UTILITIES

Nuclear giant taps wind tax credit that it's trying to kill

The country's largest nuclear plant operator, Exelon Corp., has publicly fought to torpedo the wind industry's coveted production tax credits, calling them financial threats to its reactors in the Midwest.

But the Chicago-based utility is also cashing in on those credits, known as PTCs.

Exelon's third-quarter earnings results released last week show the company benefiting from the tax incentives that provide wind developers with $23 for every megawatt-hour of electricity they produce. Details about which of Exelon's 44 wind projects generate the PTCs are private.

Exelon also confirmed it may decide in the future to take advantage of tax credits in conjunction with a wind project it is pursuing as part of its $7.9 billion merger with Constellation Energy Group. Exelon vowed to develop renewables in Maryland as part of the merger, and its newly acquired subsidiary, Fair Wind Power Partners, is proposing to build up to 15 turbines in western Maryland's Garrett County.

Amy Grace, a North American wind analyst at Bloomberg New Energy Finance, pegged Exelon's wind PTCs for 2013 at $75 million to $100 million based on the company's 1.3 gigawatts of wind projects.

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Exelon spokesman Paul Adams said in a statement the utility has a financial responsibility to take PTCs as long as they are in place but remains opposed to subsidies for all forms of generation. Instead of using federal subsidies to pick winners and losers, he said, Exelon believes a well-regulated competitive market is what's needed to determine the cheapest, cleanest power source.

"Exelon continues to oppose market-distorting subsidies like the PTC, but as we have consistently noted, we have a fiduciary responsibility to our shareholders to take advantage of applicable tax incentives, as appropriate, as long as they remain in place," he said.

Exelon CEO Christopher Crane put a exclamation point on that argument in an interview in February with the Chicago Tribune, when he warned subsidized wind could force the closure of certain nuclear plants.

Exelon's stance has angered PTC proponents who say the company's position is hypocritical.

"Looks like they oppose competitive entry in their own territory but support it and take advantage of it elsewhere," said Rob Gramlich, the American Wind Energy Association's senior vice president of public policy. "That's a pretty common dynamic in the power sector."

Last year, AWEA booted Exelon for opposing PTCs. The trade group is now working to win another PTC extension and protect state-level renewable portfolio standards that have bolstered wind and come under attack by conservative groups.

Richard Caperton, managing director of energy with the liberal Center for American Progress, said Exelon needs to unify its messaging.

"It's ironic, of course, that their lobbyists haven't gotten the message and continue to spread the mistaken claim that the PTC should go away because it distorts markets," Caperton said. "I hope that CEO Christopher Crane gets his company to all sing from the same hymn book in the future and that they tell Congress that the PTC is a useful incentive that should be extended."

Howard Learner, executive director of the Chicago-based Environmental Law and Policy Center, said Exelon's opposition to the wind PTC is "tone deaf" to job creation and economic and environmental benefits in Illinois.

"Moreover, it is ironic that Exelon is apparently taking full advantage of the PTC for its own wind projects while opposing the PTC as competitors' wind projects productively diversify the Midwest electric power generation mix," Learner said.

PTC debate

Debate over tax incentives for the wind industry has increasingly turned to complex concerns about the financial health of coal and nuclear plants and questions about electricity market structures.

Some companies have pointed to the wind PTC as exacerbating an already tough market situation featuring low demand for electricity and a surge of cheap gas.

PPL Montana last year blamed subsidized wind, along with U.S. EPA rules and depressed power prices in the Northwest -- tied to waning demand for electricity -- when announcing it would place a coal plant in Billings, Mont., into reserve status.

Exelon, which has 17 reactors in the Midwest and mid-Atlantic, blamed subsidized wind -- along with cheap gas and waning demand -- earlier this year for forcing it to scrap two nuclear expansion projects in Illinois and Pennsylvania (Greenwire, June 12).

Exelon's argument against the PTC was laid out in a report it commissioned last year through the NorthBridge Group, which found wind producers don't have incentives to pull back production during times of high wind and low demand; instead, the companies use PTCs to "sell electricity at a loss to earn enormous tax subsidies," making it difficult for others to compete.

New Orleans-based Entergy Corp., a large nuclear operator, is also opposed to the incentives.

"We believe the intent of initiatives like the PTC can best be achieved through the development of an efficient, market-based system that includes a price on carbon emissions," Entergy spokesman Mike Burns said in a statement.

But the nonpartisan Congressional Research Service says the assertion is difficult to prove.

The Congressional Research Service said in a report last year that shifts in weather patterns, power demand and gas prices make it extremely difficult to validate claims that increasing amounts of wind power bolstered by federal tax incentives are distorting the markets and causing negative prices (E&ENews PM, Nov. 16, 2012).

PTC proponents say the criticism is misplaced.

AWEA argues that Exelon is using the PTC as a "scapegoat" for its significant financial woes after making a losing bet on power market prices.

"Prices turned out lower than expected due to many factors Exelon has identified in its financial reports, and while wind was not the biggest factor, we're proud of wind's contribution to low power prices for homes and businesses," Gramlich said.

Wind energy's contribution to low power prices and reliable service was recently shown by a wind integration study by the PJM Interconnection power grid in the mid-Atlantic and Great Lakes states, he said.

AWEA has argued the PTC is allowing the industry to blossom and supports 75,000 jobs, including a new U.S. manufacturing sector now up to 25,000 jobs and 72 percent domestic content.

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