Exelon Constellation Marriage is Blissful Send Off for Chairman Rowe
The Exelon-Constellation merger is final. It is also the crowning jewel for Exelon’s outgoing chief executive, John Rowe, a warrior who has tried to ensure that the power industry becomes better and cleaner.
Rowe, who will speak at the EnergyBiz Leadership Forum next Wednesday, is perhaps best known for leading the clean energy crusade. To that end, he is seeking to get coal-fired utilities to make the same upgrades to their generation fleets as others in the same position -- a strategy that some call self-serving because Exelon is vested in nuclear and natural gas. Still, his strong stance is often cited by the environmental regulators who are working to clamp down on dirty power plants.
Rowe will turn over the combined Exelon to Christopher Crane and Mayo Shattuck. Crane will be the new chief executive while Shattuck will be the executive chairman. Together, the unified entity is valued at nearly $8 billion and will operate in 47 states. It will be comprised predominately of low-emissions fuels that include 19,000 megawatts of nuclear generation.
“Exelon is now uniquely positioned in the industry to advance customer choice and clean energy,” said Shattuck. “We also are unique in our presence across the energy value chain—from generation to power sales to transmission to delivery and development of an array of innovative energy products and services that help our customers succeed.”
The merger was blessed by state commissions in Illinois, Maryland, New York and Texas. It was also okayed by the Federal Energy Regulatory Commission, U.S. Department of Justice and the Nuclear Regulatory Commission. Before it would give its permission, Maryland’s regulators extracted some key concessions from the combined company -- all against the will of consumer groups that had argued the merger would lead to higher electricity rates.
Among the things that the new Exelon has to give up or provide: The sale of generation units that commissioners believe would lead to excessive market powers as well as rebates worth $100 to 1.1 million Maryland customers. It must also make millions in charitable contributions to organizations there for the next decade, something it would likely to anyway.
The company will also provide $114 million worth of energy efficiency and energy assistance measures for low-income residents. Meantime, Exelon must develop 300 new megawatts of renewable generation while also agreeing not to fire any Maryland utility workers for two years. Still, the agreement will wind up costing hundreds of employees at Baltimore Gas & Electric their jobs as the new company seeks to gain new synergies and eliminate duplicative positions.
Exelon’s portfolio strategy has been smart. The vast majority of it is comprised of fuels that produce less emissions than coal, such as nuclear and natural gas. It also has investments in wind, solar and hydro power. With the Environmental Protection Agency bearing down on aging coal plants, such a mix allows the company to better compete in areas of the country where utilities can freely buy wholesale power. Its heavy nuclear mix, meanwhile, has also been used to hedge against low natural gas prices.
Ironically, both Exelon and Constellation have made engagements before only to have them broken off by state regulators who feared that they were anti-consumer. As for Exelon, it tried in 2008 to marry NRG, which was not interested. But it was New Jersey’s rebuke in 2006 of its proposal to PSEG Corp. that stung it hardest.
Constellation has not had much luck either at the alter. Financial issues forced it in 2008 to seek a bid from Warren Buffett’s Berkshire Hathaway. But that deal was nullified in 2009 when Constellation got a better offer from Electricite de France, which had already owned 9.5 percent of the company. Meantime, Constellation and Florida Power & Light wanted to combine in 2006 but the state commissioners nixed the deal.
What’s different now? The economy. Recession since 2009 has eaten away at the demand for electricity, which has pushed down prices and chipped at bottom lines. That, in turn, has forced delays in infrastructure investment. Now, things are looking up. Merging may not only increase earnings potential but it would also position the united entities to make the necessary investments in wires and generation.
The new Exelon aspires to do just that -- and to give its outgoing chieftain Rowe the send off he deserves.
EnergyBiz Insider is the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.
Follow Ken on www.twitter.com/ken_silverstein
Industry thought leaders will be discussing this topic and more at the upcoming EnergyBiz Leadership Forum, Harnessing Disruption, taking place in Washington D.C., March 19-21, 2012. Review full conference details by visiting www.energybizforum.com