Fresh off its $7.9 billion acquisition of Constellation Energy, Exelon Corp. – now the nation’s largest competitive power producer, with total generation capacity of 34 gigawatts – reported weak quarterly earnings this week due to a historically mild winter, the plunging price of natural gas, and costs associated with the merger with Constellation. Also the largest U.S. nuclear power company, Exelon faces rough sailing ahead under new CEO Christopher Crane. Confronted with a natural gas glut with no end in sight, plateauing demand for electricity, and forthcoming stringent regulations on greenhouse gas (GHG) emissions, particularly from aging coal plants, U.S. utilities are going through a wave of consolidation and cost cutting as they attempt to weather the stormy transition to more sustainable forms of power generation. The Exelon-Constellation announcement was followed by Duke Energy’s purchase of Progress Energy for $13.7 billion in stock, in January.
Chicago-based Exelon is in a particularly interesting, not to say dicey, position because of the big bets that Crane’s predecessor, John Rowe, placed on nuclear power. A blunt-spoken “lawyer and amateur historian with a fascination for antiquities and a love of the podium,” as Crain’s Chicago Business described him, Rowe had become a familiar figure in Washington, D.C.’s corridors of power and a leading advocate for the heralded “nuclear renaissance.” He believed that the shift away from coal and other carbon-emitting forms of power would favor nuclear power, which supplies 20% of America’s electricity and remains cheap compared to other forms of clean energy, including renewables.
“The single most disruptive technology in my 28 years as a CEO was shale-gas fracking,” Mr. Rowe told an energy conference in March. The natural gas boom represents “a huge challenge for my successors at Exelon.”
That’s not exactly a rousing vote of confidence for Crane, who never finished college and who started out as an electrician at nuclear plants in the 1970s. Exelon’s share price has lost 18% of its value since its peak in November 2011, before the full extent of the domestic natural gas supply became evident. That now seems like another era. Few people foresaw the gas glut that’s now proving to be an economic boost for the United States and a huge challenge for big producers of power from coal (like American Electric Power) and nuclear, like Exelon.
Exelon is also locked in a political battle over a new 650-megawatt plant planned by Omaha-based operator Tenaska, Inc. on Exelon’s home turf of Illinois. Tenaska had originally planned a $3 billion next-generation “clean coal” plant for its Taylorville, Ill. site. Faced with strong opposition from state politicians and influential business figures including John Rowe, Tenaska this week said it would shift gears and build a natural gas plant instead, at a third of the cost. How Exelon will respond remains to be seen.
The waves rippling across the energy industry represent the biggest change in the utility business since deregulation, in the 1990s. How these new power behemoths navigate the tossing energy seas will play a major role in determining the structure of the U.S. energy industry for a generation.
Tags: Finance & Investing, Fossil Fuels, Mergers & Acquisitions, Nuclear Power, Power Generation, Utility Innovations
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