Exelon Corp. (NYSE: EXC), operator of the largest fleet of U.S. nuclear plants, says it could have to close three of them if Illinois rejects the company's pitch to let it recoup more from consumers since the plants do not produce greenhouse gases.
Chicago-based Exelon essentially wants to change the rules of the state's power market as the nuclear industry competes with historically low prices for natural gas. Dominion Resources Inc. recently closed the Kewaunee Power Station in Wisconsin for financial reasons, and Entergy Corp. likewise shuttered its Vermont Yankee plant.
Plans for a new wave of U.S. nuclear plants have been delayed or cancelled, aside from three projects deep into construction at Plant Vogtle south of Augusta, Georgia; V.C. Summer Nuclear Station north of Columbia, South Carolina; and Watts Bar Nuclear Plant in eastern Tennessee. Electric utilities in those states do not face competition.
Nuclear plants provide about 97 percent of the electricity supply in Exelon's Midwest market, according to company filings.
"We're not looking for a bailout from market conditions," said Joseph Dominguez, executive vice president for governmental and regulatory affairs at Exelon. "We are looking for policy support that every other technology receives in Illinois that produces zero-carbon electricity with the exception of nuclear."
Though it wants financial assistance, Exelon will not release detailed information about the cost of running the three Illinois plants in Quad Cities, Byron and Clinton that company officials say are most at-risk. An analysis by state agencies estimated the cost of producing power at those plants may exceed the payments they get, though they could not be certain.
Exelon and other around-the-clock plants sometimes take losses when wind turbines produce too much electricity for the system.
Exelon remained profitable overall, making $1.6 billion last year.
"If the question is, 'Are they under economic threat?' I don't think there's any question they are," said Paul Patterson, a utility analyst for Glenrock Associates LLC, who referred to nuclear plant closures elsewhere as evidence. "Will they shut down? I think it depends at what plant you're looking at."
The Illinois proposal would reward nuclear plants. Under the system, electric suppliers would have to buy credits from carbon-free energy producers. Exelon says the plan would benefit nuclear plants, hydroelectric dams, and other solar and wind projects.
Critics are concerned the rules are so narrowly drawn that the primary winner would be Exelon's own nuclear fleet. For example, there are limits on the size of participating hydroelectric dams. Clean energy sources built in regulated markets don't count. Neither do any renewable energy sources that have long-term contracts to sell their power to other buyers.
The executive director of the Environmental Law and Policy Center, Howard Learner, said nuclear plants cannot be considered similar to wind and solar energy since they produce radioactive waste. While closing a nuclear plant may eliminate local jobs, subsidizing them prevents investments and job growth elsewhere.
"You're talking about a public financial bailout for a private firm," Learner said. In good years, "you don't see Exelon offering to come in and share its profits with the ratepayers."
Exelon's bet on nuclear power was a winning strategy when natural gas was expensive and a booming economy buoyed consumer demand for electricity. Then new technology allowed drillers to tap into new supplies of natural gas in the United States, producing a glut of fuel and sending gas prices tumbling 63 percent since a peak in 2008.
That reversal created a big problem for companies like Exelon that compete to sell electricity to customers. Prices in competitive markets are set by bidding. Every power plant gets the price paid to the last accepted bidder, which is also the most expensive.
Gas-burning plants typically have the highest costs and usually set market prices. When gas prices were high, the bidding system was good for low-cost nuclear plants that could make thick profits. But as the cost of gas tumbled, the profits for the nuclear industry shrank.
AP writer Tammy Webber in Chicago contributed