Exelon Corp., after slicing its dividend 41 percent earlier this year in the face of falling earnings, has delivered a simple message to shareholders: Be patient.
Wholesale electricity prices will rise as old coal-fired plants shut down rather than make costly, federally mandated environmental upgrades, and Exelon's earnings—and stock price—will increase along with them.
But a surprising turn of events is upending the Chicago-based nuclear power generator's thesis: Even though market prices for power remain low, competitors are constructing a new generation of plants fueled by cheap natural gas in New Jersey, Ohio, Pennsylvania and other key Exelon markets to take the place of those old coal facilities.
And Exelon's lobbying efforts to prevent the construction of competing wind farms and some of the new gas plants haven't worked.
As a result, some experts are saying it's just as likely that power prices will stay the same or fall as it is that they will rise, as Exelon forecasts.
“If we get enough gas capacity, (Exelon) is worse off,” says Michael Granowski, principal in the energy practice of Chicago consultancy Bridge Strategy Group LLC. “There's definitely downside risk for Exelon.”
More than 25,000 megawatts of new gas plants are under construction, in the works or announced through 2017, according to data from Charlottesville, Va.-based SNL Financial LC compiled by Bridge Strategy. If all that is built, it will more than make up for the 20,000 megawatts of coal-fired capacity Exelon predicts will go away over that time frame in its markets in the Midwest and mid-Atlantic.
What the future holds for power prices is crucial for Exelon. A $2- to $4-per-megawatt-hour increase in wholesale prices by 2015, as Exelon is forecasting, would