Pennsylvania Is Newest Nuclear Subsidy Battleground

Pennsylvania, the nation's second-largest nuclear power-producing state, is now definitively a battleground for nuclear power subsidies.

Last week, in two memos that were circulated in the state House and Senate, seven lawmakers signaled they would soon introduce legislation that would update a 2004 state law-the Alternative Energy Portfolio Standards (AEPS)-to include nuclear power. The law currently requires that 18% of electricity sold should come from renewable sources by 2021, including at least 0.5% of solar photovoltaic power.

"It's time that we finally acknowledge nuclear generation for its considerable zero-carbon energy production by including it in Pennsylvania's AEPS program," says the memo circulated in the state Senate. "In so doing, we can ensure that nuclear continues to provide the employment, economic, environmental and grid resilience benefits for years to come."

Pennsylvania has five nuclear power plants, a total of nine reactors, that generated 39% of the state's power in October 2018, according to the Energy Information Administration:

• First Energy Nuclear Operating Co.'s (FENOC's) Beaver Valley Power Station, which comprises two 852-MW pressurized water reactors (PWRs) in Beaver County.
• Talen Energy's Susquehanna Steam Electric Station, which houses two 1,180-MW boiling water reactors (BWRs) on its site in Luzerne County.
• Exelon Nuclear's Peach Bottom Atomic Power Station, comprising two BWRs each rated at 1,065 MW in York County.
• Exelon Nuclear's Limerick Generating Station, two BWRs each rated 1,090 MW in Montgomery County.
• Exelon Nuclear's Three Mile Island Nuclear Station, a single 871-MW PWR, in Dauphin County.

The memo noted that the plants generate 93% of the state's zero-carbon power, but they have been excluded from the AEPS. Unless Pennsylvania's legislature addresses that "inequity," the five nuclear facilities across the state will close. "To be clear, this shutdown process is irreversible, thereby guaranteeing the permanent loss of Pennsylvania's nuclear assets," the senators said.

The memo specifically cites concerns about Beaver Valley and Three Mile Island, which, barring legislative remedy, will shut down soon because they cannot compete with cheaper sources of generation in PJM Interconnection's wholesale electricity market.

FirstEnergy Solutions Banks on Reforms

FENOC, a subsidiary of FirstEnergy Solutions (FES) that sought bankruptcy protection in March 2018, last year notified PJM Interconnection it would shutter Beaver Valley in 2021 (as well as two Ohio plants, the single-unit 908-MW PWR at the Davis-Besse Nuclear Power Station in Oak Harbor by 2020, and the single-unit 1,268-MW BWR at the the Perry Nuclear Power Plant in Perry in 2021). At the time, a company executive said, "Though the plants have taken aggressive measures to cut costs, the market challenges facing these units are beyond their control."

FES, which until its bankruptcy was the competitive arm of massive utility FirstEnergy Corp., on Jan. 23 announced that two creditor groups that make up the majority of its debtors had reached agreement on a restructuring support agreement (RSA). The RSA, which will form the basis of the company's reorganization, contemplates FES's emergence from Chapter 11 protection in September 2019 as a fully integrated independent power producer.

It suggests the company will keep its retail base-scuttling a $140 million deal to sell it to Exelon. FES also said it will continue operating its nuclear and fossil generation units until previously announced deactivation dates. However, it highlighted "a possibility of running the units for an extended period if the company obtains sufficient legislative support and meaningful market reforms."

FES and FENOC are now in talks with "important stakeholders at the state and federal levels for necessary financial support for its baseload assets that are a critical source of reliable and clean power in Ohio and Pennsylvania." Meanwhile, on Feb. 5, FENOC filed two license amendment requests with the Nuclear Regulatory Commission to modify Davis-Besse and prepare it for permanent shutdown by May 2020, "absent legislative support and meaningful market reforms."

Pennsylvania Could Be Newest Victory for Exelon

Meanwhile, Exelon in May 2017 announced it would shutter Three Mile Island in September 2019 unless policy reforms are enacted in Pennsylvania. Industry observers, however, point out that the gambit is similar to one employed in Illinois to help enact the Future Energy Jobs Act in December 2016 (it went into effect in June 2017), keeping Exelon's Clinton and Quad Cities plants running. Exelon also strongly backed New York's Clean Energy Standard, a measure that became effective in April 2017, to preserve the at-risk Nine Mile Point, FitzPatrick, and Ginna reactors in upstate New York. And in 2018, New Jersey also enacted zero-emission credits (ZECs) to bolster profitability of the Hope Creek plant, which is owned by PSEG, and Salem, whose output Exelon owns jointly with PSEG.

Since 2013, low natural gas prices, market dynamics, technical issues, and policies that favor renewables have precipitated the closure or announced retirement of several nuclear reactors. Source: POWER

As financial documents Exelon filed on Feb. 8 show, the New York and Illinois ZEC measures have proven beneficial for the company, whose 32.7 GW generation portfolio comprises a 20.3 GW nuclear fleet-the largest in the nation. In 2017, Exelon recorded ZEC revenues from New York and Illinois of $343 million. For the full year of 2018, Exelon Generation recorded a net income of $370 million, while adjusted operating earnings for 2018 soared to $1.3 billion (its net income was $2.7 billion in 2017, and adjusted operating earnings were $989 million).

The company noted that 2018 adjusted operating earnings reflect "the favorable impacts of New York and Illinois ZEC revenue (including the impact of ZECs generated in Illinois from June 1, 2017 through Dec. 31, 2017), increased capacity prices, tax savings related to the [2017 Tax Cuts and Jobs Act], realized gains on nuclear decommissioning trust (NDT) funds and decreased nuclear outage days, all of which were partially offset by lower realized energy prices and the absence of earnings from Exelon Generation Texas Power due to its deconsolidation in the fourth quarter of 2017."

Over 2018, the company said its fleet overseen by subsidiary Exelon Nuclear achieved the "most nuclear power ever generated at 159 TWh." The company recorded a capacity factor of 94.6% with an average outage duration of 21 days-"a new Exelon record and 13 days better than the industry average," noted Exelon CEO Chris Crane in an earnings call on Feb. 8.

However, Crane noted "a number" of its nuclear plants continue to be "economically challenged due to market flaws that failed to value zero carbon nuclear energy for its environmental and grid resiliency benefits." For now, Exelon plans to shutter Three Mile Island later this year, he said. The two-unit, 1.8-GW Dresden plant in Grundy County, Illinois, and portions of the 2.4-GW Braidwood and 2.3-GW Byron plants, also in Illinois, failed to clear PJM's latest capacity auction for 2021-2022, he also reminded investors.

"We will continue to engage with stakeholders on state policies while advocating broader market reforms at the Federal level." Exelon will also "support PJM price formation changes like fast start and reserve market reforms with our states to implement the expected FERC order on PJM capacity reforms and preserve the authority of our states to advance their clean energy policies and continue our efforts to seek fair compensation or zero emitting nuclear plants," he said.

Last year, the Second and Seventh Circuit Court upheld the ZEC program in New York and Illinois. "Although the plaintiffs have appealed to the Supreme Court, we expect these rulings to stand," Crane said. He also noted the New Jersey-enacted ZEC legislation will start this spring and that Exelon is "still focused on preserving nuclear plants in Pennsylvania."

Anne Pramaggiore, senior vice president and CEO of Exelon Utilities, suggested during the earnings call that the prospects were promising. On Jan. 8, Pennsylvania Gov. Tom Wolf issued an executive order setting a 25% cap on the state's net greenhouse gas (GHG) emissions by 2025 from 2005 levels, and an 80% reduction of net GHG emissions by 2050 from 2005 levels, she noted.

But on the call, Kathleen Barron, senior vice president of Federal Regulatory Affairs and Wholesale Market Policy at Exelon, said that the company has no foresight on how the subsidy program would look or how it will be priced. "Those are discussions that are progressing as Chris said with some promising outlook," she said.

Widening ZEC Horizons

If Pennsylvania backs nuclear subsidies, it will become the fifth state in the U.S. to do so on a statewide basis. Along with Illinois, New York, and New Jersey, in 2017, Connecticut also enacted legislation to allow Dominion's Millstone nuclear plant to become eligible for a state procurement process for ZECs, upon certification of financial need.

On Dec. 28, Dominion capped its three-year lobbying push by winning a contract from the state of Connecticut that will allow it to sell half of its Millstone output to ratepayers for 10 years. According to "Zero-Carbon Resource" selections announced by Gov. Dannel Malloy and the Department of Energy and Environmental Protection (DEEP), the selected price under the contract for the first three years-when the state's nuclear power is not considered "at risk" due to existing market commitments-will reflect Dominion's energy-only price. For the "at-risk period"-2022-2029-the selected bid requires Connecticut distribution companies Eversource and United Illuminating to negotiate by March 31, 2019, a price that reflects the costs and risks Dominion faces.

DEEP also selected supply from contracts from the Seabrook Nuclear Power Plant in New Hampshire, though the plant's owners "did not state it was at risk of early retirement," which is why it did not disclose operating costs to the Connecticut Public Utilities Regulatory Authority.

Seabrook is owned 88.2% by NextEra Energy, 11.59% by the Massachusetts Municipal Wholesale Electric Co., and the remainder by two Massachusetts municipal utilities. "It was selected on the basis of its price of 3.3 cents/kWh levelized (3.9 cents/kWh nominal), which beats the market forecast and is projected to save Connecticut ratepayers $18 million per year over its eight-year term," Gov. Malloy's office noted. The Seabrook contract for 1.9 million MWh begins in 2022.

The nation's 98 licensed nuclear power reactors at 59 sites in the U.S. generate about 20% of the nation's power. However, the nuclear sector is facing severe financial pressure from cheaper power produced by natural gas plants, growing supplies of renewables, and stagnant electricity demand. Between 2013 and 2018, seven U.S. reactors were permanently shuttered, and 12 others are planned for closure through the mid-2020s. Dismal economics have stymied plans to build up to 30 new U.S. reactors, which were announced over the past 10 years. Only two reactors are under construction today-at Plant Vogtle in Georgia, which continues to face major challenges.

-Sonal Patelis a POWER associate editor (@sonalcpatel, @POWERmagazine)

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