Exelon CEO Chris Crane
As we said, despite Chris Crane’s claim that Exelon will not seek a bailout at the expense of Illinois taxpayers or ratepayers, that’s precisely what he’s doing. Perhaps he’s taking begging lessons from Richard Fuld, who may have a lot of time on his hands these days.
At the end of July 2014, Exelon told investors that it expects to be compensated for the environmental and economic benefits that its nuclear plants provide in Illinois. We can thus lay at Mr. Crane’s feet the fault of mendacity.
But Exelon’s scores even higher for hypocrisy. Here’s Exelon’s view of taxpayer and ratepayer subsidies from its website:
Competitive markets, not taxpayer or ratepayer subsidies, are the more efficient and least cost way to incent new generation when it is needed. Subsidized plants are paid for by consumers who will bear the risks of these plants rather than shareholders by paying more for these plants than they could have obtained from the market.
Exelon begging for subsidies is like the fervent anti-abortion protester who unexpectedly (and inconveniently) finds herself “in nature’s way” and decides to get an abortion. Like Exelon, she licenses freely to herself that which she would forbid to all others. Memo to Mr. Crane: It’s time to update your website with this self-exemption from the rules of The Market.
Exelon’s lobbyists have been busy in Springfield, and on May 29, 2014 the General Assembly adopted House Resolution 1146 to pave the way for Exelon’s state-sponsored subsidy. Exelon covered a lot of its complaints in HR1146, such as:
- the “premature shutdown risk” affecting at least three of its nuclear stations if it doesn’t get more money somehow;
- the “failure of competitive wholesale energy markets to recognize nuclear power’s reliability and clean energy attributes”; and
- the loss of jobs that would attend any “premature shutdown” of these nukes.
We’ll have more to say about these in future posts, but for now it’s enough to know that the compensation Crane’s seeking in Springfield can only come from one place: Illinois ratepayers and taxpayers.
The “flawed” competitive wholesale electricity market that Crane has been complaining about looked just grand to Exelon back in 2002-04. Of course, back then not only were power prices much higher than they are now, it didn’t look like they’d ever get much lower. Fracking in the Marcellus Shale had not started yet, and the energy cognoscenti were universally of the opinion that the U.S. would, sooner rather than later, be a net importer of natural gas. This was a sweet set-up for Exelon. Natural gas generally set the marginal price of electricity, and that price was seen as upwardly mobile. But Exelon’s cost of generation at its nuke plants was not only essentially fixed, it was also much, much lower than the price of natural gas-fired generation. All they had to do was sit back and wait.
Exelon’s present tune is very different from the song it was singing when it joined PJM, whose market structure it praised as the model for the entire electric utility industry. Back in 2002, Exelon said that PJM was the best option for both Exelon and its customers, that it gave ready access to its primary wholesale energy trading partners in the east, where the company’s strongest interconnections lay, and that joining PJM would give ComEd’s customers a mature marketplace more quickly with real choices than if it were to join Midwest Independent System Operator (MISO).
“The PJM Interconnection has a strong presence in key eastern markets, and market structures already in place for the region that are similar to what FERC is proposing in its current standard market design. The company also has a long track record of successfully operating energy markets and is the model for the industry. We will join the PJM organization as soon as is practical.”
Pursuant to a FERC order, ComEd, in concert with other utilities (viz., FirstEnergy Corp. (Ohio), Ameren Corp., AEP, CMS (Michigan), Dayton Power & Light, Dominion Virginia Power and Illinois Power) spent more than $70 million developing the wholesale market structures that it wanted. Rather than being “flawed,” Exelon and its utility partners called PJM a “robust electricity marketplace that is already up and running,” adding that “…PJM … has already established the infrastructure, policies and business practices for operating a market.”
ComEd’s first receipt of transmission service from PJM in 2003, another step in integrating ComEd into PJM, “delighted” Exelon. At that time, a PJM official said that “[W]ith this next step, ComEd and PJM continue to move forward toward bringing the benefits of a successful wholesale market to the consumers of Illinois, and no one at Exelon or ComEd piped up to contradict him and tell him how flawed their market really was.
The real explanation is much simpler than Crane would have the public and state agencies believe. If Exelon’s nukes are dying, it’s not because of the production tax credit (PTC), nor is it because wholesale electricity markets are “flawed.” Rather, it’s because the price of natural gas, instead of rising, has fallen, and demand for electricity (apart from some unavoidable spikes such as that caused by the Polar Vortex) has also gone down.
If events had moved in the opposite direction, if fracking didn’t work, if the Lehman Brothers collapse and the Great Recession had not occurred, if the housing bubble were still inflating, electricity prices would undoubtedly have gone up instead of down. In that case, instead of complaining about alleged market flaws and the PTC, in the face of complaints about high electricity prices Crane would be grinning like the Cheshire Cat and lecturing Speaker Madigan, the Illinois Commerce Commission and the public on The Wisdom of Market, and how the judgments of its Invisible Hand are righteous all together. And, after all, this is what the state signed on for when it introduced competitive retail electricity markets.
HR 1146’s claim that the PJM wholesale electricity market fails to “recognize nuclear power for its reliability” is a canard. Reliability is the subject of PJM’s capacity auction, which is the main reason PJM calls that auction its Reliability Pricing Model. Exelon wants to elicit sympathy because its nuclear capacity didn’t clear the market in the capacity auction a few months ago, giving the impression that all that capacity will now go unsold. But it will be sold, and at higher prices than what it would have received in the capacity auction. Exelon’s shares actually went up on the news that its nuclear units didn’t clear the auction.
At the most fundamental level there is no difference between the bailouts of Wall Street banks (including AIG, though it’s technically an insurer rather than a bank) and Exelon’s sought-after bailout for its nuclear plants. Those plants are held by Exelon Generation, a private, for profit corporation. If times were good, and if Crane and his lobbyists weren’t t running around Springfield with their tin cups, they would hardly be shipping excess cash out to taxpayers and ratepayers. But when losses occur, that’s when Crane and other Free Market Fundamentalists run to the government for a taxpayer or ratepayer bailout.
Once again, all of this private corporation’s gains will have been privatized, and, if Exelon gets its way, its losses will be socialized.
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