DOE Grants California’s Request to Revise Civil Nuclear Credit Program Eligibility, Extends Deadline

The Department of Energy (DOE) has revised eligibility criteria for the first-award cycle of its $6 billion Civil Nuclear Credit (CNC) program and extended its application period to Sept. 6, 2022. The action responds to a request for adjustments from the California governor's office to better address Pacific Gas & Electric's (PG&E's) 2,240-MW Diablo Canyon Power Plant's (DCPP's) unique circumstances."

The DOE's formal amendment of its April 2022-issued CNC program guidance on June 30 seeks to clarify how it interprets a reactor has met eligibility requirements that it competes in a competitive electricity market," as set out in the Infrastructure Investment and Jobs Act (IIJA). The changes, which the DOE adopted from a proposal it unveiled on June 17, have drawn mixed reactions from an array of stakeholders, including the nuclear industry, the power sector, and citizen and environmental groups.

Material Amount of Total Revenue'

The April guidance, which applies to the CNC's first-award cycle, allowed nuclear reactors to demonstrate competitive operation during the CNC's four-year credit period by showing units would receive 50% or more of total revenue from sources that are exposed to market competition." That includes sales of energy, capacity, or ancillary services into organized wholesale power markets or bilateral agreements on competitively negotiated terms. However, the April guidance also specified that nuclear reactors that recover more than 50% of their costs from cost-of-service regulation or regulated contracts would not be deemed to compete in a competitive market."

The issue was a sticking point for California Cabinet Secretary Ana Matosantos, who urged Energy Secretary Jennifer Granholm to reconsider the interpretation that would exclude reactors that recover more than 50% of their costs from cost-of-service regulation. In California's view, this exclusion is overly broad, especially where cost-of-service does not cover the costs for which funding is being sought," Matosantos wrote in a May 23 letter.

For DCPP to extend operations, it would incur significant transition costs over the next four years to perform necessary studies, invest in plant enhancements, and obtain licenses and permits," Matosantos explained. Yet there is no existing cost recovery mechanism for those transition costs. Rather, those transition costs would be operating losses, and under the governing ratemaking, DCPP's operator could not recover those costs when it sells output from the plant into the California Independent System Operator electricity market. The fact that the revenue that DCPP may generate in the electricity market comes from cost-of-service ratemaking does not alter the fact that extending operations at DCPP would cause significant economic losses of the sort that the Civil Nuclear Credit Program was designed to address."

Matosantos suggested the DOE should revise the guidance in three ways. First, it could remove the cost-of-service limitation. Second, the guidance could be clarified to specify that operating losses" include costs not recovered through cost-of-service-ratemaking." And third, the guidance should [e]xplicitly include grid reliability and support for state clean energy goals, as well as emissions reductions, as a rationale for extending operations," she said.

After proposing these changes on June 17, and following a 10-day public comment period, the DOE published the final amended document on Thursday. The amended guidance now requires first-cycle applicants to demonstrate competitive operations by showing nuclear reactors will receive a material amount of its total revenue" from sources exposed to market competition-not 50% or more of total revenue as previously required.

The amended guidance says reactors can now address that requirement by showing that cost-of-service regulatory pathways that may be available to reduce the amount of revenue exposed to market risk such as tracking or balancing accounts, construction work in progress (CWIP) policies, or other rate recovery methods for the [nuclear reactor] are unavailable, exhausted, or already accounted for."

DOE Gives Reactor Owners 60 More Days to Prepare Submissions

The DOE said in a statement that the change could be applied to reactors nationwide. After assessing programmatic goals and public comments, DOE believes this change better supports the intent of Bipartisan Infrastructure Law and the goals of the CNC Program to keep clean, reliable electricity on the grid," it said.

U.S. nuclear power plants are important clean energy assets and preserving our existing fleet will maintain nearly half a million good-paying jobs in the nuclear industry," Assistant Secretary for Nuclear Energy Dr. Kathryn Huff said in a statement on Thursday. The amended CNC Guidance supports the intent of President Biden's Bipartisan Infrastructure Law to keep the reactors online that sustain local economies and today provide our nation's single largest source of carbon-free electricity."

To ensure that reactors across the nation can fairly assess and respond to the changes, the DOE also extended the first CNC award cycle submission deadline by 60 days. Applications and bids are now due September 6, 2022, to provide potential applicants sufficient time to prepare submissions in accordance with the Amended Guidance," the agency said.

The changes, however, add a new lag to the agency's ambitious CNC schedule. The November 2021-enacted Infrastructure Investment and Jobs Act appropriates $6 billion for civil nuclear credits, with specific allocations of $1.2 billion per year for fiscal years 2022 to 2026. The funds will be available until spent or can be allocated until the end of fiscal year 2031 (on Sept. 30, 2031).

The agency in April said it would issue the first certification determination and preliminary credit award decisions expeditiously" after the open application period. On Thursday, it clarified that it would work to issue certification determinations and preliminary credit award decisions as soon as 30 days following the deadline for submission of certification applications and sealed bids"-which are now due on Sept. 6.

The first CNC award cycle, currently underway, prioritizes reactors that are most at risk of imminent closure and have already announced their intention to cease operations prior to Sept. 30, 2026. The Infrastructure Bill directs the Energy Secretary to allocate credits over a four-year period to certified commercial nuclear reactors that are at risk of closure owing to economic factors.

The DOE said it plans to initiate a second CNC award cycle in the first quarter of fiscal year 2023. The second cycle will not be limited to nuclear reactors that have publicly announced intentions to retire, and will likely include owners or operators of nuclear reactors that receive payments from state programs, such as zero-emission credits and clean energy contracts. The agency said it will provide additional guidance to applicants under the second award cycle.

At Issue: Deeming What Competes in a Competitive Market

The DOE said it received 112 comments on its proposed guidance amendment-a few more than the 120 comments it received in response to the agency's February 2022-issued request for information. Among comments supporting California's stance on the proposed changes was Carl Wurtz's. Wurtz is president of Californians for Green Nuclear Power, a nonprofit organization for nuclear and civil engineers, students, and physicists who have worked to prevent Diablo Canyon's closure since PG&E made its decision in 2016 to shut down California's only remaining operational nuclear plant.

With recent interest in extending the life of Diablo Canyon Power Plant, Californians for Green Nuclear Power (CGNP) has become aware that, due to a consequence of cost-of-service compensation based on Return-On-Equity (ROE), the plant will no longer be profitable after it has been fully depreciated in 2025," Wurtz wrote. Wurtz notably urged the DOE to consider a resource adequacy credit" using funding from the CNC program to compensate reactor owners for nuclear's baseload operation, grid inertia, ancillary services, and fuel security. In California, its purpose would be to compensate PG&E for the reliability benefits Diablo Canyon brings to California's grid," he suggested. Though CGNP is not authorized to act as an agent for [PG&E], publicly available information reveals that the plant, with a credit based on a percentage of marginal sales of energy, could be operated profitably and with significant savings for electricity customers."

A group of 179 organizations, however, expressed concerns about the DOE's misuse" of the CNC. Diablo Canyon is not closing because it is unprofitable - its owner PG&E operates it as part of its regulated utility and recovers all of its costs plus a regulated rate of return on investment through its regulated electricity rates," said the group, which includes groups opposed to nuclear power, such as Beyond Nuclear, and citizen and environment organizations.

Diablo Canyon is closing because PG&E determined in 2016 that doing so would enable it to meet California's renewable energy standard (RES) and emissions standards more rapidly and cost-effectively." The plant's closure, meanwhile, wouldn't result in emissions increases, they alleged. As a result of [California Public Utility Commission] orders and state legislation, PG&E and other utilities and load-serving entities in California must, between 2021 and 2026, procure over 22,000 MW of renewable energy and electricity storage. This is several times more generation and capacity than is needed to replace Diablo Canyon, as well as several fossil fuel power plants that are also retiring. The vast majority will be online before the reactors at Diablo Canyon retire in 2024 and 2025," said the group.

Industry trade groups the Nuclear Energy Institute (NEI) and the Edison Electric Institute (EEI), which represents all U.S. investor-owned electric companies, in a joint letter supported the DOE's proposed changes-but only for the first award period. The groups, notably, also urged the DOE to invite public comment seeking additional potential changes to the guidance before the start of the next award cycle."Given that a broader set of applicants will be eligible in subsequent award periods, public comment will allow for further improvements to the certification criteria, application content requirements, evaluation processes and methodologies, and application timelines," the trade groups said.

At least one power company also shared its views: PSEG Nuclear, which operates the Salem and Hope Creek Nuclear Generating Stations in Lower Alloways Creek, New Jersey, and is a part owner of the Peach Bottom Nuclear Plant in Pennsylvania-all plants that compete in PJM Interconnection. PSEG urged the DOE not to make changes to its guidance, not to further extend the deadline, and instead to rethink the timing of the CNC Program to allow all reactors that truly compete in a competitive electricity market to immediately apply for Credits."

The company added: The proposed change to this eligibility requirement is fundamentally contrary to the CNC Program's core reason to exist, which is to preserve nuclear plants at risk of closure for economic reasons. A plant that receives a majority of its revenues outside a competitive market is insulated from those economic pressures and should not be eligible to apply."

PSEG, which is a member of both EEI and NEI, said it was not aligned with the trade groups' position. It said a resource that competes in a competitive market" should be based on two concepts: whether the amount paid to a resource for the sale of its energy/capacity output is based on a competitive clearing price; and whether the amounts paid to the resource as a result of the competitive clearing price exert competitive pressure on the participating resource such that the resource is incentivized to operate in an efficient manner."

A delay in the CNC program, meanwhile, would affect New Jersey citizens, the company said. Since 2019, PSEG's three nuclear plants have received support from New Jersey's Zero Emission Certificate (ZEC") program-a ratepayer-funded program that would be reduced dollar-for-dollar for every dollar received through the CNC Program. PSEG, therefore, seeks credits not to benefit itself or its shareholders, but rather to relieve the disproportionate burdens borne by New Jersey citizens, who have been supporting these plants for over three years while citizens of neighboring states have received the benefits of these plants' clean energy."

The New Jersey Board of Public Utilities echoed PSEG's comments. There are 21 known nuclear units currently operating having publicly announced some level of financial uncertainty," said the state agency with authority to oversee the regulated utilities. Any further delay in awarding federal financial support will only aggregate operating losses that a unit has realized, making it more difficult and expensive to fulfill the CNC program's purpose of providing funds to maintaining the operation of these nuclear units," the agency said.

-Sonal Patelis a POWER senior associate editor (@sonalcpatel,@POWERmagazine).

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