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What does it mean when the nation’s biggest booster of nuclear power starts talking up the virtues of natural gas?
That’s the question that kept coming to mind before talking earlier this month with Exelon CEO John Rowe. Exelon is one of the nation’s top electric companies, servicing the Chicago and Philadelphia metro areas. It’s also the nation’s biggest nuclear power generator, the owner/operator of 17 reactors.
Rowe has long been a nuke man, always has and always will be. He’s been the CEO of Exelon since 2000 and spent the bulk of his career at the center of the American nuclear industry.
But lately he’s been talking up the virtues of natural gas. The reasons come down to economics, ecology, technology, and history.
“Natural gas is queen right now,” he says, by which he means it will be “the dominant source of energy for electricity at the margin” for the foreseeable future.
Just a few years ago Exelon stock was on a tear. The company’s share price was beaten down with the rest of the market, but unlike the rest of the market it has yet to recover lost ground.
“The price of natural gas sets the price for electricity in a number of the competitive regions in the country,” Rowe explains. “So the output of my nuclear plants has greater or lesser value depending in part on the price of natural gas. When we had that peak in 2008 and gas was at $12 or $14, electricity was selling very nicely at wholesale and Exelon stock was at $90. Today with natural gas at about $4 dollars Exelon stock is about $40 and that correlation is almost perfect.
“Natural gas is important to us partly because it sets the price of what we sell and partly because on the margin it is the probable source of supply for whatever new generation we might build.”
The environmental virtues of gas are many. It’s much cleaner than coal and emits far less carbon, too. It’s not zero-carbon the way nuclear power is, but new nuclear generation is not cost-competitive in a period of natural gas abundance, Rowe says.
The country is experiencing a gas boom, reminiscent of the oil booms that transformed California, Texas and Oklahoma. So-called shale gas that was once difficult to retrieve is now recoverable at reasonable prices thanks to innovation and new technology.
Firms are buying mineral rights atop massive shale formations in Ohio, West Virginia, Pennsylvania and elsewhere. The purchases are minting new millionaires who once thought they owned relatively low-value farmland. Wyoming and Texas are already big players.
The process by which shale gas is recovered is called hydraulic fracturing, or “fracking.” Water, sand and other materials are pumped underground to dislodge gas within subterranean shale formations. Advances in this technological process have made a golden age of domestic natural gas possible.
Rowe came to Washington this month to discuss the importance of natural gas to the country’s economic and ecological future. His message to Congress: “do no harm.” By that he means nature, technology and markets are already conspiring to help American consumers and the environment. All that’s needed is for Washington to stay out of the way.
Rowe knows well what government meddling in energy markets can do to a promising industry. When nuclear power generation began to take off in the United States in the 1950s and 60s, its potential was tremendous. Its boosters predicted electricity too cheap to meter.
But that never happened. While it did rise to provide 20% of the nation’s electricity, government regulations played major a role in driving up the cost of nuclear plant construction. Regulation isn’t the only reason new nuclear plants today are so expensive as to be largely cost prohibitive; few things in life have a single cause. But regulation driven by safety and other concerns played a major role. And the recent disaster in Japan and concerns about nuclear safety will surely push the cost of new nuclear higher still.
Already environmental groups are gearing up to campaign against fracking. And while reasonable environmental safeguards are always warranted, policymakers should avoid strangling the natural gas boom that’s bringing economic hope to depressed parts of western Pennsylvania and other down-on-their-luck regions.
Rowe welcomes regulation when he thinks the science supports it. He was a supporter of cap-and-trade rules to limit carbon emissions because he believes the science around global warming justifies it. A carbon tax, he admits, is better policy than cap-and-trade, but he says he believed it was less practical politically. He also freely admits cap-and-trade would advantage his low-carbon nuke plants in the marketplace (something for which he offers no apologies and which earned him the scorn of free-market groups and climate change skeptics).
Exelon is hardly the only firm at the moment that understands how a natural gas boom will transform the nation’s energy market. ExxonMobil pushed a lot of chips to the center of the table with a bold $41 billion acquisition of XTO. This positions America’s premier oil major to be the country’s premier natural gas provider in the 21st century. Given the company’s strong safety record and conservative management, and its role as a standard-setter for broader industries, that’s good news for the shape of the market.
There’s endless talk in Washington about the need to move toward lower-carbon power. Nature and technology are making it possible, if Washington and state capitols will let it.
Nick Schulz is Editor-in-Chief of American.com and the DeWitt Wallace Fellow at AEI.
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