Exelon CEO Thinks Electricity is Cheap and Clean Enough Already – Sees No Need to Encourage New Supply
NASDAQ.com published a Dow Jones news wire story about a recent talk given by John Rowe, CEO of Exelon, to the American Enterprise Institute. The article headline is Exelon CEO: No New US Laws Needed To Shift To Cleaner Energy, and indicates a rather significant course change for a man who has been one of the most active CEOs in Washington politics for the past several years. Though he has worked diligently for nearly ten years to convince Congress to pass a cap and trade bill – while telling investors how the bill would add close to a billion dollars per year in revenue for his nearly emission free company – he now believes that the market is doing just fine. Here is a quote:
“Unlike most people who come to Washington, in my post-carbon-bandit outfit, I am not here to ask Congress for anything; in fact, I’m asking that Congress do nothing,” Rowe said during a speech Tuesday morning at the American Enterprise Institute in Washington, D.C.
“Electricity,” he said, “like horse racing, gambling and prostitution in Nevada is too much fun to leave to the market.” But Rowe said government mandates should broadly frame the markets and leave the actual outcomes (to) commerce. Natural gas has already “jumpstarted” the U.S.’s transition to cleaner energy and will continue to drive it.
I recognize that Mr. Rowe was just trying to be amusing, but I find it incredible that a man in charge of one of the largest electric power generating companies in the United States puts his vital product in the same category as vices that are not tools for any other productive enterprise in the country. Electricity is too important to leave to the market. People who are only motivated by short term gains make really lousy decisions about systems that require the ability to focus on both the here and now and the ability to maintain a vision for the future.
Despite the fact that Rowe is often touted as a leader in the nuclear industry and runs a company that is a prominent member of the Nuclear Energy Institute (NEI), the industry’s primary trade and lobby group, he came down in strong opposition to strengthening the loan guarantee program, one of its primary legislative goals.
Rowe said that Congress should not expand the nuclear loan-guarantee program and should maintain it at $18.5 billion.
I am positive that he will be quoted and re-quoted by the professional opposition to nuclear energy. They love it when someone who is supposedly an industry insider indicates his reluctance to build new facilities. His opposition to increasing the authorized size of the loan guarantee program might confuse some people, but it makes more sense if you understand how markets work. Rowe’s company is not in line for any loan guarantees to assist new plant construction because he has determined that there is already too much supply in the market.
The sufficient supply of electricity is driving down prices and hurting his company’s profits since its operating costs have already been driven down as low as reasonably achievable by cutting staff.
New natural-gas plants or plants converted from coal to gas are the cheapest option for producing cleaner megawatts of energy, Rowe said. Building new nuclear plants, or those involving carbon capture and sequestration “are not economic” because of low gas prices, excess generating capacity and low growth in demand, he said. Nor are wind and solar options economic, he said. All these options cost more than $100 a megwatt hour of energy versus $70 a megawatt hour for gas, Rowe said.
(Emphasis added.)

In fact, Rowe is so convinced that there is too much supply that he is doing just the opposite of building new plants. His company is actively destroying the 2100 MWe Zion Nuclear Power Plant, an emission free power source that could be restored at a price that is about 20% of the price of building a new plant with similar capacity.
Rowe and his team are so focused on limiting the supply of electricity to drive up prices and near term profit margins that they are ignoring their fiduciary responsibility to long term shareholders. They are actively destroying an asset based on old financial models without recognizing a substantial future opportunity. In coming years, energy production systems that can qualify as “clean” might be even more highly valued if they can meet the standards that are being proposed. Those standards cast a wider net and recognize the contributions of various forms of technology that can all substantially reduce emissions. Many observers believe that the broader classification is more politically acceptable and might even be able to be passed into law.
Even though they are currently helping to avoid the dumping of more than 650 million tons of CO2 into the atmosphere every year, existing US nuclear plants will not qualify for the standard because they would not reduce the US’s overall emission of CO2 – their clean production is already included in our total. However, “qualified nuclear energy” is a different story.
Under the title of Federal Clean Energy Standard that was proposed in the Clean Energy Standard Act of 2010, “qualified nuclear energy” is defined as “energy from a nuclear generating unit placed in service on or after the date of enactment of this section.”
Since Zion was shutdown in 1998 and its operating license was returned to the NRC, it is impossible to classify it as a nuclear plant that is in service today. A restored and relicensed Zion Nuclear Power Plant would would certainly “be placed into service” after the passage of the act and meet the definition of “qualified nuclear energy”. The Clean Energy Standard Act of 2010 was never passed, but who knows what the future will bring? There is no rush and no regulatory requirement that forces Exelon to destroy Zion now, especially when a little patience might bring some significant long-term rewards.
In my correspondence with representatives of the company, Exelon continues to maintain that the plant restoration is “not economical” and also implies that there is no precedent for getting it relicensed. On February 22, 2011, the NRC hosted a public meeting on the Zion Decommissioning Project to reassure the public that the process would be done safely. Nancy Thorner, the lady leading a one woman crusade to restore the plant, attended the meeting and took the opportunity to speak directly to NRC employees.
The employees she spoke to carefully pointed out that the decision to decommission the plant was Exelon’s, not the NRC’s. Their role in the pro
cess is to ensure that the decommissioning is done safely. In response to a question about the feasibility of obtaining a new license, if the plant was restored, the regulator acknowledged that the agency could allow a refurbished Zion to be relicensed, “with the condition that all safety measures would first be met”.
Even without my understanding of the proposed Clean Energy Standard, I have long favored a serious reevaluation of the proprietary economic model that has been used to justify the destruction of what could be a valuable, productive asset. The idea that a well-built nuclear energy facility should be taken apart after just 22 years of operation offends the conservation philosophy of “waste not, want not” that was instilled by my Depression Era parents.
Knowing that the primary reason it was shut down in the first place was to establish management dominance over a recalcitrant union offends the liberal, worker supportive philosophy that I developed during many years of working with sailors and manufacturing employees along with remembering the influence of my mother, aunts and uncles who were all public school teachers and members of the teacher’s union.
Knowing that Zion remains shutdown because the plant owner has determined that selling affordable, emission free electricity is only as valuable to society as “horse racing, gambling and prostitution in Nevada” and should just be a fun, money-making venture simply offends me.
Sounds like another short term view like the one that caused the housing “bubble” and collapse, unfortunatley we cannot afford the consequences if people listen to this self serving bean counter. Some of the decisions made by these people cost lives, while I fully endorse the 1st ammendment this is the second time in a short period that I dread the outcome of it’s use. My viewpoint is my own and in no way reflects the views of my employer.
‘I find it incredible that a man in charge of one of the largest electric power generating companies in the United States ….’
Why? Compared to the Bank CEOs he’s an angel.
There is an excess of generation only because there are a lot of gas turbines around. They are rather cheap to build. Problem is, of course, that they may not be so cheap to run. At this moment, they can provide power at a reasonable price. But as Rod Adams pointed out in his posting on March 6, the price of natural gas has doubled in a matter of months several times in the recent past. In one case, the price increased by a factor of 5 in the span of a year. When (not if!) a similar price spike occurs in the future, all that “excess generation” will effectively disappear due a shortage of natural gas that caused the price spike in the first place, or just the plain expense.
I find it hard to believe that decommissioning the Zion plant will cost less than simply keeping it in “safe storage” for refurbishment and restart at a later date. The plant must be more or less fully depreciated by now, so the expense of keeping it in storage should be reasonably low. When the price of natural gas rises, Zion will again look like a cheap way to produce power.
John Rowe can proclaim that “market forces” are forcing him tear down Zion. Then when natural gas prices spike, it will be “market forces” driving up the price of electricity. He can then loudly proclaim his innocence as his wallet swells due to “market forces”, which he had nothing to do with, of course.
All I can surmise is that Rowe is getting impatient with the low price of natural gas, and will do whatever it takes to bring it back up as much as possible and as quickly as possible. Given the market structure Exelon operates under, their profit basically goes up (and down) with the price of natural gas.
He supported cap and trade because not only would the cost of emissions credits add to the cost of gas somewhat (resulting in a higher market price for power) but it would force large scale switching from coal to gas, which would (greatly) increase the price of gas further. This results in them making massive margins (profits) on their nuclear generation.
He’s changed his tune because he believes (perhaps correctly) that cap and trade or CO2 taxes won’t happen for the forseeable future, and because the alternatives for supporting non-fossil energy that are now being proposed (as an alternative) will not help Exelon’s bottom line. Things that enable non-fossil alternatives, such as loan guarantees and Clean Energy Standards (that don’t include gas), actually reduce gas demand (if anything), resulting in lower gas prices, lower market prices for power in Exelon’s service territory, and thus lower profits.
Jim:
That is the same conclusion that I draw. Unlike some business reporters, I also find such conduct immoral and unpatriotic. It is also rather short-sighted because high electricity prices are often self defeating for the suppliers. Their models might show increased profits, often because they assume that demand is inelastic and will not fall if prices go up. That is not necessarily a bad assumption over a limited period of time; power customers have no real choice to find another supplier.
However, all power customers have the choice to reduce their consumption. Large and highly profitable customers that take bulk delivery have more options than most; they can simply relocate to a more favorable market. They might also have to involuntarily shut their doors and turn off the power if their power prices make them uncompetitive in a global market.
High power prices hurt the economy. Power suppliers are highly dependent on a vibrant economy for profitability. There is a reason why Exelon is trading at less than half of its share price of just 3 years ago.
Sometimes I wonder why Rowe still has a job. I recently quit as a shareholder – I got impatient with his lack of performance.
Utilities and energy traders can potentially make a great deal of money on the price volatility of natural gas. Buy your gas at the beginning of the year at $2/Mil. BTUs, and structure your generation for when natural gas is five times that cost at the end of the year (and nobody else has planned accordingly). Am I wrong about this? I’m sure Mr. Rowe doesn’t want anybody getting in the way of his Enron style gamesmanship and bets on natural gas. The same for government intervention and carbon legislation getting in the way of the profitability of his coal fired plants.
This graph stood out for me from the Exelon website and investor relations report (see image below). The only thing nuclear can do (once you pay off your power plants) is produce a great deal of reliable and low cost electricity. For Mr. Rowe (and Exelon shareholders), this most certainly must be a horrible and terrible thing 🙁
Were the bankers really villains though, or were they just the well-paid hired guns of millions of greedy homeowners who wanted the value of the houses to rise as much as possible?
On one of the web forums I commonly browse (no link – it’s members only I’m afraid) one anti-nuclear poster said that “the issue here I think is there’s a very real fear of an age without cheap always-on power which perhaps I don’t fully share. I guess I’ve never really brought into the consumer society and never expected it to last as long as it has. That’s why I didn’t buy a house that was in a place that needed a car to get me to work or the shops and that has chimneys for low tech heating not dependent on gas or electricity.”
He also claimed that large-scale nuclear expansion would be impossible without establishing a police state: “If the minority opposed is well enough organised and big enough – however that manifests itself – an attempt to push the plan through will inevitably lead to strife of one sort or another. That may be unfair, undemocratic or whatever but it’s real life. The question then becomes how much are you willing to spend to crush the opposition? By ‘spend’ I mean how much continued repression to wider society are you willing to tolerate – because it will mean more of that sort of thing. So in short, how much of our democratic process are you willing to kiss goodbye to in order to force this sort of thing through? My view is the damage would be too high, we would lose far too much for what is actually a high risk venture which may not pay off at all, or if it does it will only be for the short term leaving us with a huge bill in the future – and all to underwrite a wasteful profligate way of life we’d be better off without.”
Any thoughts? Is the real divide between pro- and anti-nukes (ordinary people, not people in positions of power) between people who believe access to large quantities of energy is necessary, versus those who believe it isn’t?
@George – in my experience, the VAST majority of homeowners are not interested in flipping their homes; they are interested in living in them. Moving is a royal pain in the butt.
On the other hand, real estate agents, builders, and loan originators have all kinds of reasons to encourage as much turnover as possible. They also have some strong supporters in local and national politics.
@George – whenever I hear people advance the argument that access to energy should be restricted, I believe I am hearing from a fringe element. I live and work in the real world. I have lived in subdivisions all of my life and commuted to work in several major metropolitan areas. Nearly every day I have been alive, I have been surrounded by people who enjoy living a comfortable life with easy mobility. They are not conspicuous consumers and not stereotypes, but good, honest people who enjoy the creature comforts that can come from hard work in a society with freedom and relative abundance of power.
Many of the people who advance the idea that energy should be limited also advance the idea that the best way to achieve their goal is for the price to rise considerably. In those cases, I suspect that they are actually advancing the platform of the energy suppliers – high prices lead to high profits.
It’s not just “flippers” — many homeowners had the faulty belief that rising prices enriched them, because they could withdraw equity from their mortgage…
For those following this, and if you have the patience for more
Forgot to comment on this. “Gee, thanks, John. When are you retiring again?”