John Rowe: Full interview transcript

Marketplace Staff Nov 9, 2009


Kai Ryssdal: John Rowe, good to have you with us.

John Rowe: Thank you. sir.

Ryssdal: Do me a favor would you and for the lay mans audience, as best you can describe this thing called cap and trade for us.

Rowe: Well, a cap and trade system is a legal structure that puts a cap on the total amount of dioxide and other so called green house gases that can be emitted by large companies and producers and then allows a trading system of permits and emission credits so they have an economic incentive to find the cheapest way of reducing the total amount of carbon. And you start with a cap at a relatively high level, maybe 15 [percent] or 20 percent below what it is today, and then you reduce that cap down to 20 [percent] or 30 percent of what we emit today over time, so over many years, decades; so we reduce the total impact we’re having on the climate and on the carbon dioxide concentration in the atmosphere. Now the magic is that unlike many other systems of trying to deal with the carbon dioxide problem, a cap and trade is designed to price carbon in the market so people hunt for the cheapest ways of having the low carbon energy.

Ryssdal: Why is it better than just taxing carbon? I mean, why can’t you just have the government say, “Here’s the tax. Pay it.”

Rowe: Actually taxing is just as good economically, maybe even a hair better, but taxing is harder for the government to admit that it’s doing. And taxing isn’t that much better because with taxing, the government has to decide whether it is going to give the money back to say low-income energy consumers or whether it’s going to spend the money on health care or education or some other important government end. And the same thing really goes on in a cap and trade system because you have to decide how you are going to give away the permits to emit carbon in the first instance.

Ryssdal: Interesting choice of words there sir, “give away.” Why does the government have to give away those permits?

Rowe: Well the government doesn’t have to and from my company’s point of view, the issue is not that important. But if you are a large coal burning utility or a customer of a large coal burning utility, you have a huge stake in seeing your utility get some of these initial allowances for free because otherwise you’d have huge short-term price shocks in the early years for the customers of coal burning utilities. It happens it’s not as big an issue for my company because we’re mostly nuclear. But I think the rational compromise on the point you’re making is you start off by giving most of the permits away and then year by year you shrink the number of permits you give away for free. So in essence you make this an asset that the government has to work with.

Ryssdal: So if those permits are given away for free then, Exelon would do pretty well, right? Because your carbon footprint is fairly low. You get the permits and then you trade them.

Rowe: First we wouldn’t get as many permits because of that and second, all the permits we get would be given to our distribution companies where the state regulators would use them for the benefit of the consumers. Exelon hopes to do well on a cap and trade system but not because of the free permits, that’s a customer interest that we are trying to protect.

Ryssdal: Do you think cap and trade has to be part of this energy bill that’s making its’ way through Congress or is there another way that this thing can get passed and work out for the good?

Rowe: The only other way that works out for the good is a tax and it’s very unpopular. Cap and trade is essential because all the other ways that we have of trying to deal with the climate problem are much more expensive for the consumer. Let me give you a very simple example. In something called Exelon 20/20, which you can find on our Web site, we’ve tried to price in terms of the cost of avoided carbon dioxide different forms of energy supply. You can mandate we do this with wind; that’s $50 to $80 a ton. You can mandate we do it with new nuclear plants if you come from a different perspective; we think that’s about $75 a ton. You can mandate solar; that’s $3 to $700 a ton. Whereas the cap in the Boxer cap and trade bill is initially as low as $28 a ton. In other words, all the other ways of dealing with the climate change problem costs the customer a lot more, a lot sooner, and create a great deal more economic disruptions. The customer has a huge stake in seeing that we use cap and trade or a carbon tax instead of using mandates; whether those be for coal with carbon sequestration, or nuclear, or wind, or solar. The simple solutions are the ones that cost the customer most.

Ryssdal: Do you think customers are ready to absorb some of these costs? When you go out and talk to your customers, what do they say?

Rowe: Different customers say different things. A very green customer says, “Oh yes, I’ll pay my share.” A big industrial customer may say, “I’ve got enough problems in this economy, don’t give me any more.” I know both kinds of customers. I think the real answer is customers are prepared to bear some costs, but not open-ended or unlimited costs. And customers’ ability to bear those, while hurt deeply by the recession, is helped by the fact that natural gas has fallen from almost $14 a million btu down to around $4.5 a million btu. So customers are seeing the benefits of low natural gas prices in their electric and gas bills and that gives them a little more room to work with. But every customer is different. You may be willing to pay more than a large steel company is willing to pay; but nobody is willing to write a blank check for any problem, including climate. And that’s why it is important that we adopt a system that makes the cost as low as possible.

Ryssdal: It would seem that this is an opportunity for your company; the fact that there is more attention now on climate change and looking for carbon neutral sources of power would seem to bode well for nuclear power plants.

Rowe: Well I think that it is, but again, our analysis say that at least for the next decade, a new nuclear plant is not an attractive market base solution.

Ryssdal: Is that just because it is expensive?

Rowe: It’s expensive, yes. It does, however suggest that adding to the capacity of our existing plants is a good market based solution. So there’s an opportunity there.

Ryssdal: But aren’t there new programs and plans for incentives for nuclear power plants and understanding they’re a huge capital cost.

Rowe: Right. There is $18.5 billion of federal loan guarantee money set aside. The government has picked four candidates to get those loan guarantees. Those candidates do not at the present time include us, those four. It’s a very, I think productive program because it at least gets a few new nuclear plants started; but the $18.5 billion . . . if you think of a new nuclear plant, a single unit is costing somewhere between $4 [billion] and $6 billion depending on its size. A two unit station is $10 [billion] to $12 billion. As you can see, $18.5 billion doesn’t cover an immense number of plants. We think that both in economics and in social policy, in the 20’s and 30’s this nation is going to need a lot of new nuclear plants. But with natural gas as cheap as it is, the new nuclear plant is a very expensive solution. Not as expensive as solar but substantially as expensive as wind.

Ryssdal: It’s a tricky political solution too, I mean you have to admit that.

Rowe: You didn’t have any trouble, you don’t have to drag me. I’ve spent my life working on the issues of nuclear and the politics of nuclear plants are always difficult. My company is doing very well as the nation’s largest nuclear operator but my predecessors running it did not have such happy times. And it’s a constant effort to run these plants so you get very high performance, very high levels of safety; and of course the nation still hasn’t reached a fully satisfactory solution to the waste disposal issue.

Ryssdal: When’s that going to happen?

Rowe: Not in my working lifetime.

Ryssdal: Doesn’t sound very optimistic.

Rowe: You didn’t pay me to be optimistic; I get paid to be realistic. And of course you didn’t pay me at all, but that was meant to be a joke. The important thing for me from my point of view is all forms of energy come with their own issues. We have to have a lower carbon economy. We have to have one that is affordable. I don’t see how you can get there without a new generation of nuclear, but in my view the time is only right for some first generation efforts. Time isn’t really right for a substantial increase in the nuclear fleet. Neither the politics nor the economics are there yet.

Ryssdal: A person in your position is one of those guys who goes down to Congress to testify on energy issues and gets called I imagine, by committee staffs on Capitol Hill. When you talk to them about the Senate climate bill that’s working its way through now and the prospects for some kind of joint bill to come out of Congress, what do your hear? Are you confident that that’s going to happen?

Rowe: I’m not paid to be confident any more that optimistic, I’m paid to be realistic.

Ryssdal: You almost don’t get paid for anything, do you?

Rowe: I think this is a hard sled, but I believe it will happen; I don’t have a terribly high level of confidence. I believe it will happen because most of one party and a large portion of the other party think we need to deal with the problem. I believe it will happen because I think there will be some very high level compromise work going on. I’m terribly impressed with the work that Senator Graham and Senator Kerry and Senator Lieberman are doing. I think we are going to see the cap and trade that the “D’s” want with some additional support for nuclear that the “R’s” want and a tighter collar on how much it can cost in the early years to make the conservative D’s and the R’s more happy. And I think there is the framework for a compromise that Senator Kerry, Senator Graham, Senator Lieberman and the administration will work very hard on. We saw the same thing happen in the house when Congressman Boucher took over negotiating with Congressman Markey and Congressman Waxman and together they came up with a much more practical bill than the first one. I think you’re seeing that same dynamic in the Senate now and as a cold-blooded realist, I’m optimistic but not confident.

Ryssdal: Let me extend it beyond Washington then and ask you about the big U.N. Climate Change meeting in Copenhagen in December. How do you feel about that?

Rowe: Well I think it’s terribly important that the U.S. have some real pieces to put on the board. If the U.S. doesn’t, I think you’ll see Western Europe sounding positive, sometimes a bit hypocritically. I think you’ll see China and India still saying no, and I think you’ll get a lot of high flowing rhetoric without a lot of progress. On the other hand, if the U.S. can convince other nations that it’s making a significant step on this front, I think beneath the rhetoric there may be some real progress. But this is an issue we have to build a U.S. position before we have any credibility on the world stage.

Ryssdal: You know it strikes me that in the course of this conversation what we’ve basically been talking about is you as a business man, a major corporate CEO, asking for more government regulation of what you do. Does that strike you as odd at all?

Rowe: It’s true but that is hardly a novel thing. There are books about whether it was really the grain farmers or the railroads who wanted regulation to railroads. You can’t have a market without a framework of law and policy. And in this case we have markets in energy that don’t include in their framework the cost of carbon. I think trying to get market forces to work so that they incent business to do the cheapest thing to solve the problem is just what society should want markets to do and so I don’t see any internal conflict on that front. But as a person who generally likes less government rather than more, I wish I had a solution that didn’t require government involvement but I’m just not that clever.

Ryssdal: You . . .

Rowe: Or put it this way: Who is John Galt? The answer is, John Rowe is not John Galt, I don’t know who is.

Ryssdal: Fair enough. Exelon is one of several high-profile companies that have left the U.S. Chamber of Commerce, in part at least, over the chamber stance on climate change. Could you give me some insight into your thinking as to that decision?

Rowe: Well I could tell you all of our thinking because it was a decision that we took five minutes on. To us, this was not such a major thing. We have been a member of the chamber for a long time. We’ve never been active enough to be part of its’ policy making body. We believe the chamber plays a constructive role in many issues but the chamber was taking a position that was against our views and our interests on the climate bill. It was stating that position very strongly and harshly and we didn’t think we should be paying dues to an organization that was opposed to us on the issue that’s at the absolute top of our priority list. But this wasn’t some sort of general discontent with the chamber; they just weren’t representing us so we withdrew.

Ryssdal:Just as simple as that?

Rowe: Just as simple as that. And that was a five-minute decision.

Ryssdal: Any dissent around the boardroom as you took the vote?

Rowe: I didn’t take it to the board and the dissent is several people have suggested that I should have.

Ryssdal:And you’ve still got your job. so it worked out all right.

Rowe: It didn’t occur to me that membership in a trade association was a board-level issue.

Ryssdal: Let me back up for a minute, Mr. Rowe, and ask you about your coal-fired brethren. I read this great quote as I was researching our conversation and it basically said, you know the folks who have a low-carbon footprint, the nuclear power industry in particular, it’s kind of impolite for them to talk about the burdens that their coal-fired brethren have. That they have a big carbon footprint and they are going to pay a price under this cap and trade thing. How can a bill in Congress have cap and trade but maybe not be so impactful on those coal-fired producers?

Rowe: There are two answers to that question. The direct answer is that’s why you simply have to give a lot of the permits or allocations back to the emitters from the very beginning. It’s the only way you can feather this in and not make it too harsh, first for companies but more importantly for their consumers and that’s just a necessity. The second answer to that is one should remember that those of us who are quote “cleaner and greener” are also, tend to be higher cost. In other words, our customers have been paying the cost of being cleaner and greener for a long time. And those decisions were made by myself and my predecessors and my colleagues in other companies who thought the company should be getting cleaner and greener. We are not prepared to say that it is just accidental that we are cleaner and greener. It’s a result of a commitment to doing those things.

Ryssdal: You know it’s always dangerous for me to try to guess what listeners to a program are going to hear and pick up on and write in about but I will guarantee you that we’re going to get a lot of letters about you calling the nuclear power industry cleaner and greener.

Rowe: This is a free society, people think what they think. But the nuclear power industry is cleaner and greener and more and more people are recognizing that all the time. Nuclear power is cleaner and greener than coal fired power and I am very proud of that.

Ryssdal: John Rowe, chairman and CEO of Exelon. Mr. Rowe, thank you so much for your time.

Rowe: Thank you, sir.

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