Exelon markets itself as the greenest of the country's major power generators. Much of that claim is based on the carbon-free nature of its nuclear power plants, the largest fleet in the nation, but it also stems from a substantial renewable power group, including more than 40 wind farms in 11 states.

Now a decision the Chicago-based energy giant made two years ago to pull hundreds of millions in cash out of those renewable assets while retaining operational control has put Exelon's continued ownership of at least 26 of those wind projects—and its status as a player in the renewable industry—in jeopardy. Also at risk are the bulk of Exelon's 521 megawatts in solar power projects around the country.

An improbable series of events has laid bare the risks Exelon took on in 2017 when it sold nearly half its ownership of the affected wind farms and solar projects to a large life insurer and then took on $850 million in debt on the assets. Effectively, the company mortgaged the businesses—identified in the Nov. 28, 2017, loan agreement, which Exelon filed with the Securities & Exchange Commission—for as much as it could pluck out of them.

The assets themselves were collateral for the bank loan, with cash flows from the businesses mainly used to pay off the debt. Given that all the projects had long-term contracts to sell their output at fixed prices, the loan seemed as safe as any like it reasonably could be.

A year later, historically severe wildfires in California changed everything. Pacific Gas & Electric, the large utility serving Northern California, was fingered as playing a major role in igniting the fires, incurring enormous liability. Earlier this year PG&E filed for bankruptcy.

Exelon's Antelope Valley solar farm in the Mojave Desert, a 242-megawatt facility with 3.8 million panels spread out over 2,100 acres, has a long-term contract to sell to PG&E at a price well above-market. Exelon pledged the facility, one of the largest solar farms in the world, as collateral for the loan along with the assets in which it had sold an equity interest. A U.S. bankruptcy judge on June 7 rejected federal energy regulators' claims that they could stop PG&E from voiding uneconomic contracts, normally a right bankruptcy protection confers.

PG&E has yet to decide whether to abide by that contract or many others that are affected. If it kills the contract, that would destroy most of the value in the solar farm, which provides 40 percent of the cash flows needed to pay down Exelon's debt.

Given California's status as a renewable power stalwart, the bankruptcy represents a giant question mark for an industry that otherwise has been thriving.

"It could well be one of the biggest issues the (U.S.) renewable sector has ever faced," says Julien Dumoulin-Smith, an analyst at Bank of America Merrill Lynch.

He predicts that PG&E—and the state of California, which will play an important role in deciding how much of PG&E's debts ratepayers and even taxpayers will absorb—won't void contracts like Antelope Valley's. But if they do, the consequences for Exelon could mean relinquishment of the vast bulk of its wind and solar holdings to its lenders or another party.

Exelon made plain the risks in its most recent quarterly Securities & Exchange Commission filing. Referencing the Exelon-managed joint venture (EGR IV) that now owns the wind and solar farms, the company said, "Although Antelope Valley's debt is in default, it is nonrecourse to EGR IV. However, if in the future Antelope Valley were to file for bankruptcy protection as a result of events culminating from PG&E's bankruptcy proceedings, this would represent an event of default for EGR IV's debt that would provide the lender with an opportunity to accelerate EGR IV's debt."

That outstanding debt as of March 31: $834 million.

In a statement, Exelon says, "We are monitoring the bankruptcy proceeding. As the nation's largest producer of zero-carbon energy, we support maintaining all sources of clean energy, including (Antelope Valley). Given that it is early in the bankruptcy process, it is too soon to speculate on how the decision may impact (Antelope Valley)."

The company declines to discuss the implications for the rest of its renewables portfolio.

STAYING IN CONTROL

When Exelon originally struck the renewables loan deal, CEO Chris Crane offered insights into the reasons. Asked May 3, 2017, why Exelon didn't just sell the assets, Crane said, "We're still committing to a clean portfolio. Being in the renewable business is still part of our strategy. At this point, maintaining the operational control, the maintenance of the facilities, is important for us for our investment."

When Exelon sold a 49 percent interest in most of its renewable assets to John Hancock Life Insurance, it was paid $400 million. It cleared another $785 million (after various costs) from the loan on the assets.

The wind farms, desert solar facility and a biomass generator in Georgia—all pledged as collateral for the loan—have the combined capacity to generate more than 1,500 megawatts, nearly equivalent to two nuclear reactors. Exelon's mortgaging of the projects was a clever strategy to monetize assets and maintain a brand image the company prizes.

Crane and company can only hope PG&E continues to buy from Antelope Valley. But if not, they have difficult decisions ahead, most likely involving laying out more cash to preserve Exelon's image as a clean-energy force or losing that status, forged over many years.