Ginna contract analysis

AGREE New York Analysis of the Ginna Nuclear Bailout Contract Proposed by Exelon and RG&E Background On February 13, 2015, the nuclear plant owner, Exelon, and the utility company, Rochester Gas and Electric (RG&E), announced an agreement that would raise Rochester-area electricity rates by approximately $175 million with the explicit purpose of bailing out the uneconomical Ginna nuclear reactor. Exelon has said that without a subsidy from RG&E customers, the company would likely close the struggling reactor.

Although the two companies have come to an agreement to raise electricity rates in order to save Exelon’s bottom line, the rate-hike and bailout are not a done deal. The New York Public Service Commission and the Federal Energy Regulatory Commission must approve the proposal before it could go into effect. Both agencies have the power to reject or substantially alter the agreement.

Terms of the Agreement RG&E would pay Exelon a guaranteed $17.5 million each month for at least the next three and a half years.

Exelon would receive this payment even during refueling outages and some unplanned outages when the plant is producing no electricity. The contract includes the possibility of extending the agreement for an additional year and a half at a higher fixed monthly rate.

Exelon would sell the power produced at Ginna on New York’s electricity market and receive the market rate for the sales. Exelon would then give 85% of this revenue to RG&E as a credit, and keep the other 15% for itself. The above-market subsidy for Ginna would vary each month, as it would be the difference between the 85% of market revenues credited to RG&E and the $17.5 million credited to Exelon. The subsidy paid by RG&E to prop up Ginna would be passed on, in full, to RG&E customers in the form of a surcharge on their utility bills. RG&E estimates the total cost over the life of the contract to be about $175 million above the regular market rate for electricity.

The contract is scheduled to go into effect on April 1, 2015. If the approval date is later than April 1, payments owned to Exelon would be retroactive (with interest) to that date.

Major Contract Issues and Talking Points Ginna is an uneconomic power plant, and this condition is likely permanent given its age and the rising costs of operating and fueling nuclear reactors. Consumers should not be expected to keep Ginna on never ending life support.

Exelon has still never said definitively that it will close Ginna if it does not receive a bailout. This puts RG&E customers in the position of possibly subsidizing a reactor without assurances that such a subsidy is actually necessary. Rochester-area residents should never be forced to pay extra for a contract that has not been shown to be absolutely necessary to maintain reliability. This standard has not been met for this contract.

The reliability study, which has been offered as justification for the need to keep Ginna open, is controversial and inadequate. The study was performed by the New York Independent System Operator (NYISO), which has two former Exelon executives on its Board of Directors.

The study inexplicably shows skyrocketing peak demand even though peak demand in the Rochester area has been falling for the last three years. The study also failed to look at any alternatives to replace Ginna.

RG&E has identified a transmission upgrade that would address any reliability issues posed by the closure of Ginna. The upgrade will be completed between December 2016 and July 2017. Yet, the utility agreed to subsidize Ginna through October 2018 with high financial penalties for early termination. Once the transmission upgrade is complete, any justification for a subsidy will be gone. This means that to protect electricity consumers, if a subsidy is deemed necessary, the length of the contract should be tied to the timeline for the transmission upgrades. Customers should not subsidize Ginna for one day beyond the completion of the transmission project or the installation of adequate alternative capacity.

About Ginna The R.E. Ginna (pronounced guh-NAY) Nuclear Power Plant is located in Wayne County, New York, on the shore of Lake Ontario, about 20 miles East of Rochester. Ginna was commissioned in 1970, making it one of the oldest nulcear plants in the U.S. Like all nuclear power reactors, Ginna is dangerous to human health and the environment. The early retirement of Ginna could avoid the creation of approximately 200 tons more high-level radioactive waste; free New York from the risk of an accident at the reactor; protect Lake Ontario from wildlife destruction and thermal pollution due to Ginna’s oncethrough cooling system; and end routine releases of radioactivity from the plant.

Consumers should not have to foot the bill for RG&E’s bad planning. Ginna’s retirement has been predicted for two years by financial analysts, yet RG&E did nothing to prepare. For every month that RG&E delayed, consumers are now being asked to pay $4.1 million in subsidies. RG&E should not be allowed to pass the costs of subsidy on to its customers; the company’s shareholders should bear the costs instead.

There is currently no decommissioning plan for Ginna, and it’s likely Exelon will chose an option that mothballs the site for 60-years before beginning cleanup. This poses a huge danger to local communities. State officials should immediately begin negotiations with Exelon over a decommissioning plan for Ginna that protects human health and the environment. The proposed contract likely represents the last leverage that state officials will have to influence how Ginna is decommissioned. The decommissioning plan should be modeled on the deal negotiated between the State of Vermont and the owner of Vermont Yankee.

That plan includes a commitment to remove highly radioactive fuel out of the vulnerable fuel pool and into dry-cask storage as soon as possible, the retention of a significant number of employees to carry out the decommissioning process, community development funds to support local municipalities and businesses, and a community oversight board to provide transparency and local input into the process.

If a subsidy is approved, the Public Service Commision should require Ginna to close once the agreement expires. New York’s electricity system is in a state of transition, and increasing numbers of generators may find themselves unable to compete with efficiency measures and renewables. It is paramount that the PSC impose strict criteria for reliability support services agreements like this one. Failing companies must be prevented from fishing for subsidies and using reliability concerns as a way to hold consumers hostage. Generators seeking subsidies for reliability purposes must be forced to close once they are no longer needed. As the country’s largest nuclear operator, Exelon is working in several states to oppose policies that support renewable energy and energy efficiency. If Exelon is allowed to operate Ginna after the proposed contract expires, the company will have every incentive to work for the next 3.5 years to reduce its competition and manipulate market rules to be favorable toward nuclear power.

Shutting down Ginna will open a path for cleaner, cheaper alternatives. New York can and must meet its climate goals without dirty and dangerous nuclear power. Our analysis has found that Ginna’s entire output could be replaced by energy efficiency, wind, and solar for a lower cost than the subsidy being proposed. It’s time for a 21st Century energy system.