Albany

A challenge by natural gas power plant owners to a multibillion dollar state subsidy for nuclear plants revealed a tug of war between nuclear and gas interests that has been playing out behind the scenes in a New York climate change program.

Gas plant owners sued this week to block a new state subsidy — called a zero emissions credit — that could be worth billions over the next 12 years to four upstate nuclear power plants under Gov. Andrew Cuomo's administration's new Clean Energy Standard.

The ZEC is meant to keep financially stressed nuclear plants from closing down, which could require more fossil-fuel power plants or alternative energy sources, like wind and solar, to make up for the lost power. Now that it has gotten its lifeline subsidy, the nuclear industry appears to be seeking further advantage.

Filings with the state Regional Greenhouse Gas Initiative, which limits climate-changing emissions from power plants, show the state's largest nuclear energy company is urging changes to the program that could raise costs on competitors in the natural gas plant industry.

Officials in New York and eight other Northeast states are reviewing potential changes to the eight-year-old RGGI program, which was spearheaded by former Gov. George Pataki. So far, New York has collected nearly $1 billion from selling state-issued RGGI (pronounced Reggie) credits to power plant owners. The owners must buy a credit for every ton of greenhouse gas emitted into the air.

Nuclear and natural gas plants, which combined now supply nearly three-quarters of the state's electricity, are jockeying for position, according to two longtime energy market observers. Natural gas recently overtook nuclear as the leading source of electrical generation, at 37 percent to 35 percent.

"The nuclear industry got their ZEC 'cookie' to help support their industry, and now want the frosting on top — higher RGGI prices to drive up the costs on their competitors in the natural gas industry," said one observer, who asked his name not be used.

"The oldest, dirtiest power plants in New York are fighting to hold on," said the other observer, who also asked not to be identified. "Anything that raises RGGI credit prices is not good for them."

In December 2015, Exelon, which owns two of the state's four nuclear plants, and is buying a third, the FitzPatrick plant near Oswego, urged RGGI to tamp down the supply of its credits.

FitzPatrick was to have closed late this year or early 2017 before it was sold this summer to Exelon — after the state ZEC subsidy was announced. Exelon plans to continue operations, and was also in discussions to buy the remaining nuclear plant, Indian Point from Entergy, on the Hudson River in Westchester County, which the Cuomo administration has been pushing to close.

Exelon's suggested changes to RGGI would encourage higher credit prices, which would raise operating expenses on natural gas owners. Owners of nuclear power plants, which have no greenhouse gas emissions, have no need for RGGI credits

Exelon urged that RGGI eliminate or pare back its "cost containment reserve" (CCR) program, according to a Dec. 4 company memo filed with RGGI. By setting aside a separate pool of pollution credits each year that become available after credit prices rise above a certain level, CCR is meant to keep credit prices from spiking too quickly. Exelon also suggest that RGGI credit prices should be much more expensive before reserve credits are released.

Currently, RGGI allows for a reserve CCR fund of 10 million credits a year above the emissions cap for that year. Reserves were opened in both 2014 and 2015, with a total of 15 million new credits sold. At current prices, that amount of credits would be worth about $26 million.

Fossil-fuel owners want to keep the CCR reserve as protection against sudden dramatic increases in credit prices. Dynergy, which owns a natural gas plant in Oswego, is part of the lawsuit against the ZEC nuclear subsidy, wrote to RGGI in February urging that the credit reserve program be retained.

RGGI should continue to evaluate "cost containment provisions in 2016 and beyond," wrote Dynergy, adding that the CCR program "may continue to serve a purpose."

bnearing@timesunion.com • 518-454-5094 • @Bnearing10