A few minutes ago, Exelon employees received an email from Chris Crane, the company CEO, announcing the company’s decision to permanently close three nuclear reactors that each produce 7-8 billion kilowatt hours of electricity each year without dumping a molecule of CO2 into the atmosphere.
Even though the company reported 2015 after-tax earnings of approximately $2.3 billion on total revenue of $30 billion, it has decided that it cannot afford to wait for the next high price part of the natural gas price cycle.
As a reminder to readers, a population that I hope includes several betrayed employees of the three severely threatened units, here is a graph of the price of natural gas to electric utilities since 2002.
As the chart shows, natural gas prices are about as predictable as mid-Atlantic weather in the spring. “If you don’t like it, wait a while; it’ll change.”
In any commodity, especially one based on a limited natural resource and has heavy capital investment requirements, the sure cure for an extended period of low prices is an investment-constrained reduction in supply combined with a price-driven increase in demand. There seems to be little doubt that natural gas prices have a lot more room to go up than to go down.
Though I have no direct insight into Exelon’s decision making processes or even into its specific plant financials, I can only guess that they had no real desire to keep Clinton and Quad-Cities operating. There is no other logical explanation for conditioning their decision on prompt action by a notoriously gridlocked legislature, especially when the desired action was guaranteed to be about as popular as a skunk at an outdoor wedding.
How many voters relish the notion of providing cash subsidies to corporations reporting after tax profits greater than a couple of billion dollars? Even when marketed as a job-saving move, there are just too few people who have close relationships with nuclear workers. Nuclear plant employees tend to be concentrated in small towns and can, quite frankly, be a target of envy among people who are working at much lower paying jobs with fewer benefits.
My question to all of the executives that are making plant closure decisions is why are the “uneconomic” plants being closed instead of being marketed to willing buyers?
There is a good Econ 201 case that can be made for closing down marginal production capacity in an oversupplied market, but when the assets being closed are described by the owner as some of their most cost effective production sources there is room to question motives.
If the only customers considered capable of purchasing the plants are the few companies that are already in the club of nuclear plant operating companies, then the closure decisions begin to look like coordinated action to restrain trade. Though enforcement of anti-trust laws has been sadly lacking in the US in recent years, this might be a time for responsible investigatory agencies to ask some hard questions.
Here is a quoted copy of the email that Mr. Crane distributed.
June 2, 2016
Exelon to Retire Clinton and Quad Cities Plants
It is with deep disappointment that I share with you our announcement today that Exelon will move forward to shut down the Clinton and Quad Cities nuclear plants, given the lack of progress on Illinois energy legislation.
Over the past two years, we have informed you about the financial challenges facing these plants, and we have worked to find a sustainable path forward in consultation with federal regulators, market operators, state policymakers, plant community leaders, labor and business leaders, as well as environmental groups and other stakeholders.
While the Illinois legislative session has not ended, the path forward for the Next Generation Energy Plan legislation is not clear. As a result, Exelon has begun taking necessary steps to shut down the two nuclear facilities, including making required notifications to the appropriate regulatory bodies, and stopping capital investments for long-term operation of the plants. Clinton will close on June 1, 2017, and Quad Cities will close on June 1, 2018. Quad Cities and Clinton have lost a combined $800 million in the past seven years, despite being two of Exelon’s best-performing plants.
This decision has been a difficult one for our 1,500 employees at both plants and the surrounding communities. I want to extend my sincere thanks to every employee at both Clinton and Quad who, despite the challenges we faced, continued to perform at the highest levels to ensure the safety and reliability of the plants. Your commitment in your day-to-day work and your outpouring of support for legislative policy solutions are very much appreciated.
As leadership has been communicating to employees at both sites, we will do all that we can to support employees in preparation for this transition. Employees will continue to operate the facilities until the retirement dates, with staff transitions expected within six months after retirement. In recognition of the severe impact the closures will have on the host communities for the sites, we also will partner with local civic leaders to prepare.
We will continue to work with stakeholders on passing the Next Generation Energy Plan that is critical to the state’s environment and economy. We will work with policymakers and other stakeholders to advance an all-of-the-above strategy to promote zero-carbon energy, create and preserve clean-energy jobs, establish a more equitable utility rate structure and give customers more control over their bills.
Thank you to those employees who took action and participated in the Springfield rally, or called or emailed your legislators. Our work to ensure that nuclear power is properly valued for its economic and environmental benefits is far from over. I ask that you continue to follow this issue as we work to bring about market and policy changes. For now, please reach out to lawmakers by calling (844) 334-1740 and leave a voicemail saying what these plant closures mean to employees, their family members and the plant communities.
Note: I just noticed one more thing in Exelon’s financials worth mentioning. In 2015, the company reported a non-operating income of -$46 M, down from $455 reported in 2014. Normally that line in an income statement is reporting investment or asset transaction income. What it tells me is that the net difference in non operating income during a single year ~$600 M was nearly the same as the reported unsustainable “losses” for operating the three reactors over the past seven years of unusually low natural gas prices.