Without Pa. bailout, Exelon would close Three Mile Island

Exelon Corp. announced Tuesday that it will “prematurely” shut down Three Mile Island Unit 1, the surviving reactor at the site of the 1979 nuclear accident, unless it gets some form of price supports from the Pennsylvania legislature.

The company said it plans to retire the reactor in 2019, 15 years ahead of its license expiration. The announcement came a week after the reactor failed to clear the regional power grid’s annual capacity auction for the third consecutive year, signaling that the facility is unable to compete in a low-price electricity market driven by an abundance of natural gas. Exelon said TMI has lost money for five years.

Early Tuesday, Exelon officials met with the plant’s 675 employees and informed community leaders of the decision, which has been well-telegraphed in the last year. The company has been ramping up lobbying efforts in Pennsylvania to enact some kind of support for nuclear power plants, similar to Exelon-led efforts in Illinois and New York.

“Today is a difficult day, not just for the 675 talented men and women who have dedicated themselves to operating Three Mile Island safely and reliably every day, but also for their families, the communities and customers who depend on this plant to produce clean energy and support local jobs,” Chris Crane, Exelon’s president and chief executive, said in statement.

“Like New York and Illinois before it, the commonwealth has an opportunity to take a leadership role by implementing a policy solution to preserve its nuclear energy facilities and the clean, reliable energy and good-paying jobs they provide,” Crane said. “We are committed to working with all stakeholders to secure Pennsylvania’s energy future, and will do all we can to support the community, the employees and their families during this difficult period.”

The 837-megawatt Unit 1 reactor was unaffected by the 1979 partial meltdown and permanent closure of Unit 2 after the nation’s worst commercial nuclear-power accident. The accident transformed Three Mile Island from an obscure spot three miles down the Susquehanna River from Middletown, Pa., into a universal symbol of failure from which the industry struggled to recover.

Exelon acquired Unit 1 in 2003.

Tuesday’s announcement will ratchet up a vigorous policy debate in Harrisburg between two mighty energy lobbies: the state’s nuclear-plant operators and Pennsylvania’s shale-gas industry.

Exelon, which is based in Chicago, has suggested that Pennsylvania should give nuclear power preferential treatment and premium payments similar to those given to renewable energies, such as wind and solar. Nuclear power is by far the state’s largest source of energy that does not produce harmful air emissions.

The Pennsylvania General Assembly’s bipartisan Nuclear Energy Caucus, formed earlier this year with the nuclear industry’s guidance, said the announcement underscores the need to discuss “serious and consequential underlying issues” in the state’s energy sector.

“The premature closure of the Three Mile Island Nuclear Generating Station will mean a significant loss of family-sustaining jobs, high-capacity baseload clean energy, and the many direct and indirect economic benefits that surround the production of electricity from a nuclear power plant,” the caucus said.

But a group called Citizens Against Nuclear Bailouts, which includes energy consumers and gas-industry supporters, dismissed the need for supporting the nuclear industry when the state is awash in fracked natural gas. “It’s ridiculous that there should be a taxpayer- or ratepayer-funded bailout for one sector of our energy market, just because they aren’t prepared for the challenges of competition,” David Taylor, president of the Pennsylvania Manufacturers’ Association, said in a statement.

In a filing with the Securities and Exchange Commission on Tuesday, Exelon said the primary factors contributing to Unit 1’s “deteriorating economic value” include significant declines in plant revenues due to prolonged periods of low wholesale power prices, the absence of federal or state policies that place a value on nuclear energy for its clean-energy attributes, and the plant’s relatively high operating costs as a single-unit site. “All of these factors exacerbate the expectation for continued losses for the foreseeable future,” the company said.

Exelon, which also owns Peco, operates three of Pennsylvania’s five nuclear plants — Three Mile Island, Limerick, and Peach Bottom — and led efforts to promote price supports in Illinois and New York state that prevented Exelon reactors there from closing. Opponents in those states have challenged the actions in court, saying the “bailouts” will boost electric rates.

TMI joins a list of about 20 reactors that have shut down or announced plans to retire early.

The nuclear industry says the closure of the reactors will lead to greater reliance on natural gas as a fuel source. More gas generation would cause an increase in air emissions, the nuclear industry says, and a bigger risk of price swings when gas power plants are curtailed by pipeline disruptions or extremely cold weather, when the needs of residential consumers trump power producers for gas supply.

But the gas industry portrays nuclear reactors as dinosaurs unable to compete in a competitive energy market, and says giving them a lifeline will only hurt consumers. “Corporate welfare and taxpayer handouts to select industries will increase energy costs for consumers as well as [for] job creators across the commonwealth, especially manufacturers,” David Spigelmyer, president of the Marcellus Shale Coalition, said in April in response to the nuclear industry’s escalation of lobbying efforts.

Unlike states in which regulators allow utilities to recover their power-generation investments in customer rates, Pennsylvania and most Northeastern and Mid-Atlantic states deregulated the markets to force power plants to compete, mostly on the basis of price. In those markets, the price set by the lowest-cost producers prevails.

The regional power market in 13 states and the District of Columbia is governed by PJM Interconnection, the Valley Forge grid operator that conducts annual capacity auctions to determine which power producers will get a premium for promising to generate power on peak days. In the most recent capacity auction, TMI’s price was too high for the third consecutive year, and it will once again miss out on the capacity payments.

FirstEnergy Corp. of Akron, Ohio, owns the twin-unit Beaver Valley nuclear station northwest of Pittsburgh, and Talen Energy owns the twin-reactor Susquehanna Steam Electric Station in Luzerne County. FirstEnergy has signaled an interest in selling its Pennsylvania power-generation portfolio, including Beaver Valley.

Ralph Izzo, chief executive of Public Service Enterprise Group in New Jersey, said in an interview last week that the current forward price curve for electrical power in the region does not give a positive outlook for that company’s two Salem reactors and the Hope Creek plant in Salem County, New Jersey.

“We’re no different than when Sears says, `I’ve got 500 stores and 20 of them aren’t making money, I shut down the 20.’ But this would have a huge impact,” he said. PSEG is also laying the political groundwork in New Jersey for the state to consider some kind of nuclear support.

With the announcement of TMI’s closure, Exelon and its generation subsidiary will recognize onetime charges of $65 million to $110 million in the second quarter related to materials and supplies inventory reserve adjustment, employee-related costs, and construction work-in-progress impairment. The company also could recognize additional onetime charges in 2018 and 2019 of up to an estimated $25 million each year. Estimated cash expenditures related to the onetime charges primarily for employee-related costs are expected to range from $40 million to $70 million.

The early retirement of TMI also raises questions about whether the plant’s nuclear decommissioning trust fund contains enough money to pay for dismantling and restoring the site. Exelon would be obligated to post guarantees if there is a shortfall, which won’t be known until the company submits a decommissioning plan.

In its SEC filing, Exelon said: “The most costly estimates currently anticipated could require parental guarantees of up to $35 million for TMI radiological decommissioning.”