John Rowe is the recently retired CEO of Exelon, an electric power generation and natural gas delivery company with the largest fleet of nuclear power plants in the United States. Exelon just completed a merger with Constellation Energy, bringing the total number of nuclear reactors in its fleet to 22 (17 from Exelon and 5 from Constellation).
On March 9, 2011 (just two days before the Great North East Japan earthquake and tsunami added the word “Fukushima” next to TMI and Chernobyl in the antinuclear lexicon), Rowe sat down to talk with Nick Schultz of the American Enterprise Institute (AEI). In his typically ponderous manner, Rowe clearly explains why he views 2008 as a golden time and why Exelon’s stock price is still less than half of its pre-economic crisis peak. He also shows why I believe that having leaders like him at the top of “the nuclear industry” is terrible for both nuclear energy professionals and for those who believe that atomic fission of uranium and thorium is humanities shining hope for a bright future that is not constrained by a lack of power.
Aside: I fall into both categories. That is why I have published this dual portrait in the past, and probably will do so again in the future. By nature and by upbringing I am far closer to George Bailey than to Mr. Potter. I like helping people and making lives better; Rowe likes profits that increase his personal wealth and the wealth of his buddies in the exclusive club of multi-millionaires. End Aside.
For people who understand business and economics, the AEI interview with John Rowe also provides evidence that Exelon has a clear motive to promote natural gas as THE fuel for new electricity generation capacity. Bean counters and model makers at Exelon know that the best way to increase natural gas prices is to build up demand faster than the supply can possibly expand. They should have had their first lesson on that topic during the first week of Econ 101.
There is a predictable result of increasing the demand for a commodity whose supply is constrained, the only questions will be:
- When will the inevitable price increase start happening?
- How high will prices get?
- How long will the high prices remain in effect before demand destruction and newly encouraged suppliers combine to reverse the situation?
This is a good time to remind people of the historic volatility in natural gas prices in the United States. The last time they behaved in the kind of gradual ascent predicted by Rowe and “the people who do this sort of thing for a living” was before 1978. Back then, interstate gas prices were federally regulated and forced to remain at predictable levels.
This natural gas price graph needs to be hung on the wall at any company that will suffer when natural gas prices start rising again. I can assure you that the companies that benefit from those spikes know the pattern this graph makes by heart. They can probably tell some pretty wild stories about the impressive revenue gains made during the time between the rise and fall.
Though Exelon is not a gas producer, it benefits from natural gas price increases almost as quickly as the most focused gas producers in the US. If you agree with me and believe that gas prices will rise quickly from their current level, Exelon may be a better way to play that bet than a direct investment in a natural gas exchange traded fund. It pays a nice dividend and reduces the risk of being wrong about the timing of the inevitable rise.
(Disclosure: I am not an investment advisor and not trying to encourage any particular investment. I am merely making an observation. Researching and writing this post, however, has encouraged me to place a limit order to purchase Exelon that might be executed on Monday.)
PS – I just watched the video one more time. Rowe makes two claims that just stick in my craw. He says he is a “nuclear guy” and later says he is a “hardware guy.”
Neither is true. He is an accountant, you know the kind of person who wears green eyeshades and who probably got picked on unmercifully as child because he wore glasses and was not very good at sports. Based on video, he is also far more interested in high calorie meals than in exercise.