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Cost of Illinois nuclear plants looms large for Exelon

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Cost of Illinois nuclear plants looms large for Exelon

TheClinton andQuad Citiesnuclear power plants are expected to cost Exelon Corp. $140 million in lost revenue in 2017, andif Illinois lawmakers do not pass adequate legislation to make up the loss,Exelon is threatening early retirements of the plants.

Theprospect of retiring Clinton and Quad Cities and a proposal for Illinois tocopy New York's proposed "zero emission credits" dominated Exelon'sMay 6 earnings calland even overshadowed its recent acquisition of . Exelon the day before that itis planning to shut down the Clinton plant June 1, 2017, and the Quad Citiesplant June 1, 2018, if Illinois fails to pass drafted legislation before thecurrent legislative session ends May 31. The energy bill seeks to financiallysecure "at-risk nuclear plants" by recovering lost market revenues.

"Theseplants have lost $800 million in cash flow from 2009 to 2015," ExelonPresident and CEO Christopher Crane said. "Without adequate legislation,we no longer see a path for profitability and can no longer sustain the ongoinglosses."

Exelonhad previously deferred retiring the "economically challenged"1,078-MW Clinton and 1,819-MW Quad Cities plants to give Illinois lawmakers andMidcontinent Independent SystemOperator Inc. time to consider market reforms and for the plants toparticipate in the 2016-2017 MISO primary reliability auction and the 2019-2020PJM InterconnectionLLC capacity auction. Clinton cleared the MISO primary reliabilityauction but at a price insufficient to cover cash operating costs andshareholders' risk-adjusted rate of return. The future of Quad Cities islikewise dependent on clearing PJM's 2019-2020 capacity auction whose resultswill be available on May 24.

Incontrast, Crane praised a proposed initiative in by state policymakers and Gov.Andrew Cuomo to prevent the closure of its three upstate nuclear plants,including Exelon's 582-MW R.E. Ginna and 1,937-MW Nine Mile Point stations, by subsidizingupstate nuclear generation at above-market prices. New York regulators and FERCalso recently approved a reliability support services agreement with Ginnaplant to compensate the plant for its carbon-free reliable generation. Inaddition, Ginna will receive a one-time $101 million revenue adjustment as partof the agreement.

JonathanThayer, CFO and senior executive vice president of Exelon, said the expectedcosts of Clinton and Quad Cities for 2017 will exceed market revenues by $140million. "In order to reverse course, we need Illinois as well as New Yorkto provide a structure that allows us to cover our cash cost, plus first normaloperating risk in order to reverse this course," he said.

Accordingto Joseph Dominguez, Exelon's executive vice president for governmental andregulatory affairs and public policy, compensation rates for nuclear generationunder the Illinois and New York proposals will be determined by experts atstate regulatory commissions on a prospective basis. The compensation will kickin when market revenues fail to cover operating costs and risks, but theprogram will not be like a power purchase agreement or a "contract fordifference," he said. "If revenues or costs are different, there's notrue-up."

Craneacknowledged that closing Clinton and Quad Cities creates burdens for Exelonbecause the operator's decommissioning trusts are not fully funded to cover10-year decommissioning plans. According to a May 6 note by UBS Securities LLCanalyst Julien Dumoulin-Smith, the early retirements of Ginna, Clinton and QuadCities could require $640 million of parent guarantees.

Ontop of losing thousands of jobs and billions in economic stimulus for Illinoiswith the premature shutdowns of Clinton and Quad Cities, Nuclear Mattersco-chairman and former U.S. Sen. Evan Bayh stressed in a news release thatIllinois would also lose 92% of its carbon emission-free electricity.

"Illinoisfaces a significant carbon reduction goal as part of the Clean Power Plan. Thepremature retirement of Clinton and Quad Cities would mean that these goals willbe nearly impossible to meet," Bayh said. "By passing the NextGeneration Energy Plan as soon as possible, the Illinois Legislature can savethese plants and cement its position as a clean energy leader at the same time."

Clinton,Ginna, Nine Mile Point and Quad Cities nuclear plants are operated by Exelonsubsidiary Exelon Generation Co.LLC.