Archive for June, 2014

Exelon CEO Chris Crane

Exelon CEO Chris Crane

Make no mistake: Despite CEO Chris Crane’s denial that Exelon is angling for a state bailout for his money-losing nuclear generating stations, shifting the costs and risks of Exelon’s struggling nuclear power business to ratepayers (and/or taxpayers) is precisely what Crane intends.

For proof one need not look further than Illinois General Assembly resolution HR1146, which bewails the failure of competitive wholesale markets to recognize the true value of Exelon’s carbon-free nuclear generation, and ordering the Illinois Commerce Commission, the Illinois Power Agency, DCEO and other state agencies to prepare reports for the upcoming legislative session on how to protect Exelon from the perils of the electricity market. [Memo to Mr. Crane: Look up the term “externalities.” It’s a popular one among economists.] Were he not seeking a state bailout, there would be no reason for Crane to take his complaints about wholesale electricity markets, over which the State of Illinois has no jurisdiction (16 U.S.C. 824), to Mike Madigan. The only conceivable reason Exelon would take its woes to Springfield and have the Illinois General Assembly pass HR1146 is to seek protection from the wholesale electricity market at the expense of Illinois ratepayers and/or taxpayers.

If Crane had legitimate complaints about “flawed wholesale markets,” he’d be devoting 100% of his efforts to getting FERC and PJM to cure the market flaws he keeps crying about. But Crane can fool Springfield into believing his “market flaws” kinderfibel, while at PJM and FERC he’d be laughed out of the conference room.

Of course, Exelon, under then-CEO John Rowe, blazed the trail by which formerly lumbering utilities like Commonwealth Edison spun their generation assets off into competitive market affiliates like Exelon Generation.  Rowe’s strategy between the late 1990’s and early 2000’s was to create a competitive retail electricity market, strip the power plants out of vertically-integrated ComEd (leaving it just a wires and delivery company), and put those generating assets to work in a for-profit entity that would then sell power in an open wholesale market. The conventional wisdom back then was that the price of natural gas would go up, raising electricity market prices because natural gas generally sets the electricity price at the margin. In Rowe’s brave new power world, Exelon stood to make more money from a nuclear fleet in a competitive wholesale electricity market than it would as an old-fashioned, regulated-rate-of-return public utility whose prospects for growth lay somewhere between slim and nil. And Exelon bent the world to its will.

The strategy was working fine prior to 2008-09. Exelon was selling its power in the same markets with the same structure as in place now, and Exelon was making money. When Exelon was making money, though, we never heard it complaining that the markets were flawed. Then-CEO John Rowe bestrode the electricity markets like a capitalist colossus, and Wall Street approved.

Then came the Great Recession and the advent of abundant domestic natural gas from fracking in the Marcellus shale. Rowe had placed big bets on nuclear stations in competitive power markets, but Crane assumed Rowe’s place at the electricity gaming table just as the croupier was raking away all of Exelon’s chips. Exelon had to cut its dividend by about 60% last year as Exelon’s shareholders watched the value of their holdings fall by two thirds.

All was not well in ComEdistan.

Crane and similarly situated power company CEOs wasted no time in implementing that time-honored strategy that has ever been a favorite of both Corporate America and Wall Street: Deflect blame onto others. But the success of this strategy chiefly depends on two factors, one of which is basic credibility: the blame shifting has to make sense. The second is that the attractiveness of the blame-shiftee is inversely proportional to the shiftee’s political clout, including the throw-weight of its lobbyists.

Judging matters by these criteria, Crane’s first choice of blame-shiftee, the production tax credit (PTC) for windpower, a 2.3 cents/kilowatt-hour credit, was inauspicious. Crane and his nuclear power peers lectured many a power conference audience on the evils of the PTC as a market-distorting wind energy subsidy, how it was wreaking havoc on nuclear baseload generation, and that it would cause the lights to go out.

This strategy was a loser for Crane because, except for Big Oil, no segment of the energy industry has received (and continues to receive) more lavish subsidies than nuclear power. First are the $58,000,000,000 in federal government loan guarantees that underwrote the construction of nuclear plants. If a nuke operator like Exelon can’t sell power profitably and defaults on its loans, Harry and Louise Taxpayer will get the bill. Then there’s that grand-daddy of subsidies, the federal Price-Anderson Act, which shifts security and accident risks away from the Exelons of the nation and onto the backs of – you guessed it! – Harry and Louise Taxpayer. There are other indirect subsidies, such as tax breaks on uranium mining, but we need not wander too far into the subsidy tall grass to make the point. The Union of Concerned Scientists determined that the value of all subsidies to nuclear power amounts to more than 7 cents/kilowatt-hour. That’s more than three times the amount of the PTC about which Crane and his nuclear CEO colleagues so loudly complain. In fact, it’s more than the average wholesale price for power between 1960 and 2008. As far as the basic credibility criterion is concerned, the PTC subsidy angle was not a good one because the subsidies the government extends to Crane’s nukes are more valuable than the power his nukes produce.

As Ricky Ricardo might have said, “‘splain to me again” who’s distorting the market?

And while the renewables industry doesn’t have anywhere near the campaign contribution treasure chest that Exelon has, it still has its own lobbyists, and they’ve leveled their own fire back at Crane.

The simple truth is that Exelon is trying to portray itself a public utility, and HR1146 is a crony capitalism measure fairly dripping with job-keeping tropes. (Because the measure was led by Madigan, though, the term “job creator” could not be used without imparting an undesirable Republican tinge to the measure.)

Exelon is a for-profit corporation whose earnings, after the payment of princely salaries to its executives (e.g., $17MM to Crane for 2013, even though the share price tanked), either go out as dividends to shareholders or get plowed back into the business to (hopefully) enhance the stock price and earn even more money for shareholders in the future. Exelon certainly didn’t share its bounty with either ratepayers or taxpayers when times were good in the wholesale markets. Now times are bad, and Crane has been paving the way for corporate welfare for Exelon so that it won’t have to close two or three of its unprofitable nuclear generating stations. Crane’s strategy is thus no different than that of the Wall Street Banksters, so gloriously on display during the financial crisis: Privatize gains, socialize losses. When Exelon makes money, Exelon gets to keep it. If Exelon loses money, all ratepayers and taxpayers must chip in to save Chris Crane’s job.

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NYT: The Obama administration on Monday announced one of the strongest actions ever taken by the United States government to fight climate change, a proposed Environmental Protection Agency regulation to cut carbon pollution from the nation’s power plants 30 percent from 2005 levels by 2030.

Unveiling New Carbon Plan, E.P.A. Focuses on Flexibility – NYTimes.com.

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