Exelon to Retire NJ Plant - Analyst Blog

Diversified energy utility company Exelon Corporation (EXC) said it will close operations at its Oyster Creek Generating Station in New Jersey in 2019, ten years prior than originally planned. The plant is federally licensed to operate until 2029.

Exelon's decision to shut the plant stemmed from various economic factors which resulted in diminished plant value. The contributing factors here include low market prices and demand, and increased capital expenditures. Another factor which prevents the plant from operating beyond 2019 is the potential rise in environmental compliance costs based on evolving water cooling regulatory requirements.

Furthermore, the early retirement of the plant exempts Exelon from the regulatory requirement of installing cooling towers at Oyster Creek. New Jersey officials had demanded to build one or more cooling towers to replace the current system of sucking water from the bay into the plant and discharging it. The state said that the process kills shrimps, fish, crabs and clams each year, and environmentalists have long wanted Oyster Creek to switch to cooling towers.

Considering all this, Exelon's management sees closing down the plant in 2019 as the best option for the company and its stakeholders.

Oyster Creek, the nation's oldest nuclear power plant, which went online in 1969, is located 60 miles east of Philadelphia and 75 miles south of New York City. The plant employs nearly 700 workers and provides enough round-the-clock electricity for 600,000 New Jersey homes. Oyster Creek produces about 6% of the state's electricity while producing no greenhouse gases and at a cost lower than alternatives.

When the plant closes, New Jersey will lose one of its largest clean, low-cost energy sources. Oyster Creek had saved $191 million in electricity costs compared to other available generation sources for New Jersey consumers in 2009.

However, the operation of the plant for almost another decade (ten years) would ensure a reliable supply of electricity for New Jersey until replacement power can be developed. It also addresses the company's long-term concerns about using ocean water for plant cooling and delays any immediate economic impact on Lacey Township.

Chicago-based Exelon Corporation is one of the nation's largest electric utilities with more than $17 billion in annual revenues. The company has one of the industry's largest portfolios of electricity generation capacity, with a nationwide reach and strong positions in the Midwest and Mid-Atlantic. Exelon distributes electricity to approximately 5.4 million customers in northern Illinois and southeastern Pennsylvania and natural gas to approximately 486,000 customers in the Philadelphia area.

Exelon currently has a short term Zacks #3 Rank (Hold), which translates into our long term Neutral recommendation. The company's closest peers Ameren Corporation (AEE) and Dynegy Inc. (DYN) also hold the same rank.

 
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