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Archive for the ‘Nuclear’ Category

Today’s edition of Utility Dive discusses our pending appeal in the Illinois Zero Emission Credit Case. You may read the article here.

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Exelon CEO Chris Crane

Exelon CEO Chris Crane

Chicago, IL February 14, 2017:  Chicago energy attorneys, Patrick N. Giordano and Paul G. Neilan, announced they filed a lawsuit in the U.S. District Court Northern District of Illinois today against Anthony Star in his Official Capacity as Director of the Illinois Power Agency.  Village of Old Mill Creek, et al. v. Anthony Star was filed on Tuesday, February 14, 2017 at the U.S. District Court Northern District of Illinois.

Attorneys Giordano and Neilan represent Plaintiffs that are governmental, residential, commercial, and industrial electricity consumers located throughout the State of Illinois. Plaintiffs claim that P.A. 99-0906, executed by Governor Rauner on December 7, 2016, violates the U.S. Constitution’s Supremacy Clause, Commerce Clause, and 14th Amendment Equal Protection Clause. The underlying basis for the constitutional claims is that the prices charged by electricity generating plants are subject to federal rather than state regulation. A similar case has already been filed in federal court in New York challenging that state’s subsidy of Exelon nuclear plants by the law firm Boies, Schiller & Flexner, LLP, which is headed by preeminent attorney David Boies.

Among other things, P.A. 99-0906 is designed to subsidize Exelon Corp.’s Quad Cities and Clinton nuclear plants. This subsidy will be charged to all Illinois electricity consumers beginning June 1, 2017 regardless of what company supplies the consumer’s electricity. The lawsuit specifically asks that the U.S. District Court grant a permanent injunction blocking the charges from going into effect as scheduled on June 1, 2017. According to Mr. Giordano: “These additional charges will reverse twenty years of deregulation in Illinois which have given us perhaps the one advantage we have over neighboring states: relatively low electricity charges due to an effectively functioning competitive market.” Mr. Giordano also said: “We’re challenging the nuclear bailout provision of the legislation because the prices charged by electricity generators have already been established by the competitive wholesale electricity market subject to federal jurisdiction and cannot be increased by the State of Illinois.”

The estimated impact to all Illinois consumers will be about $3.3 billion over the ten years of the nuclear bailout. Mr. Neilan points out that: “This nuclear bailout is one of four rate increases to Illinois consumers this year, including increased delivery charges, increased renewable energy subsidies, increased energy efficiency subsidies, and these nuclear energy subsidies.” When the nuclear subsidies go into effect on June 1, 2017, Illinois residents and businesses can expect to see an average 3% increase in their electricity bills due to the nuclear subsidies alone.”

Giordano & Associates, Ltd. is Chicago’s first law firm devoted to energy issues. We provide clients with experienced counsel on regulatory, litigation, transactional, and legislative matters in the areas of electricity and natural gas. Pat Giordano can be reached at pgiordano@dereglaw.com.

The Law Offices of Paul G. Neilan, P.C. represents commercial, industrial and governmental energy users in disputes against public utilities, as well as in litigation and transactional matters with non-utility competitive energy suppliers.

FACT SHEET

  1. Village of Old Mill Creek, et al. v. Anthony Star was filed in the United States District Court for the Northern District of Illinois on February 14, 2007.
  2. The Plaintiffs are: Village of Old Mill Creek, Ferrite International Company, Got it Maid, Inc., Nafisca Zotos, Robert Dillon,Richard Owens, and Robin Hawkins, both individually and d/b/a Robin’s Nest.
  3. The Defendant is Anthony Star in his official capacity as Director of the Illinois Power Agency.
  4. This case arises from unlawful Illinois legislation that invades the exclusive jurisdiction of the Federal Energy Regulatory Commission (“FERC”) over “the sale of electric energy at wholesale in interstate commerce” pursuant to the Federal Power Act. 16 U.S.C. 824(b)(1).
  5. The unlawful legislation is contained in subsection (d-5) Zero Emission Standard of Illinois Public Act 99-0906 (“P.A. 99-0906”), which was enacted on December 7, 2016 and is available at http://www.ilga.gov/legislation/99/HB/09900HB65761v.htm.
  6. Subsection (d-5) Zero Emission Standard of P.A. 99-0906 requires the Illinois Power Agency to procure contracts for Illinois utilities Commonwealth Edison Company, which serves northern Illinois, and Ameren Illinois Company, which services central and southern Illinois, for purchases of Zero Emission Credits (“ZECs”) from nuclear-fueled generating plants.
  7. The ZEC payments will be passed through by the utilities to all Illinois consumers through automatic adjustment tariffs.
  8. A. 99-0906 is designed to provide additional revenues to the Illinois-based Quad Cities and Clinton nuclear plants.
  9. Exelon Corp. owns both the utility ComEd and Exelon Generation, which owns the Quad Cities and Clinton nuclear plants that will sell the ZECs to the utilities.
  10. Although P.A. 99-0906 has many other provisions, this case concerns only subsection (d – 5) Zero emission standard.
  11. Plaintiffs are not challenging any other provisions of P.A. 99-0906. Section 97 of P.A. 99-0906 provides that the provisions of the Act are severable under Section 1.31 of the Illinois Statute on Statutes. 5 ILCS 70/1.31.
  12. In New York, ZEC payments to Exelon nuclear plants in that state are being challenged on the same grounds set forth by Plaintiffs in Illinois. Coalition for Competitive Electricity, et al. v. Audrey Zibelman, et al. was filed in the U.S. District Court Southern District of New York on October 19, 2016.
  13. A typical residential customer using 1 mWh (1,000 kWh) per month would pay an additional $2.64 per month beginning June 1, 2017 based on the initial ZEC price established in P.A. 99-0906.
  14. A manufacturing company using 10,000 mWh per month would pay an additional $26,400 per month beginning June 1, 2017 based on the initial ZEC price established in P.A. 99-0906.

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Clinton Nuke Plant

Clinton Nuclear Plant

The history of the Big Bank Bailouts of 2008-09 is now repeating itself as farce. The 2016 tsunami of crony capitalist entitlement is scheduled to hit Illinois tomorrow in Clinton, where according to news reports Gov. Rauner will sign the Exelon Dividend Protection Act. We’ll have to more to say on the legislation, but one may read the story here.

 

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Today’s  Chicago Sun-Times discusses the Exelon Bail-Out Bill.

What began as a means of rewarding Exelon Corp. for generating “clean” nuclear energy and  keeping unprofitable plants in Clinton and the Quad Cities open has evolved into a far-reaching and  contentious revamp of state energy policy.

Check out the article here.

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Exelon CEO Chris Crane

Exelon CEO Chris Crane

A week or so ago, the Illinois General Assembly failed to pass Senate Bill 1585, the Exelon Bailout Bill. The bill failed despite a series of full-page newspaper ads and a robocall campaign touting how great the Exelon bailout would be for consumers. Exelon CEO Chris Crane even went so far as to set a deadline for the Illinois Legislature: Unless you pass the bailout bill by May 31, we’ll close two nuclear generating stations (Clinton and  Quad Cities).

Mr. Crane apparently remains unaware how much his threat to kill off two of his own nuclear plants resembles the threat made by Cleavon Little, playing the unforgettable role of new Sheriff Bart in Mel Brooks’s Blazing Saddles (1974).  Just after new Sheriff Bart arrives, the townspeople (nearly all of whom are surnamed Johnson) threaten to shoot him because he’s not quite who they expected. Bart then draws his pistol, holds the muzzle to his own head and threatens to shoot the sheriff (i.e., himself) if the townspeople don’t back off:

Sheriff Bart (as gunman): Hold it! The next man makes a move, the #$%^& gets it!

Olson Johnson: Hold it, men. He’s not bluffing.

Howard Johnson: Listen to him, men. He’s just crazy enough to do it.

Sheriff Bart (as gunman): Drop it! Or I swear I’ll blow this #$%^&’s head all over this town!

Sheriff Bart (as hostage): Oh, Lordy, Lord, he’s desperate! Do what he say! Do what he say!

[SHERIFF BART, STILL HOLDING THE GUN TO HIS OWN HEAD, DESCENDS FROM THE PLATFORM AND MOVES TOWARD THE SHERIFF’S OFFICE]

Harriet Johnson: Isn’t anybody going to help that poor man?

Howard Johnson: Hush, Harriet. That’s a sure way to get him killed.

Sheriff Bart (as hostage): Help me, help me……somebody help me!

Sheriff Bart (as gunman): Shut up!

Just as Sheriff Bart managed to escape unscathed, so we learned the next day that Exelon and the legislature are working on a “new compromise” that would prop up Exelon’s two troubled nuclear plants. Expect to see Mr. Crane reprise his role as Sheriff Bart, with a renewed threat to euthanize the Clinton and Quad Cities stations, in the weeks leading up to the next legislative session.

In earlier posts, The Sparkspread explained how, more than a decade ago, the top management of Exelon embarked on a grand plan: strip the generating assets (i.e., nukes) out of the stodgy, old, regulated utility and transfer them to a shiny, new generation subsidiary called Exelon Generation. After all, it wasn’t as if the regulated utility was going to open up new markets. Its service territory was fixed. It was much better to have the generation assets in an entity that wasn’t regulated, that could make profits in a competitive wholesale market, and keep those profits without a regulatory say-so.

Once Exelon had the nukes in a separate subsidiary, it stood to earn some hefty profits because its generation costs were very stable. Sure, it had to refuel periodically, and operations and maintenance are not cheap, but on a relative basis the cost of nuclear generation was very low relative to natural gas-fired generation, and the latter sets the electricity price at the margin in this market. All of this was planned before the advent of fracking, when the price projections for natural gas all looked like hockey sticks. Well-informed market players feared that the U.S. wouldn’t have enough natural gas, and they predicted that we’d have to import it. So Exelon placed its bets. One could almost see Adam Smith smiling down from above. What could go wrong?

A couple of things, it turns out. First, the fracking revolution in natural gas turned lots of assumptions about the U.S. energy picture upside down. The U.S. with a natural gas shortage? Not now. We’ve got more than a century’s worth of supply at current consumption rates, enough to export it with the right facilities and markets. Between 2005 and 2012, natural gas production increased almost 30%, a rate of increase that triggers comparisons with the Golden Age of American Industrialization between the end of the Civil War and the turn of the 20th century. Heady stuff, but the cloud in this silver lining is that decreasing natural gas prices translate to decreasing wholesale electricity market prices.

Then the Great Recession Double Whammy hit, and the economy tanked. Production, and therefore energy demand, went down. Nowadays the Federal Reserve issues its monthly Panglossian pronouncements that the recession is over, unemployment is down, and everything is fine. The 2016 presidential primary season showed that neither the Fed nor anyone else in D.C. has a clue about anything outside the Beltway. The American voter has seen enough bogus economic data swallowed without question and regurgitated by bogus financial news media. The continuation of low market electricity prices says it all.

Make no mistake, Exelon’s fighting a war on two fronts: low energy market prices in the east and sluggish economic recovery in the west. But Exelon, its management, and its shareholders assumed that risk. They wanted to be entrepreneurs, and the Illinois General Assembly granted their wish with the necessary amendments to the Illinois Public Utilities Act.

Exelon played the market, and it lost. In Donald-Trumpese, Exelon is a “LOOZER,” just like all those poor slobs who keep demanding an increase in the minimum wage. (The nerve!!!)

When the energy market was high and Exelon Generation was making money, Crane was pleased to talk about the glories of the free market, private enterprise, shareholder value and the privatization of profits. But now that the market has turned against Crane all that shareholder value malarkey has to be swept under the rug like something unmentionable that you don’t want your dinner guests to see.

To everything there’s a season, and the time for privatizing profits is over. Now is the time for socializing losses. Crane has to talk about how “the market is flawed,” how the Exelon Generation nuclear fleet is imbued with a vast public interest, and how the citizens of Illinois are no longer just chumbolones (to borrow a John Kass-ism). Now, they’ve been elevated to the rank of “stakeholders.” Funny how that works. Crane’s worshipful attitude towards ratepayers increases in direct proportion to the magnitude of the public subsidy he’s looking for. To bail out Exelon, the Illinois General Assembly needs to hit ratepayers with a new charge called a zero emission credit. He didn’t get it this time around.

The Exelon Bailout Bill perfectly exemplifies the type of crony capitalism (or, more appropriately, Craney Capitalism) in which Exelon’s sycophants in the General Assembly are only too happy to use the state’s power to subsidize Exelon and protect its privatized profit model from the perils of a free market whose virtues it extolled when the market was high.

No wonder Trump’s popular.

 

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Rick and Inspector Louis Renault, at the Cafe Americain, Casablanca, ca. 1942.

Rick and Inspector Louis Renault, at the Cafe Americain, Casablanca, ca. 1942.

Who can forget that scene in Casablanca when Inspector Louis Renault (Claude Rains) shuts down Rick’s (Humphrey Bogart) Café Americain because he’s shocked (shocked!) to find that gambling is going on in Rick’s establishment. Just then, a croupier hands a thick wad of bills to Inspector Renault: “Your winnings, sir.” Ever the gentleman, the Inspector thanks him very much.

Exelon has now assumed the role of Inspector Renault before the Ohio Public Utilities Commission, where it is shocked (shocked!) that First Energy, one of the nation’s largest merchant generators, may get a bailout in the form of revenue guarantees that will, supposedly, enable it to keep its generating stations open. (Ohio P.U.C. Docket No. 14-1297-EL-SSO, Second Supplemental Testimony of L. Campbell on behalf of Constellation and Exelon Generation).

Yes, that’s right, Exelon, the parent of Exelon Generation: the same Illinois-based nuclear generation giant that tally-ho’d down to Springfield last year to seek its own economic protectionism measure (Illinois General Assembly, H.B. 3293) in the form of a new “low carbon emission standard,” a standard so narrowly tailored that Exelon Generation was its only conceivable beneficiary. Exelon had, and still has, its hands full trying to polish its own Illinois bailout with high-gloss “market-based” varnish.

In Ohio, First Energy confronts the same issue that Exelon and others have been complaining about for several years now: market electricity prices are so low that First Energy, like Exelon, is threatening to shutter some of its generating stations unless the state bails it out.

As The Sparkspread previously explained, in the early 2000s Exelon, First Energy and many other large electric utilities, like so many itinerant free market monks, preached a pure, Ayn-Randian gospel to state legislatures and regulators: the salvation lower consumer electricity prices could be attained only through faith in unfettered (well, almost unfettered) retail competition.

Utility executives urging state legislators to adopt retail electric competition.

Utility executives urging state legislators to adopt retail electric competition, ca. 2004.

Illinois, Ohio and a number of other states joined this crusade and opened their electricity markets to competition. They spun off their generation assets to new genco subsidiaries, leaving just the delivery services (wires) under the traditional regime of cost-of-service rate regulation. They were betting on a future of increasing natural gas prices, which ordinarily set electricity prices at the margin. Visions of dollar signs danced in their CEOs’ heads.

Unfortunately, things didn’t quite work out. Caught between the expansion of natural gas supply obtained by fracking and a glacially-paced economic recovery, the real shock (shock!) to Exelon and First Energy is that the market went against them, as free markets have been known to do. That’s why they’re called “free” markets.

In Ohio, Exelon claims that the bailout of First Energy will hurt consumers to the tune of $2.0 billion. Besides, the holy canons of the free market prohibit bailouts of risk-taking, private, for profit enterprises like merchant generators. (Of course, those same holy market canons likewise forbid Exelon’s Illinois bailout, but they deserve a dispensation, right?)

Consistency is merely the hobgoblin of little electric consumers.
But in Ohio, the Public Utilities Commission might allow a bailout of First Energy’s merchant generation fleet, which is one of Exelon’s competitors in the PJM market. In a precise reversal of the tone Exelon adopted in the fight for its own Illinois bailout, in Ohio it finds horrifying the prospect of precisely the same type of bailout for First Energy.

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Exelon CEO Chris Crane

Exelon CEO Chris Crane

We received some interesting comments on the last blog entry regarding Exelon’s nuke bailout bill (Exelon’s Bailout Bill and the Triumph of Newspeak). It’s always good when an entry sparks (no pun intended) some discussion.

Some commenters viewed Exelon’s proposed low carbon emission (LCE) credit as a necessary “targeted adjustment” in a competitive market, which the traditional top-down regulatory regime was incapable of doing to any serious degree. This commenter added that the nuclear units in Illinois, especially in light of their vastly improved performance over the past decade and a half (coincident with retail choice) have helped to deliver enormous value to consumers.

Another said that the real question for Illinois is whether, for want of a modest adjustment to address some temporary market conditions (including some effects of combined surplus wind power and transmission constraints that can cause negative prices during some off-peak hours), the state is willing to incur a permanent loss of these plants that in the long run will be dramatically more costly than preventing their loss through resort to the LCE mechanism, which the commenter viewed as a form of maintenance until the wholesale market improves, price-wise (from the seller’s perspective).

Still others said that the various alternatives might be worse. A low carbon portfolio procurement auction reconciles aggressive wholesale price competition with other policy goals. The situation of the plants is likely to prove temporary given the movement in the direction of carbon reduction requirements and forms of CO2 trading, as well as gradual relief of transmission constraints.

As a general proposition, I don’t think these commenters’ views were per se unreasonable, and in fact there’s merit in their viewpoints. For example, a targeted adjustment that may alleviate some temporary market conditions is not inherently bad or per se unreasonable. If the three plants are shut down, there could be (but won’t necessarily be) long term effects that may lead to higher prices down the line. That may be more costly than a solution that imposes some additional interim costs. Likewise, it may be appropriate to temper aggressive wholesale price competition with the recognition of other policy goals.

But here’s the problem. Exelon, and indeed all of big corporate America, can’t have it both ways: you can’t have your free market cake and eat your subsidy too.

Let’s assume for the moment that since the Great Recession of 2008 wholesale electricity market prices had increased rather than decreased. Around June 2008, forward wholesale market fixed prices hit $68/megawatt-hour, but for much of the recent past the fixed-price forward market has been trading at about half of that or less. So in our hypothetical, market prices would be over $100/megawatt-hour. Prices to retail electricity customers, which are passed through directly under the Illinois Power Agency’s power procurement mechanism, would have increased to reflect that jump, although the way the utilities’ electricity supply purchases are laddered would have softened the impact — softened, but not eliminated. This would cause real hardship to a vast number of people in ComEd’s service territory. Exelon Generation, meanwhile, would be making big bucks because its cost of production is low.

So, taking those facts, we ask the question: if the market price had gone up by half instead of decreasing by half, does anyone believe that Exelon would voluntarily cut its price? That it would sympathize with retail customers whose charges would be well on the way to doubling? ComEd’s ratepayers could expect treatment from Exelon no better than that afforded to young Oliver when he asked for more:

ComEd customer (right) requests rate relief from Exelon's Chris Crane (left).

ComEd customer (right) requests rate relief from Exelon’s Chris Crane (left).

Far from affording any relief to ratepayers, Chris Crane and the Exelon public relations team would be telling us that that’s just how the free market works, that Illinois signed up for that in 1997 when the legislation to open the market was enacted, and it’s all just a question of market forces. Exelon’s answer would be that there’s simply nothing we can do about it. ComEd would have nothing to say in the matter because it’s just wires utility.

But listen to this famous (or infamous) early 2009 clip of CNBC’s Rick Santelli excoriating Obama’s plan for homeowner relief in the Stimulus Bill. Make no mistake. Santelli goes into Exterminating Angel Mode to condemn any assistance to distressed homeowners (and woe betide any displaced workers) as another government effort to “subsidize the losers.” Note that last word: LOSERS.

As a courtesy to our readers we’ve adapted some of the juicier parts of the Santelli Rant and his interlocutors’ responses for Exelon’s Bailout Bill (deletions appear as strike-through text; additions are underlined):

(from start to about 2:33)

Becky Quick, in studio: …. Rick have you been listening (to the previous conversation)?

Rick Santelli, on trading floor: Listening to it? I’ve been just glued to it because Mr. Ross has nailed it. You know, the Illinois government is promoting bad behavior by privately owned merchant generation companies, because we certainly don’t want to put stimulus forth bail them out, and give people them a whopping $300 million a year in subsidieseight or ten dollars in their check, and think that they ought to save it.

And in terms of modifications, I’ll tell you what, I have an idea. You know the new administration’s big on computers and technology. How about this, (Mr.) President and new administration — Why don’t you doesn’t Crane put up a web site to have people vote on the Internet as a referendum to see if we really want to subsidize the losers’ mortgages bad power trades, or would we like to, at least, buy cars and buy houses in Crane’s three nuke plants out of foreclosure and give them to people another operator who might have a chance to actually prosper down the road, and reward people that could carry the water, instead of drink(ing) the water.

Trader sitting near by: What a novel idea! What? Who thought of that!

(traders in the pit start clapping and cheering)

Joe Kernen, in studio: Rick, they’re like putty in your hands. Did you hear —

Santelli: No they’re not, Joe. They’re not like putty in our hands! This is America! (turns around to address pit traders) How many of you people want to pay for your neighbors’ mortgage a privately-owned merchant generator’s losses because it that has an extra bathroom pays its executives tens of millions and now can’t pay their its bills? Raise their hand. (traders boo; Santelli turns around to face CNBC camera) President Obama, are you listening?

Trader (sitting nearby, goes over to Santelli’s mike): How about we all stop paying our mortgage electric bills? It’s a moral hazard.

Kernen: It’s like mob rule here, I’m getting scared. I’m glad —

Santelli: Don’t get scared, Joe. They’re already scaring you. Y’know, Cuba used to have mansions and a relatively decent economy. They moved from the individual to the collective. Now they’re driving ’54 Chevys, maybe the last great car to come out of Detroit.

Kernen: They’re driving ’em on water too, which is a little strange to watch, at times.

Santelli: There you go.

Kernen: Hey Rick, how about the notion that Wilbur pointed out, you can go down to 2% on the mortgage …..

Santelli: You can go down to minus two percent, they can’t afford the house keep the nuke open!

Kernen: ….. and still have 40%$300 million in bailout funds a year not be able to do it, so why are we trying to keep them in the house as the operator of the three nukes?

Santelli: I know Mr. Summers is a great economist, but boy I’d love the answer to that one.

(some cross-talk)

(go to 3:50 mark until almost the end)

Quick: So Rick, are they opposed to the housing Exelon thing, to the stimulus package General Assembly’s bailout, to everything out there?

Ross: Rick I congratulate you on your new incarnation as a revolutionary leader.

Santelli: Somebody needs one. I’ll tell you what, if you read our Founding Fathers, people like Benjamin Franklin and Jefferson, what we’re doing in this country now is making them roll over in their graves.

Well, you get the idea. Six years later, the Santelli Rant brings the argument against subsidies full circle. Santelli has no use for “targeted adjustments” to “address temporary market conditions.” Homeowner relief, extension of unemployment benefits beyond 26 weeks, you-name-it, “that’s just the government subsidizing LOSERS!”

Having said that, you can’t then turn around and rationalize the Exelon bailout as a “targeted adjustment to address temporary market conditions,” a way to “moderate the competitive market to account for other policy goals and accept some slightly higher interim costs to avoid potentially larger long term costs.”

Simply put, Exelon’s Chris Crane has given his message: “Free markets for thee, but not for me.”

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