Where Exelon is not getting its way
The recent bailout of two financially struggling nuclear power plants proved once again that Exelon wields tremendous clout in Springfield. Influencing national policy, however, is turning out to be a tougher challenge for the giant electric company.
A change of administration is changing the outlook for utilities like Exelon with big investments in nuclear power. President-elect Donald Trump seems intent on rolling back Obama administration policies that might have given nuclear generators a boost. President Barack Obama’s Clean Power Plan includes tighter emissions limits that could force coal-fired generators to spend more on compliance measures or shut down altogether. Either outcome could have put upward pressure on prices in the wholesale power markets where Exelon’s generation unit sells electricity.
As the country’s largest nuclear power plant operator, Exelon badly needs wholesale prices to rise. Falling prices over the past several years have compressed margins at its power plants, turning them into a drag on overall profits at the company. Persistently low natural gas costs are the main culprit, enabling rivals with gas-fired power plants to sell electricity for less.
With no reason to expect an increase in natural gas prices anytime soon, Obama’s tough line on climate change and environmental protection offered Exelon a ray of hope. Stricter environmental standards tend to benefit nuclear power plants, which run cleaner than fossil-fuel generators.
But hope is fading as Trump’s attitude toward the environment and EPA enforcement becomes clear. He has vowed to scrap the Clean Power Plan, and just named Oklahoma Attorney General Scott Pruitt, an Environmental Protection Agency adversary, to head the Cabinet-level body. All signs point toward a regulatory breather for fossil-fuel generators, and no relief from low wholesale electricity prices for Exelon. “The Trump administration most likely is not going to do the nuclear industry any favors,” says analyst Travis Miller of Morningstar in Chicago.
STEPPING ON THE GAS
Trump’s broader economic agenda, however, does offer some potential help for utilities of all stripes. He’s talked about jump-starting growth with a big infrastructure spending program. If that comes to pass, an accelerating economy might drive up demand for electricity. Rising demand would boost Exelon’s regulated utilities, which are paid based on the amount of electricity they deliver. Exelon’s regulated businesses, including Commonwealth Edison, now account for more than half the company’s profits.
Unfortunately for capital-intensive industries, rising economic growth also tends to lift interest rates. Borrowing costs already have begun to tick upward since Trump won the election and started talking up his economic stimulus plan. “Rising interest rates are not good in any way for utilities,” Miller notes.
For one thing, utilities are heavy borrowers, relying on debt to finance infrastructure upgrades. Exelon carries more than $34 billion in debt and paid $1.1 billion in interest during the first nine months of 2016……