Exelon’s business partner seeks to slow down derivative train
“The proposed spin-off transaction would transfer risks to EDF Inc. and to captive New York taxpayers,” EDF wrote in its file before the New York Public Service Commission. “The (Exelon) petition does not adequately address this transfer of risk. As such, the commission should conduct a full review of the proposed spin transaction. “
Most of the regulatory approvals that Exelon needs to separate its two core businesses are at the federal level. New York is the only state among several affected, including Illinois, that also oversees this process and whose consent is required. New York’s deal to reduce scrutiny is critical to Exelon’s hoped-for timeline of the split, which is at the end of this year or early next year.
Details so far have been scarce, however. Exelon announced in February its intention to separate the companies, which investors have been clamoring for as regulated utilities are valued much more in the current environment than power plants subject to market forces. More than three months later, we still don’t know the management and boards of directors of the two companies, the amount of debt of each, and other background information.
EDF wrote that the public interest demands a full review “given that (Exelon) is proposing an unincorporated entity with undetermined financial standing to be the new parent owner of the facilities. The petitioners argue that “Exelon Generation’s financial means and strength will continue to be strong as a direct subsidiary of a new independent and publicly traded holding company after the transaction”, but they base this almost exclusively on their own projections concerning the conditions and not that of the remainder to be created (spinoff).
However, EDF’s motivations are complicated. It is seeking to get out of the partnership in which it owns a 49.99% stake in the RE Ginna and Nine Mile Point nuclear power plants in Exelon in New York, as well as the Calvert Cliffs nuclear power plant in Maryland. The two parties disagree on the valuation of the three nuclear weapons, and the process has been slow since EDF sought to cash in at the end of 2019.
The partnership gives EDF the right to exit and to be paid at the market value of its participation. But if the two parties cannot come to an agreement, under the agreement, then the dispute goes to an arbitrator. Neither Exelon nor EDF have so far wanted to roll the dice with a third party.
EDF can use the threat of postponement to pressure Exelon to increase what it is willing to pay the conglomerate to leave.
“We continue to believe that our petition to separate New York’s nuclear power plants from Exelon meets the New York Civil Service Commission’s standard of being in the public interest and we hope to gain approval for it. ‘by the end of the year,’ Exelon said in an email. . “At the same time, we are following a contractual process of acquiring EDF’s stake in the power plants which should be concluded in the second half of 2021. The transaction with EDF is a separate matter and should not have an impact on examination by the Commission of our plan to separate the production company.
EDF in its file said there was no guarantee of a deal with Exelon this year.
New York has already faced a similar demand. Entergy, based in New Orleans, proposed more than a decade ago to part ways with its substantial nuclear division, which included plants in New York City. The state rejected the request, close the deal.
Since then, New York Governor Andrew Cuomo has secured the approval of substantial subsidies maintain open several nuclear weapons, including three operated by Exelon. Analysts generally felt that a repeat of the Entergy drama was not likely with the fallout from Exelon.
But, as regulators have proven time and time again in complex financial transactions involving energy assets, they are a wild card. EDF’s decision may demonstrate that there is more risk in New York for Exelon’s plans than investors previously estimated.