Utilities

Exelon's Von Hoene talks legal challenges to N.Y. nuclear subsidy, power plan's legal future

How is the legal uncertainty surrounding U.S. EPA's Clean Power Plan affecting utilities' investment strategies? During today's OnPoint, William Von Hoene, senior executive vice president and chief strategy officer at Exelon Corp., discusses his company's business strategy moving forward as it adapts to a modernizing grid, a changing federal and state policy landscape, and new consumer demands.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Bill Von Hoene, senior executive vice president and chief strategy officer at Exelon. Bill, thanks for coming back on the show.

William Von Hoene: Thank you very much for having me.

Monica Trauzzi: Bill, it is a very dynamic time to be in the utility business, and most recently New York, as part of its clean energy standard, approved a nuclear subsidy, and your company owns two plants in New York and looking to purchase a third. How committed do you believe New York is to nuclear, and how confident are you that that deal with Entergy will go through and you'll be able to get the full subsidies?

William Von Hoene: We're — we believe New York is extremely committed to the program. It was led by Governor Cuomo, and he put a lot of personal capital into it. He had the unanimous approval and support of a wide variety of constituents and stakeholders, industry, utilities, the Public Service Commission, so it was really a terrific program to save these plants that are really indispensable to the carbon objectives of the state. We believe that the plan will withstand legal scrutiny fairly easily. It's essentially the equivalent of a renewable energy standard, which of course have been with us for a large number of years across a variety of jurisdictions, and it withstood all challenges, and we expect to be able to close the deal to purchase Fitzpatrick this spring.

Monica Trauzzi: And there is that stipulation written into the standard about the purchase of Fitzpatrick, and in order to see the benefit of the subsidy, that deal needs to go through.

William Von Hoene: It does. What essentially happens is, in the event that the Fitzpatrick deal does not go through, the 12-year duration of the plan becomes a much shorter duration for the other plan. So there is a condition there for the full benefit of the 12 years that Fitzpatrick be acquired by Exelon.

Monica Trauzzi: So you are really trying to make that happen.

William Von Hoene: Yes, we are. Yes, we are.

Monica Trauzzi: And so let's go back to the legal challenges. There are already conversations happening about challenges. Why do you think this is so strong, beyond the fact that it looks like a renewable portfolio standard, there have been other challenges around the country when it comes to subsidies. Why is this different?

William Von Hoene: Well, one of the things, Monica, is that we were aware and New York state was aware of all those challenges and what the shortcomings were in the various programs that have been struck down. So this program was designed with those challenges in mind, and some of the features of the program, without getting too detailed, are ones that were designed to address the legal challenges that we anticipated that would happen. But to go back to the primary point, the point is this is indistinguishable from a renewable portfolio standard. It is exactly the same thing as we would have for wind or solar in a large variety of generations. It just happens to apply to nuclear. Given the fact that those programs have withstood challenges, and a wide variety of challenges, we feel very confident this will be in the same position in the courts.

Monica Trauzzi: We have seen so many nuclear facilities shut down over the past year and many utilities shifting away from future investments in nuclear. Why does your company continue to stay committed to it?

William Von Hoene: We're committed because we think it is essential to the energy future of the country. And if you look at the carbon goals that we have nationally and locally, they can't possibly be achieved if these plants are retired. In virtually every jurisdiction where there has been a shutdown already, there's been a significant increase in carbon generation, and we are committed to doing what we believe our customers want. They want clean, affordable energy. Nuclear is a resource that's indispensable to achieving that objective.

Monica Trauzzi: And what do you believe the future of nuclear looks like in the United States?

William Von Hoene: There are currently four plants that are under — four units that are under construction, two in South Carolina and two in Georgia. It's going to be hard to construct additional plants given the landscape that currently exists. On the other hand, as we transition to a clean future and we look at additional resources, it'll be very, very important to sustain the operation of the existing 100 or so plants in the country, and we think that New York is a good model to do that in places where the plants have some financial challenges.

Monica Trauzzi: It's a costly business, though. You think that down the line, decades down the line, it'll still make financial sense?

William Von Hoene: It'll make financial sense if the playing field is level for the existing plants. What is unlikely to make financial sense is the construction of additional new plants under the current pricing structure and under the current situation with regard to natural gas.

Monica Trauzzi: So as we see the grid modernizing and becoming more flexible, what does Exelon's investment strategy look like?

William Von Hoene: We are investing $25 billion in our utilities over the next five years to essentially modernize the grid. We are looking at what customer preferences are, and there are a variety of things that customers want and need that were not in existence or were not thought of by customers five years ago. Our strategy is to be innovative, our strategy is to be responsive to customers and to remain relevant, and that's going to require us, in the product offerings and in the way we deliver services, to do things differently in the future.

Monica Trauzzi: So we hear a lot that utilities are acting regardless of policy, like the Clean Power Plan. What impact does the Clean Power Plan itself have on the investments that you're making? Or does it?

William Von Hoene: Very little. Essentially, the most important thing to remember is that the Supreme Court has said that carbon is a pollutant. So while the Clean Power Plan was stayed, the implementation by the Supreme Court, there is an obligation that the EPA has under precedent to address the carbon pollution, and that will come in some form or another. But more importantly, from the investment strategy from our standpoint, is that people and entities want clean power, and the states are not waiting for the federal government to act. The New York situation with the clean energy standard is an excellent illustration of how states are responding, and we think in every jurisdiction that hasn't done so already, there's going to be movement to implement carbon reduction strategies that will be consistent with our investment strategy.

Monica Trauzzi: So what technologies are in the pipeline that will help improve grid reliability?

William Von Hoene: Well, there's a variety of things. Most notably is the smart grid technology that has been implemented in a number of jurisdictions. We now have installed 7.4 million smart meters with our 10 million customers in our utilities. It will allow some really terrific reliability enhancements and also some energy efficiency enhancement, but that's just the start. That will be the beginning place where technologies that either build off of that or that are independent of that will meet the customer demands for efficiency and reliability, and we're excited about that future and excited to be a part of it.

Monica Trauzzi: Wind and solar have overcome many, many initial challenges that they've faced. Now that these technologies are more affordable and more flexible in terms of implementation, how do you plan to expand the reach of both?

William Von Hoene: Well, we are the 14th largest wind generator and the seventh largest solar operator in the United States, so we believe in an all-of-the-above strategy. We think the right composition for energy generation includes nuclear, includes wind, includes solar, includes a variety of other pieces. They will expand. Solar is 40 percent less expensive than it was five years ago. The realization rates in connection with wind are up to as much as 60 percent in terms of capacity factors because of developments in technology. So these will continue to be strong pieces of the energy portfolio that the company, or that the country will entertain and will implement, and we will be in the same boat. We realize and appreciate the fact that we have to look at this in a variety of ways, just as you would an investment portfolio where you're talking about finances.

Monica Trauzzi: All right, we'll end it right there. Thanks for coming on the show. Nice to see you.

William Von Hoene: Nice to —

Monica Trauzzi: Welcome to Washington.

William Von Hoene: Thank you very much. Nice to be here, Monica. I appreciate it very much.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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