Uh-Oh-Exelon power plants in jeopardy

Exelon Corporation (NYSE:EXC)’s Nuclear Plants Don’t Secure Contracts

Dallas, Texas 05/28/2014 (FINANCIALSTRENDS) – Three different nuclear plants that are owned by Exelon Corporation (NYSE:EXC), the Chicago-based company, have been unsuccessful in securing contracts at the key auction that was last week, which decides exactly which of the power plants will provide power to its electrical grid. The company’s Byron & Quad Cities plants located in Illinois & the Oyster Creek plant located in New Jersey had been priced-out of the auction by the competing power providers, said EXC last week. This jeopardizes the future of these assets.

 

The State’s decision

 

Exelon Corporation (NYSE:EXC) relies very heavily on the revenue from this capacity-auction to prop-up the nuclear plants & had been anticipating results of the annual bidding-war as it also decides the fate of many plants that the company has not been able to operate profitably. UBS Investment Research’s executive director for the U.S. electric utilities, Julien Dumoulin-Smith said that the reality is now that it’s up to the state to finally choose what they wish to do. It is very clear that they are out of the money. It is now up to the state to take the decision about whether they now want to keep the assets running /not.

 

Nuclear power friendly policies

 

With many of EXC’s 6 nuclear plants within the state now on the bubble, many rumors had been doing the rounds in Springfield that the company would now ask the state for a kind of a bailout. Chris Crane, the company’s chief executive officer said that Exelon Corporation (NYSE:EXC) is not now seeking any legislative fix but the House Resolution had surfaced last week, which had been sponsored by Michael Madigan, , the House Speaker. This urges the United States EPA, and the Federal Energy Regulatory Commission, as well as the electric grid-operators, to now adopt the policies that are very friendly to nuclear power.

Auction results place Exelon power plants in jeopardy

Three nuclear plants owned by Chicago-based Exelon Corp. failed to secure contracts to provide power to the electrical grid at an annual auction held last week.

Exelon’s Byron and Quad Cities plants in Illinois were priced out of the auction by competing power providers, the company said Tuesday, placing the future of those assets in question. Its Oyster Creek plant in New Jersey, which is slated to close in 2019, also didn’t clear the auction.

The company relies heavily on revenue from the so-called capacity auction to prop up its nuclear plants and was anticipating the results of the annual bidding war as it decides the fate of several plants the company has had a difficult time operating profitably.

As previously reported, Exelon has been threatening to close its struggling nuclear plants in the wake of less expensive electricity produced by wind generators and cheap natural gas.

But House Speaker Michael Madigan wants to help keep those plants open. They are among the top employers in the towns and counties in which they operate. A resolution sponsored by Madigan was introduced to the House last Friday urging the U.S. Environmental Protection Agency, the Federal Energy Regulatory Commission and the electric grid operators, to adopt policies that are "friendly" to nuclear power. Translation: enact a new rule to curb carbon emissions, which would be a boon to Exelon because its nuclear plants do not release greenhouse gases.

“The fact that three of Exelon’s nuclear plants didn’t clear in the auction is the clearest evidence yet that reforms are needed to ensure we have an adequate amount of clean generation resources in the future,” said Paul Adams, a spokesman for Exelon. “Byron, Quad Cities and Oyster Creek have been the workhorses of Illinois’ and New Jersey’s electric grid for decades and are significant contributors to their state and local economies.”

With several of Exelon’s six nuclear plants in the state on the bubble, rumors had surfaced in Springfield that Exelon would ask the state for a bailout. But Exelon CEO Chris Crane said the company is not seeking a legislative fix.

“The reality is now it’s up to the state to choose what they want to do. Clearly they’re out of the money. It’s up to the state to decide if they want to keep these assets running or not,” said Julien Dumoulin-Smith, executive director for U.S. electric utilities for UBS Investment Research.

The resolution also asks three state regulatory bodies to prepare reports that would be beneficial to Exelon’s lobbying efforts if it pushes legislation in the future.

Among them: An Illinois EPA report that explains the “societal cost” of increased greenhouse gas emission in the state if nuclear plants close and a report from the Department of Commerce and Economic Opportunity that look at job losses that would come from closing those plants.

Power providers who bid in to the auction -- which helps provide power to 61 million people in the Chicago area and states to the east -- agree to provide power to the electrical grid three years out in exchange for kind of reservation fee that is provided by the electrical grid through consumer electricity bills.

In the past, such payments have boosted Exelon's revenue by $1 to $8 per megawatt-hour, depending on the year.

Power providers who made the cut in this year’s auction will get $120 per megawatt day in 2017 and 2018 for agreeing to be available to the electrical grid. That’s up from $59.37 at last year’s auction when Exelon suffered a hit to its stock after the low capacity revenue was announced.

Clinton's capacity payments last year in an auction that serves the Midwest power grid were just pennies. And a Tribune analysis of power prices that Exelon’s plants take on the market indicates that Clinton plant is the company’s least profitable plant.

Exelon’s investors didn’t blink at the news. The stock was up about 4 percent at midday.

“I think the market was already discounting these plants,” said Travis Miller, director of utilities research at Chicago-based Morningstar. “Management has been forthright about the economic challenges its nuclear fleet faces.”

Miller said investors don’t appear to be counting on the idea that the plants will shut down. Exelon has several options to keep them running, including bidding them into incremental auctions and even taking them out of commission for the single year in which they weren’t chosen to provide power to the grid. If anything, the news is helpful to Exelon as it bids to have carbon rules implemented that will reward it for the fact that its plants don’t emit greenhouse gases.

Exelon repeated that argument Tuesday.

“As proven during the record cold temperatures this winter, nuclear plants are an incredibly reliable generation source, typically producing power 24/7 regardless of weather,” Adams said. “And they do so without producing emissions, which makes them an indispensable resource if we are to meet upcoming greenhouse gas reduction requirements. Yet as these auction results demonstrate, the market does not sufficiently recognize the significant value that nuclear plants provide in terms of reliability and environmental benefits.”