Exelon Corp. announced plans Wednesday to separate its financially challenged nuclear power plant fleet and other generation assets from its multistate regulated utilities business.
The plan, which will require approval from federal and state regulators, would separate Exelon’s six regulated electric and gas utilities, dubbed “RemainCo,” from its competitive power generation and retail energy business, dubbed “SpinCo.” The plan calls for Exelon shareholders to retain current stock and receive a pro-rata dividend of shares in the new company’s stock when the separation is completed in the first quarter of 2022.
CEO Chris Crane first revealed these plans in November, as the Chicago-based energy giant faced political backlash in its home state for its role in a bribery scandal that’s embroiled Illinois House Speaker Michael Madigan and top executives of ComEd, Exelon’s Chicago-area regulated utility, including its former CEO Anne Pramaggiore.
That scandal has scrambled Exelon’s efforts to seek out state aid for its financially struggling nuclear power plant fleet in Illinois. In August it announced plans to close its Byron and Dresden nuclear facilities this year, and it may seek early retirement of its Braidwood and LaSalle power plants if it can’t secure state support similar to the zero-emission credits it secured for its Clinton and Quad Cities plants through a 2016 state law, the Future Energy Jobs Act.
Exelon has lobbied for a state law, dubbed the Clean Energy Jobs Act (CEJA), to create a new market construct it says could protect its four financially challenged Illinois nuclear facilities, which supply about 70 percent of the state’s carbon-free energy, from the market conditions that have made them money-losers in the past few years.
But a new version of that bill reintroduced to the state legislature earlier this month lacks those provisions, and Illinois Gov. J.B. Pritzker has said he will not support Exelon’s proposal to create a new capacity market structure separate from that of mid-Atlantic grid operator PJM.
Exelon has also secured zero-emission credits for its nuclear plants in New York and New Jersey, two states seeking to eliminate carbon emissions from their electricity sectors by midcentury. The version of CEJA now before Illinois lawmakers would target 100 percent clean energy by 2030 — a target that will almost certainly rely on retaining the state’s nuclear generation capacity— and 100 percent renewable energy by 2050.
“We have had a cloud in Illinois,” Crane said during Exelon’s Wednesday quarterly earnings conference call. The results of the long-delayed capacity market auctions set to be held by PJM in June, as well as the final form of the CEJA and other energy legislation being crafted in Illinois, will “have a bearing on this strategy” of paying down debt and growing investment in clean energy, he said.
He also noted that Exelon’s generation fleet, which includes 18,700 megawatts of nuclear generation capacity and another 12,300 megawatts of natural gas, hydroelectric, solar and wind energy, has a 90 percent carbon-emissions-free profile and no coal-fired power, making it the country’s “leading clean energy company.” It will also include its energy retailing arm Constellation Energy, which has a strong share of commercial and industrial energy customers in the country’s competitive energy markets.
Actions from the Biden administration and a Democratic-controlled U.S. Congress on creating federal policies aimed at a 100 percent carbon-free electricity sector by 2035 could also play an important role in supporting Exelon's nuclear generation fleet, Crane said.
Exelon CFO Joseph Nigro said that retaining its nuclear power plant fleet, which generates about 12 percent of the country’s carbon-free generation capacity, will make it a “key partner for state and local governments” seeking “long-term solutions to the climate crisis.”
Crane also praised the 2020 performance of its six regulated utilities, Atlantic City Electric, BGE, ComEd, Delmarva Power, Peco and Pepco, which serve electricity and natural gas to about 10 million customers in Delaware, the District of Columbia, Illinois, Maryland, New Jersey and Pennsylvania. The combined utilities have plans to invest about $27 billion in capital expenditures through 2024.
But it’s unclear how the separation will affect the underlying challenges Exelon and other nuclear power plant operators are facing. One of its first challenges will be to pay down the roughly $7.4 billion in debt held by the RemainCo regulated utility business and raise roughly $1 billion in equity as it moves toward completing the separation of its two companies, to ensure that it can retain its investment-grade credit ratings.
Exelon also expects its first-quarter 2021 earnings will be affected by an impact between $560 million to $710 million from last week's winter cold snap and energy crisis in Texas. Exelon is expecting to offset these losses by $410 million to $490 million through “enhanced revenue opportunities, deferral of selected nonessential maintenance, and primarily one-time cost savings.”