CHICAGO -- Illinois' passage of a rate hike package to help keep open Exelon Generation Co. LLC's nuclear plants in the state is a credit positive for the company, Moody's Investors Service said.
While lawmakers remain deeply divided over a state budget, Gov. Bruce Rauner and lawmakers reached a bipartisan agreement during the recent veto session on the legislation that provides a 10-year subsidy for nuclear plants in the state through a mechanism called zero emission standards.
The subsidy will be paid by customers of the ComEd utility, an Exelon subsidiary, and is considered "especially critical for the survival of two Exelon-owned nuclear facilities" in Illinois.
Exelon, a for-profit utility, is rated Baa2 with a stable outlook. It has $480 of municipal debt outstanding.
Moody's said the subsidy also is credit negative for Dynegy Inc., which is rated B2 with a stable outlook, and NRG Energy Inc., which is rated Ba3 with a stable outlook, because they own plants that burn coal or natural gas in the same market but are at a competitive disadvantage without the subsidy.
The subsidy is considered "substantial" at $16.50 for each megawatt hour of power production, starting June 2017 for 10 years. Even though the subsidy price may escalate by $1 per megawatt hour per year starting in 2022, the total amount of subsidy payments is capped at $235 million a year, making the subsidy closer to $12 per megawatt hour. The subsidy price could also be lower if market prices rise.
Illinois' nuclear power subsidy is not the first of its kind. In August, New York was the first state to approve a nuclear plant subsidy called the zero emission credits. New York's and Illinois' nuclear subsidy programs can serve as templates for other states such as New Jersey, Pennsylvania and Ohio, where companies that own nuclear generation would benefit, Moody's said.
"However, there are potential obstacles because these subsidies face legal challenges from competing power companies without nuclear plants," Moody's said. "Additionally, the legislative and regulatory process in these other states can be long and difficult, especially when the risk of plant closure is not imminent."
Rauner signed Senate Bill 2814 – known as the Future Energy Jobs Bill – earlier this week, saying it ensures that the Clinton and Quad Cities plants will remain open for at least 10 years, preserves jobs, and promotes wind and solar expansion and preserves zero-emission generation.
Various studies had shown that allowing several nuclear plants to prematurely close would cause electric rates to increase by as much as 26% during stress events while grid reliability and capacity would significantly decrease. "Closing the plants would also cost Illinois approximately 7,800 jobs and $1.8 billion in economic activity," said House Republican minority leader Jim Durkin.