Big Nuke!


The announced combination of Exelon and Constellation is good news for the electric power industry and good news for nuclear power.  Both companies separately have struggled with false starts in the ‘dating game’ of industry consolidation and kissed a few frogs before they found their prince charming but this deal looks like a winner for all sides. You can read their version and spin on the merger at the merger website:

My take is this:

The Merger is Good News for Nuclear Energy. The United States has sat on the sidelines in the evolution of nuclear energy for more than a generation scared off by the Chernobyl and Three Mile Island accidents and environmental group opposition to building more plants.  The real killer for new nuclear construction, however, was inflation and the ballooning cost of plant construction that almost bankrupt many of the original utility sponsors of projects in the 1970’s and 1980’s.

Once those first generation nuclear power plants were on line  they performed safely and well.  Ironically, the rise of wholesale power competition and the promise of stranded cost recovery for utilities by selling off their generation assets proved to be a blessing in disguise for nuclear energy.  The divested plants had new owners who loved them, fixed them up and helped them improve their performance spectacularly.  Today nuclear power plants are among the best performing in the entire energy fleet supplying about 20% of total US energy consumed.

The downside of being sidelined is the US missed out on the opportunity to leverage its technical prowess to build next-generation nuclear plants that were smaller, more modular, safer with automatic cool-down designs that avoid the overheating and meltdown problems Fukushima-era plants risk when bad things like tsunami’s overtake them.

The Merger is Good News for Wholesale Energy Competition.  Both Exelon and Constellation are successful wholesale merchant power generators as well as nuclear operators.  Combining their unregulated “power teams” into one Baltimore based business unit provide heft, scale and experience to enable them to grow their portfolio and diversify their risks.  NRG may yet regret rebuffing ‘the kiss’ offered in the past because together with the merged power team that merchant energy portfolio combination would be very hard to beat in diversity, operating skill and market positioning across the interconnects.

The Merger is Good News for Customers.  BG&E customers get to be part of a bigger family with less fighting and fussing over how to raise the children and treat the in-laws than Constellation had with its EDF partner.  Together Commonwealth Edison, PECO and BG&E have combined buying power to help bring down costs of the new smart-grid enabled technologies required ahead and improve operations that should benefit the ratepayers across the systems. Volatility may be good on the unregulated side of the energy business but it is not good for regulated utility customers so this deal provides continued stable, solid utility management.

The Merger is Good News for Investors. It creates the nation’s largest nuclear energy-focused company with a market capitalization of $34 billion (still small by Fortune 500 standards) and an enterprise valuation of more than $52 billion. The combined company has a clean energy fleet of power generation and a sterling operating track record of safety and performance. The deal is break-even for earnings in 2012, accretive for 2013 unless regulators across the states start larding-up the deal with takeaways that undermine shareholder value.

John Rowe Leadership Pulled it All Together

The proposed merger of Constellation into Exelon is testimony to the patient and persistently good leadership investors have always respected in John Rowe.  The combined company provides financial strength and scale needed to compete in a changing energy market environment.  It provides the diversity between regulated energy delivery and unregulated energy supply businesses across regional markets.  These things are the benchmarks of shareholder value.

The merger announcement said Mayo Shattuck of Constellation will become executive chairman of the combined company and Christopher Crane COO of Exelon will become president and CEO.  John Rowe the architect of the deal will retire upon closing of the transaction capping a very successful run as one of the key players in the electric power industry over the last thirty years.