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.
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.