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Exelon to push state legislation to reform Northern Illinois capacity market

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Exelon to push state legislation to reform Northern Illinois capacity market

Exelon Corp. will continue this fall to push bills already before the Illinois Legislature that would give the Illinois Power Agency the task of reforming the state's capacity market in ways that could benefit Exelon's nuclear plants in Northern Illinois, a company spokesperson said Aug. 21.

House Bill 2861 was submitted earlier this year and is expected to be discussed in the veto session of the Illinois Legislature scheduled for Oct. 28-30 and Nov. 12-14.

Dubbed the Clean Energy Progress Act, the bill calls for removing Northern Illinois from the federally regulated PJM Interconnection grid and its capacity market. Exelon would like to see the power agency, known as the IPA, permitted to purchase capacity in Northern Illinois.

The IPA's current task is overseeing the electricity planning and procurement processes for residential and small commercial customers of Exelon's Chicago-area utility subsidiary Commonwealth Edison Co. and local utility subsidiaries of Ameren Corp. and Berkshire Hathaway Energy's MidAmerican Energy Co.

The IPA also implements the state's renewable portfolio standard and runs the zero-emission credits program that provides an annual subsidy to two of Exelon's six nuclear facilities in Illinois.

Exelon, which has seen three of its Northern Illinois nuclear facilities fail to clear previous PJM capacity auctions, has said it believes capacity reform is necessary to incentivize carbon-free emissions.

The company has also said it believes that changes pending before the Federal Energy Regulatory Commission could remove incentives from the PJM market.

In an Aug. 1 form 10-Q filing with the SEC, Exelon said its 2,386-MW Braidwood Generating Station, 2,347-MW Byron Generating Station and 1,845-MW Dresden facility, each with two units and each in PJM's Northern Illinois area, "are showing increased signs of economic distress, which could lead to an early retirement, in a market that does not currently compensate them for their unique contribution to grid resiliency and their ability to produce large amounts of energy without carbon and air pollution."

Exelon first warned about the potential future of the three plants in February. In the Aug. 1 filing, Exelon said the May 2018 PJM capacity auction for the 2021-2022 planning year resulted in "the largest volume of nuclear capacity ever not selected in the auction," including all of Dresden as well as portions of Byron and Braidwood.

The earliest Exelon could move to close Byron and Braidwood is mid-2022. Those plants have committed with PJM to operate until then.

Exelon told the SEC it would "continue to work with stakeholders on state policy solutions," while also advocating for broader market reforms at the regional and federal level.

Exelon's Clean Energy Progress Act would allow Illinois' nuclear facilities to sell "clean capacity" into the Illinois Power Agency, or IPA, procurement.

"The legislation, if adopted as currently written, could provide Exelon subsidiary [Exelon Generation Co. LLC]'s nuclear plants in the state with more that $320 million in annualized revenues starting as soon as mid-2022, we estimate," equity analysts at Macquarie Research said in an Aug. 19 investors note.

Pending FERC changes

Exelon's legislative effort in Illinois has its roots in developments in PJM.

One Illinois power industry official said that what is happening in PJM is about 80% of the motivation for Exelon's efforts in Illinois, "but parties are also seeking the expansion of renewables in Illinois."

Kathleen Barron, Exelon's senior vice president of government and regulatory affairs, has said in presentations that capacity reform is necessary to continue to provide incentives for carbon-free emissions "because pending Federal Energy Regulatory Commission changes could remove those incentives from the PJM market."

The absence of FERC's PJM capacity market rule changes that have been described as "overdue" are the key reason why PJM's August 2019 base residual auction for 2022-2023 delivery was suspended by FERC on July 25.

A minimum offer price rule and fixed resource scenarios have been studied. FERC could decide to implement a rule called "Fixed Resources Requirement – Resource Specific," which means states would be able to obtain capacity for specific resource types — for example, wind, solar and nuclear — and obtain the rest of the necessary capacity through PJM's resources, which would likely include coal, gas and other nuclear.

The bill language says that if PJM tariffs permit a "resource-specific fixed resource requirement, the Illinois Power Agency should be able to procure contracts for clean capacity[.]"

The bill also says that "upon [an Illinois Commerce Commission] determination that it is in the public interest to pursue a fixed resource requirement rather that a resource-specific fixed resource requirement, the IPA shall conduct procurements for such additional capacity."

Renewables lag behind state's goals

Illinois' renewable energy portfolio requires the state to get 16% of its energy from renewables by 2020 and 25% by 2025. Critics argue, however, that the state will likely generate less than 7% of energy from renewables in 2020.

There are other bills before the state legislature. One from Vistra Energy Corp. calls for solar and battery storage to be placed at closed coal-fired plant sites, while NRG Energy Inc.'s bill calls for companies to receive clean energy credits for closed fossil fuels plants.

During Exelon's second quarter 2019 earnings call on Aug. 1, Exelon CEO Chris Crane was asked if there was a dialogue with legislators and other constituencies in the state around an omnibus energy strategy. He deferred to Barron, who said, "[T]here are a number of stakeholders that are very focused on getting clean energy legislation enacted in Illinois. As you know, a number of states have already set 100% clean energy targets. ... there's a lot of emphasis on making sure that Illinois, which is already the cleanest state in the country, has an equally aggressive target."

Jeffrey Ryser is a reporter for S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.