in the military just love this Aurora Borealis-like stuff.

      Modern oil refineries produce no solid waste.Everything is used up.

      Nuclear industry is going the same way.Soon nuclear re-processing facilities will run out of stuff to re-process.

      Processing of Used Nuclear Fuel (Updated February 2018)

      • Wolf Richter says:

        I assume you’re being sarcastic.

        • John says:

          No,Mr.Richter,I am never sarcastic,only spontaneously,intermittently radioactive.When it happens my friends glow in the dark.Then their glow fades.

      • fajensen says:

        … but even produce beautiful sparks and flashes.

        And Gulf War Syndrome, any isotopes of uranium are quite poisonous materials on their own. Especially for kidneys –

        And “funny” children too, Iraq must be able to own the entire global freak-show market by now.

        Anyway, the unstoppable PU-laced seepage from Hanford, BC is bound to show up in a water supply to something important any day know.

        But, … “Hey, clear the frontpages for: Russia, Russia, Russia”!

        • John says:

          In case you don’t know,Mr.Fajensen,Hell went all nuclear too.Because Fire and Brimstone are so 19 century.And sulphur dioxide is bad for the Environment,you know…

          Courtesy of Admiral Rickover aka KOG aka Kindly Old Gentleman.Even if he died does not mean that he stopped being hyper-active.

          Did you notice decreased volcano activity in recent years ? That is the proof.

          Nowadays they purify Souls by fast neutrons.When I’ll eventually get there-no doubt about it-they will raise control rods all the way to the top ;-)

  7. MCH says:

    Wow, if there is ever a shill for the renewables industry, this is it. The authors speak as if there is zero cost to renewables. It’s just utterly amazing how people can turn a blind eye to things when its convenient or if it fits their narrative.

    The fancy batteries and those cheap solar panels have a cost, it’s just not obvious to all these renewable fanatics right now simply because most of it isn’t manufactured here. I wonder if the authors even realize this. I’m all for taking down older nuclear plants, but this should be done while newer technologies are put in place.

    • BTilles says:

      Hi MCH,

      I think the point we were making is that both renewable and fossil fueled and nuclear power generating stations all require considerable capital to build. However, solar and wind have zero ongoing fuel costs. That’s a pretty big competitive advantage, no?

      • fajensen says:

        Not to forget maintenance. A thermal power plant is a very complex beast requiring skilled staff and good porcesses for keeping it running. A nuclear power plant is a regular thermal power plant with a reactor glued onto the side of it. The reactor being very complex … etc. etc. Two capital-sucking beast making out, basically.

        With Solar, one needs a couple of window-cleaners riding golf buggies and a good drone with a thermal camera to spot the odd duff cells. Very easy plant and no technical risks. Even the Saudis can operate a solar power plant.

  8. Frederick says:

    I worked on those plants in 1980 My firm did the piling for the cooling towers I’m approaching the end of my useful life along with those plants sad to admit ?

  9. DV says:

    When somebody writes that intermittent renewables are replacement for nuclear base load power, it is the and of it. Noone should read this any longer.

    • BTilles says:

      Hi DV,

      No argument that there are intermittent and base load electrical power generating resources. However when there is excess windpower for example in places like west Texas it displaces coal from the dispatch curve.

    • Wolf Richter says:


      You need to understand the concept of “grid.”

      And what do you do when a nuclear power plant goes down for refueling and maintenance every 18 to 24 months, as they ALL do, for two months at a time? Is everyone going to sit in the dark for two months??? Nope. The answer is the “grid.”

      The entire portfolio of power generators on the grid backs up each power generator.

      • d says:

        The Grid.

        And America has so much trouble efficiently moving its power (which it actually has enough off) around as its “Grid” is a bunch of poorly connected privately owned, poorly maintained, rent-seeking pieces.

        Power grids, Telephone grids, Rail transport grids, and highway systems, along with core Airports, Water systems, and Ports (all National security infrastructure) should be nationally owned, and privately administered, on contract.

        The workers employed by the contractor, not the State/Fed. Then they will work.

  10. Russ Day says:

    It should be noted that the 3% fee is to be assessed AGAINST ALL ‘CUSTOMERS; whether or not customers of the particular electrical company. 15 years ago we put solar on our roof reduced our bills and it has paid for itself. When we moved here 40+ years ago we rebelled at paying for Three Mile Island disaster. If this is a so-called free market why are the customers paying for these losses instead of the stockholders? Those of you critical of solar are apparently ignorant – after you pay for it the electricity is free. Regards, Russ

  11. Alexander says:

    Nuclear power plants are not economically viable anymore. They ALL are an existential problem for the United States. Do the research, people. There have been five major meltdowns in my lifetime and any one of those in this country could have resulted in an entire multi-state area of the United States being uninhabitable. No more New York, Washington, etc. Shut them all down and move the waste.

  12. stan says:

    How about we build large assemblages of stationary bicycles, like at the gym, connect them to generators, and pay the homeless and jobless people to peddle for our electricity.

    Also get rid of the federal income tax on wages, and instead tax petroleum, pesticides, plastic, and pollution.

    More jobs, less environmental damage.

    Engineers? Economists? Environmentalists?

  13. willem says:

    Lots of good points in this article. On the question of bailouts in general, however, one big (philosophical?) question concerns the problem of high barriers to entry for capital intensive technologies, and that is “What is an appropriate rate of return for investors willing to shoulder that risk?”

    The same question exists for lines of business like subprime lending. Higher (sometimes MUCH higher) interest rates allow the granting of credit to virtually everyone, since the high return on the loans that DO perform help to cover (theoretically, at any rate) the costs of those that do not.

    Some of the soft-headed occasionally bleat about “usurious interest rates” or “predatory lending” and want to cap the rates. However, it is fairly easy to back out of the business if at some point a lending institution starts to believe that the math just isn’t working any more.

    With something like a nuclear plant, this can’t be done so easily. The same soft-headed people that agreed to “deregulate” nevertheless want to cap electric rates somehow, yet later when the math doesn’t work out (and here is the point), the utility can’t just close the door and go home. The utility has a huge sunk cost that it is only allowed by regulators to recover over an extended period of time.

    • BTilles says:

      Hi willem,

      Re the appropriate rate of return: I think we’re heading in a different conceptual direction. What happens when the best the system can earn is negative 3% for example, that is, it ceases to be profitable? We think a migration to subsidized, public ownership format is probable over time.

  14. Flying monkey says:

    Wouldn’t development of the Thorium salt reactor be a good idea?

    What disadvantages don’t I see?

    • JohnnySacks says:

      Lots of good ideas out there, molten salt being one I doubt the engineers and scientists want any public exposure due to the current domestic nuclear fear factor. In the end, I expect they’ll all head to China to develop the turn-key technology and sell it back to us to keep the lights and air conditioning on. There’s only so much that wind, solar, and whatever flavor of evererready energizer storage we adopt can provide, but when that A/C unit goes dormant in July, we’ll clamor for any power producing nuclear black box.

    • BTilles says:

      Nothing wrong with thorium. It’s more plentiful in earth’s crust than uranium. The technology has potentially more passive safety features than present nuclear power technology. However, the political will has not been favorable in the US. Thorium reactor development was sidetracked by the Clinch R. fast breeder reactor which was itself subsequently cancelled in the mid 1970s.

  15. WSKJ says:

    This Hyman and Tilles post was very light on the objective presentation of believable data and models, that you customarily provide, Wolf. The biases of the authors are obvious.

    Re the topic of nuclear power plants and dangers that they present, I recommend the chapter “Nuclear Accidents and Lessons Learned”, from the Great Courses title “Nuclear Physics Explained”, by Prof. Lawrence Weinstein of Old Dominion U.. The nuclear power genie is out of the bottle, and we may be better served by learning to master it rather than pretending that we can bury it in the sand and forget it. (Hmm, listen to the excellent reading of The Martian by R.C. Bray (author Andy Weir).)

    Live and learn: you want cooling water nearby, but siting a nuclear plant at the tidal zone in an area with tsunamis recorded in human memory, is clearly ill-advised.

    Moving on to the politics and economics side of the Hyman and Titles post, it is often remarked that the U.S. would be so much better off with a national long-term strategy for nuclear energy. This is inarguable, but:

    it is nowhere near happening, and I cannot now imagine – no matter which party is in power- the development of such a plan. (It goes without saying that I mean a plan developed by informed and wise people.) It is clear to me that a national strategy is needed here, and I suppose that we have the scientists and engineers, but not the political leaders.

    Where is Benjamin Franklin when you need him ?

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