Exelon may be forced to close its Illinois nuclear plants if state legislation is not passed to bolster their eroding financial prospects. But subsidiary utility Commonwealth Edison’s involvement in a bribery scandal has complicated this and other key policy efforts in its home state.
CEO Chris Crane outlined these challenges during the Chicago-based utility’s second-quarter earnings conference call on Tuesday. Last month, ComEd agreed to pay a $200 million fine as part of a deferred prosecution agreement with federal prosecutors to avoid criminal liability in an alleged bribery scheme involving Illinois House Speaker Michael Madigan.
Crane apologized for the company’s failure to prevent the activities described in the agreement, including arranging jobs, contracts and payments for Madigan associates in exchange for assistance with legislation favorable to the utility. “We have taken robust actions to address these [issues]," Crane said. “These new policies and oversight will ensure this will not happen again.”
At the same time, Crane noted the company is “in the middle of trying to work through legislative strategy in Illinois” that would offer its nuclear power plants in the state an alternative path to earning capacity market revenue that is seen as a critical component of their future financial viability.
Exelon owns the country’s largest nuclear generating fleet and other generation assets; it operates utilities in Illinois, Maryland, Delaware and Washington, D.C.
Exelon reported second-quarter earnings of $521 million on Tuesday, or 53 cents per share on a GAAP basis, beating its previous guidance despite costs related to storms and COVID-19 pandemic disruptions.
Exelon's nuclear plants hang in the balance
A December decision from the Federal Energy Regulatory Commission is forcing mid-Atlantic grid operator PJM to impose minimum prices on a wide array of state-supported grid resources. That rule is expected to include Exelon’s Clinton and Quad Cities nuclear power plants, which receive hundreds of millions of dollars per year in zero-emissions credits created by Illinois’ Future Energy Jobs Act.
Exelon is seeking to extend the zero-emissions credits to its Braidwood, Byron and Dresden nuclear plants, which failed to clear PJM’s last capacity auction in 2018 and could face early retirement without additional financial support.
While FERC has not approved PJM’s plan to comply with its order, and PJM has not yet set a date to resume its long-delayed capacity auction, “there’s a strong sense...that some of the nuclear units will not be picked up in that auction” when it occurs, Crane said. “Some are uneconomic right now, and some may become uneconomic.”
Exelon wants Illinois to create a new structure, known as a “fixed resource requirement,” that could allow these plants to be paid for their capacity values outside of the PJM market. That mechanism is part of the Clean Energy Jobs Act, a bill that combines a mandate for 100 percent renewables by 2050 with other policies pertaining to carbon reduction, electric transportation and job creation.
But the bribery scandal has driven a wedge between the utility and state lawmakers, while the COVID-19 pandemic forced the legislature to curtail much of its work this spring and focus on responses to the public health crisis. The Clean Energy Jobs Act failed to move ahead during an emergency session in May, as did an alternative, less ambitious clean energy bill called Path to 100.
Illinois Governor JB Pritzker suspended the Energy Working Group involved in crafting the Clean Energy Jobs Act after the deferred prosecution agreement was announced, saying through a spokesperson that future legislation “will not be written by utility companies.”
Absent a legislative solution to Exelon’s nuclear plants’ challenges in Illinois, Crane said, "If we can’t find...a path to profitability, we will have to shut them down.” That would be “a sad turn of events that will affect the state’s goals on carbon reduction,” given that nuclear power supplies about 90 percent of Illinois' carbon-free energy, “and will severely affect the communities” that rely on the plants for jobs and economic activity.
But Exelon “will not allow the balance sheet to be further deteriorated by operating noneconomic assets,” he said. Exelon has successfully won zero-carbon credits in New York and New Jersey, but it has also laid plans to shut down its Three Mile Island nuclear plant in Pennsylvania if that state does not create similar supports.
Formula rate extension and Chicago grid takeover both remain uncertain
ComEd also faces an uphill battle in efforts to win an extension of a plan in place since 2011 that allows it to file its capital expansion plans under formula rate updates, rather than through a traditional rate-making process with the Illinois Commerce Commission. A bill that would have extended the formula rate structure past its 2022 expiration failed to pass the legislature this year.
ComEd CEO Joe Dominguez said on Tuesday’s earnings call that the formula rate structure has allowed the utility to make significant improvements to customer service and system reliability, while also reducing customer rates over the past decade. But the utility’s $9.53 billion capital plan for 2020 through 2023, which will take effect under the formula rate structure, will add more than $5 billion to its capital rate base and lead to price hikes for customers in future years.
The new capital plan includes replacing aging power poles and lines and updating underground power cables, as well as hundreds of millions of dollars in networked LED streetlights, distribution grid automation and other improvements to its multibillion-dollar smart grid investments enabled by the 2011 law that introduced the formula rate structure.
ComEd will continue these programs whether or not Illinois lawmakers extend these formula rates, but it is pressing for their continuation, Dominguez said. “We think of good regulatory and political outcomes as being driven by good operational performance.”
Exelon is also facing the potential threat of having its Chicago power grid taken over by the city, although this effort appears to be waning in the face of the high costs it would impose on the city budget. Supporters of municipalizing Chicago’s grid say it could reduce costs and allow more aggressive renewable energy goals.
But the costs of doing so could range from $5 billion to $11 billion, according to preliminary estimates awaiting more complete details from an ongoing study. Crane said that ComEd was working with Chicago Mayor Lori Lightfoot and the city council on a deal to extend its franchise agreement to provide the city’s energy by a year while the study is being completed.