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Uncertain future

Rochester Business Journal
March 20, 2015

As an agreement that would keep the R.E. Ginna Nuclear Power Plant LLC operating for three more years awaits approval, many worry what will happen if the plan is denied. The plant’s owners have warned of a possible shutdown without such a pact.

Constellation Nuclear Energy Group, a subsidiary of the nuclear energy giant, Exelon Generation Co. LLC., owns Ginna.

On-site leaders of Ginna have reported multimillion-dollar losses in the face of plant closings across the country as nuclear power producers struggle to compete in a market with declining natural gas prices.

Ginna is 20 miles east of Rochester, on the shore of Lake Ontario in the town of Ontario.

As one of Wayne County’s largest private-sector employers and a major contributor to the tax base, there is a lot hinging on the fate of Ginna.

Exelon and Rochester Gas and Electric Corp. are waiting for approval of a reliability support services agreement that both parties were ordered to negotiate by the state Public Service Commission following its study that showed the region needed Ginna’s power to sustain grid reliability.

The three-year agreement would allow Ginna to continue operating through September 2018—with the caveat that RG&E could withdraw if its transmission upgrade plan is approved by the PSC before then.

The plan is called the Ginna Replacement Alternative Transmission. RG&E officials have said they would upgrade transformers at sites in Perinton and Henrietta to increase power capacity delivered from Niagara Falls. The plan is a means for RG&E to sever ties to Ginna, a source that, officials have said, has supplied more than half of all the power in Rochester.

“RG&E’s goal is to get that project approved and online as soon as possible,” said Daniel Hucko, manager of corporate communications at Iberdrola USA Management Corp. “It is in the best interest of our rate payers.”

A 10-year agreement providing electricity from Ginna to RG&E expired June 30. Without a new one, revenues from the sale of energy will not cover the plant’s operating expenses, including necessary capital investments, states a petition submitted in July to the PSC to request negotiations.

Ginna provided 63 percent of RG&E’s average system load in 2013, RG&E officials have said.

If approved, the reliability support services agreement will bring rate increases for RG&E customers. The exact amount could be difficult to predict, analysts have said, because it is dependent on the market and energy costs have been fluctuating.

“We project the average RG&E residential customer bill impact over 42 months would be an increase of 4.2 percent, which translates into $163 over 42 months,” Hucko said.

Opposition to pact
Some energy consumer groups have called on the PSC and the Federal Energy Regulatory Commission—the two groups that must approve the agreement—to deny it. The groups claim it burdens RG&E customers with the cost of keeping Ginna operating. These critics claim deals such as reliability support services agreements are unfair and nuclear power plants should live or die on the open market.

“It’s frustrating to me when I read that Ginna wants a bailout,” said Joseph Pacher, site vice president at Ginna for Exelon. “All we’re doing is trying to negotiate a fair price to keep operating. We can’t continue to operate in this current market condition. We’re losing significant money.”

Exelon has reported losses at Ginna totaling some $100 million from 2011 to 2013.

“We saw the market going down,” Pacher said. “We reduced our costs at the plant as much as we could. We cut staff mainly through attrition to reduce site staffing.”

Staffing at Ginna stands at roughly 700, tying it with the Newark-Wayne Hospital as the top private-sector employer in Wayne County, said James Hoffman, chairman of the Wayne County Board of Supervisors. He estimates that 50 percent of the Ginna workers are from Wayne County and the other half are from Monroe County.

It is also one of the top providers in tax revenues, contributing more than $2 million annually to the Wayne County budget, Hoffman said, adding that the loss of Ginna would be a hardship for the community in many ways.

“We’re concerned. We hope it doesn’t happen. Ginna has been a good neighbor, and it’s great for Wayne County,” Hoffman said.

While county leaders are taking the position that they support the power plant, Hoffman said, they are not engaged with the owners of Ginna in any plans to keep the facility open. That is a decision for Exelon to make, he said

Struggling industry
As Pacher pointed out, Ginna is not the only nuclear site that has struggled. Two other sites that faced similar challenges have closed within the last two years: the Kewaunee power plant in Carlton, Wisc., closed in May 2013 and the Vermont Yankee nuclear plant shut down in December 2014. Both cited changing energy markets and the decline of natural gas prices as a major cause.

Some experts say when it comes to the survival of nuclear power plants in this country, the contenders are not on an even playing field.

“Here’s the critical thing—half of the markets in this country are regulated and the other half are deregulated—they’re driven by pricing,” said Thomas Kauffman, senior media relations manager at Nuclear Energy Institute, a Washington, D.C.-based nuclear industry lobbying group.

All of the plants currently at risk of closing, including Ginna, are in deregulated markets, Kauffman added.

“One market is price-driven, and the other is controlled by the states. Something needs to change to allow that plant to keep operating—to allow that plant to compete.”

Kewaunee and Vermont Yankee both could have operated for another 20 years, Hoffman believes. Both were top performers, free of major operational or regulatory issues, according to the Nuclear Regulatory Commission.

Pacher is proud to talk of the excellent track record at Ginna.

“We have two NRC engineers watching us around the clock,” Pacher said. “They accept zero errors.”

The performance of the facility may have little to do with the decision on whether it remains in operation, as industry experts and Ginna representatives have pointed out. It is more a matter of economics.

“We operate at 95 percent capacity, which is significantly higher than other plants,” Pacher said. “The price is down in electric markets and the boon in natural gas makes it challenging for nuclear markets especially.”

The forecast for nuclear energy shows a downward trend for the United States and an even sharper decline in the Northeast, some industry experts say.

“The short-term energy outlook shows nuclear energy use will decline 2.5 percent in 2015,” said Tyler Hodge, an economist with the U.S. Energy Information Administration, a part of the Department of Energy that analyzes energy information as it relates to the economy and the environment. “Our forecast for the Northeast shows a decline in demand of 5.6 percent.”

The closing of the Vermont Yankee plant in December had some in that region concerned about its impact on the overall power supply. That is the main reason the PSC has cited for ordering RG&E and the owners of Ginna to negotiate a deal to keep the Wayne County plant running.

“Vermont Yankee has been closed for a few months now, and we see no direct impact on the wholesale market in that region,” Hodge said. “The grid has been able to handle it so far.”

But there could be an impact, he added, if the summer brings extremely hot weather. That is when there is peak demand and energy resources are most strained.

There are other options for Ginna, even if the PSC and FERC decide against the agreement Exelon and RG&E have proposed. It could sell into the wholesale market.

“If market conditions change, we would bid into the market,” Pacher said. “We want to continue operating. We would be looking at market conditions, and we would have to make that decision.”

In the meantime, the PSC has issued an order to suspend the original April 1 effective date of the reliability support services agreement proposal. Pending a decision on the proposed changes, the new effective date is deferred through July 29, 2015.

Licensed in 1969 and in operation since 1970, Ginna generates 585 megawatts of electricity annually, enough to power 500,000 homes. It is the third-oldest pressurized water reactor in the country. Its license, which was extended for 25 years in May 2004, is slated to expire in September 2029.

RG&E sold Ginna to Constellation Energy Group Inc. in 2004 as part of a mandated divestiture of generating stations. Exelon Corp. merged with Constellation in 2012, acquiring Ginna.

3/27/15 (c) 2015 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.


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