Illinois Should not Subsidize Exelon’s Nuclear Plants Study Argues

Published May 29, 2015

Exelon Corp., one of the nation’s biggest utilities operating in 48 states with more than 32,000 megawatts of generating capacity and the nation’s largest fleet of nuclear plants in the U.S. is asking the Illinois legislature to provide new subsidies to keep open three of its six nuclear power plants in the state it claims are uneconomical. Absent additional government support, Exelon says it will be forced to close its three under-performing nuclear power plants. 

Exelon gives a number of reasons for the state to pay it to keep the three nuclear plants in question open, among them: to keep electricity reliable and to prevent costs from rising, and to protect the environment by avoiding the social costs of carbon-dioxide emissions. 

Exelon blames lower-than-expected energy demand, low natural gas prices, and renewable energy subsidies and mandates giving unfair advantages to the wind power industry.

Risk of Extortion

Heartland Institute Senior Fellow James Taylor, who recently co-authored a study examining Exelon’s arguments for additional taxpayer support to keep its nuclear plants open, Best Options for Potential Nuclear Power Plant Closings in Illinois, agrees renewable energy subsidies are a problem, but notes the problem is not unique to Exelon’s nuclear plants, and argues the best response for ratepayers and the state in general is to remove all energy mandates and subsidies in the state, not extend bailouts to another segment of the electric power industry. “Ending all subsidies and letting each electric power producer compete on a level playing field would produce the least waste, the greatest efficiencies and the lowest prices for ratepayers,” said Taylor. 

Taylor argues it is hard to assess whether Exelon’s three plants are actually losing money since, though the company is asking for additional subsidies, it refuses to open its financial records to public scrutiny. Exelon’s claim’s financial woes come at a time when the company brags it had $27.4 billion in revenues in 2014, resulting in a net profit of more than $2 billion.

Even if these plants aren’t profitable at current electric prices, it doesn’t mean they won’t be if prices rise as expected in the future. 

Taylor argues, “If Exelon demands taxpayers guarantee solid profits for every individual component of its nuclear power plant fleet, then taxpayers can reasonably demand in return Exelon not keep excessive profits from any individual component of its fleet.” 

“Exelon, however, does not offer to return excessive profits it has garnered from its other power plants,” said Taylor. “Exelon threatens to shut down the three nuclear power plants if it does not receive its demanded taxpayer subsidies.” 

Taylor warns if the legislature “caves in to Exelon’s strong-arm tactics,” it and other companies seeking special favors from the government could employ such tactics repeatedly “Responding to Exelon’s threats by giving it subsidies and protection from competition in the marketplace, temporarily propping up uneconomical nuclear power plants, would encourage rather than discourage Exelon, and other companies finding themselves in equivalent uncompetitive positions, to make similar threats in the future.” 

State Report Finds Limited Impact from Closures

The Heartland report notes an additional factor raising doubts about Exelon’s arguments for special subsidies. The April 2015 generator auction conducted by MISO Energy, the electric grid operator in the region, added $13 million to Exelon’s Illinois nuclear power plant revenue. Also, cost structure changes approved by electric grid operator PJM Interconnection will result in increased electricity prices adding up to $560 million in additional revenue for Exelon’s nuclear power plant fleet by 2018. 

A report requested by the Illinois House of Representatives in May 2014 by the Illinois Commerce Commission (ICC), Illinois Power Agency (IPA), Illinois Environmental Protection Agency (IEPA), and Illinois Department of Commerce and Economic Opportunity (IDCEO) examining on the potential effects of possible power plant closures was released January 5, 2015. The report, essentially four separate reports – one from each agency, with each agency addressing its own subtopic – is merged into a single document. 

The agencies’ study found little likelihood the loss of the three plants, even in extreme power situations, would result in reliability problems. The report indicates, there will be sufficient generation capacity for Illinois electricity demand, even if Exelon closes its at-risk nuclear power plants, except in the most extreme foreseeable scenarios. The most extreme scenarios would likely overwhelm capacity even if Exelon’s three at-risk power plants remain operational. 

The report reports any additional risk of insufficient capacity would be alleviated if the state allows lower-cost power plants to be constructed in response to the closure of Exelon’s nuclear power plants. 

Concerning costs, the multi-agency report found, any short-term cost impacts from Exelon closing its at-risk nuclear plants could be mitigated by longer-term cost savings stating, “the closure’s actual or anticipated impact on electric energy and capacity prices would provide an incentive for firms to construct replacement generating facilities.” 

Taylor says the savings result from the fact, “absent government interfering and distorting electricity markets, these replacement generating facilities would be less expensive coal and natural gas power plants. A short-term increase in retail electricity prices brought on by Exelon’s poor planning and decision-making could be offset by more economical coal and natural gas power plants replacing the uneconomical nuclear plants.” 

Environmental Harms Unproven

The IEPA’s and IDCEO’s portions of the state report support Exelon’s claim subsidies or other interventions may be justified to keep its under-performing nuclear plants operating to avoid the “social costs of carbon.”

Taylor points out these arguments are based on controversial claims concerning negative climate impacts of carbon dioxide emissions. By contrast Taylor’s argues, “the net impact of carbon dioxide emissions on the environment and human well-being is likely positive rather than negative.”

“Carbon dioxide is an naturally occurring, greenhouse gas necessary to life on earth and the planet and mankind is benefiting from its increase with increased crop yields, forest regrowth, and attendant decreases in malnutrition and hunger and longer life-spans,” said Taylor. 

“There is scant evidence,” Taylor continued, “higher carbon-dioxide levels are causing harmful or extreme weather events. Tornadoes and hurricanes have become less frequent and severe. Droughts are no worse nor longer in duration now than historically and death rates due to weather are declining rapidly.” 

Even if the social costs of carbon-dioxide could be calculated accurately, the Heartland report shows harms from closing these three plants would be infinitesimal since the amount of carbon-dioxide avoided through continued their operation in lieu of replacement fossil fuel plants, would have no measurable effect on climate or temperature. 

Exelon will not open its books to demonstrate to the state the three Illinois-based nuclear power plants it is threatening to close are actually losing money. The state’s own report concludes neither electric power reliability nor, in the long term, electric power costs are likely to be impacted by Exelon’s plant closures. Additionally, based on the amount of carbon dioxide avoided by the three plant’s continued operations, the impact on the environment from the plant closures would be negligible at best. Based on these three facts Taylor concludes, “There is no compelling justification for Illinois state government to bail Exelon’s three nuclear power plants.”

H. Sterling Burnett, Ph.D., ([email protected]) is the managing editor of Environment & Climate News.