Government Attempts to Save Nuclear Plants May Be Too Late

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By Rebecca Kern, Michael Bologna , and Gerald B. Silverman

June 6 — State and federal efforts may be too late to save nuclear plants struggling to remain profitable in deregulated wholesale energy markets in the Midwest and Northeast, the nuclear industry says.

The nuclear industry has been having difficulty competing in certain deregulated energy markets because of record-low natural gas prices. Analysts project these prices aren't going up any time soon, which doesn't bode well for the nuclear industry's future. Five nuclear plants are scheduled to be retired by 2020 (207 DEN A-8, 10/27/15) (207 DEN A-8, 10/27/15).

There is ongoing work in various states to help the nuclear industry. New York, for example, is in the process of creating a Clean Energy Standard this summer to provide zero-emission credits for nuclear plants in the state. But such efforts may not come fast enough to save several commercial reactors.

“The challenge that we're seeing is we're kind of running out of time,” Matt Crozat, the senior director for business policy for the Nuclear Energy Institute, a trade group, told Bloomberg BNA.

Exelon Corp. announced last week that it will close two plants in Illinois: Clinton Power Station in Clinton on June 1, 2017, followed a year later by Quad Cities Generating Station in Cordova on June 1, 2018. The company plans to make official filings on the early retirements with the Nuclear Regulatory Commission within 30 days (107 DEN A-12, 6/3/16).

The Illinois plants are in addition to another Exelon plant, Oyster Creek Nuclear Generating Station in Ocean City, N.J., one of the oldest nuclear plants in the country, which is set to close in 2019.

“We've the spent the past two years sharing with policy makers the ongoing financial challenges that we see running nuclear plants generally, and Quad Cities and Clinton specifically, and unfortunately we have not seen progress on the legislative front and don't see a clear path to legislation,” Joe Dominguez, Exelon's executive vice president of government and regulatory affairs, told Bloomberg BNA.

Additionally, Entergy Corp. announced last year that its James A. Fitzpatrick Nuclear Power Plant in Scriba, N.Y., would close prematurely in 2017, and its Pilgrim Nuclear Generating Station in Plymouth, Mass., would close in 2019.

Difficulty in Competitive Markets

In total, the five nuclear plants (with a total of six nuclear reactors) in the U.S. that are scheduled to retire by 2020 have approximately 5,024 megawatts of generating capacity, nearly as much as the 5,618 megawatts of capacity that five new reactors expected to open in the same time period will generate, according to data from the Energy Information Association.

However, the five new reactors will not be providing capacity to make up for the closures in the Northeast and Midwest, but will be opening in the Southeast, where there is a regulated market and a ratepayer base that pays for the building of new nuclear plants. Likely, the units that will be replacing the nuclear plants in the Northeast will be natural gas plants, which can also be built cheaper and in less time than nuclear plants, Michael Twomey, vice president of external affairs at Entergy, told Bloomberg BNA.

U.S. Nuclear Reactor Closures

In the Northeast and Midwest, where companies are preparing to retire nuclear plants, the nuclear owners bid into the wholesale energy markets run by regional transmission operators (RTOs), which typically clear the lowest-priced offer for electricity. Lately the power generation sources clearing those competitive markets have been natural-gas-fired power plants, not nuclear.

In fact, two of Exelon's nuclear plants, Quad Cities and Three Mile Island near Middletown, Pa., did not clear the annual capacity auction from regional grid operator PJM Interconnection LLC for the 2019–2020 planning year. Exelon's Dominguez said these two plants didn't clear PJM's previous year's capacity auction either.

“What we've seen is historically low natural gas prices, leading to historically low wholesale energy prices. And at the same time we've had increased costs as a result of significant capital investment we've seen in the plants and just generally increasing costs that we pay for the plants,” Entergy's Twomey said.

He said that companies cannot pass along the increased costs to customers, and so it costs them more money to run the plants than they're receiving in revenue from the wholesale markets.

This is how plants like Clinton and Quad Cities nuclear plants have collectively lost $800 million over the last seven years. He said Exelon hasn't been able to recover the cost of working capital or earn any returns for their shareholders for these two plants in recent years.

Nuclear Power

 

  •  Nuclear plants account for approximately 59 percent of carbon-free electricity, according to 2015 data from the Energy Information Administration.
  •  Nuclear power makes up approximately 20 percent of all electricity sources in the U.S., behind natural gas (33 percent) and coal (33 percent), as of 2015, according to EIA.
  •  There are 100 operating nuclear plants in U.S. Five nuclear plants (six nuclear reactors) are expected to close by 2020, and five nuclear reactors are expected to be added by 2020, according to the Nuclear Regulatory Commission.

 

“Like any other business, we need to be able to earn a return because the monies we invest in plants we either borrow or get from our lenders or investors, who have an expectation of a component of return, he said. In addition, there are other financial losses not included in the $800 million cash figure, he said.

Not everyone is sympathetic. Tim Judson, executive director of Nuclear Information and Resource Service, a group that provides information about radioactive waste and nuclear power and takes a stance against nuclear power plants, said it is not the role of state and federal governments to bail out uneconomical nuclear plants.

“If this is done fairly, I think you're going to see a lot of retirements,” Judson told Bloomberg BNA. “It's going to kind of mirror what's going on on the coal side of the equation, which is that uneconomical units are going to be retiring at a faster clip than anyone predicted years ago.”

“There are going to be lower cost resources that are going to be ramping up to meet demand,” such as solar and wind energy, he said.

Status of Commercial Nuclear Reactors
Nuclear Industry Wants Carbon Tax

The nuclear industry said that ultimately what could save nuclear reactors in these competitive markets would be to create a tax for carbon. The majority in Congress opposes such a tax.

“We think the best step here is to create a real price on carbon that reflects the societal benefits of reducing carbon, and imposing that cost on polluters,” Dominguez said.

He said a differing approach to a price on carbon would be to reward zero-carbon emitting generation sources such as nuclear power plants. For example, the New York Public Service Commission is working on establishing a Clean Energy Standard, which would include a market-based mechanism called zero emissions credits (ZEC) that would be available to help the state's nuclear plants.

Other states could model after New York and adopt technology-neutral clean energy standards, which would include renewable energy and nuclear power, under existing regulatory authority or through emergency legislation, said Sue Tierney, senior advisor at the Analysis Group, an economic and strategic consulting firm, who was formerly assistant secretary for policy at the Department of Energy.

The complicating factor with closing nuclear plants is that they are a large source of carbon-free electricity that states can use to meet state renewable energy standards and the Environmental Protection Agency's Clean Power Plan (RIN:2060-AR33), which is currently stayed by the U.S. Supreme Court.

“We are supposed to be adding zero-carbon sources, not subtracting or simply replacing by building to just tread water,” Energy Secretary Ernest Moniz said at a recent Energy Department summit in Washington that was called “Improving the Economics of America's Nuclear Power Plants.”

Once a nuclear reactor is closed, carbon emissions go up in that state, Tierney said. “The analysis we have done indicates that electricity prices rise the next day, and emissions rise the next day,” she said. She said the Independent Service Operator-New England, which runs the wholesale energy markets in New England, saw rising carbon emissions after Entergy closed its Vermont Yankee in 2014, located near Vernon, Vt.

While Judson agreed that there will likely be short-term price increases in the wholesale energy market prices when nuclear plants close, he doesn't think the increases will be long term.

Price Formation Rulemaking at FERC

There has been no clear solution at the federal level.

“The importance to incentivizing continued operation [of nuclear plants], I think, is very clear, but the solutions are less clear,” Moniz said at the Energy Department nuclear summit (98 DEN A-19, 5/20/16).

There is work underway at the federal level at the Federal Energy Regulatory Commission on changing price formation to fix how prices are set in the wholesale energy markets to compensate generators more accurately for the energy they provide (224 DEN A-10, 11/20/15).

Tierney said the rulemaking could be a boon for the nuclear industry, but FERC needs to act more quickly for these changes to help economically struggling plants.

“FERC could put [price formation rulemaking] on the fast burner,” Tierney told Bloomberg BNA. “They could order every RTO to make filings to address that problem.”

New York Clean Energy Standard

The New York Clean Energy Standard is one solution that is moving forward to assist nuclear plants, and it could be a model for other states. The New York Public Service Commission released the Clean Energy Standard in January at the direction of Gov. Andrew M. Cuomo (D). He said preserving the nuclear plants was essential for the state to meet its goal of reducing carbon emissions by 40 percent by 2030.

Final comments on the Clean Energy Standard were due June 6. The commission is expected to take action on the standard in July, said its spokesman, Jon Sorensen.

There are six nuclear reactors at four nuclear plants in New York: two at Nine Mile Point; two at Indian Point; one at the R.E. Ginna Nuclear Power Plant; and one at the James A. Fitzpatrick Nuclear Power Plant. They generate about 46,000 gigawatt hours of electricity per year, providing about 30 percent of the state's electricity. Exelon Corp. which owns Ginna and Nine Mile, has announced its intention to close Ginna in 2017 for economic reasons, even though the plant is licensed to operate through 2029.

Although Cuomo supports the continued operation of Nine Mile, Ginna and Fitzpatrick, he opposes renewing the license for Indian Point on safety and environmental grounds.

Zero Emissions Credit

The zero emissions credit would be available to a special “tier” of nuclear plants as a way to “recognize the value of fully licensed nuclear power plants that face financial difficulties as a source of zero-emission electric generation,” according to the proposal.

Retail load serving entities would be required to purchase the credits, either directly from nuclear facilities, through a marketplace, through an arrangement with an entity that has surplus credits, or through “innovative bilateral transactions such as bundled energy and ZEC arrangements.”

A nuclear facility must demonstrate that it is facing financial difficulty and operating pursuant to a fully renewed license until at least 2029 to be eligible for the credits. The maximum price for the credits would be set by the commission.

Gavin J. Donohue, president and chief executive officer of the Independent Power Producers of New York, told Bloomberg BNA that the credits “must apply to all nuclear facilities because the value of zero-emission attributes to assist the state in meeting its goals is the same regardless of whether a facility is financially distressed.”

“Better yet, the Commission should adopt a market-based approach that provides a single, market-wide carbon price by internalizing the value of carbon in wholesale energy prices,” he said in an e-mail.

“This approach establishes a visible value for low or zero emission sources, creating an efficient and cost-effective means for all producers and consumers to factor the cost of emissions into economic decision-making in ways that spur innovation, minimize the cost of controlling emissions, maintain reliability, and work in harmony with least cost dispatching principles,” Donohue said.

The credits for nuclear plants are opposed by a number of environmental groups, including the Nuclear Information and Resource Service and Hudson River Sloop Clearwater. “It would open a back door to an effective nuclear tax, requiring New York’s electricity customers to contribute billions to bail out the state’s privately owned, trouble-plagued nuclear fleet,” the groups said in a statement. “The measure is especially unsound since New York’s aging nuclear fleet is obsolete, dangerous, and fast becoming inoperable.”

Exelon Loses in Illinois

Exelon laid blame for the two planned nuclear plant closures on the Illinois General Assembly for not passing S.B. 1585 this term. The legislation would have permitted Exelon to add a surcharge to ratepayers' bills to enhance the profitability of the nuclear plants. Exelon said it would have cost 25 cents more per month for most residential customers, but opponents put the cost at closer to $3 more per month.

The proposed law also included a new “zero emission standard,” boosting the role of nuclear power in Illinois’ energy portfolio, and new revenue to fund energy efficiency, assistance to low-income ratepayers and support for solar installations.

Despite the announcement, Exelon officials and parties close to state energy policy negotiations told Bloomberg BNA they remain committed to a path forward that would rescue the two struggling plants and achieve some other goals as well.

Competing energy companies, energy consumers and environmental groups believe the negotiations could result in a politically viable bill that also addresses lower carbon emissions, revisions to the state’s renewable portfolio standard and support for a wider group of energy producers.

Exelon said that at some point in the coming months, the closure plan would become irreversible. “The decision can be reversed, but only in narrow circumstances, and as weeks pass a reversal becomes more and more difficult,” Exelon spokesman Paul Adams said in an e-mail.

Continued Work on Illinois Bill

David Kolata, executive director of the consumer-focused Citizens Utility Board (CUB), told Bloomberg BNA the parties continue to see “a path to a framework that could provide a fair way to keep the plants open.”

But Kolata added that the discussions in the coming weeks must capture broader energy policy reforms addressing the state’s strategy with regard to carbon emissions. He said that the Clinton and Quad Cities plants could play a pivotal role in Illinois’ energy future. “If you assume at some point there is going to be a price on carbon, if you assume that the Clean Power Plan is going to be upheld or something like it will go into effect, then the loss of close to 2,000 megawatts of carbon-free clean power could have severe consequences for the price we pay for power,” Kolata said.

The Illinois Clean Jobs Coalition, comprised of more than 200 environmental advocacy groups and clean energy producers, expressed similar views following the collapse of S.B. 1585. In a statement May 31 the coalition said substantial progress had been achieved with Exelon and its operating subsidiary Commonwealth Edison “aimed at modernizing the state’s outdated energy policy.” The coalition also expressed optimism that a final agreement could be reached that addresses consumer protection and the Illinois Renewable Portfolio Standard.

To contact the reporters on this story: Rebecca Kern in Washington, D.C., at rkern@bna.com , Michael Bologna in Illinois at mbologna@bna.com , and Gerald B. Silverman in New York at gsilverman@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com