Friday, May 2, 2014

Exelon's Crane signals nuclear power sale with Pepco deal - or not

Exelon's Crane signals nuclear power sale with Pepco deal - Joe Cahill Business Blog - Crain's Chicago Business:
A hardened cold warrior thawed U.S. relations with China. A pain-feeling Democrat ended welfare as we knew it.
And a nuclear engineer just set the stage for Exelon Corp. to exit the nuclear power business.
CEO Christopher Crane's agreement this week to acquire Washington's Pepco Holdings Inc. for $6.8 billion would shift Exelon's center of gravity decisively toward regulated utility operations, and away from the fleet of nuclear power plants that has been the centerpiece of company strategy for the better part of two decades under Mr. Crane and predecessor John Rowe. If the Pepco acquisition proceeds as planned, Exelon would get well over half its profit from utility ratepayers in Illinois, Pennsylvania, Maryland and the District of Columbia. A far smaller share will come from nuclear operations that once generated as much as two-thirds of corporate earnings.
The deal speaks volumes about Mr. Crane's view of the nuclear business he oversaw...
The entire Joe Cahill article can be read at Crain's Chicago Business

I certainly saw the Pepco deal as a move to diversify - I think Cahill could have been clearer that Exelon was a champion of taxing carbon, and this move likely recognizes that's a dead issue. The continued efforts of Obama nation to extend the merchant generator killer Production Tax Credit (PTC), and renewable energy quota programs (RPS) in many states, will continue to depress market rates, even as the cheap gas factor eases (I agree with Boone Pickens that it's likely not to be nearly as cheap in 2014 as it was in 2012). However, the Exelon move also likely has to do with moving away from merchant generation business into regulated markets with government's setting rates of return.

Warren Buffett's company, which just this week re branded its MidAmerican Holdings Co. as Bershire Hathaway Energy,  has purchased AltaLink.  My understanding is Buffet prefers regulated energy markets - and he's probably betting the PTC (which he's taken full advantage of) and RPS will put a higher value of transmission (intermittent sources do).

In Ontario, I notices the Ontario Energy Board (OEB) is exploring "Rate Design for Electricity Distributors;"
The Board intends to pursue a fixed rate design solution to achieve revenue decoupling. The Board believes that a fixed rate design for recovery of electricity distribution best meets principles of rate making and responds to the current challenges and policy. 
Much better to be invested in regulated wires business than generation this year - in my opinion, that will need to change, and perhaps within a couple of years.

Katherine Tweed's article on this is very good:
...larger mergers are coming at a time of low natural gas prices and increased energy efficiency, which are two factors that have resulted in shrinking revenues for generation utilities. Exelon produces more than half its 34,700 megawatts of its capacity from nuclear power and was looking to add another regulated utility that gets more steady returns for its investments to its portfolio.
"This acquisition supports an integrated utility model with a balanced mix of regulated and non-regulated cash flows," said Exelon CEO Chris Crane during a briefing call.

Exelon and Pepco already have regional synergies in the Mid-Atlantic that should allow the companies to streamline some back office functions and share lessons learned across the two companies' urban utilities that have invested in technologies such as smart meters, distribution automation and advanced outage management systems.

“The combined Exelon and Pepco Holdings’ regulated arm will be able to combine expertise in meeting goals set by three of the most progressive public utility commissions in the country, integrating higher penetrations of centralized and distributed solar from Atlantic City Electric, and wide deployment of distribution automation at Commonwealth Edison,” said Ben Kellison, senior grid analyst with GTM Research.
Maybe they could buy Toronto Hydro too! 

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