Fitch Ratings Weighs In On New York's Zero Emissions Credit Plan

The proposal to include zero emission credits (ZEC) as a component of New York's draft clean energy standard has the potential to stave off the early retirement of three nuclear power plants in upstate New York, according to Fitch Ratings, one of the country's three premier credit rating companies.

Nine Mile Point NPPThe three plants affected by the ZEC proposal include, for now, the Fitzpatrick, Ginna and Nine Mile Point nuclear facilities. Exelon Corp. and its nonregulated generation subsidiary Exelon Generation Co., LLC would be the primary beneficiaries as Exelon owns Ginna and Nine Mile and is in negotiations to acquire the third plant from Entergy Corp.

A deal between Exelon and Entergy is dependent on the enactment of the clean energy plan and the two companies agreeing to terms, Fitch noted.

Fitch said in a statement that it does not believe the ZEC proposal in New York has any bearing on Exelon's decision to retire two nuclear power plants in Illinois. However, it does provide a framework that can be adopted in other jurisdictions where nuclear plants may be threatened.

Nuclear plants receive ZECs in cases of public necessity to encourage their continued operation, which will be determined on a plant by plant basis by the New York Public Service Commission (PSC). Among the considerations are the degrees to which energy, capacity and ancillary services revenue are inadequate for continued operation. At the inception of the program, the PSC staff is projecting that the qualified nuclear facilities are the Fitzpatrick, Ginna and Nine Mile plants. The staff specifically excluded the fourth nuclear power plant in New York, Indian Point, from initial consideration because of its location in a constrained area where wholesale electricity prices are higher. But it did allow for the possibility of including Indian Point at a future date.

Eligible plants are to be offered a multiyear contract administered by the New York State Energy Research and Development Authority (NYSERDA). The contracts will be administered in six two-year tranches. The price to be paid for ZECs will be administratively determined and not market based. The formulaic price will be based on the projected social cost of carbon as published by the US Interagency Working Group less social costs already captured through the Regional Greenhouse Gas Initiative and anticipated energy and capacity prices that exceed $39 MWH.

Based on current estimates, the ZEC price will begin at $17.48 for the first tranche for the period April 1, 2017 through March 31, 2019 and will escalate to $29.15 in the sixth tranche for the two-year period April 27, 2027 through March 31, 2029, although the uplift could be significantly lower based on market prices. The facilities will have an obligation to produce the ZECs and sell them to NYSERDA through March 31, 2029, except during periods when the calculated price is $0. There will be financial penalties for not meeting the obligation to produce.

As a direct result of the clean energy proposal, Exelon is negotiating with Entergy to purchase the 838-MW James A. Fitzpatrick plant. ETR announced in November 2015 that it planned to shut down and decommission the Fitzpatrick plant and will concentrate on its regulated operations; Entergy later set the closure date at January 2017. Based on estimated ZEC prices, Fitch calculates the maximum incremental annual revenue for Fitzpatrick will range from roughly $115 million-$120 million in tranche one to about $190 million-$200 million in tranche six. The uplift could be significantly lower depending on market prices.

Exelon weighed in on the ZEC proposal last week, stating that the lifeline for the state's upstate nuclear power plants would save thousands of high-paying jobs and spur hundreds of millions of dollars in short-term investments in energy infrastructure.

If approved, the proposal would keep Exelon's upstate nuclear plants running as the state transitions to a 50 percent zero-carbon energy mix standard, which has a target date of 2030.

Exelon executive vice president for Governmental and Regulatory Affairs and Public Policy Joseph Dominguez said that both Nine Mile Point and Ginna are in jeopardy of closing if the PSC proposal does not go through. “These units employ 1,400 full-time workers with an annual payroll of $226 million, pay over $47 million annually in local taxes and support thousands of indirect jobs across New York,” Dominguez said.

Nuclear Matters also reacted to the proposal with a statement in support of the program.

The need to implement the CES in a timely fashion is heightened by the announcement today of the potential sale of Entergy's FitzPatrick's nuclear power plant to Exelon. The CES is an essential policy to ensure the continued electricity production at that facility, in addition to the Nine Mile Point and Ginna nuclear plants,” the group said.

Nuclear Matters noted the Brattle Group report verified that the three plants contributed nearly 25,000 jobs and $3 billion to the state's gross domestic product.

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