As market dynamics shift, what are Exelon's plans for renewable energy versus nuclear energy in its business model? During today's OnPoint, Joseph Dominguez, executive vice president of governmental and regulatory affairs and public policy at Exelon, discusses the reliability challenges with U.S. EPA's Clean Power Plan proposal and the improvements that can be made to ensure reliability and a smooth transition for the nation's utilities.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Joe Dominguez, executive vice president of governmental and regulatory affairs and public policy at Exelon. Joe, thanks for joining me.
Joseph Dominguez: Thanks for having me.
Monica Trauzzi: Joe, we see such a wide disparity among the country's largest electric utilities on the impact of the Clean Power Plan and the ability of stakeholders to comply with it. Why doesn't Exelon share some of those same concerns that some of our counterparts in the industry do?
Joseph Dominguez: Well, it's not that we don't share the same concerns. I think a bad rule would raise concerns for all of us. But we think there's a lot of room for a good rule here: a lot of strong comments that we've provided to EPA, others have provided to EPA, that are thoughtful and actually give us a path forward, both to achieve the emissions reductions but also achieve them on time and maintain electric reliability and hold down costs.
Monica Trauzzi: Nuclear is a big part of Exelon's operations and we know that nuclear is not given the same consideration as other forms of energy in the draft Clean Power Plan. What conversations have you had with EPA about how nuclear will be handled in the final plan?
Joseph Dominguez: Yeah, well, I think first the EPA recognizes the important role of nuclear: It's about 63 percent of the nation's clean electricity. So keeping the existing plants operating, upgrading those plants, building new plants is important to the agency.
We don't think they went about it exactly the right way. And what they did is they credited nuclear for about 6 percent of its overall contribution.
What we've been talking to the agency about, and we've included in our comments, making sure that nuclear is treated not preferentially but the same way that other zero-carbon resources are treated like wind, solar, hydro and others.
Monica Trauzzi: Why is Exelon part of this group that's proposing a reliability dispatch safe harbor that would place a price on carbon if you are confident that the EPA's Power Plan can be implemented and not affect reliability?
Joseph Dominguez: Well, one of the things that the EPA comment period does is it allows us to make proposals that would then be incorporated in the final rule. And what we've suggested to the EPA is that they create a mechanism to allow the states to use existing grid operators to pricing carbon and co-optimize reliability and environmental attributes.
So effectively what the grid operators would do is ensure that the -- ensure that we keep the lights on, but at the same time, where possible, we would allow for gas plants to operate ahead of coal plants, recognizing the advantages of gas relative to coal from a carbon standpoint.
Monica Trauzzi: So as written do you have reliability concerns with the draft?
Joseph Dominguez: As written we think there are timing concerns and ultimately potential reliability concerns. But we think EPA has heard those concerns and we think they're poised to address them in the final rule.
Monica Trauzzi: What do you think about the calls for states to just simply not comply with the plan?
Joseph Dominguez: You know, I've certainly heard that -- we all have -- but realistically think about what position the state would be in if they ignore their opportunity to submit a compliance plan. Basically they would be surrendering themselves ultimately if the courts uphold the rule to the jurisdiction of the federal authorities in terms of designing the plan at a federal level.
We all believe that state involvement in the process is important. I think the states do too, and I don't think they're going to discard their opportunity to participate in their own compliance plan drafting readily despite the calls to do that.
Monica Trauzzi: Renewables will certainly play a large role as part of compliance. Describe Exelon's plans for expanding renewables versus nuclear energy.
Joseph Dominguez: Well, I think our view is that we need to get the most bang for the buck out of the existing nuclear fleet. In terms of incremental expansion of clean energy, nuclear plays an important but limited role. We could upgrade existing facilities, get more megawatts out of the machines we have, but we don't see presently a path forward for building new nuclear plants.
We think the more economical alternative right now is renewables and storage and energy efficiency. So our focus right now is deploying those technologies while at the same time policies write to keep what we have going going, because what we do know is that we need more of both.
Monica Trauzzi: And we see this firsthand in Illinois where there have been discussions about shutting down three plants. Talk about what's happening there.
Joseph Dominguez: Well, we're seeing increasing cost pressures. Basically the way state policy has been drafted so far is it recognizes zero-carbon attributes from certain technologies and rewards those attributes. The renewable portfolio standards are typically the mechanism that they use to reward these technologies.
And so in Illinois we support clean coal, we support wind, we support solar, we support hydro; we basically support every conceivable way of producing zero-carbon electricity except the form of electricity production that produces 93 percent of Illinois' zero-carbon electricity: nuclear.
So nuclear isn't allowed to compete in those programs, and the discussion we're having with the Legislature is whether it would make more sense to create a technology-neutral platform that focuses on what society wants -- zero-carbon electricity -- and reward all technologies that do that in the same way.
Monica Trauzzi: So will you be shutting down these three plants if you don't see what you want from the Legislature?
Joseph Dominguez: You know, I don't want to speculate on whether all three plants, but very clearly the plants are distressed at this point, they're not economic under the current circumstances; absent some policy change we're going to have to make those decisions.
Monica Trauzzi: Exelon is seeking to buy Pepco Holdings. Can your company make a guarantee to customers that they will not see cost rises and that they'll actually see cost savings from the merger?
Joseph Dominguez: Yeah, I think so. I think what we're putting on the table is a really impressive package. Obviously some of our key customer counties in terms of customer counts have been involved and have participated in settlement discussions. And the package looks like rebates for customers, it improves reliability, and because we're operating on a much bigger scale we can do a couple of things.
We could take advantage of lessons learned through all of our utilities to make sure that we have the best technology, the best work practices. And the other way that the scale helps us is it holds down costs over time. We could eliminate duplicative costs at the utilities and we could provide the service to customers at the lowest possible price. That's what we're aiming for.
Monica Trauzzi: The cost of wind and solar has come down significantly, natural gas remains an extremely cost-effective investment.
Joseph Dominguez: Sure.
Monica Trauzzi: What market signals is Exelon looking at as you construct your business model for the future?
Joseph Dominguez: I think right now the focus from a market standpoint is, as you said, natural gas is the clear winner from an economic standpoint. If we're just trying to build the next megawatt of incremental generation without regard to pollution, without regard to policy, it's natural gas.
Wind is probably 175 percent of that. New solar is probably 150 percent or better of those costs. So if you just let the market decide, it's going to pick gas over wind and solar. But obviously the policy design is more complicated than just market price signals: there are federal incentives, tax incentives, there are also state incentives through the RPS mechanisms that allow us to build incremental solar and build incremental wind -- and we're doing a lot of both -- and take advantage of policy support for those two technologies.
Monica Trauzzi: All right. We'll end it right there. Thank you for coming on the show.
Joseph Dominguez: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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