Below is the Crain's Chicago Business, December 20, 2004 article, Who Profits When Nukes are Well-Run and my answer published in Crain's Chicago Business, January 3, 2005 "Letters to the Editor" section.
WHO PROFITS WHEN NUKES ARE WELL-RUN?
Under a ComEd power plan, it isn't consumers
December 20, 2004
By Steve Daniels
For decades, Commonwealth Edison Co.'s poorly operated nuclear power plants were an albatross around the region's neck, leading to some of the highest electricity rates in the country.
In the late 1990s, ComEd hired ex-Navy officer Oliver D. Kingsley Jr. to turn around the five Northern Illinois plants. Before he retired, Mr. Kingsley succeeded beyond all expectations, and the plants now generate some of the lowest-cost power in the country.
Shouldn't ComEd customers benefit from that? After all, they paid inflated power rates for two decades to cover the NUKES' capital costs. In recent years, business customers that left the utility for alternative power suppliers paid ComEd exit fees, $1.3 billion in extra charges to continue paying down its old nuclear plant investment. And now ComEd parent Exelon Corp. has obtained 20-year license extensions for two of its plants, Quad Cities and Dresden, that will allow them to keep running through until 2029 at the earliest.
But state regulators ARE leaning toward adopting a ComEd-proposed power-procurement system that in two years would ensure the company, and not customers, mainly PROFITS from the NUKES' abundant, cheap power.
A state-imposed freeze on power rates, in place since 1997, is scheduled to expire at the end of 2006. Regulators now want to set up an auction among competing power generators to set the price for power in 2007. (The cost of power accounts for about two-thirds of a customer's electricity bill; the cost of delivering power makes up the rest.)
Such an auction would result in big PROFITS for Exelon, which ran the NUKES this year at a cost of 1.2 cents per kilowatt-hour. Under the auction ComEd wants, average power prices customers would pay would be about five times that.
Similar recent auctions in New Jersey and Ohio resulted in prices 50% above the prevailing wholesale rate — which, in Illinois' case, would be between 5.1 and 6.6 cents per kilowatt-hour under a range of experts' pricing outlooks for the state in 2007.
At the low end of that scale, Exelon executives have said, average power rates would increase 8% from where they ARE today. At the high end, the rate hike would exceed 20% (Crain's, Nov. 22).
PRODUCTION COSTS PLUMMET
By contrast, if electricity rates were under traditional regulation, which allows utilities to recover their costs and earn a specified return, rates might fall slightly. That's because Exelon's cost of producing power from its nuclear plants has plummeted to 1.2 cents per kilowatt-hour this year from 2.7 cents in 1997.
With about half the Chicago area's power needs met by those nuclear plants, and their operating costs cut by more than half, that's at least 25% less in power-generation costs the company would recover if rates were still regulated. Under the deregulation law, rates today ARE 20% below those in 1997.
Still, "customers ARE not getting the 'price' benefit of the plants," says Eric Robertson, an attorney WHO represents businesses on electricity issues.
Exelon and ComEd executives say the NUKES never would have been turned around without the profit incentive created by deregulation. Under regulation, the plants for two decades produced half or less of their capacity, but now operate at 94% says ComEd Vice-president Anne Pramaggiore.
Robert McDonald, a top finance official at Exelon, says predictions that a return to regulation would cut rates rely on "too many speculative assumptions."
©2004 by Crain Communications Inc.
Crain's Chicago Business Letters to the Editor
January 03, 2005
. . . we all benefit
All of Chicago (as well as the rest of the planet) profits when Exelon's nuclear reactors are well-run. Let us not forget about Three Mile Island, which was not very well-run. Exelon's own Zion nuclear plant was shut down before it was too late.
Consulting Energy Economist
Posted: 7 January 2005
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