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Exelon reverses one-time charges for nuke retirements after Illinois bill passes

Exelon Corp. subsidiary Exelon Generation Co. LLC will reverse one-time charges totaling about $120 million after Illinois adopted an energy bill intended to forestall the early retirement of two of its nuclear plants, Quad Cities and Clinton Power Station.

The charges were recorded in June, when Exelon announced that it planned to permanently cease operations at Clinton on June 1, 2017 and Quad Cities on June 1, 2018. After Gov. Bruce Rauner signed the Future Energy Jobs bill Dec. 7, making the two plants eligible to receive incentives to continue operating, Exelon said it will reverse those one-time charges, according to a Dec. 7 Form 8-K.

Though the bill takes effect June 1, 2017, "Exelon and Generation now expect the Clinton and Quad Cities plants, if selected in the Illinois Power Authority process, to continue operation for at least another 10 years as a result of this legislation," the company said in the Form 8-K. The Chicago-based utility expects the prolonged life of the two plants to reduce noncash expense items from the levels it disclosed in its third quarter Form 10-Q. It estimated $55 million in reduced depreciation and amortization expenses for 2016, $555 million in reduced expenses in 2017 and $160 million in 2018.

Exelon and its subsidiary are "continuing to assess the impact on Nuclear Regulatory Commission (NRC) minimum funding requirements for Clinton and Quad Cities," according to the Form 8-K, but consider it more likely than not that both plants will either meet the requirements or fall slightly short.

The NRC, which issues licenses and regulates commercial nuclear power plants, requires reactors and material licensees to establish a financial mechanism such as decommissioning trust fund or a guarantee from its parent to ensure there are enough funds to cover the decommissioning of a facility, according to a June 8 report from the NRC's Office of the Inspector General. The exact funding requirements ultimately depend on the decommissioning approach of each site, associated costs and the decommissioning trust fund's investment performance.

Illinois' Future Energy Jobs bill includes a zero emission standard that lets nuclear power plants earn credits that are initially valued at $16.50/MWh, based on current federal estimates of the social cost of carbon, according to the filing. If the Illinois Power Authority selects the plants, Exelon Generation Co. can directly contract its power with distribution companies for at least 10 years, preventing the early retirement of the resources. Exelon on June 2 had announced the early retirement of units after Quad Cities, which sells into PJM Interconnection LLC, failed to clear the grid operator's auction for the 2019 to 2020 planning year, and Clinton cleared Midcontinent Independent System Operator Inc.'s 2016-2017 primary reliability auction at capacity prices that were insufficient to cover operating costs and returns to shareholders.

Exelon, in a Dec. 14 release, said it also plans to accelerate capital projects at the two plants that were canceled or put on hold when the plants were slated for retirement. With the passage of the Future Energy Jobs bill, these projects are now "back on track," Exelon said in the release.