Nuclear Giant Exelon Blasts Wind

Guest Blog | July 3, 2014 | Energy Policy, Nuclear, Wind
Exelon's Christopher Crane wants Congress to kill a wind tax break, despite the fact the nuclear industry wouldn't be viable today without decades of federal subsidies.

This guest post was authored by Elliott Negin, Director of News & Commentary, at the Union of Concerned Scientists. It was originally published here

Corporate executives often tout the benefits of competition in a free-market economic system, but it’s striking just how much large corporations don’t like it. In fact, some companies will do all they can to squash it, lobbying for favors and subsidies while working to deny them to their competitors.

The squabble over a key federal tax break for the wind industry is a case in point. Called the production tax credit (PTC), it has helped quadruple the wind industry’s generation capacity over the last five years, and six states now have enough wind turbines to meet more than 15 percent of their annual demand.

Unlike most coal, nuclear, and oil and gas subsidies, the PTC — which has been around only since the mid-1990s — is not permanent. Congress has to renew it periodically. Last December, Congress let it expire yet again, and lawmakers likely will not restore it until after the November mid-term elections, if at all. The PTC represents roughly $1.2 billion in annual tax savings to the wind industry.

Wind’s more-established competitors want the PTC dead.

ExxonMobil, the Koch brothers and their front groups, for example, want Congress to let it die. Never mind that the oil and gas industry has been receiving an average of $4.86 billion annually in today’s dollars in subsidies and tax breaks since 1918. Or the fact that Congress exempted natural gas developers from key provisions of seven major environmental laws, including the Clean Air Act and Clean Water Act.

The nuclear power industry doesn’t like the wind tax break, either. Its most outspoken critic is Exelon, the nation’s largest nuclear plant owner with 23 reactors at 14 plant sites. The Chicago-based utility contends Midwest wind installations are cutting into its profit margins by driving down electricity prices, and it blames the PTC. The company has been lobbying Congress to terminate it, and as I reported earlier this week, it recently launched a front group, Nuclear Matters, to generate public support for keeping all U.S. reactors running.

“If the government believes that they’re improving the environment by subsidizing wind, they are wrong,” Exelon CEO Christopher Crane told the Chicago Tribune in late April. “It is going to shut nuclear plants down.” Around the same time, Exelon Senior Executive Vice President William Von Hoene Jr. clarified the company’s position. Exelon is not “anti-wind,” he told trade reporters, “but anti-subsidy.”

Anti-subsidy?! The nuclear industry is awash in subsidies. In fact, the industry wouldn’t be economically viable without subsidies underwriting every stage of the nuclear fuel cycle, according to a 2011 report by the Union of Concerned Scientists (UCS). Altogether, those subsidies have often exceeded the average market price of the power produced.

What makes Exelon’s opposition to the PTC complicated is it is much more than a nuclear power company. The largest supplier of wholesale power in the country, it gets 55 percent of its electric generation capacity from nuclear, 28 percent from natural gas, 6 percent from hydro, 4 percent from coal, and 3 percent from oil. The remaining 4 percent comes from landfill gas, solar and … wind.

Although wind represents a tiny percentage of Exelon’s capacity, it’s the 12th largest wind farm owner in the country. It was even on the board of the American Wind Energy Association — until it got kicked off two years ago for slamming the PTC. No matter. Given that nuclear power and natural gas represent more than 80 percent of its generating capacity, Exelon is against subsidies — but only for wind and other renewables. Exelon officials don’t mention the fact that natural gas is heavily subsidized, and they actually claim with a straight face that nuclear power is not subsidized at all.

Scapegoating Wind

There’s no question that nuclear power’s future isn’t looking as rosy as it did 10 years ago. Back then, U.S. utilities were banking on a nuclear renaissance. Some proponents were calling for as many as 100 new reactors. Now the industry likely will get at most five built in the next 10 years, and the economic viability of some operating reactors is now in question. “Merchant” plants in deregulated markets, which are not guaranteed an annual profit, are particularly at risk. In any case, four reactors closed last year, and Vermont Yankee’s lone reactor will shut down this fall. Investment research firm Morningstar has identified six reactors that may be next in line. And Exelon, which plans to shut down New Jersey’s Oyster Creek plant in 2019, is threatening to close some of its Illinois reactors if market conditions don’t improve.

But how much of the industry’s plight is due to the growth of wind power?

The website of Exelon’s new front group, Nuclear Matters, identifies some of the factors undermining the industry’s prospects, including depressed electricity demand, cheap natural gas, an outdated transmission system, and the fact that electricity markets don’t provide preferential treatment for low- and carbon-free sources — which is equally true for wind and other renewables. Exelon executives, however, are most exercised about what the website identifies as “federal and state policies [that] subsidize less reliable electricity sources, distorting competitive markets and causing otherwise economical, clean electric generators to operate at a loss.”

Joseph Dominguez, an Exelon senior vice president, translated that last bullet point into plain English for the Chicago Tribune in March. “Natural gas prices are impacting nuclear assets, there’s no doubt about that,” he said. “We would be able to survive that problem — and survive low demand for electricity — absent this phenomenon of subsidized wind.”

Dominguez cited a 2012 Exelon-sponsored study by the Northbridge Group that concluded the PTC encourages wind developers to keep their turbines spinning when electricity demand is low, particularly at night, allowing them to sell power at a loss and drive down the price other generators in the area can charge. In Illinois and other wind-rich regions of the country, there are times when demand is so low, wind, coal and nuclear plant owners have to pay grid operators to take their power. Utilities call it “negative pricing.” Exelon claims its entire nuclear fleet experiences negative pricing 14 percent of the time.

A March analysis by the American Wind Energy Association (AWEA), however, documents that negative pricing at Exelon nuclear plants occurs much less frequently and is largely unrelated to wind. Most of the negative pricing, the report found, happened when wind output was extremely low. The more credible culprits, according to AWEA, were local transmission outages and bottlenecks — which caused more than half of the incidents — low electricity demand, and Exelon reactors’ inability to ramp down when demand drops — which natural gas and even renewables can do.

Steve Clemmer, UCS’s director of energy research and analysis, concurs. The Northbridge study “wildly exaggerates wind’s contribution to negative pricing,” he said, “and completely ignores the fact that Exelon’s nuclear plants themselves may be responsible.”

Even executives at Xcel Energy and NextEra Energy — which both own nuclear plants — aren’t buying Exelon’s argument.

“Negative pricing is not driven primarily by wind,” Xcel’s vice president of policy and strategy, Frank Prager, told Greentech Media in early April. Prager should know. Xcel owns wind farms and two nuclear plants in Minnesota.

NextEra Energy CEO James L. Robo, meanwhile, took a swipe at Exelon in acolumn in the April 7 issue of Roll Call, a political trade publication. “Blaming the wind industry for the challenges in the merchant nuclear business may be politically expedient,” he said, “but it will not help any company or technology operate more successfully in a low natural gas price environment.” NextEra is the largest U.S. wind and solar developer, but it also owns eight nuclear reactors and a slew of hydro-, gas- and oil-powered generating facilities.

The Real Culprits

So what’s really responsible for nuclear power’s economic woes?

Besides cheap natural gas, transmission is a key factor, said Mike Jacobs, a UCS energy analyst. “It’s a classic supply and demand equation,” he explained. “If there were more transmission lines, utilities could dispatch power from places with a glut to where there’s higher demand.

“It’s a problem for both nuclear and wind,” he added. “Both contribute to an oversupply at night when demand drops, winds blow stronger, and nuclear plants can’t cut their power. Exelon is essentially saying that it’s OK for our nuclear plants to generate more power at night, but it’s not OK for wind farms.”

Exelon CEO Chris Crane knows transmission is a big problem. In late April, he toldthe Chicago Tribune that his company is considering building a $1.6 billion high-voltage transmission line linking its reactors to customers from northern Illinois through Indiana to Ohio. True to form, however, he also made it clear that Exelon doesn’t support a proposed 500-mile transmission line, now pending state approval, that would deliver wind-generated electricity from Iowa to Illinois and compete with Exelon’s nuclear plants.

Jacobs, who used to work at AWEA and the National Renewable Energy Laboratory, pointed out that the industry is also hampered by high operating costs and a legacy of neglected safety improvements. “Wind and solar,” he said, “are not what’s cramping Exelon’s style.”

To be sure, renewables were not a factor in shuttering four reactors last year. The Kewaunee nuclear plant, near Green Bay, had been relicensed in 2011 to run for 20 more years, but the Wisconsin utilities that had been buying its electricity declined to continue, citing the low price of natural gas. The other three reactors — one at the Crystal River plant in Florida and two at San Onofre in California — were done in by botched steam generator replacements. Crystal River was facing a $2-billion repair job, while San Onofre’s $700-million steam generator replacement system failed in less than two years. It was more than enough to force both utilities to pull the plug.

A fifth reactor, Vermont Yankee — one of the nation’s oldest and smallest– is slated to close later this year. The reason? According to the owner, the plant fell victim to low natural gas prices and the structure of New England’s wholesale power market.

Note that nobody blamed wind.

What Does Exelon Want?

To shore up its profits, Exelon has been buying up regulated utilities, which are guaranteed a rate of return by state regulators, unlike the company’s deregulated merchant nuclear plants in the Midwest that sell their power on the open market. It’s the merchant plants that are in trouble.

In 2012, Exelon bought Constellation Energy, which added three dozen power plants in 11 states, including the state-regulated Baltimore Gas and Electric Company, to its portfolio. And just last month, Exelon announced an agreement to buy the Potomac Electric Power Company (Pepco), a regulated utility based in Washington, D.C., that owns electric and gas utilities in New Jersey, Delaware and the nation’s capital. If the deal goes through, approximately 65 percent of Exelon’s revenues would come from regulated utilities, and at least one energy business analyst predicts Exelon CEO Crane will eventually try to sell or spin off the company’s reactors.

Exelon is also pushing its home state of Illinois to provide relief, and asking all states to consider nuclear power’s low-carbon benefits when developing policies to comply with the new draft EPA carbon emission rule for existing power plants that was announced on Monday.

In response, leading legislators in Illinois, including the speaker of the house, just adopted a resolution calling on federal and state agencies to craft new policies to ensure Exelon’s reactors keep running. The resolution asks the Illinois Commerce Commission to produce a report on building more transmission lines to export nuclear-generated electricity to other states and calculate the impact of nuclear plant closures on the state’s carbon emissions.

That resolution raised some eyebrows among Illinois renewable energy proponents. “Nuclear power is less and less competitive with renewable energy and energy efficiency,” the Illinois Environmental Council said in a May 27 blog. “When the carbon pollution standards for existing coal plants are introduced…, Illinois’ state implementation plan should absolutely prioritize renewable energy and energy efficiency.”

Given that Exelon has operations in eight states, the company wants a lot more than a resolution in Illinois. Currently 29 states and the District of Columbia havestandards that require utilities to increase the share of electricity they generate from renewable sources over time. Illinois, for instance, has a renewable standard of 25 percent by 2025. Crane has proposed that states implement the new EPA carbon emissions rule by adopting a broader “clean energy” standard that would include nuclear power.

Crane was likely buoyed by comments the EPA made when it announced its draft rule. “Policies that encourage development of renewable energy capacity and discourage the premature retirement of nuclear capacity,” the agency said, “could be useful elements of [carbon dioxide] reduction strategies….” But the EPA rule won’t go into effect until sometime next year after a public comment period, and already it has raised hackles among coal state Republicans and Democrats in Congress.

In the meantime, expect Exelon to continue its specious campaign against wind energy and remain mum about what’s really threatening nuclear power: natural gas. Exelon won’t criticize the industry’s massive federal subsidies, which have been in place for nearly 100 years, or its environmental law exemptions, even though they both keep gas prices low. After all, why would Exelon call attention to that when the company is in that game, too?

Also expect Exelon–and its new front group, Nuclear Matters–to continue go cup in hand to state and federal authorities, all the while insisting that the nuclear industry isn’t subsidized at all.

As one would expect, Exelon’s brazenly dishonest campaign against wind and other renewables has outraged environmentalists and nuclear watchdog groups. But it also has aroused the ire of some of its own industry fraternity members. David Crane, the chief executive of NRG Energy, a conglomerate with coal, gas, nuclear, oil, solar and wind facilities (and no relation to Exelon’s Chris Crane), didn’t mince words when asked about Exelon’s actions by a Chicago Tribunereporter. “The public policy position of Exelon is to oppose subsidies for wind and solar while the company itself purports to be this super-green company and also wants more subsidies for nuclear,” he said. “That’s just hypocritical.”

Elliott Negin is the director of news and commentary at the Union of Concerned Scientists.

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