By Ted Caddell

Illinois officials last week offered state legislators a list of options for keeping Exelon’s nuclear plants running — including a carbon tax and a cap-and-trade program —  all of which will likely result in higher power prices for consumers.

The options came in a 269-page report issued by the Illinois Commerce Commission, the Illinois Power Agency, the Illinois Environmental Protection Agency and the Illinois Department of Commerce and Economic Opportunity. A state House of Representatives resolution tasked the agencies to come up with the report, and to include “potential market-based solutions to guard against premature closure of at-risk nuclear plants and associated consequences.”

Exelon last year said that three of its nuclear generating stations — Byron, Clinton and Quad Cities — have been unprofitable in the current market, and the company threatened to shut them down if changes weren’t made. The company has said government subsidies and tax credits given to the wind and renewable energy sectors result in an unfair market advantage for those generators. It also has repeatedly said it is not looking for a “bailout” of the plants, instead arguing that the nuclear stations should get credit for producing carbon-free electricity.

Much of the Illinois report is concerned with the potential costs to the state if the plants are retired. Faced with the loss of jobs and tax revenue if they close, and the possibility of having to burn more fossil fuels to make up for the lost generation, the agencies suggested a series of programs and taxes that would penalize fossil fuel burners and provide incentives to Exelon to keep its nuclear plants open:

• Do nothing, and rely “purely on the market and external initiatives to make corrections;”
• Establish a cap-and-trade program with other states, which would monetize the carbon-free nature of nuclear generation;
• Tax those generators that do burn fossil fuels and produce carbon emissions;
• Adopt a low-carbon portfolio standard; or
• Adopt a sustainable power planning standard.

Higher Prices, Job Losses

No matter what policy is adopted, ratepayers would probably end up paying more, either through having to fund the subsidies through taxes or by being hit with higher energy bills. The costs of plant closures alone, not taking into account the effect on rates or the wholesale market, are substantial, according to a section of the report by the Commerce Department. The agency predicted 2,500 direct job losses at the nuclear plants, 5,300 indirect job losses, more than $1.8 billion in annual lost economic activity and a 10 to 16% increase in wholesale power prices.

Replacing the nuclear capacity with more than 7,000 MW of wind and 1,500 MW of solar by 2020 would create more jobs initially — 9,600 — but much of that would be temporary construction work, resulting in a net loss of more than 5,000 jobs.

That there would be an impact on costs upon retirement of any of the plants is undisputed, according to the report. A PJM analysis adopted by the report shows a jump of up to 9.9% in energy costs in the RTO’s Commonwealth Edison zone if all three plants were retired. Spread out over all zones of PJM, the increases are less pronounced, topping out at about 3.5% if all three plants retired.

Reliability Impact

The cost of the decrease in reliability is difficult to quantify, according to the report, but would easily be “in the hundreds of millions of dollars or more.” The cost of making substantial changes and improvements to the transmission system alone, and changing Illinois from a net exporter of electricity to a net importer, would be an additional burden — also measured in the hundreds of millions of dollars.

“There is a potential for impacts on reliability and capacity from the premature closure of the at-risk nuclear plants,” the Illinois Power Agency said. “However, in many of the cases analyzed, reliability impacts remain below industry standard thresholds, and impacts appear to be more significant in other states than in Illinois.

“Taken alone, there may not be sufficient concern regarding reliability and capacity to warrant the institution of new Illinois-specific market-based solutions to prevent premature closure of nuclear plants. But combined with the issues raised by the reports prepared by the ICC, IEPA and DCEO, the totality of the impacts suggest that the General Assembly may want to consider taking measures that would prevent the premature closure of at-risk nuclear plants.”

The environmental costs are briefly outlined in a section of the report, with an analysis done by PJM at the request of the ICC. The RTO estimated that if all three plants closed, the resulting increased dependence on fossil generation would lead to “increased carbon dioxide emissions of up to 18.9 million tons across the PJM region and up to 8.7 million tons for the state of Illinois.” The Illinois EPA wrote that it estimates the costs to society of replacing the nuclear generation with another, fossil-heavy mix — what it calls the Societal Cost Carbon Estimate — at between $2.5 billion and $18.6 billion from 2020 to 2029.

Plants’ Profitability

A large portion of the report consists of cost analyses and revenue examinations, with a multitude of factors in an attempt to determine if, in fact, some of Exelon’s nuclear stations are unprofitable. “Because of the limited cost data available, it is not entirely clear whether or not Exelon’s Illinois plants earn sufficient revenues to cover their operating costs,” the report concludes. “As shown, some of the Illinois nuclear units would require no price increase — relative to the 2007-2013 price averages — to restore profitability.”

The report said price increases expected under the U.S. EPA’s proposed carbon emission rule — estimated at 10 to 20% — will improve the profitability of Exelon’s nuclear units. But that would not be enough to save Quad Cities, which would need a 50% increase to become profitable.

The report also predicts that nuclear units will benefit under PJM’s Capacity Performance proposal because of their low forced outage rates.

Carbon Tax

As one solution, the report suggests a carbon tax, which would generate a revenue stream while also providing an incentive through market signals for low- or carbon-free emission generation.

Another suggested solution is that the state convert its renewable portfolio standard to a low carbon standard that includes nuclear power among favored generation sources. As under RPS, wholesale purchasers of electricity would be required to obtain specified percentages of their supply from sources with lower carbon intensity than that of fossil-fuel generation.

Exelon’s Response

Exelon issued a written statement yesterday morning, in which it quoted parts of the report that supported its view of the need to develop a policy to keep the nukes running.

“We thank the state for its attention and work on such an important issue for Illinois and the future of the state’s energy assets,” the statement reads. “The report makes clear that the future of Illinois’ nuclear power plants should be an issue of statewide concern.

“We continue to believe that the best, most cost-effective approach for preserving the benefits these plants provide is a market-based solution that properly values the emissions-free, always-on energy they generate.”

No to ‘Bailout’

Howard Learner, executive director of the Environmental Law & Policy Center, said the report “shows that Exelon’s nuclear plants that aren’t economically competitive can be retired without added costs to Illinois consumers, without hurting reliability and with more job creation by growing clean renewable energy and energy efficiency.”

“This report confirms that the competitive power market is working to hold down Illinois energy costs,” Learner said. “We shouldn’t bailout Exelon’s old, uncompetitive nuclear plants. Instead, we should invest in new renewable energy, like wind and solar, and energy efficiency to grow a cleaner Illinois energy future.”