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John W. Rowe, Chairman CEO, Exelon Corporation
64th NECPUC Symposium
Mount Washington Hotel, Bretton Woods, NH
June 20, 2011
(Remarks as Prepared)
Introduction/Grace Notes

Thank you Clifton (Below) for your kind introduction I am here today to talk about electricity, natural gas and the strange mix of mandates and markets that we call energy policy. To begin, my company, Exelon is one of the largest electric and gas utility companies in the United States. We own two delivery companies, ComEd in Chicago and PECO in Philadelphia and keep the lights on for about 13 million people in Illinois and Pennsylvania. We serve two the most diverse cities in the country. We are the largest nuclear power plant operator, with 17 reactors, and the largest generator of clean, low-carbon electricity through our nuclear power plants, hydro, wind and some solar. Climate Change and Politics

I and Exelon have been strong voices for climate change legislation. I first testified before Congress on the need for a carbon tax in 1992 when I was CEO of NEES. For my efforts, the anti-climate science crowd turned me into a carbon bandit bobble head – prison stripes and all. I worked on cap and trade legislation because: 1. The science of climate change is real, as spelled out in many National 2. The other proposed, non-market solutions, like generation technology mandates, cost consumers more and contribute less to solving the problem. 3. And, it offered my company a way to improve its earnings and profit from its I make no apology for the third factor. I note, however, that Exelon constantly advocated price caps on CO2 allowances to protect the economy and consumers in the early years, and the $15 per ton cap we advocated is less than a quarter of the cost of the mandated clean energy purchases. Three years ago, both Presidential candidates supported cap and trade legislation to address the climate problem. It looked like we would get a concrete solution regardless of who became President. In 2009, the House of Representatives passed the Waxman-Markey bill by a small margin and with only 8 Republicans voting for it. And by the following summer, the politics had shifted so much that the Senate couldn’t even bring a bill to the floor for a vote. The 2010 elections brought the ascension of the Tea Party, the House of Representatives flipped to Republican control, and the Democratic majority in the Senate shrunk. This new majority is anti-regulation and we hope pays strict attention to the debt. 50% of the new Republican members do not believe in the science of climate change and 86% oppose any climate legislation that would increase government revenues. And, states are dropping out of climate programs like RGGI, rather than joining them. This change makes it clear that comprehensive carbon legislation is not going anywhere any time soon. In fact, the new majority has focused their legislative efforts on stopping EPA’s modest ability to regulate carbon. Despite the change in Washington, Exelon remains committed to our Exelon 2020 plan – including our goal of reducing, offsetting or displacing our entire carbon footprint by 2020 – and, we are halfway to our goal. Have announced our plans to retire four inefficient, old coal plants Have announced plans to increase the generating capacity at our existing nuclear fleet by up to 1500 MW – the equivalent of a new plant at half the cost. Have reduced energy use at our commercial buildings by 25.2% and have 10 LEED-Certified facilities. Purchased a wind company adding 735 MW of wind to our portfolio and built the nation’s largest urban solar panel array on a brownfield in South Chicago. But even though Congress will not tackle climate change, they can’t resist putting their hands on energy. Electricity, like horse racing, gambling and prostitution in Nevada is too much fun to leave to the market. Congress and the states, in well-intended efforts to clean the generation fleet, have enacted and continue to float proposals that would burden consumers, cripple markets, and increase the federal debt, while doing little for air quality and nothing for the nation’s competitive position.
First – Policy Makers Should Do No Harm

At this point in time policy makers do not need to do anything to promote a clean energy future. Now, the reason that Congress can do nothing is that nature and technology have generously coincided to provide a great blessing – a clean, competitive, and inexpensive windfall – natural gas. New gas finds, both conventional and shale gas, have dramatically increased our domestic natural gas supplies. The Colorado School of Mines estimates that the total potential of U.S. gas supply increased by 61 percent from 2000 to 2008. And they are not alone; CERA, MIT and others all believe the U.S. is flush with natural gas. The process to getting to this shale gas is raising some environmental concerns. These concerns are being addressed. However, we believe, as many experts do, that environmental regulations will increase the price of extracting shale gas but will not destroy its cost advantage relative to other fuels and technologies in most circumstances. Natural gas enhances our energy security and can reduce our dependence on oil. Natural gas is the cleanest burning fossil fuel. It emits: Approximately 80% less sulfur dioxide and nitrogen dioxide per megawatt hour (MWh) than coal; And, 55% less carbon dioxide per MWh than coal. Natural gas has already jumpstarted the transition to clean energy. As of February, 18 companies have announced their plans to retire or mothball nearly 12 gigawatts (GW) of coal-fired generation nation-wide -- they are simply no longer economic due to the low price of natural gas and the higher price of coal Inexpensive natural gas produces cheaper clean electricity and that is one key to U.S. competitiveness. And, as one who survived the nuclear cost overruns of the 80s, I am painfully aware that cheap gas will get you if you bet against it. U.S. energy policy has been driven by a mess of mandates and power subsidies for nuclear, cleaner coal, gas, wind, solar and other renewables – a constant urge to pick winners and losers. Congress and the states need to slow down. We are already doing enough to give all of these things a chance. As Oliver Twist did not say, “no more please.” Cheap natural gas allows the energy market to work and technologies to compete without introducing new market distortions. Through our resource guide, Exelon 2020, we have examined the cost of different technologies that would clean up the electricity fleet in. Neither new nuclear, coal with carbon capture and sequestration, wind nor solar are economic. They are not economic because of energy prices, an excess of generating capacity and very low load growth. Energy efficiency and uprates at existing nuclear plants are economic at today’s prices. New gas plants and coal to gas switching are the next cheapest options and those sources of cleaner energy are only needed as demand returns or supply is tightened by EPA regulations. New wind, new nuclear, solar and clean coal all cost over $100 per MWh when you take into account the capacity factors, supply back up and so forth. Federal subsidies shift a portion of the costs from electric ratepayers to taxpayers, but do not change the overall economics. When new nuclear, coal with carbon capture and sequestration, wind and solar are forced into the market through mandates, they create a discriminatory playing field. For instance, wind currently needs about twice what the market is paying for it to break even. Wind can only be built if it gets a renewable or clean energy credit, which consumers pay for, or if someone is willing to pay wind’s higher price, which consumers will also pay for. And this is on top of the production tax credits, which taxpayers pay for. However, even though the cost of wind is above market, because of mandates it bids into the market much below the market price, often at zero. This collapses the clearing price for the rest of the market. Of course, taxpayers also pay because subsidizing energy technologies adds to the federal debt. Wind, solar, coal, oil, natural gas and nuclear combined have billions of dollars in government support each year. Some in Congress talk about doubling or tripling the size of the existing nuclear fleet to face our energy challenges. Since these plants are not currently economic at today’s low natural gas prices, the government would have to spend $300-600 billion to get these plants built. Congress should not expand the nuclear loan guarantee program beyond the current $18.5 billion already allocated and should not extend the PTC and ITC tax credits. And, I say this not just as a nuke, but also as a new owner of 735 MW of wind and the largest urban solar facility in the United States. Wind and solar will become more economic, just not yet. Solar costs will continue to fall and winds economics improve as more coal plants retire. Unlike solving the problems of social security or Medicare, where people must share pain, we can stop energy subsidies without losing the benefits of a clean energy future. In addition to opposing electricity mandates and eliminating energy subsidies, Congress needs to let EPA do its work on the transport and toxics rules. Thus far, the costs of pollution have been born by society – in health care costs and environmental damages, but that cost is not included in the electricity price for burning coal. The National Research Council found that the mean cost of damages per kWh from sulfur dioxide, nitrogen dioxide and particulate matter alone was 3.2 cents per kWh For the most polluting plants this cost rises to 12 cents per kWh on top of the existing average generation price of electricity from coal of around 3 cents per k h. Now we know that the cost of externalities is a dark art. But, we also know they are substantial. Reflecting these costs in the market will pick the most inexpensive technologies to clean up the stack. Some people may not believe that the science of climate is settled, but they cannot argue that sulfur dioxide, particulates, mercury, arsenic, lead, hydrochloric acid and other acid gases, dioxins and the other toxins are not harmful to human health. EPA is enforcing the Clean Air Act’s requirements. The Clean Air Act just celebrated its 40th anniversary last year and the last major amendments to it are now over twenty years old. The rules EPA is proposing are neither new, nor unexpected. EPA is merely enforcing the law. A law that was updated in an overwhelmingly bi-partisan way in 1990 – with 93% of the House voting for it and 89% of the Senate. 70% of coal retirements by capacity due to either EPA regulations or coal/gas economics are over 40 years old. These regulations will not kill coal. 66% of the coal fleet has already installed or is in the process of installing the controls necessary for compliance. In fact, modeling done on the impacts of these rules show that up to 50% of retirements are due to the current economics of the plant due to natural gas and coal prices. Most plants that are over 50 years old have not put on any pollution controls. They are typically very small – under 300 MWs, and extremely inefficient, have weak profit margins and low capacity factors They are the equivalent of sending a 1959 Cadillac out to compete with a Chevy Volt. The rules will move the generation of electricity more toward natural gas. The existing natural gas fleet can cheaply accommodate the majority of coal retirements. Deutsche Bank believes that two-thirds of the coal to gas switch can be met by increasing the utilization of the existing gas fleet. And if new plants need to be built, new natural gas combined cycle plants cost less than half of a new coal plant and only a sixth of the cost of a new nuclear plant. They can also be built in half the time it takes to build a new coal plant. Conclusion

We are at a unique time in energy policy. Congress and the Administration need not do anything to drive the transition to a clean energy economy. The energy markets have begun the transition already. Natural gas is Queen. It is domestically abundant and inexpensive and is the bridge to the future. Because of natural gas, there is no need for expensive mandates and subsidies. Natural gas allows us to compete with China and India. EPA’s rules enforcing the forty-year old Clean Air Act will level the playing field – putting those who have not installed controls on par with those who have. These are 50 year-old small, inefficient plants whose day has come. The ’59 Cadil ac couldn’t compete with efficient Japanese carmakers and these coal plants won’t compete with China. But market driven gas plants will. Gas will be the dominate new energy source over the next ten years, but the dominate energy source the following ten years remains is unknown. Natural gas and environmental regulations are on my mind. But given, I’m coming back to New England where I started my career 27 years ago, I’d be happy to answer any questions you might have about the different regulatory structures and their implementation during the question and answer period. Thank you, I’m happy to answer any questions you may have.

Source: http://www.necpuc.org/Presentations/Rowe%20NECPUC.pdf

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