Tuesday, March 19, 2019

Seeking Subsidy, Exelon Threatens to Close Three Mile Island

By Rich Heidorn Jr.

Exelon announced Tuesday that it will retire Three Mile Island Unit 1 in September 2019 “absent needed policy reforms.”

The announcement was not unexpected after the company acknowledged May 24 that the plant had not cleared the PJM capacity auction for delivery year 2020/21, the third year in a row it had come away empty-handed.

In a filing with the U.S. Securities and Exchange Commission, Exelon said the plant has lost money for the last five years as a result of “prolonged periods of low wholesale power prices,” its failure to clear the last three PJM capacity auctions and “the absence of federal or state policies that place a value on nuclear energy for its ability to produce electricity without air pollution while contributing to grid reliability.” As a single-unit plant, TMI also had high operating expenses, the company added.

Exelon TMI Three Mile Island

Three Mile Island | © digitalduck / 123RF Stock Photo

The 837-MW reactor near Middletown, Pa., directly employs 675 workers.

“Today is a difficult day, not just for the 675 talented men and women who have dedicated themselves to operating Three Mile Island safely and reliably every day, but also for their families, the communities and customers who depend on this plant to produce clean energy and support local jobs,” CEO Chris Crane said in a statement. “Like New York and Illinois before it, [Pennsylvania] has an opportunity to take a leadership role by implementing a policy solution to preserve its nuclear energy facilities. … We are committed to working with all stakeholders to secure Pennsylvania’s energy future and will do all we can to support the community, the employees and their families during this difficult period.”

A Successful Strategy

In threatening to close the plant, Exelon is repeating the strategy that won approval of zero-emission credits for its troubled nuclear plants in New York and Illinois.

Last June 2, Exelon announced it would close the Clinton and Quad Cities plants in 2017 and 2018, respectively, because of “the lack of progress on Illinois energy legislation.” The company said the plants had lost a combined $800 million over the prior seven years, “despite being two of Exelon’s best-performing plants.”

Six months later, the Illinois legislature approved the ZEC program on the last day of its veto session. Gov. Bruce Rauner signed the bill Dec. 7. Following the passage of the Illinois legislation, Exelon revised the expected economic lives to 2027 for Clinton and 2032 for Quad Cities.

On June 12, Exelon told the New York Public Service Commission it would close its Nine Mile Point Unit 1 nuclear plant in spring 2017 if the state did not guarantee it a financial lifeline by September.

The company had also told regulators in October 2015 that its R.E. Ginna nuclear plant would not be financially viable following the expiration of a reliability support services agreement with Rochester Gas & Electric.

The PSC approved ZECs for Nine Mile Point and Exelon’s R.E. Ginna nuclear plants last Aug. 1. Receiving payments under the program in addition to Ginna and Nine Mile Point is the James A. FitzPatrick plant, which Entergy sold to Exelon in March after saying it would also close.

Next Steps

Exelon said it will send PJM and the Nuclear Regulatory Commission deactivation notices within 30 days. It complained that nuclear generation produces 93% percent of Pennsylvania’s emissions-free power but is not included in Pennsylvania’s Alternative Energy Portfolio Standard, which benefits solar, wind and hydropower.

The Pennsylvania General Assembly’s Nuclear Energy Caucus said in a statement that Exelon’s announcement shows “there are serious and consequential underlying issues in Pennsylvania’s energy sector that must be addressed.”

“As state lawmakers, we take seriously our obligation to set energy policies that help promote Pennsylvania’s economy,” the legislators said. “We equally are concerned about meeting the commonwealth’s environmental goals. The closure of Three Mile Island will make meeting these challenges even more difficult.”

The 79-member caucus has yet to introduce legislation.

Gov. Tom Wolf’s press office released a statement in which it “expressed a willingness to engage in conversations with state lawmakers about possible energy policy reforms.”

“Pennsylvania is a major supplier of energy and we need a diverse energy sector,” Wolf spokesman J.J. Abbott said. “… As we move forward, we expect a robust conversation about the state’s energy sector. Governor Wolf is open to these conversations and looks forward to engaging with the General Assembly about what direction Pennsylvania will go in regards to its energy sector, including the future of nuclear power.”

Legal Challenges

The ZECs in both Illinois and New York are being challenged in the courts and before FERC by plaintiffs including the Electric Power Supply Association, Dynegy, Eastern Generation, NRG Energy and Calpine.

Exelon’s motion to dismiss a federal lawsuit filed last October challenging the New York ZECs was the subject of oral arguments March 29 (U.S. District Court, Southern District of N.Y., 1:16-cv-08164). Thus far, the court has approved Exelon’s request to intervene, as well as requests to file amicus briefs by the Natural Resources Defense Council, the Environmental Defense Fund, PJM Independent Market Monitor Monitoring Analytics and a group including the New York Public Interest Group.

Independent power producers filed suit in February alleging that the law authorizing Illinois’ ZECs violates FERC jurisdiction over the wholesale electricity market (U.S. District Court, Northern District of Illinois,1:17-cv-01164). (See IPPs File Challenge to Illinois Nuclear Subsidies.)

The judge in the case has delayed action on a motion for a preliminary injunction while he receives a full briefing on Exelon’s motion to dismiss the cases. On April 24, the court invited FERC to file an amicus brief on the jurisdictional question.

In February, the IPPs also sought expedited rulings against the ZECs in FERC dockets initiated over earlier disputes.

Docket EL16-49 had been opened in 2016 to challenge subsidies Ohio regulators had awarded to FirstEnergy and American Electric Power fossil fuel generators. In EL13-62, opened in 2013, the IPPs asked FERC to broaden the use of the minimum offer price rule in New York.

FERC has been without a quorum since February and thus unable to take substantive action on the cases.

At a FERC technical conference May 1-2, NYISO CEO Brad Jones told the commission that the ISO is working on a plan that would incorporate the social cost of carbon into generation offers and reflect it in energy clearing prices. Observers differ on whether FERC — expected to have at least two new commissioners nominated by President Trump soon — will approve Tariff changes to implement the initiative. (See Carbon Adder to Test FERC’s Independence, IPPNY Panelists Say.)

TMI’s Place in History

Whether or not Three Mile Island shuts down in 2019, it will occupy a special place in nuclear power history.

The partial meltdown of TMI Unit 2 on March 28, 1979, the most serious accident in U.S. commercial nuclear power history, effectively ended nuclear power construction for decades and resulted in major changes regarding emergency response planning, operator training and radiation protection.

Unit 2, owned by FirstEnergy, never reopened following the accident. Exelon purchased half of Unit 1 in 1999 and became sole owner of the plant in 2003. The plant received a 20-year extension in 2009, allowing it to operate until 2034.

Financial Repercussions

Exelon said it is taking a one-time charge of $65 million to $110 million for 2017, and accelerating approximately $1 billion in depreciation and amortization through the shutdown date, terminating capital investment projects and canceling 2019 fuel purchases and outage planning, impacting about 1,500 outage workers.

It said there could be as much as $25 million in additional charges in each of 2018 and 2019.

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