Exelon Chief Is Optimistic Despite Current Nuclear Market Turmoil

Exelon Corp., the nation’s largest nuclear generator, reinvented itself amid recent power pricing swings, market inequities, and policy worries that are challenging its “very existence,” a high-ranking executive told attendees at the ELECTRIC POWER Conference and Exhibition in Chicago this week.

Bryan Hanson, president and chief nuclear officer for Exelon Generation, who gave the annual event’s keynote speech on April 11, said that despite recent setbacks that have rattled the nuclear industry, the future of the sector was sound.

Bryan Hanson, president and chief nuclear officer for Exelon Generation, gave the keynote speech at the ELECTRIC POWER Conference and Exhibition in Chicago on April 11. Source: POWER

Bryan Hanson, president and chief nuclear officer for Exelon Generation, gave the keynote speech at the ELECTRIC POWER Conference and Exhibition in Chicago on April 11. Source: POWER

Facing stiff competition from cheap gas power and an influx of renewables, U.S. nuclear generators in competitive wholesale markets are forced to grapple with rising costs and falling wholesale power prices, along with more stringent regulatory mandates, and “a lack of federal and state energy policies that value our product,” said Hanson. “And then, there are the political and legal issues … but I’ll stop there.”

Thinking “Bigger”

Exelon has staked the core of its business on its nuclear fleet, generating 20.2 GW of nuclear power from 23 reactors at more than a dozen plants scattered across Illinois, Pennsylvania, New Jersey, New York, and Maryland. Operations have been mostly smooth. Last year, the company led the nuclear power industry with a capacity factor of 94.6%.

That achievement took “groundbreaking developments” in innovation and technology, and new approaches to operation and maintenance, such as monitoring and plant performance prediction.

Exelon’s profit-making strategy, too, has been transformed over the last 25 years, Hanson said. “[Twenty five] years ago, the way we dealt with financial challenges was pretty simple—make more power. If the shortfall was bigger, trim costs and make more power,” he said.

“But,” he added, “the days of ‘cutting’ or ‘performing’ our way out are long gone.”

The company has had to look beyond safe and reliable operation. In a bid to “adapt, grow, and innovate,” it has sought new ways to build “enduring value” for its fleet of nuclear stations, Hanson said.

“We had to find new ways to do the same work more effectively and efficiently,” he said. Along with cost optimization, those efforts involved participation in an industry-wide initiative—”Delivering the Nuclear Promise“—that helped it identify opportunities to streamline operations, improve efficiency and reduce costs to make its fleet “as competitive as possible.”

Industry collaboration, for example, helped the company cut costs and save time by streamlining a process to train and test thousands of supplemental refueling outage workers, who jump from project to project, across different companies. Exelon has identified “dozens” of similar opportunities that could help it save about $160 million, Hanson said.

Technology advancements in the field of artificial intelligence and predictive diagnostics, too, helped the company skim costs. Exelon is also pouring resources into research and development to enhance its broader strategy.

“We needed to think bigger,” Hanson said as he described Exelon’s decision to implement a list of innovative technologies. “We had to create a culture of innovation and encourage our people to imagine new ways of working and using groundbreaking, visionary technologies to revolutionize the ways we do business.”

Molding Public Policy

Yet, Exelon’s reinvention efforts would have fallen flat if measures it backed on the public policy front hadn’t succeeded, Hanson said.

“As early as 2014, we were looking at potentially having to shut down more than a third of our nuclear fleet simply because the plants were losing money. Two stations in Illinois (Clinton and Quad Cities) and two more in New York (Ginna and Nine Mile Point) were at risk,” he noted. These facilities with a combined capacity of 5.4 GW have an average 93% capacity factor, and beyond producing carbon-free power, they injected “billions of dollars” into local communities, he added.

Since 2013, low natural gas prices, market dynamics, technical issues, and policies that favor renewables have precipitated the closure or announced retirement of several nuclear reactors. More retirements are in the offing: Over 80 commercial reactors have garnered federal licenses to operate for 60 years—but 41 of these are more than 40 years old. For more on reactor closures, see "THE BIG PICTURE: Nuclear Retirements" in POWER's August 2016 issue. Source: POWER magazine

Since 2013, low natural gas prices, market dynamics, technical issues, and policies that favor renewables have precipitated the closure or announced retirement of several nuclear reactors. More retirements are in the offing: Over 80 commercial reactors have garnered federal licenses to operate for 60 years—but 41 of these are more than 40 years old. For more on reactor closures, see THE BIG PICTURE: Nuclear Retirements in POWER‘s August 2016 issue.  Source: POWER magazine

“The prospect of shutting the plants down—and putting thousands of our talented, hard-working employees out of work—broke my heart. Policy reforms were the only thing that could save them.”

Exelon embarked on a hard-fought campaign to underscore nuclear power’s value to local stakeholders, state policy makers, elected officials, and state legislators, and with the crucial backing of a broad coalition of more than 200 business, labor, environmental, and even religious groups, the company managed to help enact the Future Energy Jobs Act in Illinois in December 2016.

A similar measure had previously been adopted in New York to preserve the at-risk Nine Mile Point and Ginna reactors upstate. Policy to prop up uneconomic nuclear reactors are or will soon be under consideration in Ohio, New Jersey, Connecticut, and Pennsylvania. (See “SLIDESHOW: Nuclear “Bailout” Trend Gains Traction in More States” for recent developments.)

The trend is disconcerting and bitterly opposed by non-nuclear merchant generators, however. Dynegy, Eastern Generation, NRG Energy, and Calpine Corp. are challenging both measures in court, arguing that they interfere with the Federal Energy Regulatory Commission’s jurisdiction over wholesale electric rates, and unlawfully interferes with interstate commerce.

But for Hanson, the law was pivotal for Exelon and the larger nuclear industry. “We had to take action,” he said.

Hanson noted that New York Gov. Andrew Cuomo is a Democrat while Illinois Gov. Bruce Rauner is a Republican. Despite their political affiliations, “both leaders recognized the need for an “all-of-the-above” approach to reducing emissions, while preserving and growing jobs, keeping energy costs affordable and ensuring that our economy remains competitive,” he said.

The Fight Isn’t Over

Looking ahead, Hanson recognized that the “fight isn’t over,” because the litigation in both states remains unresolved. However, Exelon “is confident about the future,” he said.

One driving factor certain to underscore nuclear’s value is that “The transition to a lower-carbon economy is irreversible,” said Hanson. Market forces, technology advancements, and consumer preference shows an overarching shift towards “energy that is clean and affordable,” he said.

Nuclear power was a national obligation, Hanson argued. “We can and must build on this,” he said. “We must get our policies right so that we don’t undermine our energy security or unintentionally move our country further from achieving our environmental and economic goals.”

As no coordinated federal policy is in sight, that responsibility is shifted to the states, he said. “They can serve as incubators for innovative policies to address complex economic and energy challenges, as New York and Illinois have done.”

The sector continues to face several debilitating roadblocks. The recent Westinghouse bankruptcy, for example, has threatened the future of four AP1000 reactor new builds in Georgia and South Carolina and spot lit risks associated with nuclear construction. But Hanson optimistically suggested that the future may be invested in small modular reactors.

In the end, he called for a general coalition within the power sector to help find a “common ground” to advance their shared goals.

“Regardless of how we make power, we must all work together, to adapt, innovate and advocate, to build and demonstrate the value of our people, our plants and our product,” he said.

 

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)