Redheaded stepchild: Exelon’s Byron nuclear plant
Listening to Exelon CEO Chris Crane extol the virtues of the free market and claim that his nuclear plant bailout bill is “market-based” is like listening to heavy metal/punk rock music performed by Pat Boone. The inauthenticity and cognitive dissonance are so fundamental as to cause revulsion at the cellular level.
Exelon introduced its bail-out legislation in the Illinois House of Representatives (HB3293) a few weeks ago. When we say Exelon introduced it, we mean exactly that. The notion that any of the bill’s sponsors in the House could understand the legislation, much less write it, is something only employees of Exelon and its public relations firm could say with a straight face.
The fiction that the Exelon bailout bill provides a “market-based” remedy is embarrassingly unconvincing, but, as Illinois’ long history shows, embarrassment is an emotion unknown to either Exelon or Springfield.
The key to HB3293 is Exelon’s Newspeak definition of “low carbon energy resources.” The Exelon lawyers who drafted HB3293 have cleverly sought to superimpose the imagery of the free market on a mechanism engineered to ensure that Exelon will have a monopolistic stranglehold on the sale of LCE credits. Exelon has tailored the term “low carbon energy resources” like a bespoke suit: it includes its own nuclear plants but excludes virtually all other generation that the average ratepayer might reasonably consider “low carbon.”
Exelon modeled HB3293 after the Illinois renewable portfolio standard. The bill amends the Illinois Power Agency Act by establishing a new “low carbon energy (LCE) credit” portfolio standard.
Beginning January 1, 2016 all electric utilities (such as ComEd, which, like the General Assembly, is one of Exelon’s wholly-owned subsidiaries) must purchase sufficient LCE credits to satisfy the LCE credit standard. The trick, of course, is that the bill authorizes electric utilities to recover all costs of purchasing the LCE credits from ratepayers. Thus, ComEd would once again serve as the tube through which Exelon hoovers up cash from ratepayers’ wallets for the benefit of its corporate treasury. (Headline: “Illinois legislation frees Exelon shareholders from fear of dividend cut.”)
Exelon’s definition of “low carbon” generation stipulates that no low carbon generation resource may have a power purchase agreement longer than 5 years. The effect of this unassuming little statutory quirk is to exclude virtually all wind, and much solar energy from the “low carbon” category. It would also exclude solar energy participating in the IPA’s supplemental procurement, which requires purchase contracts of at least five years.
The quantity of LCE credits that each utility must obtain is set at 70% of annual retail electricity sales. Taking 2012 as a sample year, total retail sales of electricity were approximately 143,540,000 megawatt-hours. http://www.eia.gov/electricity/state/illinois/ . (This figure would need to be adjusted by subtracting sales by electric cooperatives and municipalities that run their own systems, but it’s a serviceable proxy for our purposes.) This means that if HB3293 had been in effect for 2012, utilities would have had to acquire roughly 100,000,000 megawatt-hours of LCE credits. That’s a lot of LCE credits.
Exelon’s bailout bill then provides that the LCE credits must be procured from generating resources that are consistent with the “Minimum Internal Resource Requirements” (sic) for capacity established by the applicable regional transmission organization. HB3293 does not define this capitalized term, and a search of PJM (including the PJM manual on capacity markets) and MISO websites did not yield any defined term to match it. However, the term is likely another way to exclude wind, solar and perhaps other renewables from the LCE credit market because the concept of a minimum internal generation resource requirement applies in the context of assessing reliability across a given territory based on generation within it. Reliability, in turn, depends on dispatchable resources. Wind and solar are generation resources, not dispatch resources. Thus, if a particular wind or solar generator made it past HB3293’s first trench because it had a PPA with a term less than five years, it would still get caught on the barbed wire of Exelon’s “Minimum Internal Resource Requirements” criterion. Drafting a statute with a term that is both capitalized and in quotation marks without defining it may strike one as odd, but it’s not so by Exelon’s standards. Like Humpty Dumpty, when Exelon uses a term, it means exactly what Exelon wants it to mean, neither more nor less.
The first procurement of LCE credits will be under a five-year contract beginning January 1, 2016 to May 31, 2021. Just like Exelon’s Electric Infrastructure Modernization Act of 2011, the Exelon bailout bill gives the Illinois Commerce Commission a ridiculously short time period to review the LCE credit procurement plan: it must either approve the plan or approve it with modifications by November 1, 2015. The ICC has no power to disapprove the plan. Exelon wants to make sure that no one has a realistic opportunity to derail its bailout by asking annoying questions during pesky public hearings.
Although Exelon’s bailout bill will ensure that it can use ratepayer wallets as its own private ATM, it tries to camouflage this by providing that the LCE credit procurements must be “cost effective,” meaning that the incremental costs to consumers may not exceed certain limits (an annual average net increase in total costs per kilowatt-hour of no more than 2.015% of the amount paid by eligible retail customers for the planning year ending May 31, 2009).
Then, in a true Newspeak flourish, the Exelon bailout bill provides that “to ensure benefit to consumers,” winning LCE suppliers (note the plural noun; let’s pretend along with everyone in Springfield that there might be more than one) must commit to reimburse the cost of LCE credits for each planning year that the “forecasted average revenue” of the LCE resource that produced those LCE credits exceeds a set price per megawatt-hour. Note that this limitation applies only to the specific nuclear plant that generated the LCE credits in question. That means that if Exelon as a whole is doing just fine revenue-wise, but the three redheaded stepchildren (Byron, Clinton and Quad Cities) aren’t, ratepayers would still have to pay into Exelon’s corporate treasury. This is single-issue ratemaking writ large; that is, allowing a utility to single out specific cost or revenue components in order to recover them separately from ratepayers, without regard to the utility’s costs or revenues as a whole.
Yep, the Illinois Commerce Commission will hardly need any time to review Exelon’s procurement plan.
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Energy Law, Policy and Development 