Nuclear Faceoff

Deck: 

Indian Point and the battle for the nation’s energy future.

April 2012

The State of New York and its Department of Environmental Conservation (NYSDEC) want to close the Indian Point Energy Center (IPEC), a dual-reactor nuclear power station located 38 miles from New York City.1 In many ways, the looming battle over IPEC’s fate is a microcosm of the country’s nuclear power sector, pitting state officials and environmental organizations against a cost-conscious power producer. But the IPEC battle is also much more than a state-of-the-industry snapshot. Aside from the unique concerns that belie its physical proximity to New York City, any forced closure of IPEC on environmental grounds would involve novel issues of law that could fundamentally change the nuclear power paradigm throughout the country.

IPEC is an integral part of lower New York’s electrical grid but has faced environmental scrutiny since its construction in the 1960s, due to its cooling system’s impact on the Hudson River. The facility’s operating licenses for its number 2 and 3 reactors from the Nuclear Regulatory Commission (NRC) are due to expire in 2013 and 2015, respectively. Specifically, NYSDEC is refusing to issue the Clean Water Act (CWA) permits that serve as a prerequisite for NRC relicensing, creating an issue regarding a state’s ability to preempt NRC authority created under the Atomic Energy Act.2 In fact, no nuclear facility in the United States has ever been denied re-licensing by the NRC, and no one power plant means more to a major U.S. city than IPEC does to New York. As a result, the ultimate resolution of the IPEC debate will be an indicator of how nuclear relicensing will fit into America’s strategic energy future.

Environmental Issues

Since its construction in the late 1960s, IPEC has drawn the ire of the environmental community. With its intake structures situated along the bank of the Hudson River, the facility’s reactors employ a once-through condenser cooling water system. IPEC’s combined daily intake capacity runs approximately 2.5 billion gallons of Hudson River water per day—a total that environmentalists believe results in unnecessary heat pollution, impingement, and entrainment. Entergy Corp., which owns and operates IPEC, has installed dual and variable speed intake pumps at the facility, and uses modified Ristroph screens and a fish return system to limit water discharge issues.

Since 2003, IPEC’s CWA § 402 State Pollution Discharge Elimination System permit (SPDES) has been in a state of limbo as Entergy and NYSDEC have argued over the state’s interpretation of CWA permitting and procedural guidelines.3 The main source of environmental contention facing IPEC, however, involves its CWA § 401 Water Quality Certificate (WQC). A WQC is a prerequisite for NRC relicensing and carries a 20-year term that runs parcel to the NRC’s operating license. In 2010, NYSDEC denied Entergy’s WQC application for both IPEC reactors,4 citing IPEC’s need to utilize a closed-loop cooling system, which meets the definition of “best available technology” as defined by the CWA.5 The net impact of the NYSDEC’s ruling essentially forces Entergy to retrofit IPEC with cooling towers that will mitigate intake discharge issues on the Hudson River. Entergy estimates such a retrofit will cost over $1 billion and will make IPEC economically unfeasible to own and operate.6

Entergy has appealed the state’s denial of a water quality certificate, claiming that NYSDEC is misinterpreting the federal mandate for a cost-benefit analysis, contained in CWA sec. 316.7 This mandate dictates that permitting decisions under the act must take into account any less-expensive alternatives—namely a wire-wedge intake structure that Entergy has proposed in lieu of a closed-cycle cooling system.8 Yet, in countering Entergy’s claim, NYSDEC argues that under the CWA, the traditional cost-benefit analysis doesn’t apply when the technology isn’t the “best available technology” to ensure environmental protection—an interpretation that NYSDEC applies to wedge-wire screening.9 This reading of the CWA is seemingly consistent with the Supreme Court’s holding in Entergy v. Riverkeeper, which created somewhat of a gray area in how agencies should interpret CWA sec. 316 and its mandate for a cost-benefit analysis.10

In addition, Entergy finds fault with the NYSDEC’s decision on procedural grounds. In July 2011, Entergy petitioned the NRC, claiming that the NYSDEC waived its authority to make a WQC determination due to its inability to adhere to the CWA’s one-year time limit for such a decision.11 This petition puts the NRC in the awkward position of making statutory interpretations that would clearly preempt state authority under the CWA. Although some precedent suggests that agency adherence to statutory time constraints doesn’t amount to a waiver of authority, there’s no case clearly on point. Administrative hearings regarding the matter began in late 2011.

State Prerogatives vs. NRC Authority

The significance of Entergy’s administrative hearing with the NYSDEC is complicated by the role the NRC will play in IPEC’s future.

Since its inception the NRC has relicensed every nuclear power plant whose application it has received. And in the case at issue, the NRC hasn’t given any indication that IPEC relicensing won’t occur, despite official opposition from NYSDEC.12 Yet the situation remains unsettling.

On one hand, the NRC’s explicit grant of authority under the Atomic Energy Act is grounded on the notion of ensuring nuclear safety. In that sense, NYSDEC does have a theoretical ability to force IPEC’s closure based on environmental grounds. Such authority, however, raises deeper legal questions that are only recently facing scrutiny.

In many ways, New York State’s ability to use environmental concerns to force the closure of IPEC hinges on a possible final ruling from the U.S. Supreme Court in a separate controversy on the effect of a key state statute—Vermont Act 160.13 Passed in 2006 by the Vermont legislature after the NRC granted Entergy’s Vermont Yankee power station a 20-year operating license renewal, Act 160 gives authority to the state’s General Assembly to withhold from Entergy’s Vermont Yankee power station a certificate of public good—a unique certificate designed by state officials to ensure that the long-term interests of Vermont’s citizens are consistent with the continued use of nuclear power within the state. The act does enable Entergy to petition Vermont’s Public Service Board to receive a certificate of operation, but only after a comprehensive study is performed that analyzes whether the plant’s capacity is actually needed, along with its economic and social benefits, risks, costs, and feasible alternatives.

To date, Vermont remains the only state to pass legislation that explicitly enables usurpation of NRC authority. Like all federal agencies, the Nuclear Regulatory Commission sees its authority protected by the doctrine of federal preemption, which prevents a state law from obstructing the function and purpose of any federal law.14 As it relates to the NRC, the preemption doctrine has withstood judicial scrutiny only once, albeit briefly. In 1983, the Supreme Court upheld California’s moratorium on nuclear plant construction in Pacific Gas and Elec. Co. v. State Energy Resources Conservation, the long-term affect of which was limited by the duration of the moratorium.15 Much like Vermont’s Act 160, California’s position at the time was steeped in concern over the safety of nuclear operations and its eventual waste production within the state.

Earlier this year, Entergy prevailed over Act 160 in federal court in Entergy Nuclear Vermont Yankee, LLC et. al. v. Shumlin et. al., but the final conclusion of the dispute is far from settled.16 Vermont has promised to appeal the decision, adding to the likelihood that the case will eventually make its way to the Supreme Court. For New York State lawmakers, any eventual outcome favorable to Vermont ultimately might enable the New York General Assembly to enact a law similar to Act 160. The question would then become whether lawmakers would base the law on environmental concerns, thereby directly addressing IPEC’s WQC issue, or if broader economic and safety concerns would dominate. Either way, the possibility that New York would have an ironclad option against the preemption doctrine is unlikely to occur before IPEC unit 2’s NRC operating license expires in 2013.

In the meantime, unless the NRC decides against relicensing IPEC for another 20 years, the NYSDEC’s withholding of a WQC permit beyond IPEC’s licensing dates won’t automatically shut the plant down. IPEC can continue operating without a WQC if it appeals the NYSDEC’s permit denial, which it almost certainly will do. In anticipation of this, the NRC is scheduling a hearing on IPEC’s license renewal later this year. Importantly, there’s no statutory limit on how long the NRC might take in deciding an appeal, although absent a final decision regarding Act 160, it’s unlikely any NRC decision could be delayed beyond 2015, when IPEC unit 3’s operating license expires.

The Oyster Creek Gambit

Many similarities arise between New York’s approach to IPEC and the negotiated closure of the Oyster Creek Nuclear Generating Station in New Jersey. In 2009, Exelon, which owns and operates Oyster Creek, agreed to close the plant in 2019 despite being granted a 20-year license renewal by the NRC that extended to 2029. Exelon and New Jersey negotiated the plant’s closure after the New Jersey Department of Environmental Protection (NJDEP) refused to certify that the facility was consistent with the state’s Coastal Zone Management Act (CZMA), a necessary precondition for NRC license approval.17 In order to achieve CZMA compliance, Exelon would have had to construct on-site cooling towers, similar to those needed at IPEC, at an estimated capital cost of $700 million. Due to this potential retrofit cost, other capital expenditures required at the plant, and Exelon’s market forecasts, the option of closing the plant early emerged as the cheapest way to manage Oyster Creek as a profitable asset. In January 2012, Exelon reiterated its plan to shutter the plant despite the federal court’s decision in Vermont Yankee.

Since the Oyster Creek decision was announced, Entergy has repeatedly stated that it won’t negotiate the early closure of IPEC if the NRC re-licenses the facility. Without question, the NYSDEC’s withholding of a water quality certificate is intended to exert the same pressure on IPEC that New Jersey exerted on Exelon and Oyster Creek. However, if Entergy maintains its position, and if Vermont’s Act 160 is permanently struck down by the court, then New York’s options to force the closure of Indian Point will remain limited.

Reliability Concerns

Regardless of the environmental debate, the fact remains that IPEC’s 2,058 MWe of capacity represents a significant power asset to lower New York state. New York City receives an estimated 25 to 30 percent of its daily electrical supply from IPEC, and the NYISO’s most recent reliability assessment indicates that simply removing IPEC’s capacity would severely jeopardize lower New York state’s electrical reliability.18 This fact isn’t lost on state officials, who are actively exploring ways to close IPEC without threatening reliability.19 Nevertheless, despite all the state’s planning, there doesn’t appear to be any scenario related to an IPEC cooling tower retrofit or outright closure that won’t significantly increase consumer rates in the Lower Hudson Valley (LHV) and NYC-area electrical supply zones.20 IPEC’s retirement also would force greater reliance on fossil-fueled generation sources, most likely increasing the sensitivity of electricity prices to fluctuations in natural gas prices.21

While this result might mark an unavoidable consequence of nuclear power’s diminishing role within the American energy sector, analysis indicates that future market revenues likely would fall short of what’s needed to attract enough new generation to replace the lost IPEC capacity and maintain system reliability—even with upticks in demand that nudge wholesale prices higher.22 Such predictions raise legitimate questions regarding the role New York State might have to play in possibly subsidizing the installation of new capacity. Nonetheless, state officials have moved forward with legislative changes that focus on meeting new capacity needs. The centerpiece of these efforts is the Power NY Act of 2011, Article X, a new power plant siting law that streamlines the state approval process of facilities of at least 25 MW.23 State officials estimate that the new law will enable developers to shorten approval times to no more than 12 months—compared to the historic average approval process of 3 to 5 years—which theoretically would facilitate installing the capacity needed to replace IPEC before 2015.

Nevertheless, the net impact that Article X will have on the lower Hudson and NYC supply areas remains uncertain.24 Article X’s utilization is still contingent on the environmental impacts of any proposed facility—meaning that per-se approval within 12 months isn’t guaranteed. Perhaps more significantly, the ability to actually develop new capacity in lower New York state remains constrained by a lack of natural gas transmission infrastructure. In order to accommodate up to 2,000 MW of new gas-fired generating capacity, either new interconnections with the Algonquin pipeline, or new trunk lines carrying Marcellus gas, will be required. Already a number of natural gas infrastructure projects are being developed in New York state and neighboring New Jersey, but none of these existing projects is being built in anticipation of a future without IPEC online. Because IPEC is a source of baseload power within the NYISO region, a firm supply of natural gas will be needed to assure grid integrity. Due to the uncertainty surrounding IPEC’s future, the strategic planning needed for an accurate forecast of natural gas supply into the LHV and NYC areas has been limited.

The Broader Horizon

Despite the uncertainty that characterizes Indian Point’s environmental situation, the case serves well to highlight issues and stimulate thinking on the wider questions facing America’s nuclear industry.

The NRC recently granted approval to construct a new nuclear plant—the first such approval issued since 1978. 25 Yet America’s nuclear fleet is aging rapidly.

EES North America

In endeavoring to answer how our nation will meet its future energy demands, analyzing the environmental attributes of nuclear power seems to be a necessary progression. And as for Indian Point, where the discussion arguably is limited primarily to the Clean Water Act, the conflation of federal preemption issues and broader economic concerns only adds to the intrigue.

Whatever the result, when a final conclusion on IPEC is reached, the policy landscape surrounding nuclear power will be a telling indicator of how the nation’s energy future will unfold.

 

Endnotes:

1. Indian Point Units 2 and 3 are pressurized water reactors with a combined net capacity of 2,158 MWe. The facilities are located on the east bank of the Hudson River in the Village of Buchanan, Westchester County. In 2007, NYSDEC filed a petition letter to the NRC stating that IPEC’s continued operation is untenable to New York State and that the facility shouldn’t be relicensed. See New York State Dept. of Env. Conservation, Notice of intention to participate and petition to intervene, Nov. 30, 2007.

2. Atomic Energy Act of 1954, 68 Stat. 919, codified at 42 U.S.C. §§ 2011-2284, 1982.

3. See http://www.dec.ny.gov/docs/permits_ej_operations_pdf/issuesruling.pdf. In New York State SPDES permits must be renewed every five years. 6 NYCRR Part 750-1.15.

4. New York Dept. of Env. Conservation, Nos.: 3-5522-00011/00030 (IP2) and 3-5522-00105/00031 (IP3) Notice of Denial (April 2, 2010).

5. 33 U.S.C. § 1326(b); 6 NYCRR § 704.5.

6. David M. Halbfinger, “New York Denise Indian Point a Water Permit,” New York Times, April 3, 2010.

7. See 33 U.S.C. § 1326(b).

8. CWA § 316(b); 40 CFR § 125.90 – 125.99.

9. Notice of Denial, supra note 4.

10. See Entergy Corporation v. Riverkeeper, Inc., et al, 29 S.Ct. 1498 (2009).

11. Entergy Corporation letter to Brian E. Holian, Director, License Renewal, U.S. Nuclear Regulatory Commission (July 29, 2011).

12. NYSDEC Notice to Intervene, supra note 2.

13. 2006 Vt. Acts & Resolves No. 160.

14. See McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579, 1819.

15. Pacific Gas and Elec. Co. v. State Energy Resources Conservation, 461 U.S. 190, 1983.

16. Entergy Nuclear Vermont Yankee, LLC et. al. v. Shumlin et. al., Docket No. 1:11-cv-99, 2012.

17. Press Release, New Jersey Dept. Env. Protection, DEP issues NJPDES permit to Oyster Creek Nuclear Plant in accordance with plant closure agreement, Dec. 21, 2011.

18. New York Independent Service Operator, 2010 Reliability Needs Assessment, at 53, 2010.

19. Press Release, New York State Assembly member James F. Brennan, “Assembly Committees’ Preliminary Findings Show Indian Point Can Be Shut Down,” Feb. 1, 2012.

20. NYDEP recently commission the Charles River Associates (CRA) to perform and economic impact analysis resulting from IPEC’s closure. CRA performed an options analysis using IPEC continual operation as a baseline for comparison. In every scenario modeled, the price of energy to New York’s consumers increase, air emissions rise significantly, and reliability issues arise because of the transmission issues that exist in lower New York. Specifically, CRA’s analysis forecasts wholesale cost increases of approximately $1.5 billion per year, or roughly a 10 percent increase under most scenarios. NYC consumers would pay approximately $300 million per year more for wholesale energy, or approximately a 5 to 10 percent increase. See Indian Point Energy Center Retirement Analysis, Charles River Associates (2011).

21. Id.

22. Id. at 78.

23. The Power NY Act of 2011 (A. 8510/S. 5844) (PNY Act).

24. The New York Affordable Reliable Electricity Alliance official response to Article X is that it won’t reduce the need for IPEC. See Paul Steidler and Amber Sisson, “New York’s Electricity Marketplace: Efficient, Regulated, Free Enterprise,” Nov. 14, 2011.

25. Matthew L. Wald, “Federal Regulators Approve Two Nuclear Reactors in Georgia,” New York Times, Feb. 9, 2012.