Exelon officials told investors Friday the company’s Illinois nuclear plants are “up against a clock,” with the state legislature unable to meet to consider proposals for withdrawing from PJM’s capacity market.

Illinois officials have been discussing leaving the market over the minimum offer price rule (MOPR) since 2018. (See Illinois: End PJM Capacity Market?) The legislature is considering two bills that would create a fixed resource requirement (FRR) for the Commonwealth Edison territory in Northern Illinois, replacing the PJM capacity auction with an auction run by the Illinois Power Agency (IPA).

But company officials said during a first-quarter earnings call Friday that they don’t know if the legislature, which largely suspended operations in mid-March in response to the coronavirus pandemic, will return before the term ends May 31.

Kathleen Barrón, senior vice president of government and regulatory affairs and public policy, said that although the legislative session ends in May, lawmakers could return this summer with an agreement between the House speaker and Senate president. The governor also could call a special session, she said.

Barrón said she was pleased to see the state Department of Public Health issue guidance for how the legislature could return safely to the capital. “That is good progress, but it remains to be seen whether the leaders will decide to bring folks back to Springfield this session,” she said.

CEO Chris Crane said Exelon officials have been “stressing the importance” to lawmakers of addressing the threat posed to nuclear and renewable generation by FERC’s December order expanding the MOPR to new state-subsidized resources.

PJM has said it will hold the next Base Residual Auction about six and a half months after FERC rules on its MOPR compliance filings — meaning an early 2021 auction if a ruling comes by mid-2020.

“So, we’re up against a clock. And once those auctions are run, we’re highly confident that minimal or [none] of our clean megawatts will clear in that capacity auction,” Crane said. “They’ll be replaced by fossil units, which is detrimental to the state’s goal of being 100% clean by 2030.”

Proposals

Exelon in March 2019 endorsed the Clean Energy Progress Act (CEPA) (HB 2861), which would create a ComEd FRR. The bill cleared the House Public Utilities Committee at the end of that month by a voice vote but has seen no action since. The bill currently lists 16 co-sponsors.

“We certainly agree that the only cost-effective way to reach 100% clean energy is to take advantage of the FRR,” David Kolata, executive director of the Citizens Utility Board in Chicago, said in an interview Monday.

Meanwhile, the American Wind Energy Association and the Solar Energy Industries Association are among 70 business, nonprofit and organized labor groups backing the Path to 100 Act (HB 2966/SB 1781), which would increase Illinois’ renewable portfolio standard to 40% by 2030 and add new funding for renewable generation. It does not include an FRR.

Jeff Danielson, AWEA’s central states director, said the Path to 100 is intended to address the “funding cliff” for the RPS program, which has left the IPA without any more funding for utility-scale wind and solar. “The primary issue on energy policy we need to address is to meet the RPS funding goal,” Danielson said.

Kolata said that while the Exelon-backed bill is focused on the FRR and the Path to 100 on expanding the RPS, the CEJA is more comprehensive. It would increase natural gas efficiency standards and direct the IPA to cut peak electricity demand through energy storage, efficiency and special rate plans. It would seek to eliminate 1 million gasoline and diesel vehicles by increasing development of electric vehicle charging stations, EV ridesharing and public transportation electrification. CEJA also would add 40 million solar panels and 2,500 wind turbines in the state, quadrupling the amount of new renewable energy created by the 2016 Future Energy Jobs Act, which ordered utilities to get 25% of their power from renewable resources by 2025 and approved zero-emission credits (ZECs) for Exelon’s Quad Cities and Clinton nuclear plants.

In his State of the State address in January, Gov. J.B. Pritzker called for passage of legislation this term to reduce carbon pollution, promote renewable energy and accelerate electrification of transportation. “Urgent action is needed. But let me be clear, the old ways of negotiating energy legislation are over,” Pritzker said in what some saw as a reference to the FBI investigation into ties between the legislature and Exelon’s team of lobbyists. “I’m not going to sign an energy bill written by the utility companies.” (See Exelon Pledges Reforms amid Grand Jury Probe.)

Chicago radio station WBEZ quoted Pritzker as refusing to commit to any timetable on responding to Exelon’s concerns. “I’ve said we’re going to make sure that we work on an energy package for the state, and we don’t need the high-paid lobbyists to be guiding that for us,” Pritzker said Friday. “I look forward to the legislature getting together to address so many challenges that we have. But is it true there are higher priorities right now? Yes, there are, and that’s reviving our economy.”

Exelon’s ComEd also suffered a blow last month when the Illinois Commerce Commission disavowed its “NextGrid: Illinois’ Utility of the Future” study after agreeing to settle a lawsuit that alleged the former head of the ICC had given the utility veto rights over the study and its participants. (See ‘NextGrid’ Goes off the Rails.)

Nevertheless, Crane said Friday that the company has “significant support” for its efforts to create an FRR.

“We would hope that it would get done before the end of the session. That’s what we’ve stressed: to give the IPA time to be able to develop their own auction process that will allow us to break away on capacity needs for the state of Illinois from PJM. … It’s a very tight time frame. … This is a very important issue to address … along with the state budget and some other large issues. So, we know there’s a will to get to work. It’s just the way to get to work and how fast we can get this done.”

Exelon spokesman Paul Adams told RTO Insider on Monday that while the company prefers the CEPA, it also “directionally supports” the FRR envisioned in the CEJA.

Both bills promise 5% initial savings compared with what ratepayers currently pay for capacity, ZECs and renewable energy credits. Neither bill calls for an expansion of the state’s ZEC program to Exelon’s other nuclear plants in the state: Dresden, Byron and Braidwood.

In its first-quarter filing with the U.S. Securities and Exchange Commission, Exelon said its Dresden, Byron and Braidwood plants are “showing increased signs of economic distress, which could lead to an early retirement.” It said PJM’s last capacity auction in May 2018 “resulted in the largest volume of nuclear capacity ever not selected in the auction, including all of Dresden, and portions of Byron and Braidwood.”

Adams said those plants would be eligible for “clean capacity” payments under the FRR as envisioned in the CEPA. Quad Cities, which is located in the PJM portion of Illinois, would continue to receive ZEC payments but would be ineligible to receive a clean capacity payment under the FRR legislation to avoid double recovery, Adams said.

In addition to being aligned with the state’s carbon-free goals, CUB’s Kolata said the CEJA will save consumers in large part by reducing ComEd’s reserve margin to 16% under the FRR versus the nearly 30% under PJM’s Reliability Pricing Model (RPM).

Kolata said the IPA would first procure carbon-free capacity — which would receive compensation for their environmental attributes — and then procure fossil fuel resources for any residual needs. Kolata said he expects 16 GW of fossil capacity to compete for 5 GW of residual need in Northern Illinois.

Not everyone is convinced the FRR will be cheaper, however. In December, PJM’s Independent Market Monitor issued an analysis that concluded net load charges would increase 23.6% if ComEd procured all of its capacity obligations outside of RPM at the offer cap — $254.40/MW-day — rather than the $195.55/MW-day clearing price in the 2021/22 BRA.

In a second scenario, the Monitor calculated that ComEd’s load charges would decrease 5% if the price negotiated for its capacity were equal to the locational deliverability area’s clearing price. The report contended the first scenario was more plausible, “given Exelon’s assertions that the current total revenue from energy, ancillary and capacity markets is not adequate for its nuclear plants.”

Earnings

Exelon’s first-quarter earnings beat the Zacks Investment Research analyst consensus by 2 cents/share, but the company reduced its earning guidance for the full year because of decreased demand during the pandemic.

CFO Joseph Nigro said the company earned $582 million ($0.60/share) on a GAAP basis compared to $907 million ($0.93/share) in the first quarter of 2019. Nigro said non-GAAP operating earnings were flat from last year at 87 cents/share, slightly below the midpoint of the company’s guidance range.

Nigro said Exelon was “particularly pleased” with the results considering the warm winter weather throughout the region.

“Temperatures in the Mid-Atlantic were 5 to 7 degrees higher than average in January through March, costing us 14 cents/share between Exelon Generation and our non-decoupled utilities,” Nigro said.

COVID-19 Impacts

Besides the warm winter weather, Nigro said the effects of the pandemic’s stay-at-home orders had the most dramatic effect on energy demand. He said because of the pandemic, the unfavorable weather and lower allowed electric distribution returns on equity at ComEd because of a decrease in U.S. Treasury bill rates, Exelon was revising its 2020 full-year guidance range from $3 to $3.30/share to $2.80 to $3.10/share.

“While typically we would not change guidance so early in the year, we want to provide a complete picture of where we stand at this point in the year and include our best estimates of the COVID-19 impacts,” Nigro said.

Exelon officials expect commercial and industrial load to decrease by 9 to 15% and residential load to increase by 4 to 7%, depending on the region, during the second quarter. Nigro said the company recognizes the situation surrounding the pandemic changes rapidly, so they’ve taken a “cautious view of the world” when revising the numbers.

“The full impacts, including the duration and structural changes to the economy, continue to evolve,” Nigro said. “In developing our revised guidance range, we looked at the load and economic data we were seeing in April, talked to our customers about their expectations for the year and considered different economic outlooks.”

Acquisition Opportunities?

Guggenheim Securities analyst Shar Pourreza asked company officials whether the economic distress resulting from the pandemic could present strategic opportunities for Exelon’s Constellation retail business.

Constellation CEO James McHugh said the company would kick the tires of any retail operations that became available.

“Our strategy before will stay the same, which is we would be looking to buy … books of business that we could easily fit into our platform,” he said. “We’ve developed, I think, a world-class platform over the years that we can integrate easily, and we’ve shown that before when we bought books of business.”