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NY Proposal Could be a Lifeline for Nuclear Power Plants

NEW YORK–(BUSINESS WIRE)–The proposal to include zero emission credits (ZEC) as a component of New York’s draft clean energy standard has the potential to stave off the early retirement of three nuclear power plants in upstate New York, according to Fitch Ratings.

The three plants include the Fitzpatrick, Ginna and Nine Mile Point nuclear facilities. Exelon Corp. (EXC) and its nonregulated generation subsidiary Exelon Generation Co., LLC would be the primary beneficiaries as EXC owns Ginna and Nine Mile and is in negotiations to acquire the third plant from Entergy Corp. (ETR). A transaction between EXC and ETR is dependent on the enactment of the clean energy plan and the two companies agreeing to terms.

Fitch does not believe the ZEC proposal in New York has any bearing on EXC’s decision to retire two nuclear power plants in Illinois. However, it does provide a framework that can be adopted in other jurisdictions where nuclear plants may be threatened.

Nuclear plants receive ZECs in cases of public necessity to encourage their continued operation, which will be determined on a plant by plant basis by the New York Public Service Commission (PSC). Among the considerations are the degrees to which energy, capacity and ancillary services revenue are inadequate for continued operation. At the inception of the program, the PSC staff is projecting that the qualified nuclear facilities are the Fitzpatrick, Ginna and Nine Mile plants. The staff specifically excluded Indian Point from initial consideration because of its location in a constrained area where wholesale electricity prices are higher, but it did allow for the possibility of its inclusion at a future date.

Eligible plants are to be offered a multiyear contract administered by the New York State Energy Research and Development Authority (NYSERDA). The contracts will be administered in six two-year tranches. The price to be paid for ZECs will be administratively determined and not market based. The formulaic price will be based on the projected social cost of carbon as published by the US Interagency Working Group less social costs already captured through the Regional Greenhouse Gas Initiative and anticipated energy and capacity prices that exceed $39 MWH.

Based on current estimates, the ZEC price will begin at $17.48 for the first tranche for the period April 1, 2017 through March 31, 2019 and will escalate to $29.15 in the sixth tranche for the two-year period April 27, 2027 through March 31, 2029, although the uplift could be significantly lower based on market prices. The facilities will have an obligation to produce the ZECs and sell them to NYSERDA through March 31, 2029, except during periods when the calculated price is $0. There will be financial penalties for not meeting the obligation to produce.

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