Exelon is considering pulling out of the Texas market.
On a day in which the Chicago-based energy giant disclosed long-anticipated plans to break itself up, the company found its positive news—at least to the ears of investors—overshadowed somewhat by the disaster in Texas last week when power plants failed and large swaths of the state froze in the dark for days.
Exelon estimated the hit to earnings from operational failures of three large natural gas-fired power plants in Texas to be between $560 million and $710 million after tax. The before-tax cost is up to $950 million.
“This loss is not acceptable to us,” CEO Chris Crane said today on the earnings call with analysts. “We are evaluating all options with respect to our (Texas) business.”
The three plants, which together generate more than 3,500 megawatts, failed to deliver for significant portions of three days last week. The failure of gas plants across Texas, which together accounted for about 30,000 megawatts, was a critical part of the multi-day outages. Exelon’s three plants make up more than 10 percent of the total that were offline.
The event alone is a major contributor to what’s shaping up as a disappointing earnings performance in 2021. Exelon’s adjusted operating earnings guidance for 2021 ranges from $2.60 per share to $3.00 per share. For last year, it posted $3.22.
Exelon expects the hit to earnings from Texas alone to be about 20 cents per share. And that’s only after it takes mitigation measures that the company hopes will trim $410 million to $490 million from the price tag for the failure.
Among those actions: “deferral of selected non-essential maintenance.” The company provided no detail on what that meant, but with a power-plant business with its largest presence in Illinois, Exelon effectively appears to be planning to put off projects at its Illinois nuclear plants to compensate for the failure in Texas.
"The implication that Exelon would cut corners at its nuclear facilities to offset costs incurred as a result of the Texas storms is absurd," a spokesman said in an email. "Exelon Generation does not cut corners where safety is concerned."
The spokesman didn't address whether maintenance otherwise planned at Illinois nukes was being delayed due to the heavy Texas losses.
For Crane, who joined Exelon’s predecessor as a nuclear-plant boss in the late 1990s and moved up the ranks within the generation division, the Texas fiasco struck at the heart of one of Exelon’s consistent selling points to investors and policymakers—its top-tier operational record. The company consistently puts out press releases when its nuclear plants function through extreme weather events in the North. In fact, it did so Feb. 22 in response to the cold and snow that struck Illinois as part of the same weather system that pounded Texas.
“We want to be a reliable provider,” Crane told analysts.
Crane referred on the earnings call to metallurgical, pressure and instrument issues as part of the problem at the plants in Texas, although he didn’t elaborate. The company also cited difficulties in procuring gas during a period in which many wells weren’t operating and there was heavy heating demand. Generators in Texas have come under heavy criticism since the outages for failing to properly winterize their facilities.
Crane said Exelon took some steps along those lines after an unusual freeze a few years ago, but they weren’t enough.
Unlike the multi-state grid that includes northern Illinois, Texas’ market doesn’t require consumers to pay power generators a “capacity” charge in return for a pledge to deliver during days of the year when demand is highest. Those charges, which are embedded in the overall cost households and businesses pay for electricity, help cover the cost of girding for extreme weather in other parts of the country, Crane said.
Texas has contemplated introducing such charges in the past, but it hasn't happened thanks in part to opposition from large industrial power users. Crane said the response of Texas to the disaster in terms of overhauling its market system would determine what direction Exelon takes in the state.
“We want to participate in a market that's designed to not only protect the consumers … but allow us to make the investments and operate our plants safely and reliably,” Crane said.
Exelon has 3,619 megawatts of capacity in Texas—mainly the gas plants but also some wind and solar facilities. That’s 11 percent of Exelon’s total U.S. capacity of 31,594 megawatts.
With Exelon now planning to spin off its power-generation unit from its regulated utilities like Commonwealth Edison, exiting the Texas market would make for a substantially smaller stand-alone company. In addition, Exelon plans to close two Illinois nuclear plants unless the state agrees this coming spring to subsidize them. The Dresden and Byron nukes together can generate up to 4,192 megawatts.
A Texas exit and the retirements of those two nukes combined would result in a generation company that’s about a quarter smaller than it is now.
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