Exelon to Close Generating Plants if No Rebound Next Year

Nov 5, 2013

Facing continued skepticism from Wall Street, Exelon Corp. says it will begin shutting down unprofitable power plants if energy prices don't rebound within a year.

Facing continued skepticism from Wall Street, Exelon Corp. CEO Christopher Crane said last week that the company would begin shutting down unprofitable power plants if energy prices don’t rebound within a year.

Crane made his comments Wednesday, after the company announced third-quarter operating earnings and a week after Jefferies & Co. downgraded the company to “underperform.”

The company, the largest nuclear power generator in the country, has seen its stock drop more than 20% in the last six months due to weak capacity prices and margins pinched by low natural gas prices and demand growth.

Three Mile Island Nuclear Facility in 2013 (view from Goldsboro, PA; source: Wikimedia Commons)

Exelon executives have been counseling patience, saying energy prices will revive with the planned retirements of 11,000 MW of coal-fired generation in PJM. Crane said last week there was a limit to the company’s own patience.

“We continue to take a hard look at our assets and determine their economic viability,” Crane said on an analysts call. We will shut down facilities that we do not see on a path to a long-term, sustainable profitability.”

Exelon’s stock rose 1.8% to $28.55 per share following Crane’s comments. It closed yesterday at $28.61.

Analysts say the nuclear plants most at risk of being shuttered are Three Mile Island in Pennsylvania, Clinton in Illinois, Oyster Creek in New Jersey and R.E. Ginna in New York.

Exelon reported operating earnings of $667 million, beating analysts’ estimates. The company was boosted by Commonwealth Edison, which generated operating earnings of $127 million, up 41% percent, as it benefited from Illinois’ 2011 Energy Infrastructure Modernization Act, which provides faster and more frequent returns on utility investments.

At the same time, earnings at Exelon Generation, the company’s merchant business, dropped 10 percent from last year, to $411 million.

Jefferies analyst Paul Freemont cited the unit’s lackluster performance in concluding that the company’s should trade at a discount to the group average price/earnings valuation. “Additionally, the high cash spending of Exelon on nuclear fuel and maintenance results in very little free cash flow generated by the company,” Freemont wrote.

PSEG, PPL Earnings

Also reporting earnings last week were PPL Corp. (PPL), which missed analysts’ expectations, and Public Service Enterprise Group Inc. (PEG), whose results were in line with expectations.

PPL reported quarterly earnings of $410 million, up $55 million, or 15% from a year ago. For the first nine months of 2013, PPL earned $1.9 billion, versus $2 billion for the first nine months of 2012.

Weakness in the company’s supply, corporate and other segments were partially offset by improvements from its regulated utilities in Kentucky, Pennsylvania and the United Kingdom.

Public Service’s results were mixed, with earnings of 77 cents a share meeting analyst expectations and revenues, $2.55 billion, exceeding them.