A Build Back Better bonanza for Exelon

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The final answer to the question of just how much and from whom Exelon will receive extra revenue depends on what emerges from the months-long debate over President Biden’s "Build back better" initiative.

Biden has made preserving the nation’s existing nuclear fleet a part of his plan to attack climate change. Nukes don’t emit carbon, and Chicago-based Exelon and other operators long have argued that closing them prematurely would worsen carbon emissions thanks to the natural gas-fired plants that likely would replace their output.

“We’re confident that when the legislation does pass, it will include a production tax credit for the existing nuclear,” Exelon CEO Chris Crane said on the company’s Nov. 6 conference call with analysts.

On the table right now, sources say, is a tax credit worth $15 per megawatt-hour of electricity produced by each nuke over the coming six years. The value of the credit is reduced as revenues rise.

A $15 tax credit on the nuclear power Exelon generates just in Illinois would yield up to $1.4 billion annually, based on how much the nukes generated in 2020. (The true amount likely would be less than that, although potentially $1 billion-plus.) By contrast, state subsidies, including the one signed into law by Gov. J.B. Pritzker in September, are slated to provide an average $375 million annually over the coming years.

Pritzker’s Climate & Equitable Jobs Act forces Commonwealth Edison customers to pay more on their bills to bail out out three Exelon nukes, two of which the company had planned to close this fall without taxpayer or ratepayer help. But the surcharges go away—and even could require Exelon to fund credits to customers—if a more valuable federal tax credit is enacted.

No such protection was included in the 2016 Future Energy Jobs Act, which then-Gov. Bruce Rauner signed in 2016. That law slaps a surcharge on electric bills statewide and funnels $235 million a year to Exelon’s Quad Cities and Clinton stations.

In a statement, Exelon says the current draft of federal legislation would not allow the utility to get the full value of the tax credit and also continue to take the FEJA subsidies.

“As it is currently structured, the draft (production tax credit) takes into consideration the revenue that nuclear plants receive under existing state programs—including the clean energy laws Illinois passed in 2016 and 2021—and ensures that Illinois’ nuclear plants will not retain both payments without crediting consumers,” the company says.

Referring to the controversy surrounding the subsidies in Illinois in both 2016 and this year, the company adds, “Illinois programs preserving clean and reliable nuclear energy uniquely pay consumers back, providing billions of dollars of value to families and businesses and settling once and for all the wisdom of adopting these programs, while demonstrating the gross miscalculation of those who labeled them as bailouts.”

An Exelon spokesman declines to comment on how much the company projects it could reap from the federal tax credit.

There’s broad support on Capitol Hill for preserving the nation’s existing nuclear-plant fleet, which has been under financial pressure for years due to low natural gas prices and subsidized competition from renewable projects. Billing federal taxpayers for the cost of propping up the industry arguably is preferable to what’s been happening, which is to hike electric bills via bailout surcharges. That’s more regressive given the pressure on low-income households to keep current on utility bills.

Less clear, though, is whether the Quad Cities and Clinton subsidies would remain without additional state action. It’s possible the Illinois Legislature would have to repeal them in order to take ratepayers off the hook entirely and put the onus on federal taxpayers.

The Pritzker and Rauner nuke subsidies combined tack about $5 a month onto the average residential electric bill in northern Illinois.

Asked about the possibility, Pritzker spokeswoman Jordan Abudayyeh says in an email, “As the governor has said, his administration remains committed to reviewing legislation that protects ratepayers. We look forward to continuing that work with our partners in the General Assembly.”

The potential bonanza for Exelon, the nation’s largest operator of nuclear plants, comes just as it’s preparing to spin off its power-generation arm into a separate publicly traded company to be renamed Constellation. Exelon will continue to be the parent company for ComEd and other regulated utilities in the eastern U.S.

The question now is whether it will be sent to Biden’s desk, since there’s no Republican support for it and Democrats have thin majorities in the House and Senate. Moderates and progressives have skirmished on an intra-party basis over the scope of the legislation, what it should fund and who should pay. New data showing inflation persisting longer than economists expected is creating anxiety among centrists that the measure will exacerbate the pressures on consumers.

On Nov. 6, when Exelon last answered analysts’ questions, Kathleen Barron, executive vice president in charge of government and regulatory affairs, said, “We’re still feeling very confident about the Democrats’ ability to get … Build Back Better across the finish line.”

 

via Crain’s Chicago Business

November 11, 2021 at 06:52AM

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