The proposed sale of the FitzPatrick power reactor in upstate New York is the first time the price tag of a U.S nuclear power plant has explicitly included a value for its carbon-free electricity output.
Exelon Corp. announced yesterday an agreement to purchase the James A. FitzPatrick facility on Lake Ontario’s southeast shore for $110 million, with commitments of continued investment, including a reactor refueling at FitzPatrick in 2017.
How rich the deal could be for Exelon is very uncertain, analysts said, depending on what happens to wholesale electricity prices in New York and reactor operating costs over the next dozen years.
The value to New York residents is even more elusive, hinging on how the public values the carbon-free electricity FitzPatrick produces, and the upstate jobs and investment that would have been lost had FitzPatrick been shuttered, as its current owner Entergy Corp., was set to do.
Exelon’s purchase depended on Gov. Andrew Cuomo’s (D) willingness to give the energy company an annual operating subsidy to keep the nuclear plant operating.
The state Public Service Commission on Aug. 1 approved a formula that is estimated to be worth $123 million annually in 2017-19 to FitzPatrick, with the figure expected to increase with inflation through 2029, when the program ends. The sale is subject to federal and state agency approvals and may also have to survive legal challenges.
"It clearly shows the power of the subsidy," said Paul Patterson, an analyst with Glenrock Associates LLC. "This plant basically, without the subsidy, was heading for the graveyard. And it’s been given a reprieve."
It is a price Cuomo and New York energy officials concluded must be paid to hold onto the plant’s output of zero-carbon electricity in order to meet the state’s goal of getting 50 percent of its electricity from renewable sources by 2030.
The PSC-approved initial subsidy is $17.48 per megawatt-hour for FitzPatrick and Exelon’s two current upstate nuclear plants, R.E. Ginna and Nine Mile Point, adding to a combined annual cost of up to $480 million in 2017-19, according to ClearView Energy Partners. Add that to the PSC’s anticipated wholesale electricity price upstate of $30 per MWh in 2017-18, and the FitzPatrick plant would take in nearly $48 per MWh of generation, or $333 million in a full year of operation, the PSC staff estimates.
That could be a profitable number, the PSC’s record indicates. In a separate proceeding, Exelon’s subsidiary Constellation Energy indicated its costs for operating its Lake Ontario plants would be about $50 per MWh. The cost figure is a step higher than the initial subsidy, but the Constellation figure includes profit and risk premiums, analysts said. Entergy said FitzGerald was losing money in competition with natural gas-fired generation.
Cost of carbon
The PSC subsidy is not aimed at overcoming estimated losses at the upstate plants, however. The PSC staff’s first version of its plan was cost-based, but it ended up adopting an entirely different formula rooted in the Obama administration’s controversial calculation of the long-term economic value of slowing global warming by removing greenhouse gases from power plant stacks (Greenwire, Aug. 9). The change increased the estimated subsidy payment.
Travis Miller, director of utilities research at Morningstar Inc., said Exelon got the 41-year-old plant for a low price, but also assumes its issues.
"When you have generation units with such high fixed costs and you have a market where you have low energy prices, that makes the economics challenging," Miller said.
The Exelon bid? "To be honest, I wasn’t hearing any bids," Miller added. "I just think that there are very, very few utilities or investors out there who are willing to take on a nuclear plant. And there’s been a lot of deal activity in natural gas plants and coal plants, but those tend to be smaller deals and less complex types of units."
"Maybe they got a good deal, but it comes with a lot of risk," he said. "That kind of money is a rounding error for a company of Exelon’s size."
Exelon’s current market value is about $32 billion.
Glenrock’s Patterson was reluctant to say whether Exelon got itself a deal in the transaction.
"Nuclear plants are complicated. The procedures associated with maintenance and requirements are much more regulated than what you’ll see in a fossil plant," Patterson said. "Without knowing those numbers, I’m not really comfortable saying how good a deal or not they got."
Cuomo’s administration says it is a good deal for the state’s electricity consumers, estimating that the clean energy program will add less than $2 per month to the average residential power bill.
In a statement yesterday, New York recited its list of public benefits. Citing a Brattle Group study, the state said the three upstate plants contribute $144 million in net state tax revenues annually and avoid almost 16 million tons of carbon dioxide emissions annually. With FitzPatrick’s rescue, the three upstate plants will get $400 million to $500 million in new investments by Exelon and save prized upstate jobs, the state said.
Nucor Corp., a leading steel producer, and a group of large power customers calling itself Multiple Intervenors protested that before the PSC approved the subsidy plan for any upstate nuclear plant, the owner must demonstrate that the plant would be closed if the aid were not forthcoming. Exelon, in particular, has not made a case that the two-unit Nine Mile Point plant was in danger of closing, critics said. New York City and other organizations commenting on the state plan questioned whether the plant operators have shown the need for a subsidy.
But from Cuomo on down, the state’s executives and staff are determined to follow their clean energy agenda, and with the FitzPatrick sale, they took another step forward.