Exelon’s controversial play for affordable electricity

The second step involves agreements that make data centers or other large new customers responsible for their share of transmission system costs over time, so existing customers aren’t left paying if a data center project doesn’t materialize…

Still, “those security agreements don’t provide [other] customers complete protection from higher rates or cross-subsidies,” said Kent Chandler, resident senior fellow for electricity policy at the R Street Institute and a former utility regulator in Kentucky. And it’s not clear how such agreements could be replicated if the company succeeds with the third step: Operating power plants…

It’s easy to see why Exelon would want to jump back into power production, given the stratospheric heights that prices have reached. And as a regulated utility, if it did start to build power plants, it would be able to negotiate with regulators to adjust its prices accordingly and have those prices locked in for decades to come. In the short term, Chandler said, that could indeed benefit customers, since the supply deficit is real. The trouble with the strategy is that it hinges on a bullish forecast for data center demand. If that demand doesn’t actually materialize, then Average Joe customers could be left paying for infrastructure they don’t need…

Chandler said the reality is companies like Exelon are simply willing to make riskier bets because ultimately they’ll have more ability to pass costs on to customers no matter what. Exelon could create a new Constellation-esque subsidiary to compete in the normal, non-regulated power generation market, Chandler said. Instead, “they only want regulated investments and corresponding high risk-adjusted regulated returns.”