How Exelon will keep getting bailout money in Illinois—whether it needs it or not
Exelon left little to chance.
When policymakers late last year were negotiating a ratepayer-funded bailout to keep two Exelon-owned nuclear plants in Illinois from closing, they wanted to be able to say the subsidies would decline if power prices rose. That way consumers in the state, paying a surcharge on their electric bills just to keep the Quad Cities and Clinton nukes open, wouldn’t be subsidizing plants that would be profitable otherwise.
But no one at the time talked about provisions the Chicago-based company insisted on that would ensure the subsidies kept rolling in at high levels even if power prices rose. In fact, if future power prices do enable the plants to stand on their own two feet, the subsidies likely will remain at high levels.
The Future Energy Jobs Act, as the law came to be known, caps the subsidies for Exelon at $235 million annually for the next 10 years. The subsidies are in the form of “zero emissions credits,” or ZECs, that Exelon gets each year. The ZECs are valued, at least in the first several years and quite possibly longer, at a price ensuring that millions more of the credits are issued each year than Exelon can take advantage of and still stay below the cap.
But those credits don’t expire. The law allows Exelon to “bank” unused credits and cash them in later if power prices rise and it otherwise wouldn’t get the full $235 million in a given year. Under a plan approved July 31 by the Illinois Power Agency, Exelon (assuming it wins the “bidding” for the ZECs, as the law is written to nearly ensure it does) this year alone will book $97 million in credits that it can collect in the future if and when power prices rise and ZEC values fall.
And the company can expect to put tens of millions more in that bank in the next two years.
The formula used to value the ZECs is written in such a way that their price will be artificially inflated in years two and three of the program. That’s because the value of ZECs rises as the revenue Exelon gets from wholesale markets falls, and vice versa.
An important component of that revenue is the payments businesses and households make to power generators just to promise to deliver when demand hits peak levels in a given year. Those “capacity” payments, which are in addition to the prices we all pay for the juice itself and are embedded in our overall power price, are set through yearly auctions that regional grid operator PJM Interconnection conducts three years in advance.
Beginning June 2018 and running through May 2020, the capacity price in Commonwealth Edison’s service territory will be well above what it is in the rest of PJM. But the state law assumes the price is the lower one even though that’s not what Chicagoans will pay.
That will have the effect of increasing the revenue Exelon can “bank” by about $64 million, according to Chicago-based Invenergy, the nation’s largest independent wind-power producer and a rival of Exelon.
With power prices likely to remain low over that term, Exelon easily could bank another $97 million or more in revenues each year to be claimed later.
The law calls for the assumed capacity price to revert to what customers in ComEd’s territory pay after 2020. But by then Exelon likely will have banked at least $300 million to keep its annual subsidy payments at the capped level of $235 million if power markets get friendlier to the company.
“The bailout structure with banked credits practically guarantees Illinois families and businesses will stomach at least $2.35 billion in new costs over the next 10 years regardless of the underlying power markets,” Craig Gordon, Invenergy vice president for regulatory affairs, said in an email.
He called on the Illinois Commerce Commission, which must approve the Illinois Power Agency’s plan, to review it carefully. But the law—one of the few major policy matters House Speaker Michael Madigan and Gov. Bruce Rauner have agreed on in the past three years—appears to leave regulators little wiggle room to address the issue.