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Archive for September, 2013

President Obama’s nomination of Ron Binz, former head of Colorado’s public utilities commission, to head the Federal Energy Regulatory Commission may fall by the wayside. Even though recent statements by Binz on natural gas were moderate and even encouraging, his earlier positions against coal and other fossil fuels didn’t sit well with Democratic Sen. Joe Manchin of coal state West Virginia. Manchin has said he would vote “no” on Binz’s nomination. That, and the prospect of unified Republican opposition on the Senate Energy and Natural Resources Committee, is leading the White House to consider others for the FERC chairmanship.

Obama Considers Other Candidates for FERC Post – WSJ.com.

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The WSJ reports that Ron Binz, President Obama’s choice to head the Federal Energy Regulatory Commission, is running into friction from Democrats on the Senate Energy and Natural Resources Committee. Joe Manchin, Democrat from coal state West Virginia, just issued a rather caustic opposition statement, saying Mr. Binz’s appointment would, among other things, “threaten the reliability of the electrical grid.” Political Diary: Obama Nominee in Trouble – WSJ.com.

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Experts say the trend is gaining momentum, spurred by falling prices for solar panels and natural gas, as well as a fear that power outages caused by major storms will become more common.

Companies Unplug From the Electric Grid, Delivering a Jolt to Utilities – WSJ.com.

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Stanford University researchers report that it’s now possible to generate electricity from raw sewage. About the size of a D-cell, their prototype “microbial battery” is attached to two electrodes. The simple circuit is completed — and the battery powered — when those electrodes are dipped into a bottle of plant and animal waste dissolved in water.

via Scientists redefine “clean” energy by generating electricity from sewage – Salon.com.

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Exelon CEO Chris Crane has lately done a lot of preaching against the production tax credit, claiming that it’s an unfair subsidy that should be eliminated to make the world safe for nuclear generation. Like other suppliers in wholesale power markets, Exelon has been getting pounded by the right cross of low natural gas prices and the left hook of the lingering recession (which we’re told is over, employment numbers to the contrary notwithstanding). Crane will do all he can to take any perceived advantage away from competitors. When Pastor Crane gives us a reading from the Book of Exelon, the sin of subsidization is not only up there with Sloth and Gluttony, it’s a major flaw in the electricity market.  Exelon would like to see the PTC, like Lot’s wife, turned into a pillar of salt.

But what if Pastor Crane is guilty of the very sin against which he thunders? All nukes benefit from Price-Anderson, but this subsidy goes well beyond that one and most likely dwarfs the aggregate PTCs accrued by every renewable generation asset in Illinois since they were first authorized. Before we look at Exelon’s subsidies, though, let’s digress for a joke.

A man walks into a pizzeria and orders a large pie. When it comes out of the oven, the pizza chef asks him whether he’d like it cut into six slices or eight. “Better cut it into six slices,” the man says, “I don’t think I can eat eight.”

Admittedly, that’s a lousy joke, but as we’ll see its relevance lies in how well it explains Exelon’s subsidy.

Until 2000, Commonwealth Edison, the regulated utility subsidiary of Exelon Corp. (then known as Unicom), owned all of the nuclear generating stations in the Exelon corporate group. As we mentioned in an earlier post, the game during the early 2000’s was to strip generating assets out of the regulated utilities and put them into merchant power companies that would then earn higher returns in competitive electricity markets.

The stock of Exelon Corp. is publicly traded (EXC). ComEd’s debt is publicly traded, but its equity is not. Rather, Exelon owns all of ComEd’s stock. You can think of all of the ComEd stock in Exelon’s hands as the pizza pie in the little joke we told earlier.

To strip the nukes out of ComEd Exelon followed a two-step process. First, it had ComEd form a new subsidiary called Exelon Genco (short for generation company). ComEd then contributed all of the nuclear generating stations to Exelon Genco in exchange for all of that new subsidiary’s capital stock. In step 2, ComEd redeemed a portion of its outstanding stock from Exelon and paid the redemption price by transferring to Exelon all of the stock of Genco. Ill. C.C. Docket No. 00-0369, Notice of Transfer of Generating Assets, Appendix G.

These steps looked like this:

Nuke Divestiture Slide

When the dust settled, the Exelon corporate structure looked roughly like this:

Nuke Divestiture Slide_2

As a matter of basic accounting, a corporation’s stock has absolutely no value in its own hands. That’s why one of the standard, boilerplate provisions in commercial loan agreements prohibits a borrower from redeeming or repurchasing its own equity because all that does is take cash or other assets out of the corporation’s till, and nothing of value goes back in. The balancing entry for this removal of corporate assets through a share redemption is nothing more than a reserve for treasury shares on the lower right-hand side of the balance sheet. Here, ComEd even acknowledged that it received no cash for the transfer of more than 9,500MW of capacity, worth several billion dollars, to Exelon. Ill. C.C. Docket No. 00-0394, Notice of Transfer of Assets, pgs. 10-11.

The relevance of the pizzeria joke now becomes evident. Before the nuke transfer, Exelon owned 100% of ComEd, represented by x shares.   Call the number of ComEd shares redeemed Δx. After the transfer of the nukes, Exelon owned x-Δx shares of ComEd, but that still represented 100% of all of the issued and outstanding equity stock of ComEd.

Yep, cut that pie into six slices if you can’t eat eight.

Making the long arm short, Exelon Generation wound up getting billions of dollars worth of nuclear generating assets for free. ComEd even had to buy power from Exelon Generation under a PPA for several years after that. If a subsidy means getting something for nothing, Exelon is a recipient of what must be one of the largest subsidies on record. It hardly suits Crane to preach against the PTC as a subsidy.

Memo to Exelon: Let him who is without subsidy cast the first stone.

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It’s a short step from manipulation of the electricity market to obstruction of justice:

U.S. Probes Whether J.P. Morgan Employees Misled Regulators – WSJ.com.

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The shale gas boom continues to have effects on the market for nuclear generation:

WICS NewsChannel 20 :: News – Top Stories – Study Shows Uncertain Future for Clinton Power Plant.

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