Jeremy L. Dillon
RW Monitor
10/31/2014
As the nuclear industry fights against a wave of premature shutdowns, Exelon, the operator of the nation’s largest commercial nuclear fleet, has been vocal in the past year about the consequences that pre-mature shutdowns of its reactors in Illinois and New York could cause to local economies and grid reliability. Should the reactors continue on their current path without intervention, the radioactive waste industry could be looking at a minimum of four plants entering decommissioning in the next five years—adding to the four other commercial reactor sites (San Onofre, Kewaunee, Crystal River, and Vermont Yankee) caught in the momentum of premature shutdown.
More so than other utilities, Exelon has made its case to the public and government officials about the reactors’ importance in an attempt to gather support and government intervention to help fight against market powers dragging down the profitability of a nuclear plant, and the reason for their public campaign has everything to do with the amount of units at risk. “The reason Exelon is yelling louder than everyone else is because they have a lot of these units and a lot of them might be at risk,” an industry executive told RW Monitor this week.
One of the major factors affecting Exelon’s ability to generate profit at these plants at risk is their location. Illinois and New York electricity markets operate in a de-regulated merchant model, meaning electricity rates are subject to market powers, not set, regulated numbers. When low natural gas costs and subsidized wind power enter that market, it competitively brings the rate down to a point where some generators receive negative pricing. When these markets first deregulated in the 1990s, many of the power plants entered into power purchase agreements (PPA), which established a contract with a regular rate, but now most of those agreements are expiring, exposing Exelon’s plants to market pricing. “Exelon made a really big bet on this merchant nuclear business,” an industry executive said. “When we deregulated, they had a whole bunch of nuclear units that happened to be in a market area, and so they ended up being a big owner of these merchant nuclear plants. If power markets were high, and they were for a long time because gas prices were high, then a lot of the merchant nuclear plants could have made a lot of money. Today, natural gas prices have been low, and they are going to be low for a long time. That means that a lot of the prices are going to be lower in off-peak hours, and in the really off peak hours, you have a chance to run negative prices.”
Government Intervention Needed?
The Ginna Nuclear Plant in Ontario, N.Y., represents the best example of the effects of an expiring PPA. The Gina PPA with its largest customer, Rochester Gas & Electric, expired in the middle of the summer. With its current exposure to market concerns, Exelon has threatened to close the plant down if a new agreement cannot be negotiated. The utility went so far as to file a petition this summer with the New York State Public Service Commission that would require the two parties to negotiate a deal that would support continued operation. “It is no secret that our plant, like others in the region, faces financial challenges, but this filing is actually good news for the hundreds of hardworking men and women that work at the plant and for the community that we serve because it is an encouraging step towards continuing to operate the plant for the foreseeable future,” Joe Pacher, site vice president of the Ginna Nuclear Power Plant, said in a statement from this summer.
Exelon is trying to get help from the Illinois state legislature using a similar strategy. According to multiple reports, the utility has been in talks with state government to help keep the plants open. One way the state could help, an industry executive said, was to push the Illinois customer organizations like RG&E in New York to negotiate a pricing deal that would stabilize rates. Exelon had originally planned to make a decision on the future of its three plants in the state by the end of this year, but indications from the Illinois state legislature that it would be willing to engage in market-based reform has made Exelon willing to wait on the decision. That decision has now been pushed back to mid-2015.
According to Exelon, all of its negotiations with government entities are aimed at recognizing the importance of nuclear power to the states. “Despite their numerous reliability, economic and environmental benefits, certain nuclear energy facilities face a combination of economic challenges that threaten their continued operation,” Exelon spokesman Paul Elsberg said in an email this week. “As the nation’s largest nuclear operator, Exelon believes there need to be market-based policy solutions that properly value nuclear plants for the clean energy and around-the-clock reliability they provide and enable their continued operation. Exelon continually reviews the economic viability of all our generating units, and if we do not see a long-term path to sustainable profitability for a particular unit emerge, then we will consider all options, including unit shutdowns.”
Proposed EPA Rule Puts Added Emphasis for Nuclear, Exelon Says
Exelon has also championed nuclear as a solution in the proposed Environment Protection Agency regulations that would charge states with limiting carbon emissions from existing power plants. The regulations would seem to place an increased value to nuclear, a carbon-free form of production, which could lead to a more hospitable regulatory and legislative situation, Exelon has argued. “We are pleased that EPA has recognized the important environmental, reliability and economic benefits of existing nuclear power plants and is creating a regulatory incentive that values the many benefits they provide to Illinois and the businesses and families here,” Senior Vice President of Federal Regulatory Affairs and Wholesale Market Policy Kathleen Barrón said in a statement from last month. “If the units at risk of closing today — representing 43 percent of the state’s nuclear generation — retire, they cannot be mothballed and later brought back online,” she said. “Together they represent more than 30 million metric tons of avoided carbon emissions, given that they will need to be replaced with fossil generation to provide the around-the-clock electricity needed to serve customers in the state.”
NEI Study Adds Economic Fallout to Equation
Adding to the pressure on state officials, Exelon and the Nuclear Energy Institute released a study earlier this month that predicted the shutdown of three at-risk plants would result in a loss of nearly $4 billion of direct and indirect economic output in Illinois, with losses increasing each year thereafter and reaching almost $5 billion in direct and secondary economic output by 2030. “The data clearly show that taking Illinois nuclear energy facilities out of the equation amounts to a serious threat to the Illinois economy,” NEI’s Vice President for Policy Development Richard Myers said in a statement from earlier this month. “The profoundly negative impacts would not just occur in the plant communities, but across the state.”
