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Exelon continues to warn of power plant closures absent market reforms


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Exelon continues to warn of power plant closures absent market reforms

Exelon Corp. management continues to call for market reforms to keep power plants operating.

During an Aug. 1 call to discuss the company's second-quarter 2019 earnings, Exelon President and CEO Chris Crane said the decline in power prices represents a "considerable challenge" for the company. He added, however, that Exelon is pursuing a number of market reforms to address financial challenges facing power plants and that the company has ways to respond if low prices persist, including closing unprofitable plants.

"You've seen us close money-losing plants in the past and you should expect that discipline to continue if reforms are not enacted," he said.

Exelon plans to shut down its 829-MW Three Mile Island plant by Sept. 30, after what it characterized as inaction by Pennsylvania state lawmakers to preserve the asset's life. Crane said talks are ongoing to keep other nuclear units in the state operating, which could include measures like a price on carbon through regional carbon trading.

The possibility of plant closures is nothing new.

In February, Exelon disclosed that three units — the 2,384-MW Braidwood Generating Station, 2,346-MW Byron Generating Station and 1,805-MW Dresden nuclear plants — showed "increased signs of economic distress, which could lead to an early retirement."

Crane said those plants remain at risk absent market reforms, something Exelon is pursuing with lawmakers in Illinois and with PJM Interconnection.

"Either we have a clear path to securing them or the units will be shut down," he said. "We will not damage the balance sheet sitting around for years with negative free cash flow or negative earnings."

Aside from closing uneconomic plants, other levers at Exelon's disposal to respond to a challenging power market include finding ways to streamline costs, exploring asset sales or finding other forms of project financing, CFO Joseph Nigro told analysts.

Earlier on Aug. 1, Exelon reported adjusted operating earnings of $583 million, or 60 cents per share, in the 2019 second quarter, a decrease from $686 million, or 71 cents per share, for the comparable period of 2018.

Nigro said Exelon Generation Co. LLC's earnings were down 13 cents per share compared to the same time in 2018, a decrease driven by lower realized energy prices and partially offset by higher zero-emission credit, or ZEC, revenue from an increase in New York prices and the start of the New Jersey ZEC program.

New Jersey regulators in April approved ZEC subsidies for three nuclear units in the state, including the two units at the Salem plant, in which Exelon owns about 43%.

Exelon agrees with FERC's recent decision directing PJM not to hold a capacity auction scheduled for August 14. Crane said holding off on the auction until FERC takes final action to fix what regulators have determined are unjust and unreasonable capacity market rules will give PJM and stake policymakers time to adjust to any changes FERC makes.

Exelon officials said clean energy legislation in Illinois remains a priority for a number of stakeholders in the state and that discussions to create a package for lawmakers to consider this fall are ongoing.

State lawmakers earlier in 2019 proposed several bills aimed at the state's power sector, including those to boost the amount of clean energy resources. Kathleen Barron, Exelon's senior vice president of governmental and regulatory affairs and public policy, said a wide swath of interests, including those in the environmental, consumer advocacy and labor communities, are focused on getting Illinois to adopt the 100% clean energy target other states have taken up.