New York Reactor’s Survival Tests Pricey Nuclear

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Other plants at risk of closing include Exelon’s Clinton station in Illinois, Entergy Corp.’s Pilgrim station in Massachusetts and FirstEnergy Corp.’s Davis-Besse plant in Ohio, according to Moody’s.

By Naureen S. Malik and Jim Polson Jan 5, 2015
Bloomberg News

Exelon Corp. (EXC), the biggest U.S. owner of nuclear reactors, needs to almost double power prices to keep a New York plant running in a move that promises to show just how far regulators will go to keep uneconomic plants operating.

After recording losses that exceeded $100 million from 2011 to 2013, Exelon will need to charge about 83 percent more than wholesale prices to earn a profit at its Ginna plant, based on company cost estimates. State regulators have set a Jan. 15 deadline for a new power contract that’s rich enough to keep the Rochester-area plant running.

Last month, Entergy Corp. shut Vermont’s only operating reactor citing low power prices. Ginna is one of 10 other nuclear plants that can’t compete in current markets, Moody’s Investors Service said in November. Retiring the reactors, which account for 10 percent of the nation’s nuclear output, would undercut a push to produce power without greenhouse gases as renewables such as wind and solar are just emerging.

“Ginna nuclear power plant is an important asset in the state’s generation fleet,” Patricia Acampora, a commissioner for New York’s Public Service Commission, said at a Nov. 23 meeting. “It’s important, reliable, carbon-free energy.”

Exelon acquired the plant when it bought Constellation Energy Group Inc. in 2012. Constellation paid Rochester Gas & Electric $401 million for the plant in 2004 and agreed to sell power back to its former owner at $44 a megawatt-hour for 10 years. The average wholesale power price in the Rochester area was $38.83 a megawatt-hour during the past five years, according to data compiled by Bloomberg.

Power prices have dropped as booming natural gas production from shale cut costs for competing power stations that burn the fossil fuel.

Reactors Closing

“The two game changers have been the shale gas and the distortive effect of subsidies” for renewable energy projects like wind, said Joseph Dominguez, Exelon’s senior vice president for governmental and regulatory affairs and public policy. “Those things really started to seriously impact the economics of plants probably around 2010.”

Exelon won regulatory approval in November to begin talks with Rochester Gas on a new contract with the utility, which is owned by Iberdrola SA and serves about 371,000 homes and businesses in nine counties.

Exelon isn’t alone in its struggle with at-risk plants. Four U.S. nuclear reactors were shut in 2013 because they weren’t profitable or needed repairs that owners decided were too costly. Entergy’s Vermont Yankee was closed after it failed to find a buyer. The company blamed “artificially low” power prices for the shutdown.

‘Extraordinary Amount’

A single-unit reactor like Ginna needs as much as $71 a megawatt-hour to earn an 11 percent return and $56 to $64 to break even, based on 2016 forecasts, Exelon said.

The average Rochester Gas customer probably will pay an additional $18 more a month to keep Ginna operating, based on figures provided by Exelon in its state filing, said Tim Judson, executive director of the Nuclear Information and Resource Institute. The group estimated the operating costs for the Alliance for a Green Economy, an antinuclear group.

“Ginna will likely request a contract approximately $80 million a year greater than the market cost of electricity,” said Jessica Azulay, program director of the Syracuse, New York-based Alliance, in a filing. “This is an extraordinary amount of money to be demanded of ratepayers to prop up a private company that has become uncompetitive in the market.”

Single Reactors

The 581-megawatt Ginna nuclear reactor produces power without heat-trapping carbon dioxide. Closing it “presents potentially serious reliability problems for New York,” the Independent System Operator, which runs the state power grid, said in a filing.

Retiring nuclear stations that produce power without greenhouse gases would undercut President Barack Obama’s plan to cut emissions. The U.S. and China, the world’s largest greenhouse gas emitters, last month pledged to reduce climate pollution in an effort to curb global warming.

Other plants at risk of closing include Exelon’s Clinton station in Illinois, Entergy Corp.’s Pilgrim station in Massachusetts and FirstEnergy Corp.’s Davis-Besse plant in Ohio, according to Moody’s. All three are single reactors, where costs can be higher than at multi-unit plants.

In Ohio, state regulators are considering FirstEnergy’s proposal for 15 years of customer subsidies to keep the 908-megawatt Davis-Besse reactor and some coal-burning plants in service.

‘Sufficient Revenues’

“Markets have not, and are not, providing sufficient revenues to ensure continued operations of the plants,” Donald Moul, a vice president for commodity operations at FirstEnergy, said in Aug. 4 testimony. While prices eventually will rise, “the plants may not survive long enough to see the higher prices.”

Illinois legislators in May ordered agencies to propose “market-based solutions” that would keep Exelon’s nuclear plants open in the state. The company expects to hold off any retirement decisions until May 2015, awaiting any new laws, Chief Executive Officer Christopher Crane said Oct. 29.

A new power contract to keep Ginna open would be an “interim measure” to meet reliability needs, Paul Elsberg, a spokesman for Exelon, said in an e-mail. It would also maintain 700 jobs as Exelon seeks “longer-term, market-based solutions for its nuclear fleet,” he said.

Ginna Alternatives

Other power generators in New York, including NRG Energy Inc. (NRG) and Entergy, owner of the Indian Point nuclear plant, oppose the premium contract, saying competitors should be allowed to offer alternatives to Ginna. Options include adding power plants orpower lines from existing plants to supply the Rochester area, NRG said in a filing.

“For what Exelon is asking to keep Ginna running, we could replace this plant with lower cost sustainable energy, like efficiency, like wind and like solar,” said Judson, whose group opposes nuclear energy.

Rochester Gas is reviewing six alternatives, said Daniel Hucko, a spokesman for Iberdrola, declining to identify the proposals.

“It’s about reliability,” Hucko said in an e-mailed response to questions. “We will work in the best interests of our customers with considerations of cost at the forefront while recognizing the importance of continued network reliability and reaching reasonable terms for all parties.”

To contact the reporters on this story: Naureen S. Malik in New York atnmalik28@bloomberg.net; Jim Polson in New York at jpolson@bloomberg.net

To contact the editors responsible for this story: Susan Warren atsusanwarren@bloomberg.net Tina Davis, Robin Saponar

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