Brinksmanship tactic fails in Illinois. Competitors handed easy victory
Exelon, a corporation that I publicly “unfriended” in 2009, has apparently failed to receive the assistance it demanded by the May 31st deadline it imposed on the Illinois legislature.
Aside: For reasons that aren’t obvious, Exelon’s public communications about financial difficulties affecting its nuclear plants rarely, if ever, mention the magnitude of the cost increases that have been imposed as a result of regulatory ratcheting in overreaction to 911, tritium “leaks”, Fukushima and less publicized issues like “open phase condition.” Financial pressures aren’t just due to insufficient sales revenue, they are also added by cost increases that are also driven by political choices. End Aside.
Tom Kacich, writing for the News-Gazette in Springfield, IL, explained that Exelon had issued an ultimatum. If legislation was not passed by May 31, it would begin the process of shutting down the Clinton nuclear power plant. The final closure would happen in the summer of 2017. According to Sen Donne Trotter (D-Chicago), who is the chief sponsor of a bill intended to meet Exelon’s stated revenue requirements, the company indicated that the actions it would begin taking would be irreversible.
“Unfortunately the way it’s been portrayed to me is that once they start to shut down processes, it’s highly improbable to get it ratcheted back up. I know they’re thinking long and hard on this because they’re businessmen. They have to think about those steps that have to be taken especially when it involves something like nuclear power.”
Exelon’s tactic of establishing a hard deadline made it too easy for competitors to win the skirmish. All they needed to do was delay action by a legislature that has been so dysfunctional in recent years that it cannot pass a budget.
There are plenty of groups interested in receiving benefits from forcing a low cost, emission free source of electricity out of a market that is currently oversupplied. All they needed to do to achieve their goal was to express their doubts loudly enough to keep the negotiations going without making any decisions.
Natural gas suppliers, coal suppliers, wind turbine developers, solar panel installers, operators of underused power plants and bankers that hold loans to some of those currently stressed entities should benefit from both increased unit sales and higher realized prices when the balance between electricity supply and demand shifts back in their favor. That will happen when Exelon chooses to scrap a capable production unit.
The benefit to Exelon from closing a unit would not just be stemming the losses associated with that unit. The units it continues to operate would benefit from higher market prices.
Some of the potential beneficiaries have been contributing to the political war chest of ELPC, the Environmental Law and Policy Center, an interest group organized as an environmental non-profit entity.
Howard Learner founded ELPC during the 1990s, another low point in the gas price cycle when nuclear plant closures were the rage. Here is what he had to say about Exelon’s bid for additional support.
“The Clinton nuclear power plant is not competing very well in the competitive economic power market,” he said. “Everybody looks with excitement when a new natural gas plant is built. People look with excitement when a new wind farm comes, creating construction jobs.”
Noting that the Clinton nuclear plant is competing with coal plants, with low-price natural gas plants “and in some ways” with other Exelon nuclear plants, Learner added, “Exelon’s management needs to make a decision based on the view of the market today and what the market will be in the future, but it needs to be an Exelon decision.”
If Learner and his allies, which include Sierra Club, Natural Resources Defense Council (NRDC), Environment Illinois, Illinois Environment Council and Environmental Defense Fund (EDF) were interested in protecting the environment by preventing increases in CO2 emissions, they would have aligned in support of nuclear as a carbon free power source. Instead, their actions reveal their true mission is to market wind and natural gas.
Will Clinton Close?
From all publicly available information, it appears that Exelon has determined that the Clinton plant is worth more dead than alive. The legislation providing additional cash to make up for revenue shortfalls was not enacted by the stated deadline.
Exelon is a company that prides itself on following through on its promises. It seems likely that it will join Entergy, SCE, and PG&E in the modern game of seeing how many nuclear plants they need to close to eliminate the current “oversupply” of electricity generation in the restructured electricity markets in the Midwest and Northeast.
Aside: No matter what people tell you about the wonders of fracking, temporary oversupply is the reason that wholesale natural gas prices are low. If the cheap gas was a result of a technological revolution resulting in sustainable cost reductions, there wouldn’t be so many bankruptcies, layoffs and distressed companies in the business. Part of the oversupply is coming from growing numbers of unpredictable, occasionally productive wind turbines that are built to capture tax benefits and comply with “renewable” energy mandates. End Aside.
The “collateral damage” resulting from the nuclear plant closure game includes financial stresses for thousands of highly trained, skilled workers. Their refined trade skills have value elsewhere, but nothing like the value they produce when working in the specific plant for which they are already trained. Because their skills don’t produce the same return for any other employer, it is almost certain that they will be burdened with lower pay, homes that are difficult to sell and the always-high cost of relocating when there is not an executive “relo” program on which to depend.
All of the rest of us will also be collateral damage as the increased pollution, higher gas prices, damage to the reputation of nuclear energy and higher CO2 emissions will not be limited to Illinois.
Additional Reading
Quad-City Times June 1, 2016 Exelon bill dead for this session
Despite the apparent failure of the legislation for this session, Marquard said he’s hopeful it can be resurrected in the fall session. Even though Exelon gave a spring session deadline for the bill to be passed, he said the Quad-City plant is not closed yet.
“We’re just going to keep fighting until they literally close the thing,” he said.
NYMEX Natural Gas price, up 5% on 5/31/2016, up 4% more on 6/1/2016, just saying.
http://www.bloomberg.com/energy
If no closure announcement comes in the next few days, I suspect that the impending, inevitable natural gas price increase could yet save Clinton and Quad Cities (with Quad Cities the more likely survivor as a dual-unit site, although Exelon’s fleet in Illinois is large enough that even Clinton likely leverages some fleet efficiencies that can be found in no other U.S. nuclear utility).
I think you should engage in a new bet with Prof. Skutnik, Rod.
One thing that has not been discussed in relationship to these early plant closings is the fact that the decommissioning funds for these plants are funded. Closing plants, even ones that are marginally profitable, may make business sense for many of these companies, because of the reduced risk profiles. It is the customers that have funded the construction of these facilities, and paid for their retirement, that are being shorted when a company chooses to close a plant.
If nuclear plants were operated less responsibly and funding decommissioning were a responsibility of the owning utility, I imagine that the managing companies would be less interested in considering early retirement.
Do not know about all NPPs, but I do not understand the comments implying that the utility will get a big cash infusion when they shut down from their Decommissioning Fund. Nureg – 1577 provides guidance and plants follow that guidance as they get periodic inspections on compliance. Each of the plants that I have worked at were not loading that fund up early, and with license renewals, they even took advantage of slacking off on funding, within limits, so that they had money to spend on the renewal costs. Thus, in my opinion, very few will have enough when shut down early to even meet NRC requirements and will be delaying decommissioning to build up the necessary funds to even start the Decommissioning Project. Thus the rate payers get increased rates to pay for the unnecessary shut down.
Perhaps those familiar with VY and what is happening there have some better information. But I just don’t get the idea that they are shutting the plant down to get their hands on 1/2 $Billion.
How can these executives justify spending $Billions on Wind Turbines, that will only last 10 – 15 years and then need to be replaced for twice that cost to save $20 – 30 Million a year in higher costs of a NPP that is actually better for the environment, knowing that NG prices are going to go back up, guaranteed! Does not make GREEN sense in both meaning/uses of GREEN.
“How can these executives justify spending $Billions on Wind Turbines, that will only last 10 – 15 years and then need to be replaced for twice that cost to save $20 – 30 Million a year in higher costs of a NPP that is actually better for the environment, knowing that NG prices are going to go back up, guaranteed!”
How far ahead are they allowed to look? Will a long term outlook that does not maximize immediate return be tolerated in today’s short sighted business world?
It just seems sometimes like long term vision is in short supply in many more ways than nuclear power.
@Rich
Remember how most of us could never understand the logic associated with the Department of Agriculture paying people to NOT plant crops? The goal was to lower the “overproduction” of crops so that the remaining farmers could sell at higher prices.
The DOE and the NRC seem to be the government’s means of achieving the same result in the energy industry. Unfortunately, they’ve chosen to restrict production from the most fertile technology available.
I have worked at both sites. Clinton 1986-97 and Quad Cities 1997-2000. Both are staffed by great people doing a great job operating well run plants. Both were built by old school utilities over a hundred years old at the time, Illinois Power and Commonwealth Edison. Deregulation of the power market was sought by both companies in the 1990s. Fast growing (on paper) Enron provided their motivation. I’m not sure any CEO, lobbyist, or politician can undo that hot mess. When financial crises develop, the bean counters will prevail. Decommissioning provides immediate capital asset write down, and current year cash flow in the form of decommissioning funds that print well on a Shareholders Annual Report. Utilities the size of Exelon need to clear the power market of excess capacity to make their remaining generators more highly profitable in forecasted estimates. If you can make more money with less O&M and fuel costs, its going to happen. Its a spreadsheet balancing act. Byron, Braidwood, LaSalle, and Dresden operating in a higher priced, lower base load supplied market – may just be the correct business decision in Chicago denominated in dollars and cents. The proposed bill and failure may just be weak attempt to transfer or share the heat of the decision with the well known, near bankrupt hot mess that is the State of Illinois.
Just my humble opinion.
I suspect that low natural gas prices are also due, in part, to a US strategy to deprive Russia of export revenue. A similar strategy was employed with oil in the 1980’s, even to the detriment of US oil producers.
@FermiAged
Perhaps, but the gas market is not as well coupled as the oil market. Though LNG transportation capacity is growing around the world, there has been little connectivity between US natural gas prices and those in traditional Russian markets in Europe.
Our “strategy” of making nuclear related exports from the US as burdened with red tape and diplomatic conditions as possible, however, seems to be doing a pretty good job of helping Russia to overcome the disadvantages of having had a Chernobyl. Its nuclear export business is booming. Rosatom announced the signing of an additional $10 billion worth of deals during Atom Expo this past week.
I think that increases their order backlog to something on the order of $110 billion.
Sad day for nuclear and the environment. And I was all set to call some political offices. I’ll be turning my focus to Diablo Canyon’s preservation from this point.
Seems like once these announcements are made there is never any reconsideration.
It would be interesting if they passed the bill later this year if Exelin would reverse
My guess is no