9/10/15 - CRAINS: Exelon gives reprieve to Quad Cities nuke plant

By: STEVE DANIELS

Exelon is reversing course and will keep its troubled Quad Cities nuclear plant open at least through mid-2018 after the company's Illinois nuclear plants obtained yet another $270 million-plus revenue infusion courtesy of the grid operator for the region including northern Illinois.

The operator, PJM Interconnection, manages the power grid for all or parts of 13 states plus the District of Columbia. On Sept. 9, it disclosed the results of the third of three auctions to set the prices consumers will pay power plants over the next three years to promise to deliver when demand is greatest. This round of bidding, setting prices for the year beginning June 1, 2017, increased those prices by 26 percent from what they'd been set at previously.

With more of its plants qualifying for the payments combined with the price increase, Exelon's revenue in that yearly period will jump by nearly $280 million. A recent auction produced similar price increases for the year beginning in June, resulting in a similar $270 million-plus revenue increase for Exelon's Illinois fleet.

PJM made a concerted effort to boost future “capacity” revenues for base-load plants with the stated purpose of girding against future surprise demand spikes like the 2014 polar vortex, which nearly resulted in brownouts in parts of PJM's region as some plants were temporarily crippled. All households and businesses make these capacity payments via their electric bills, and the fees are embedded in overall energy prices.

The payments act as a sort of insurance policy and are on top of what consumers pay for the power itself.

With three PJM capacity auctions for the years beginning June 1, 2016, June 1, 2017, and June 1, 2018, now in the books, revenue from the capacity payments for Exelon's Illinois fleet will rise from $487 million in 2016 to $551 million in 2017 and $679 million in 2018.

The Quad Cities plant, which Exelon execs as recently as last month all but guaranteed they'd begin the process of closing this month, cleared the 2017-18 auction. So it must be kept running at least until May 31, 2018.

The plant still is projected to lose about $50 million that year, Exelon Executive Vice President Joseph Dominguez said in an interview. But the overall improvement in Exelon's Illinois revenue picture prompted executives to change their mind and wait at least another year before deciding Quad Cities' future.

The PJM auction results, he said, “were more constructive than we had anticipated.”

The Illinois nuclear fleet as a whole, he confirmed, will continue to be profitable through 2018 despite rock-bottom wholesale energy prices.

But that isn't stopping Exelon from continuing to press Illinois lawmakers to approve legislation that would slap a surcharge on electric bills statewide to further aid the in-state nukes. The charge, designed to reward the plants for their low-carbon emissions, would generate $300 million in revenue annually, most of which would go to Exelon. Exelon had pressed lawmakers for action on the bill in this year's regular session, but they left it for another day amid the budget war between Democratic legislative leaders and Republican Gov. Bruce Rauner.

HIGHER BILLS FOR COMED CUSTOMERS

The Quad Cities reprieve now will push Exelon's bill into next year's legislative session, Dominguez said.

Trying to put the PJM-engineered financial benefits into perspective, he said Exelon's annual cost to operate its Illinois fleet of nukes exceed $3 billion. "We have seen an improvement of a couple hundred million against that number," he said.

Asked whether Exelon would find it difficult to persuade lawmakers to force ratepayers statewide to subsidize the plants to the tune of $300 million a year when PJM essentially produced the same result, Dominguez responded, “We've never taken the position that we just need $300 million. . . .Energy prices have rolled back by more than those (PJM) increases.”

For ComEd customers, the PJM increases will mean higher electric bills. The latest auction for the year beginning June 1, 2017, will hike the average residential bill by $2.34 over what it would have been before, ComEd said in a release. It will hike the average bill by about $1.20 per month over what it is today.

The Quad Cities reprieve is good news for residents living in that part of the state, who depend on the jobs and property taxes generated by the plant. Exelon's downstate Clinton plant, the worst performer financially in the state, isn't in the PJM region and won't see any benefit from the increases. Exelon has threatened to close that plant as well.

Dominguez called the Quad Cities deferral a "tough decision for us" in light of pressures on Exelon's stock due to eroding profits in its power-generation unit. "It's one I think some of our investors will be disappointed in."