UBS Global Research is optimistic about the prospects for some type legislative recovery package for Exelon (NYSE:EXC) nuclear power plants in Illinois, especially since such support would have the backing of organized labor in that state.
At the same time, UBS has doubts about the long-term future of the single-unit Ginna nuclear plant in New York. Already a joint owner of Ginna and other Constellation Energy Nuclear Group (CENG) plants, Exelon recently assumed operational control of the CENG facilities.
These are a few of the observations that UBS Electric Utilities Analyst Julien Dumoulin-Smith made in a June 24 commentary after meeting with Exelon.
Exelon CEO Chris Crane has been very public in expressing doubts about the future of Exelon merchant nuclear plants during an era of low power demand, cheap natural gas and subsidized renewable energy. The Illinois House passed HR 1146 in late May that calls upon various state agencies to study ways to best support Illinois nuclear plants.
“We think it all depends on the politics du jour. Ultimately, any deal will focus on providing a quasi ‘market solution’ to compensate Exelon’s nuclear units for their ‘clean, firm fuel’ attributes,’” said Dumoulin-Smith.
“Ultimately, we suspect a clean energy standard would have to have a carve-out for nuclear (much as the state has previously entertained for clean coal initiatives in the past),” Dumoulin-Smith said.
“We attribute the recent success in arriving at a resolution (HR1146) with the Speaker of the House (Mike Madigan) on nuclear issues as illustrative of labor union’s broad support for continued operation of nuclear plants regionally,” Dumoulin-Smith said.
There remains a “distant” chance for Exelon to take a role in the Regional Greenhouse Gas Initiative (RGGI) carbon trading program. More likely would be Exelon’s participation in a state carbon plan in connection with Environmental Protection Agency Section 111(d) requirements for power plant CO2 emissions, the UBS analyst said.
The State of New York, meanwhile, appears less likely to go to bat for existing nuclear generation, according to the UBS analyst.
Exelon management seems “cautious” on the future of the single-unit Ginna nuclear unit in New York. The plant’s existing power contract is expiring.
“We believe this unit may realistically only have a few years left, with the state amenable to retaining the asset only through an interim RMR [reliability must run] period in which it is needed for reliability,” the UBS analyst said.
On the natural gas front, UBS said to expect Exelon to try and divest its 488-MW Quail Run plant in North Texas to help finance its pending acquisition of Pepco Holdings.
Divesting the intermediate dispatching Texas gas plant would fall into the bucket of $1Bn targeted non-core asset sales for financing the transaction (50% debt, $1Bn non-core asset sales, and the balance in equity),” according to the UBS analysis.
Quail Run had a 2012 capacity factor of less than 9%, according to GenerationHub data.