Exelon stock slammed on deteriorating revenue outlook
Steve DanielsMay 28, 2013
Exelon Corp.'s stock plummeted more than 7 percent on a day that the broader markets soared, due to a surprise revenue blow the Chicago-based power generator will suffer three years from now.
PJM Interconnection, the operator of the regional power grid that includes most of Exelon's power plants, including all of its industry-leading nuclear plants, announced results late Friday of an auction for the year beginning June 1, 2016, to reserve capacity at plants in PJM. The clearing price in the western half of the region, which includes Chicago, was just $59.37 per megawatt-day, about half of what analysts were forecasting and less than half of the $136 per megawatt-day set in a previously held auction for 2015-16.
For Exelon, that means capacity revenue will fall about 41 percent in the year beginning June 1, 2016, to $847 million from about $1.4 billion the previous year, according to a report today by UBS Securities LLC in New York.
Generators like Exelon get paid both for reserving power for future delivery and when the electricity actually is delivered. The price paid for reserving the power is set three years ahead of time in a yearly auction conducted by PJM, which oversees the grid in a territory running across all or parts of 13 states, from Chicago east to North Carolina. The capacity payments are a significant part of generators' revenue, and have become more so as wholesale energy prices have fallen.
Exelon's stock closed down $2.61 per share, or 7.5 percent, to $32.04.
UBS analyst Julien Dumoulin-Smith pegged Exelon as being “particularly exposed” to the lower-than-expected capacity pricing.
Exelon sliced its dividend 41 percent earlier this year as its revenue outlook continued to lag.
“We expect the latest reduction in capacity payments to drive a further reassessment of prudent balance sheet...
Utilities are good shorts, they prospered and grew during the 1970's, 1980's, 1990's, 2000's, but now in the 2010's, the baby boomers are downsizing and slowing usage due to demographics. There will be lots of downsizing and realignment, a UTE's in South profit from positive migration of retirees. EXC, AEP, PPL., FE, are good shorts.