Exelon CEO bullish on Pepco merger prospects

Exelon President and CEO Christopher Crane is glad to have reached a negotiated settlement with officials in Washington, D.C., concerning the proposed Pepco Holdings merger and, on an unrelated note, cautioned the financial community that troubled nuclear plants aren’t out of the woods yet.

Those were two highlights from Exelon’s 3Q15 earnings conference call with financial analysts on Oct. 30.

Washington, D.C. Mayor Muriel Bowser and representatives from Exelon and Pepco announced Oct. 6 that a negotiated settlement has been reached for the merger proposal.

Since then, the Public Service Commission of the District of Columbia has granted the companies’ request to reopen the record and consider the merger application case “in the existing docket,” Crane said.

Exelon has made a number of concessions designed to address concerns outlined by the PSC in an August order, which had concluded the merger was not in the best interest of ratepayers in Washington, D.C.

Crane said while more work needs to be done, the Exelon-Pepco merger should result in a “cleaner, greener D.C.”

In response to questions from financial analysts, Crane and his management team indicated they were not too worried about a legal challenge to Maryland state regulators’ earlier approval of the merger.

“We realize the deal has taken longer than originally expected,” Crane said.

In response to questions from a Wall Street analyst, Crane acknowledged that the protracted approval process has been especially hard on Pepco.

The other big topic on the call was Exelon’s recent decisions to hold off on any nuclear plant retirements this year.

Exelon said Oct. 29 that it will delay any decision about the fate of its 1,100 MW Clinton nuclear plant for one year and plans to bid the plant into the Midcontinent ISO (MISO) capacity auction for the 2016-2017 planning year.

Crane said Exelon was pleased with the willingness of MISO to look at the regional market where Clinton is located.

“Clinton is one of our newest units in the fleet,” Crane said. “It’s got 30 years of potential run left.”

The Clinton decision marked the second time recently that Exelon has delayed decisions on closing nuclear plants. Exelon said Sept. 10 that all of its nuclear plants in PJM Interconnection cleared in the transition capacity auction for the 2017-to-2018 planning year. With that development, Exelon deferred any decisions about the future operations of its Quad Cities and Byron nuclear plants in Illinois for one year.

Exelon deferred nuclear retirements although it has thus far failed to win passage of a clean energy standard in the Illinois Legislature that would include nuclear power. The company had previously indicated that legislation was important to the future of the nuclear plants.

Noting that natural gas prices have dropped even lower in recent months, one questioner during the call asked if Exelon might be accused of “crying wolf.”

“We opened the books” on the financial performance of the nuclear plants to a number of key policymakers and showed them “the red ink,” Crane said.

“We are not crying wolf,” Crane said. “We are actually getting results.”

Crane said: “This is not us backing down on a decision ” We said if we did not see progress we would have to shut the plants down.”

Exelon has now seen some progress and won’t have to shut the plants — yet, Crane said.

Capacity auctions like the ones being implemented by PJM hold generators responsible for reliability, and that helps the value of Exelon’s baseload nuclear plants, Crane said.

The U.S. Environmental Protection Agency (EPA) Clean Power Plan is another development that spotlights the carbon-free benefits of nuclear power, he added.

Exelon is still looking for Illinois “to level the playing field for nuclear” in that state, Crane said.

On another nuclear note, Exelon continues to work with parties in New York for a Reliability Support Services Agreement between the Ginna nuclear plant and Rochester Gas and Electric (RG&E) to keep Ginna operating beyond 2017.

RG&E is a unit of Iberdrola USA, which is a unit of Iberdrola S.A.

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Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 22 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants.

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