4/16/15 - CRAIN'S: Exelon's downstate nuke gets surprise windfall

By STEVE DANIELS

One of the three Illinois nuclear plants that Exelon is threatening to close because it's losing money will receive a windfall worth tens of millions beginning in June, courtesy of ratepayers downstate.

Energy prices are set to spike starting this summer for many Illinoisans outside of Commonwealth Edison's territory in northern Illinois. The cost that consumers pay to generators to ensure power plants are available to deliver electricity on the highest-demand days of the year will increase nearly ninefold in the year beginning June 1.

Those “capacity” charges—set according to an auction run by the independent grid operator that manages wholesale markets in downstate Illinois and all or parts of 14 other states—are embedded in the overall energy prices customers pay and are in addition to the cost of the juice itself. The average household that buys energy from downstate utility Ameren Illinois will see their electric bill rise by as much as $150 annually due to the change.

Results of the auction were announced April 14.

The main beneficiaries include Exelon, which operates six nuclear plants in Illinois, including the Clinton plant downstate that will get the cash infusion. Also benefiting is Houston-based Dynegy, the second largest power generator in Illinois after Exelon and operator of a fleet of coal-fired plants downstate.

HOW MUCH JUICE FOR CLINTON?

Exelon confirmed that its Clinton plant cleared the auction conducted by downstate grid operator MISO Energy. But the company wouldn't divulge the exact revenue boost at Clinton.

Exelon would be in line to get more than $50 million if it had offered all of Clinton's capacity in the auction. But Exelon is said to already have committed some of Clinton's capacity to other customers. The total revenue boost to Clinton is in the tens of millions, but how much less than $50 million is uncertain.

By all accounts, Clinton is the most financially challenged of Exelon's six Illinois nukes, two more of which the company says are losing money. Exelon is pushing legislation in Springfield that would slap a surcharge on most electric bills statewide, providing about $300 million of yearly revenue over the next five years, most of which would go to Exelon's nukes.

Exelon's fleet as a whole in Illinois is profitable.

A THORNY ISSUE

The windfall at Clinton is sure to raise questions about whether Illinois lawmakers should grant special favors to Exelon when it's demonstrating success in convincing regional grid operators and their federal regulators to alter capacity markets in order to funnel more cash to nuclear plants and other generators.

Low natural gas prices, coupled with excess power in the Midwest, have put pressure on wholesale power prices that Exelon and other generators can charge.

Consumer advocates were shocked at the price spike downstate. Unlike the eastern regional grid—PJM Interconnection—serving Northern Illinois, where most of Exelon's nukes operate, capacity and energy prices in MISO historically have been significantly lower. Indeed, in the other 14 states MISO serves, capacity prices in the recent auction came in at a little over $3 per megawatt-day. In downstate Illinois, it was $150. Currently, MISO capacity charges downstate are just $16.75.

“Even though we have a surplus of capacity and are a net exporter of power, Illinois consumers will pay 50 times more for capacity,” said David Kolata, executive director of the Citizens Utility Board. “That's just on its face a patently absurd result.”

DOWNSTATERS DINGED

With Exelon's bill pending in Springfield and the company threatening to close its money-losing nukes if lawmakers don't act, downstate consumers now are at risk of paying far more to prop up the Clinton plant via the MISO auction and then paying even more beginning next year to keep plants serving the Chicago area afloat.

“There was always a risk Exelon would be double-dipping,” Kolata said. “They've been making arguments at multiple levels of government about getting more money from consumers.”

For its part, Exelon said the Clinton plant still will be underwater.

“The auction results reduce Clinton's economic losses, but the plant remains uneconomic and may prematurely shut down absent Illinois legislative changes to outdated policies that do not allow nuclear energy to compete on a level playing field with other zero-carbon resources,” the company said in a statement.

“These results underscore the importance of keeping units in service that produce highly reliable, 24/7 power,” the company went on. “The wholesale price increases from the auction are small compared to the price spikes that would occur if Clinton is forced out of the market.”

Households that get their energy from Ameren Illinois clearly will pay significantly higher electric bills. In MISO, large buyers of wholesale power can negotiate bilateral capacity deals with generators and avoid paying the capacity prices set in the MISO auction. The Illinois Power Agency, which buys power on behalf of utility customers statewide, never has done that and didn't in its recently concluded purchase for the year beginning June 1.

A MIXED BAG

About two-thirds of households in Ameren Illinois' territory get their electricity from outside suppliers, mostly via contracts negotiated on their behalf by their municipalities. Homefield Energy, a retail supply unit of Dynegy, has most of that business, and Dynegy spokesman Micah Hirschfield said customers in those deals wouldn't be affected by the MISO increase because they're on fixed-price contracts.

For businesses downstate, it's a mixed bag. Some have fixed-price deals that shield them from such fluctuations; others subject themselves to market gyrations in order to secure lower prices when markets drop.

“It's really a great time for those customers to talk about getting on a fixed rate,” Hirschfield said.

WHAT'S NEXT

The MISO auction is a precursor for what may be coming in the PJM regional grid affecting the Chicago area. PJM managers, expressing concern about reliability if plants close, have worked to increase capacity prices. The Federal Energy Regulatory Commission recently delayed PJM's request for changes that would raise prices.

PJM is asking for a short delay in its auction scheduled for next month, so that it can address FERC's concerns. That auction would set prices for three years for now. Unlike MISO, which sets prices for the coming year, PJM establishes its prices three years ahead of time to give power-plant developers and owners time to make investment decisions.

If PJM gets its way, Exelon could see another, larger windfall for the rest of its Illinois nuke fleet, but the money wouldn't start rolling in until mid-2018.