The largest nuclear power company in the country is ready to cash out. Exelon Corp. owns 23 operating reactors across five states, as well as five closed reactors. It is also the largest utility company in the nation, with over 10 million customers across 6 states and Washington, DC. But in February, Exelon announced that it wants to split itself into two completely separate companies.
What Exelon is proposing is much more than just another self-serving corporate business deal: it is a statement of no confidence in nuclear power by the most powerful company in the business.
Here’s what the company wants to do:
- Create an entirely new, completely separate company that does not exist yet, currently called “SpinCo.”
- Transfer all of Exelon’s nuclear power plants and “power marketing” businesses to SpinCo.
- The existing company (“Exelon”) keeps its conglomerate of very profitable electric and gas utilities.
In reality, around 90% of SpinCo will be made up of Exelon’s nuclear power reactors and the $14 billion in trust funds set aside to pay for decommissioning the reactors.
What is really going on here? And what does it mean for nuclear energy in the US?
In the bigger picture, the answer is simple. Exelon is saying it does not see a future in nuclear energy. It does not see a way to make enough money to justify the financial risks of continuing to own and operate an aging fleet of nuclear reactors, despite all of the market power and political power it has enjoyed by doing so.
Running electric utilities with guaranteed, state-mandated profits is where the money is. That’s why Exelon is keeping the utilities, and “SpinCo” gets all of the nuclear reactors that Exelon has spent the last seven years telling the world can’t make a profit without massive public subsidies.
For over two decades, Exelon has used its size, scale, and political capital to cut costs, maximize revenue, and win subsidies as much as it can. And if the largest and most powerful company in the industry can’t make it work, then it’s a sure bet no one else can.
That is also why Exelon decided to spin off its nuclear business: there is no company that would be willing to buy its reactors, or even just take them over. Exelon knows this first-hand because it has been on the receiving end of just such a deal: in 2016, when New York Governor Andrew Cuomo was pushing for a state bailout for four reactors.
Initial projections pegged the cost of a nuclear subsidy at anywhere from $277 million to $4.8 billion by 2030. But negotiations reached an impasse. Exelon owned three of the four reactors. The other reactor, FitzPatrick, was owned by Entergy, which wanted to close FitzPatrick because it was reportedly losing $60-$100 million/year. Gov. Cuomo had to get Exelon to take over a massively unprofitable nuke which had not performed well for years—a massive financial risk. In order to make it worth Exelon’s while, the cost of the bailout ballooned dramatically: a total of $7.6 billion in subsidies over 12 years, plus $1.5 billion in decommissioning funds from the state. Gov. Cuomo was able to stick New York consumers with the subsidy bill, but Exelon does not have that option now.
Exelon is not the first major company to decide to get out of the nuclear business: two others have already done so. But it is far and away the largest.
In 2018, Ohio-based FirstEnergy faced the bankruptcy of its merchant power subsidiary, FirstEnergy Solutions, which owned four reactors and a number of coal plants. As a result of the bankruptcy settlement, FirstEnergy spun off the nukes and coal plants into a new company it called EnergyHarbor. The spin-off went through, but not without a major legal scandal over a $61 million corruption scheme, through which FirstEnergy won a billion-dollar bailout for the nukes and coal plants. FirstEnergy executives and lobbyists and the former Speaker of the Ohio House of Representatives and his associates have all been indicted, and the legislature eventually repealed the nuclear bailout.
Also, in 2007, Entergy tried to spin off its five merchant reactors, just like Exelon is doing now. The proposed company was initially called SpinCo, as well. But in 2010 New York regulators rejected the idea as risky to consumers and taxpayers, and Entergy later decided to shut the reactors down. That included FitzPatrick, which Entergy planned to retire in January 2017, but the New York bailout deal resulted in Exelon taking it over and continuing to operate it. Entergy is scheduled to close the last of its merchant nukes in 2022, the Palisades reactor located in Michigan. It still owns five reactors in the South, but those are owned and operated by Entergy’s utility companies, through which state regulators still permit Entergy to charge its customers whatever it costs plus a tidy profit margin.
That makes Exelon the third major player in the nuclear industry to give up the ship. Whether nuclear power continues or not, Exelon just wants out. The risks and liabilities are too great, especially when it comes to decommissioning reactors and cleaning up the sites: in 2019, Exelon was reportedly $7.4 billion in the hole for decommissioning funding.
The spin-off decision has not stopped Exelon from continuing to push for state and federal bailouts for its reactors. In fact, as most likely was the case for FirstEnergy, its creditors and investors may require Exelon to secure more bailouts in order to go along with the spin-off. What’s good for Exelon is not necessarily good for its financiers and business partners. Exelon is pushing Illinois to subsidize six more of its reactors right now. But the political cost is rising, and the returns are declining, as consumers and policymakers have realized the enormous cost of propping up the failing nuclear industry: financial costs, in consumers’ bills; and climate justice, slowing the growth of solar, wind, and other renewable energy sources we need to protect the health of our air, water, and climate.
Illinois Gov. Pritzker is only offering pennies on the dollar compared to what Exelon would want: an average of $20 million per year for each reactor, for only 5 years. The bailouts Exelon got in 2016-2018 are 4-7 times larger, for 10-12 years. Exelon might be willing to cancel plans to close four of those reactors in the fall, if it is enough to get its creditors on board with the spin-off. In the bigger picture, though, it is getting harder and harder for Exelon to win more subsidies, and it may not be able to work that game for much longer.
Nevertheless, Exelon’s spin-off scheme poses enormous risks. SpinCo will be under even more pressure to cut costs on nuclear safety (maintenance, workers, security, etc.), raising the risks of meltdowns. And since SpinCo would not have any way to pay its bills after reactors shut down, states and local communities could find themselves at public health and financial risk if SpinCo runs out of money to decommission and clean up the reactor sites.
Exelon’s spin-off plan and its push for state and federal subsidies is not about clean energy, solving climate change, protecting workers’ jobs and local economies, nor even about “saving” nuclear energy. It is a desperate, self-interested move to get out of the nuclear business before it’s too late. Exelon should have to take responsibility for the mess it has created. A spin-off that only puts the public at risk is unjust, inequitable, and a disaster waiting to happen.
If Exelon sees no future in nuclear energy, why should anyone else? We need a plan to phase out nuclear power and fossil fuels, and transition as quickly and affordably as possible to renewable energy. Exelon’s SpinCo scheme is just a dangerous distraction.