9/10/2016 - CRAIN'S: Why is nuke giant Exelon touting a subsidy for coal-fired power plants?

By STEVE DANIELS

An unlikely but powerful force is coming to the aid of the beleaguered owner of Illinois' largest fleet of coal-fired power plants.

Exelon, the nation's largest nuclear power generator and a frequent critic of its peers that burn coal, has floated a plan that would raise electricity prices in downstate Illinois and potentially keep open several coal-fired plants slated for closure. As recently as April, a senior Exelon executive accused the operator of those plants of using “the sky as a carbon sink.”

But the Chicago-based power giant has not suddenly had a change of heart. It's gearing up for another run at winning subsidies from Springfield to save two of its nuclear power plants that are on the chopping block and feels like it needs the support of the state's second-largest power generator, Houston-based Dynegy. That could help win votes from downstate lawmakers Exelon will surely need to secure backing for a statewide electric bill surchargeto benefit the money-losing Clinton and Quad Cities nukes, two of six stations Exelon operates in Illinois.

Dynegy dominates the power market in downstate Illinois and has opposed Exelon's legislation. Executives at the two companies are meeting regularly, sources say.

At the same time, execs at Exelon and its Commonwealth Edison subsidiary have been in talks for more than a year with leaders of environmental and consumer groups as well as renewable-energy developers on a compromise. That would keep the nukes open and spur development of wind farms in Illinois, which have been stalled for years.

All the behind-the-scenes positioning comes as Exelon and ComEd prepare for a fall campaign to pass a comprehensive energy bill in Illinois. They're hoping for legislative action during the veto session in November, after the election.

SOMETHING FOR EVERYONE?

Environmental groups have worked for a deal that would help them and Exelon and ComEd but box out the coal industry. Exelon's discussions with Dynegy raise the odds for a massive package that would give most parties at least something they want but force groups like the Sierra Club (with its “Beyond Coal” campaign) to swallow hard.

Other environmental groups in the room with Exelon aren't happy, however. “What's being looked for is backdoor re-regulation for some chosen plants that will create an unlevel playing field in the unregulated market and raise rates for businesses and consumers,” says Howard Learner, executive director of the Environmental Law and Policy Center in Chicago. “Subsidizing older coal plants in southern Illinois would . . . move us in the direction of more carbon pollution rather than less.”

Jack Darin, director of the Sierra Club's Illinois chapter, declines to comment.

Exelon's proposal, first floated in June, would have the state of Illinois take over responsibility for procuring paid guarantees from power generators that their plants will run during the highest-demand periods of the year. That function is now performed by an organization called MISO, the power-grid manager for the Midwest region that includes downstate Illinois.

These “capacity” payments, embedded in the power prices consumers and businesses pay in their electric bills on top of the cost of the energy itself, would last for an extraordinary six years. (Capacity payments normally are set no more than three years in advance.)

That would give Dynegy and other downstate power producers (including Exelon's Clinton nuke) consistent and likely higher revenue they could rely on so they can keep plants open that otherwise would close. But businesses and households would pay more for electricity as a result.

The proposal was contained in a confidential document obtained by Crain's.

In a statement, Exelon doesn't comment on its talks with Dynegy. But it says: “An existing option already approved by the Federal Energy Regulatory Commission allows Illinois to purchase capacity directly from suppliers to meet the needs of Illinois customers. We encourage policymakers to consider this option as they address the complex energy challenges facing Illinois.”

Dynegy has pushed a plan to move downstate Illinois into a different regional grid that includes northern Illinois, which ComEd and most of Exelon's nuclear plants serve. The capacity prices in that region are higher than in downstate due to differences in how that grid manager, PJM Interconnection, auctions off the payments.

But if that won't fly, Dynegy says in a statement, it “would consider alternatives that allow Illinois to protect resource adequacy downstate, allow for the planning for future generation, prevent scarcity pricing, reduce reliance upon out-of-state generation and protect the jobs and economic value of downstate generation.”

Dynegy in May said it would close three coal-fired units downstate that combined can generate up to 1,835 megawatts, about 30 percent of southern Illinois' power capacity. And CEO Robert Flexon has warned of more closures without action to prop up plants that aren't profitable given persistently low wholesale power prices.