With anemic growth, Exelon delays $2bn of nuclear, renewable capex

Weak demand growth has prompted Exelon (NYSE: EXC) to scale back its nuclear power and renewable energy capital spending by more than $2bn in the next few years in an effort to tighten outlays until the market is stronger.

Exelon said during its third quarter earnings call Nov. 1 that it will defer capital expenditures, largely by deferring a couple of major nuclear plant uprates and “unidentified” wind and solar projects between 2012 and 2015.

The company said it will delay long-discussed extended power uprates at both the Limerick in Pennsylvania and the LaSalle nuclear plants in Illinois. Chicago-based Exelon will complete the extended power uprate at the Peach Bottom nuclear station in Pennsylvania.

The Limerick project completion will be delayed from 2017 until 2021. LaSalle project completion will be deferred another two years from 2018 until 2020, Exelon said. The increase for each unit at LaSalle and Limerick would be approximately 150 MW.

Exelon has already invested $55m at Peach Bottom and the project is the smallest of the uprates with total capex of $415m through 2016. The Peach Bottom uprate has a limited impact on balance sheet, Exelon said in its presentation.

“We are moving forward with the EPU at Peach Bottom as planned,” said Exelon President and CEO Chris Crane. “We are the farthest along at Peach Bottom,” Crane said.

“With the actions we’ve taken we have time to see how things play out,” Crane said. Exelon could call off the LaSalle and Limerick uprates if the market doesn’t pick up, but Exelon expects the market will strengthen.

The number of coal plant retirements anticipated by 2015 should tighten reserve margins. For the short term, however, weak power market demand, low prices and energy efficiency make it harder to justify large capital outlays.

Exelon’s top priority is maintaining its investment grade rating as well as its shareholder dividend, the officials said.

Clinton could shorten refueling schedule

In another market-related adjustment, Exelon could shorten the refueling cycle at its Clinton nuclear plant to 12 months. Clinton currently operates on a two-year refueling cycle. Most U.S. nuclear plants currently are taken offline for refueling and maintenance every 18 to 24 months.

Excess wind generation in certain markets is putting pressure on nuclear power plants, Exelon officials said. Shortening the refueling cycle could reduce fuel costs and help Clinton make it through the market downturn, Exelon officials said.

In response to an analyst question, Crane said Exelon decided not to purchase the Kewaunee nuclear plant in Wisconsin from Dominion (NYSE: D) because “the economics just don’t work” in this market. Kewaunee is a small single-unit nuclear plant, Crane said.

Dominion recently announced to retire and start to decommission Kewaunee in 2013. “It’s tough to see a nuke come off,” but that’s the economic reality, Crane said.

Crane said there are no Kewaunee-type nuclear plants expected to be sold from the Exelon fleet.

In late-August, Exelon formally halted efforts to gain initial federal regulatory approvals for new nuclear construction in Victoria County, Texas.

During the call, Crane also praised Exelon workers response to Hurricane Sandy. The CEO singled out staff at the Oyster Creek nuclear plant, near the New Jersey Shore where Hurricane Sandy came onshore.

When it comes to the retail landscape, Exelon anticipates 1% load growth across the United States. Looking forward, Exelon continues to believe there is upside in power prices and its fleet is leveraged for that.

Exelon’s adjusted (non-GAAP) operating earnings declined to $0.77 per share in the third quarter of 2012 from $1.12 per share in the third quarter of 2011. This was attributed to a variety of factors including low generation margins, lower nuclear volume due to increased planned and unplanned outage days, higher labor and material costs and other factors.

The negatives were partly offset by the addition of Constellation Energy’s generating fleet. Crane said the merger of Exelon and Baltimore-based Constellation is going well.

Generation’s nuclear fleet, including its owned output from the Salem nuclear plant, which is majority-owned by Public Service Enterprise Group (NYSE: PEG), produced 34,581 GWh in the third quarter of 2012, compared with 36,045 GWh in the third quarter of 2011. The output data excludes the units owned by Constellation Energy Nuclear Group LLC (CENG).

Excluding Salem and units owned by CENG, the Exelon-run nuclear plants achieved a 90.7% factor for the third quarter of 2012, compared with 95.8% for the third quarter of 2011. The number of planned refueling outage days totaled 43 in the third quarter of 2012 versus 33 days in the third quarter of 2011. The number of non-refueling outage days at the Exelon-operated plants totaled 40 days in the third quarter of 2012, compared with three days in the third quarter of 2011.

The equivalent forced outage rate for Generation’s fossil fleet is 3.7% for the first three quarters of 2012, compared with 6% in the first three quarters of 2011.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.