When Zero-Carbon Nuclear Asks For Money, States Find It Hard To Say No

The press release created instant shock waves. On August 27th, Exelon Corporation, one of the biggest suppliers of electricity in the U.S., announced that in a year it would close two nuclear plants in Illinois that together produce four gigawatts of power, even though the plants are licensed to operate for decades more. The two plants — Byron and Dresden — “face revenue shortfalls in the hundreds of millions of dollars,” Chicago-based Exelon said.

State and local officials denounced the move as reckless saber-rattling. Not only would the plants’ closure cost thousands of good jobs, it would also jeopardize Illinois’ clean energy ambitions.

Yet Exelon’s announcement, far from unprecedented, is part of a well-worn pattern. In at least four states from Ohio to New York, a handful of nuclear companies have taken a now-familiar series of actions: announce closures, enter tense talks with state officials concerned about the loss of good jobs and clean power, win subsidies, rescind the closures. 

Some portray this as brinkmanship, arguing that nuclear power companies know states can’t afford to lose them and so threaten premature closures in exchange for padded profits. “We’ve seen this Exelon rate hike and hostage-taking script several times before,” said Howard Learner, executive director of the Chicago-based Environmental Law and Policy Center. A commentary in the Chicago Tribune accused Exelon of “posturing as a victim of the market.”

Backers of this view point to independent studies that have found that several nuclear plants that have asked for subsidies in the past, such those as in New Jersey and Connecticut, are in fact profitable despite their owners’ claims to the contrary.

But there is little denying that the U.S. nuclear fleet, the oldest in the world among large countries, is pulling in far less money than it once did. Inundated with cheap natural gas from the “fracking” boom over the last decade, electricity prices have fallen from over $60 per megawatt hour a little more than 10 years ago to below $25 per megawatt hour now, slashing the revenue nuclear plants receive. “It’s not just that the flood of natural gas has lowered power prices — it’s crushed them,” said Matt Crozat, a senior director at the Nuclear Energy Institute, an industry body. 

Exelon itself had in fact repeatedly warned in the past that it may need to consider closing Byron and Dresden early. The company emphasized that the plants are simply not financially sustainable given low electricity prices, strongly denying claims by lawmakers that it is seeking subsidies it doesn’t fundamentally need.

More than one-third of the 90-plus nuclear reactors throughout the U.S. are unprofitable or scheduled to close, a study by the Union of Concerned Scientists found in late 2018. Another study in 2017 by Bloomberg New Energy Finance found that more than half were losing money. “The outlook today is pretty similar,” said Nicholas Steckler, the author of the report. 

Over the next five years another eight gigawatts or so of nuclear power are at risk of early retirement, according to Manan Ahuja, manager of North American Power Analytics at S&P Global Platts, an energy agency. Ahuja said that a pricing outlook derived from Platts’ data suggests power prices could rise somewhat from this year’s low levels — providing some relief to nuclear plants — as natural gas production tightens. But he added that his team does not anticipate a significant price recovery beyond that, meaning the nuclear industry’s money problems aren’t going away anytime soon. Indeed, Exelon also said in its August 27th announcement that two of its other Illinois plants — LaSalle and Braidwood, with 4.7 gigawatts of capacity between them — may need to consider early retirement as well if they do not receive relief.

If the U.S. does see a wave of nuclear plant retirements, it would come at a huge cost. Despite the vaunted growth of renewable energy sources like wind and solar, nuclear energy still provided 55% of all carbon-free electricity in the U.S. in 2019, making it easily the largest source of clean energy. The Paris-based International Energy Agency (IEA), which has predicted that nuclear energy could decline by two-thirds by 2040 in advanced economies, has argued that nuclear energy is a linchpin of the world’s clean energy transition. “Without additional nuclear, the clean energy transition becomes more difficult and more expensive – requiring $1.6 trillion of additional investment in advanced economies over the next two decades,” analysts wrote in a report last year. “Critically, a major clean energy shortfall would emerge by 2040.”

A number of U.S. states have signed up to binding clean energy targets, upping the stakes. New Jersey is aiming for 100% clean energy by 2050; New York wants 100% clean energy by 2040. According to S&P Platts, as many as 38 states now have some form of clean energy goal in place, including nine states that are aiming for 100% clean energy by 2050. Their targets will be decidedly harder to achieve if nuclear plants prematurely close.

In Illinois, Exelon is pushing the state to remedy what it says are market flaws that under-measure the value that its nuclear reactors deliver as zero-carbon generation sources. As in several states, Illinois only subsidizes some of its nuclear plants for the zero-carbon electricity they generate, although it provides a form of blanket support for wind and solar power. And while some fossil fuel-fired generators are winning subsidies from the regional electricity market operator in the form of “capacity market” payments, nuclear plants, with higher fixed costs, often lose out. But the governor, J.B. Pritzker, and state aides hesitate to endorse additional rate hikes and other changes that could increase customers’ utility bills at a time when they are already cash-strapped. His team also chafes at what it views as Exelon’s brazen tactics: “The utility companies will not write the legislation to get the state” to its clean energy goals, said Jordan Abudayyeh, a spokeswoman for the governor.

If state officials didn’t know it already, Exelon made sure to remind them just how much is at stake. Illinois’ governor committed the state in January 2019 to reducing greenhouse emissions in line with the targets of the Paris climate agreement. Nuclear energy has been responsible for the bulk of its progress so far, providing roughly 90% of the state’s zero-carbon power.

“If the four economically challenged nuclear plants (Dresden, Byron, Braidwood and LaSalle) prematurely retire, Illinois will drop to only 20 percent of the way toward the goal,” Exelon said. “Electric sector emissions in Illinois will increase by 70 percent.”    

The evidence: a series of familiar events

In one major instance where lawmakers declined to grant subsidies, Exelon made good on its promise to close the plant.

The press release issued by the Louisiana-based power company Entergy
on November 2, 2015, was unequivocal. Crippled by low natural gas prices and high operating costs, Entergy was shutting down its James A. FitzPatrick nuclear plant, in Scriba, New York, within about one year. 

Entergy had sought to persuade New York state officials to grant the plant financial aid to stem its persistent losses, but the talks had fallen apart. “Entergy is reporting today to the operator of the electric grid, the New York Independent System Operator, and to the New York State Public Service Commission that it will retire the plant at the end of the current fuel cycle,” Entergy said. 

Five years later, however, the James A. FitzPatrick nuclear plant is still operating.

Immediately after Entergy’s announcement, top state officials, faced with the loss of hundreds of jobs and a significant share of New York’s zero-carbon electricity, dove back into talks with the company to keep the plant online. One month later, Governor Andrew Cuomo ordered the creation of the Clean Energy Standard, which would grant some $500 million per year in customer-funded subsidies largely aimed at keeping the state’s nuclear plants in service. 

Entergy eventually reversed itself and kept FitzPatrick online. (In 2017, contingent on New York’s passage of the bill, it sold the plant to Exelon.)

The pattern repeated itself again in New Jersey. In December 2017, Ralph Izzo, the CEO of energy company PSEG, told New Jersey state legislators that PSEG would likely close its three nuclear plants in the state unless they received subsidies. “I’m here to tell you that, in two years, those plants have the real risk of going cash-negative, and we will seriously consider shutting those plants within that time period.” 

Opponents accused PSEG of asking for money that it didn’t really need. They pointed out that an independent analysis had found the PSEG plants were profitable and did not need help.

But 17 months later, in April 2019, New Jersey’s Board of Public Utilities voted 4-to-1 to approve subsidies of up to $300 million per year for the nuclear plants, paid for by a roughly $40 increase in customers’ utility bills. As Izzo had pointed out, the closure of the nuclear plants would likely cost more than the subsidies PSEG was asking for, since the carbon-emitting natural gas power plants that would replace the three nuclear plants would take both an environmental and a health toll, via increased air pollution. As one of the four board members who voted in favor put it: “In my view, the board is being directed to pay a ransom and the hostages are the residents of New Jersey.”

The series of events repeated itself still again elsewhere. In Connecticut, utility company Dominion Energy
said in June 2017 it would assess the future viability of its 2.1 gigawatt Millstone nuclear plant, which provides half the state’s electricity and nearly all its low-carbon electricity. Two and a half years later, despite a study finding Millstone that would be profitable through 2035, Connecticut’s governor approved a plan to let Millstone bid into a separate market income source, a form of subsidy that could cost hundreds of millions. 

In Ohio, executives from FirstEnergy
began telling lawmakers around 2016 that, without subsidies, the company may need to close down its two nuclear plants, Davis-Besse and Perry, which supply the vast majority of the state’s carbon-free electricity. A fracas ensued. But in July 2019 governor Mike DeWine signed into law more than $100 million in annual state subsidies, the majority of which would go to support the two plants. (Those subsidies are now on the chopping block after federal agents arrested Ohio House Speaker Larry Householder in late July, alleging that a political group run by Householder had accepted $60 million in bribes from FirstEnergy in exchange for his support of a bill containing the subsidies.) 

Nor is Exelon’s August 27th move to close the Byron and Dresden plants the first time it has sought to close plants in Illinois. An earlier saga began in June 2016 in much the same manner, with Exelon asserting in a press release that, “given the lack of progress on Illinois energy legislation,” it would shut down its Clinton Power Station in Clinton, Illinois, on June 1st, 2017, and its Quad Cities Generating Station in Cordova, Illinois, on June 1st, 2018. Exelon said it would send permanent shutdown notifications to the Nuclear Regulatory Commission within 30 days. 

Six months later, Illinois’ legislature passed a sweeping clean energy scheme that created a “zero emissions credits” program, providing up to $235 million in financial aid annually to help the Clinton and Quad Cities plants. 

Serious business

As a rule, nuclear power companies do not publicly release the sort of plant-by-plant data that would allow states and outside observers to determine for themselves whether the industry’s reactors really do deserve extra support, citing burdensome fiduciary obligations and the marketplace edge such disclosures would give to competitors. Exelon and others do share select financial data with policymakers and others, but it has not been enough to head off accusations, at least by Illinois officials, that Exelon is not being transparent enough.

Still, at least one major piece of evidence suggests that, when nuclear operators say they must close a plant unless they get support, they mean it.

In May of 2017, Exelon said it would have to close its Three Mile Island plant at the end of September 2019 unless state officials intervened. (In 1979, one of the plant’s reactors infamously suffered a partial meltdown, but another reactor remained online.) Exelon asked Pennsylvania to either amend its Alternative Energy Portfolio Standard or to establish a “zero emissions credit” standard, similar to the one in New York.

But the Pennsylvania officials declined. Exelon shut the plant down for good in September 2019.

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