Reports related to this article:
Project(s): View 6 related projects in PECWeb
Plant(s): View 8 related plants in PECWeb
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The recent decision by Exelon Corporation (NYSE:EXC) (Chicago, Illinois) to prematurely close two nuclear plants in Illinois that operate as merchant generators is the latest sign of the difficulties facing merchant nuclear Power plants. And it may be a harbinger of things to come for the Illinois-based company, which operates more nuclear generation than any other U.S. utility. With market rules limiting the potential profitability of merchant generation, mostly because those generators typically do not receive capacity payments, Exelon plans to invest more heavily in its electric and gas transmission and distribution (T&D) businesses than its merchant power-generation business.
Exelon is one of the largest U.S. utilities, serving an estimated 10 million customers in Illinois, Pennsylvania, Maryland, Delaware and Washington, D.C. Over the years, it has grown by acquisition, buying PECO Energy Company (Philadelphia, Pennsylvania); Constellation Energy, parent of utility Baltimore Gas & Electric (BGE) (Baltimore, Maryland) and, earlier this year, Pepco Holdings Incorporated (NYSE:POM) (Washington, D.C.). Exelon's generation unit operates nuclear, coal, gas and renewable electric generation plants in dozens of states. The firm owns about 32,700 megawatts (MW) of power generation, including about 19,500 MW of nuclear generation.
The company's nuclear generation capacity will shrink about 15%, roughly 2,913 MW, over the next two years. Last month, on the same day it announced first-quarter earnings, Exelon said it was prepared to prematurely retire two of its Illinois nuclear power plants if Illinois legislators did not pass a bill containing financial aid for nuclear generators. Exelon said it was prepared to close the Clinton Nuclear Power Station in June 2017 and the Quad Cities Nuclear Power Station in June 2018 if Illinois lawmakers failed to pass a zero-carbon energy bill before they recessed at the end of May.
The Illinois legislature recessed without passing that bill, so in early June Exelon began taking steps to close those two Illinois nuclear plants. Clinton, a one-unit, 1,065-MW plant, began operating in 1987. Quad Cities, a two-unit, 1,848-MW plant, began generating electricity in 1972. Those plants have sustained a total of $800 million in pre-tax cash-flow losses from 2009 to 2015, the company said. The plants are not economic to operate given the bidding rules in the Midcontinent Independent System Operator (MISO) (Carmel, Indiana) and the Pennsylvania-New Jersey-Maryland (PJM) Interconnection (Norristown, Pennsylvania) markets. Inexpensive natural gas, coupled with the lack of capacity payments, made the two nuclear merchant plants uneconomic.
In its home state of Illinois, forward power prices have declined about 10% over the last year, Exelon said May 6 on its first-quarter earnings call. In PJM, wholesale power prices are at a 15-year low, it added. The company pointed to independent analyses by PJM and MISO that closure of Clinton and Quad Cities would have a "significant increase in electricity prices for Illinois residents and businesses."
Exelon's generation unit also operates the Fort Calhoun Nuclear Power Plant in Blair, Nebraska, on behalf of its owner, the Omaha Public Power District (OPPD) (Omaha, Nebraska). OPPD's management wants to close that one-unit plant by the end of this year. The OPPD board of directors is expected to vote on management's proposal later this month. For more on that, see May 24, 2016, article--Omaha Utility Continues Generation Makeover with Plan to Close Nuclear Plant.
A difficult merchant power market for nuclear generators, plus the closure of a merger with Pepco, has caused Exelon to increase and modify its capital spending plans. In late 2015, before the deal with Pepco closed, Exelon told fixed-income investors it planned to invest about $18.9 billion in its businesses over the 2016-2018 period: about $11.3 billion would go to the utility business, while about $7.6 billion would be invested in the generation business.
More recently, however, following the closure of the Pepco merger, Exelon said its 2016-2018 capital investments would total about $23 billion. Investments in the utility business would rise to about $15.3 billion, while investments in the generation side of the business would decline slightly, to about $7.4 billion. It is not clear if the firm's current capital budget includes funds to mothball and decommission Clinton and Quad Cities.
Industrial Info is tracking 10 Exelon capital projects valued at about $2.73 billion that are scheduled to kick off between January 2016 and December 2018. The largest dollar-value projects are:
"The regulated T&D business brings in a steady, relatively predictable cash flow and earnings, which balances the volatility we have seen in merchant power generation," Burt continued. "In recent years, however, that volatility has increased to the point where operating nuclear plants are being shut down because they are uneconomic with gas-fired generators."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
Exelon is one of the largest U.S. utilities, serving an estimated 10 million customers in Illinois, Pennsylvania, Maryland, Delaware and Washington, D.C. Over the years, it has grown by acquisition, buying PECO Energy Company (Philadelphia, Pennsylvania); Constellation Energy, parent of utility Baltimore Gas & Electric (BGE) (Baltimore, Maryland) and, earlier this year, Pepco Holdings Incorporated (NYSE:POM) (Washington, D.C.). Exelon's generation unit operates nuclear, coal, gas and renewable electric generation plants in dozens of states. The firm owns about 32,700 megawatts (MW) of power generation, including about 19,500 MW of nuclear generation.
The company's nuclear generation capacity will shrink about 15%, roughly 2,913 MW, over the next two years. Last month, on the same day it announced first-quarter earnings, Exelon said it was prepared to prematurely retire two of its Illinois nuclear power plants if Illinois legislators did not pass a bill containing financial aid for nuclear generators. Exelon said it was prepared to close the Clinton Nuclear Power Station in June 2017 and the Quad Cities Nuclear Power Station in June 2018 if Illinois lawmakers failed to pass a zero-carbon energy bill before they recessed at the end of May.
The Illinois legislature recessed without passing that bill, so in early June Exelon began taking steps to close those two Illinois nuclear plants. Clinton, a one-unit, 1,065-MW plant, began operating in 1987. Quad Cities, a two-unit, 1,848-MW plant, began generating electricity in 1972. Those plants have sustained a total of $800 million in pre-tax cash-flow losses from 2009 to 2015, the company said. The plants are not economic to operate given the bidding rules in the Midcontinent Independent System Operator (MISO) (Carmel, Indiana) and the Pennsylvania-New Jersey-Maryland (PJM) Interconnection (Norristown, Pennsylvania) markets. Inexpensive natural gas, coupled with the lack of capacity payments, made the two nuclear merchant plants uneconomic.
In its home state of Illinois, forward power prices have declined about 10% over the last year, Exelon said May 6 on its first-quarter earnings call. In PJM, wholesale power prices are at a 15-year low, it added. The company pointed to independent analyses by PJM and MISO that closure of Clinton and Quad Cities would have a "significant increase in electricity prices for Illinois residents and businesses."
Exelon's generation unit also operates the Fort Calhoun Nuclear Power Plant in Blair, Nebraska, on behalf of its owner, the Omaha Public Power District (OPPD) (Omaha, Nebraska). OPPD's management wants to close that one-unit plant by the end of this year. The OPPD board of directors is expected to vote on management's proposal later this month. For more on that, see May 24, 2016, article--Omaha Utility Continues Generation Makeover with Plan to Close Nuclear Plant.
A difficult merchant power market for nuclear generators, plus the closure of a merger with Pepco, has caused Exelon to increase and modify its capital spending plans. In late 2015, before the deal with Pepco closed, Exelon told fixed-income investors it planned to invest about $18.9 billion in its businesses over the 2016-2018 period: about $11.3 billion would go to the utility business, while about $7.6 billion would be invested in the generation business.
More recently, however, following the closure of the Pepco merger, Exelon said its 2016-2018 capital investments would total about $23 billion. Investments in the utility business would rise to about $15.3 billion, while investments in the generation side of the business would decline slightly, to about $7.4 billion. It is not clear if the firm's current capital budget includes funds to mothball and decommission Clinton and Quad Cities.
Industrial Info is tracking 10 Exelon capital projects valued at about $2.73 billion that are scheduled to kick off between January 2016 and December 2018. The largest dollar-value projects are:
- Construction of a high-voltage, direct-current (HVDC) 320-kilovolt (kV) underwater transmission line between Maryland and New Jersey to bring offshore windpower into PJM. This $1.7 billion transmission project, the Graceton-New Jersey Energy Link, is scheduled to begin construction in mid-2018 and be completed by mid-2020.
- Michigan Wind III, a planned 153-MW windfarm in Sanilac County, Michigan, is scheduled to begin construction in early 2017. This $300 million project is slated for completion by September 2017.
- Swisher Wind Energy Project is a 150-MW, $200-million windfarm planned for Swisher County in the Texas Panhandle. That project is scheduled to kick off in April 2017 and be operating by yearend 2017.
- West Medway Peaking Power Station, a 200-MW unit addition to an existing gas-fired power plant in Medway, Massachusetts. That project is slated to begin construction in early 2017 and be complete in mid-2018.
- Hanover Pike Substation, a planned grassroot 115kV/230-kV/500-kV substation to import more power into Exelon's BGE service territory in Maryland. The $124 million project is expected to kick off construction in mid-2017 and be complete by the summer of 2018.
"The regulated T&D business brings in a steady, relatively predictable cash flow and earnings, which balances the volatility we have seen in merchant power generation," Burt continued. "In recent years, however, that volatility has increased to the point where operating nuclear plants are being shut down because they are uneconomic with gas-fired generators."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
