This group brings together the best thinkers on energy and climate. Join us for smart, insightful posts and conversations about where the energy industry is and where it is going.


Constellation Energy CEO: A few kind words about Enron

Marc Gunther's picture
FORTUNE magazine

Marc Gunther is a writer and speaker who focuses on business and the environment. He worked for 12 years as a senior writer at FORTUNE magazine, where he is now a contributing editor. His most...

  • Member since 2018
  • 650 items added with 103,734 views
  • Sep 27, 2010 7:27 pm GMT

Your access to Member Features is limited.

You don’t hear many business leaders praise Enron, but that’s exactly what Mayo A. Shattuck III, the chairman of the board, president and CEO of Constellation Energy, did the other day before an audience at the U.S. Chamber of Commerce.

Shattuck wasn’t endorsing accounting fraud, needless to say. Instead, he said Enron deserves credit for advocating, with considerable success, the deregulation of electricity markets across the United States.

During the period when the government is wading into more sectors of the economy—autos, health care, housing—the utility industry is a happy exception: the introduction of markets is generating more competition to generate and sell electricity.

Mayo Shattuck III“We have markets now where the important thing is that people have choice,” Shattuck said. Twenty-two states have broken up their regulated utilities to permit competition, he said, and csts have come down. “Deregulated markets do what they are supposed to do,” he said.

“Monopolies are not going to be the answer in terms of driving efficiencies, driving costs down and driving innovation,” Shattuck said.

But Shattuck’s advocacy of free markets only goes so far.


To no one’s surprise, he called for federal loan guarantees for companies, like Constellation, that want to develop nuclear power plants. A loan guarantee program passed by Congress back in 2007, but so far only  one guarantee has been authorized, for a plant in Georgia being built by the Southern Co.

Perhaps more boldly, given the setting, he argued that the U.S. needs to regulate emissions of greenhouse gas emissions. That took some guts to say at the chamber, which so far has opposed every serious piece of legislation designed to do that, and sued to block EPA from regulation CO2 emissions.

“We ought to address climate change, and address it through a price on carbon,” Shattuck said.

 Let’s take a closer look at these two big exceptions to Shattuck’s markets-should-be-free philosophy, but first a word about Constellation. Based in Baltimore, Constellation Energy is a FORTUNE 500 company with revenues of $15.6 billion in 2009. It operates about 9,000 MW of nuclear, coal, natural gas and renewable generating assets, most in Maryland, New York, Pennsylvania and Texas. Its nuclear plants are operated as a joint venture between Constellation and French utility EDF.

The argument for a price on carbon is straightforward. There’s a broad scientific consensus that greenhouse gas emissions are causing climate change, which threatens our future. We need, as a result, to reduce emissions. Econ 101 tells us that the most efficient way to get less of something is to increase its price. One way to do this is with a tax. Another is with the more complex cap-and-trade system of regulation, passed by the House but stalled in the Senatewhich uses market mechanisms to put a price on carbon and find the most efficient way to bring down CO2 emissions.

“We supported Waxman-Markey,” Shattuck said. It wasn’t perfect, he said, but it was the best way to drive a transition to a lower carbon economy.

Nuclear power needs to be a big part of that transition, he argued. The U.S. currently has 104 plants, supplying about 20% of the nation’s electricity. “We need nuclear to be between 30 and 40 percent,” Shattuck said. Since current plants are nearing the end of their life, that’s “not just about building the next 100. It’s about rebuilding the first 100.”

Constellation has applied for a loan guarantee to build a new reactor in Calvert Cliffs, Md., where it currently operates a nuclear plant. Constellation and EDF have invested $600 million of their shareholders’ money in the proposed reactor, according to the Baltimore Sun.

But Shattuck told the audience at the chamber that “the capital markets are not going to allow us to build a nuclear plant without some sovereign (i.e., government) support.” As my friend Matt Wald wrote on the Ne York Times blog, Green:

The guarantee is a bit like a parent’s co-signing a car loan for a child. The cost to the parent could be zero, but large if the child defaults.

I like the analogy because the reason why parents need to co-sign loans for the kids is that kids are poor risks. Isn’t the same thing true for new nukes?

Put another way, aren’t the capital markets telling us something? And if private investors think new nuclear plants are too risky, why should U.S. taxpayers be asked to assume that risk? Isn’t this yet another case of the private sector enjoying the upside of a deal, while the public will be stuck with the bill if things turn out badly? (See Fannie Mae, Freddie Mac, TARP, GM, Chrysler, etc.)

These aren’t rhetorical questions. I’m open to being persuaded that the loan guarantees are a good idea. But my own belief that markets are the best way to allocate capital leads me to be skeptical of the claim that any particular form of energy generation–nuclear, wind, solar, oil, coal or natural gas–deserves special treatment.

Putting a price on carbon and subsidizing clean energy is a belt-and-suspenders approach to energy policy. Instead, let’s price carbon, try our best to level the playing field, and then let markets figure out which of the technologies will grow.


Marc Gunther's picture
Thank Marc for the Post!
Energy Central contributors share their experience and insights for the benefit of other Members (like you). Please show them your appreciation by leaving a comment, 'liking' this post, or following this Member.
More posts from this member
Spell checking: Press the CTRL or COMMAND key then click on the underlined misspelled word.
Geoffrey Styles's picture
Geoffrey Styles on Sep 28, 2010


Loan guarantees aren’t free, because the risk of default is never zero.  Some of us can remember the WPPSS (a.k.a. Whoops) bond default in the ’80s.  However, I tend to think that a loan guarantee for a new nuclear power plant–with the owner putting a substantial amount of its own capital at risk–is a better a priori bet for taxpayers than loan guarantees for EV companies that have never mass-produced a car or EV battery factories for which the market itself is a bet.  Inevitably, we’re going to see some of these bets fail.  The question is whether we’re placing good bets across a wide enough range of options that the ones that pay off will more than make up (in terms of benefit to the economy and emissions) for the ones that don’t.  

Would I rather see all of these technologies coming up with their funding from the market?  Absolutely, though at least for nuclear the playing field is decidely unlevel, when its opponents can tie a project up in court long enough to make any investors without government support run for the hills.  Perhaps loan guarantees are the price of belonging to a generation that’s better at stopping things than building them. 

Get Published - Build a Following

The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.

If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.

                 Learn more about posting on Energy Central »