Executive Insight, Generation, Nuclear

Nuclear Power Update- Closing Nuclear Plants Creates Problems, Too

Issue 6 and Volume 92.

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by Kristen Wright, senior editor

“At-risk” U.S. nuclear power plants could be thrown a slippery lifeline, and it stems from tough-to-meet environmental mandates and grid reliability concerns, according to a Nov. 10 report from Moody’s Investors Services.

“Four US (sic) nuclear plants retired early over the last two years and several more are at risk of closing because of low power prices, high fixed costs and aging equipment,” the report states. “However, federal environmental mandates and state regulatory incentives aimed at supporting grid reliability and fuel diversity could ultimately extend the operating life of some of these ‘at-risk’ nuclear plants, a potential credit positive for their owners.”

Four Retired Since 2012

The report, “Environmental Mandates and Regulatory Incentives Could Slow Pace of Nuclear Plant Closures,” lists the four U.S. nuclear power plants that retired early since 2012: Entergy Corp.’s 605-MW Vermont Yankee Nuclear Power Plant in Vernon, Vermont; Dominion Resources Inc.’s 556-MW Kewaunee Power Station in Carlton, Wisconsin; Southern California Edison Co.’s (SCE’s) two-unit, 2,200-MW San Onofre Nuclear Generating Station (SONGS), which sits on a sandy beach between San Diego and Los Angeles; and Duke Energy Florida Inc.’s 860-MW Crystal River 3 Nuclear Plant some 85 miles north of Tampa.

Crystal River 3 Nuclear Plant. Duke Energy Florida announced in February 2013 its decision to close the 36-year-old Crystal River 3 Nuclear Plant. The announcement came about three and a half years after then-Progress Energy was replacing two 500-ton steam generators during a scheduled maintenance and refueling outage. The plant’s future started crumbling when a crew found concrete separation within the containment building that surrounds the reactor vessel. Crews repaired the damage, but more of the same popped up in two other areas of the containment building in 2011.

Duke Energy Florida in its announcement of the Crystal River 3 retirement cited the best interests of customers and shareholders. In other words, repair costs could approach astronomical. The utility filed with the Florida Public Service Commission a preliminary repair cost estimate of between $900 million and $1.3 billion. Later, the utility hired a third party to estimate those same costs. The latter estimate provided several scenarios’ ranging from $1.49 billion over 35 months to $3.43 billion over 96 months, according to the Moody’s report.

In May 2014, Duke Energy Florida announced plans to build a 1,640-MW combined-cycle natural gas plant near its nuclear site. It was losing 860 MW in nuclear generation but will gain 1,640 MW with the new plant-a gain of 780 MW. Duke Energy Florida expects to build the new plant for some $1.5 billion, including financing costs. Pending regulatory approvals, construction is expected to start in early 2016. The plant’s first 820 MW are expected to come online in spring 2018; the second 820 MW are expected by December 2018, according to the utility.

Kewaunee Power Station. Dominion in May 2013 announced it would shut its Kewaunee Power Station. The plant didn’t have safety or operating problems like Crystal River 3, but two years after Dominion announced the plant’s potential sale, the figurative for sale sign remained out front. Besides, Kewaunee’s long-term power purchase agreements with local utilities were approaching their end dates, and low wholesale power prices were projected-not a money-making combination.

SONGS. As for SCE’s SONGS, it hadn’t been online since January 2012, when tests of its fairly new steam generators found hundreds of eroded alloy tubes that circulate radioactive water from the reactors. After 16 months of back and forth with regulators, SCE announced in June 2013 the retirement of the plant’s twin reactors. The announcement quelled loud opposition to restarting the plant that’s within 50 miles of 8 million residents.

Ted Craver, chairman, president and CEO of SCE parent company Edison International, attributed the plant’s closure to effects of long-term uncertainty.

“We have concluded that the continuing uncertainty about when or if (the plant) might return to service was not good for our customers, our investors or the need to plan for our region’s long-term electricity needs,” Craver said in a statement.

Vermont Yankee Nuclear Power Plant. In August 2013, Entergy announced it would retire its Vermont Yankee plant by the end of 2014. The move caught many people off guard because the Nuclear Regulatory Commission (NRC) recently had extended the plant’s operating license to 2032. Nevertheless, Entergy cited many reasons for the closure: increasing supplies of shale gas, the high cost of a small, single-unit plant, and New England’s low energy and capacity prices among them.

Nuclear Deathbeds

In addition to the four recently retired nuclear plants, several others are on their deathbeds-the results of low natural gas prices and competitive power market conditions, according to the Moody’s report.

Entergy nuclear plants made Moody’s at-risk list-several of them. Of Entergy’s nuclear plants, most at risk of closing, according to the report, are single-unit plants in the Northeast: 838-MW James A. FitzPatrick Nuclear Power Plant in western New York and 688-MW Pilgrim Station in Plymouth, Massachusetts. FitzPatrick competes with low energy and capacity prices in its area, and Pilgrim competes with a fast-growing renewables sector packaged in Massachusetts state subsidies, the report states. Entergy’s two-unit, 2,069-MW Indian Point Energy Center in Buchanan, north of New York City, also is at moderate risk, but it’s in the lower Hudson Valley, which has higher energy and capacity prices than those in western New York. The report also mentions that the NYISO and ISO-NE markets have seen some improvements in capacity and energy prices.

Even Exelon, the largest nuclear operator in the U.S., makes the at-risk list several times because of power market woes. Exelon expects to determine in 2015 whether to retire one or more of the following plants: the 583-MW R.E. Ginna Nuclear Power Plant on the southern shore of Lake Ontario in New York; and three nuclear plants in Illinois-the 2,336-MW Byron Generating Station 110 miles west of Chicago, 1,065-MW Clinton Power Station in the center of the state, and 1,871-MW Quad Cities Generating Station on the Mississippi River in Cordova. The Ginna plant suffers the same economic ailments as Entergy’s FitzPatrick plant-both are in the western New York market. Byron, Quad Cities and the nation’s oldest and smallest operating nuclear plant, the 637-MW Oyster Creek Generating Station near the New Jersey shore, didn’t clear the PJM capacity market auction for power supplies for June 2017 to May 2018. That means Exelon will not receive PJM capacity payments for these plants during that time, the report states.

Exelon already announced it will retire Oyster Creek in 2019. Despite Exelon reports that the plant remains profitable and the NRC’s recent 20-year extension of the plant’s operating license, the biggest hurdle for Oyster Creek is the state. New Jersey is requiring new cooling towers that are more expensive than feasible for such as small nuclear power plant.

Other potentially at-risk plants are Exelon’s 852-MW Three Mile Island in Pennsylvania and FirstEnergy Corp.’s 900-MW Davis-Besse Nuclear Power Station east of Toledo, Ohio, according to the report. Both plants’ proximity to the Marcellus Shale-cheap natural gas-means a high probability of new combined-cycle gas plants, otherwise called stronger competitors.

Environmental Compliance Hard Without Nuclear

The Moody’s report isn’t just doom and gloom for U.S. nuclear power generation-but that slippery lifeline might be thrown into very murky waters. The report explains that the Environmental Protection Agency (EPA) could save the generation source-sort of, maybe. In June, the EPA released its proposal to reduce carbon emissions from existing power plants.

The report explains the murkiness of the EPA’s proposal, and even some of the EPA’s fuzzy math.

“While the proposed rules are credit negative for coal generation, they are credit positive for nuclear generators because they could increase the value of nuclear power as a non-carbon (sic) emitting generating resource,” the report states. “… Most importantly, the EPA proposal assumes the continued operation of all existing nuclear reactors in the US (sic), effectively making it harder for states to comply with these mandates if nuclear plants are retired.

“Most importantly, the EPA specifically references 5,700 MW of at-risk nuclear generation (about 6% of total US (sic) nuclear generation) that could be used to meet state goals, in an apparent attempt to highlight and help preserve this generation.”

The fuzzy math enters the equation because there’s a variable: new nuclear generation. The EPA proposal already factors in nuclear generation under construction in Georgia, South Carolina and Tennessee. But if it’s not built, it’s not zero-carbon-emitting yet. Those companies are effectively penalized, according to the Moody’s report.

Final EPA Rule Expected in 2015

“We believe the EPA could revise its treatment of new nuclear generation under construction once it receives all of the comments,” the report states. “However, the proposed EPA carbon rules, depending on their final form and the timing of their implementation, have the potential to improve the viability of some at-risk nuclear plants by adding an environmental compliance component to what has been largely an economic debate. As these carbon rules force the closing of more coal plants, the value of non-carbon (sic) emitting resources, including nuclear generating plants, should improve.”

The Moody’s report also addresses how the loss of major baseload nuclear resources will negatively affect grid reliability and reserve margins. Moody’s subscribers may access the full report at www.moodys.com.

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