When Will Exelon Power on Investor Returns?

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Part 4
When Will Exelon Power on Investor Returns? PART 4 OF 12

Exelon’s Latest Story: How the Largest Utility by Revenue Lost Its Sheen

Exelon’s revenues

Exelon (EXC) is the largest utility holding company by revenue in the sector (XLU). In 2016, it reported total revenues of over $31.0 billion. Exelon’s average revenue growth per year over the last five years is ~7.5%, which seems reasonably good, considering the flat electricity demand growth in the US during this period.

Exelon&#8217;s Latest Story: How the Largest Utility by Revenue Lost Its Sheen

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However, Exelon could not convert its healthy revenue growth to profits during that period. In the same period, Exelon’s net income average growth stood at around -3%.

Competitive utilities were grappling with multiple challenges in that time. They’ve witnessed squeezed margins over the past few years due to falling wholesale power prices. In order to stabilize earnings, competitive utilities including Exelon and FirstEnergy (FE) have been trying to increase their regulated operations.

Exelon completed its Pepco Holdings acquisition last year, and this is expected to increase contributions from regulated operations. FirstEnergy is trying to become a pure-play regulated utility, and the transition is expected to be complete by next year.

Nuclear snags

Exelon (EXC), the biggest nuclear power producer in the US, announced that it will close its Three Mile Island nuclear power plant in Pennsylvania due to higher operating and maintenance costs.

US nuclear power plants are finding it difficult to break even due to lower wholesale power prices, and so they’ve been increasingly asking for government subsidies. According to Bloomberg New Energy Finance, US nuclear power plants are getting paid ~$20–$30 per megawatt-hour for their electricity, while its production costs them ~$35 per megawatt-hour.

For further discussion of competitive utility stocks, check out Market Realist’s series Where to Look for Opportunities in the Competitive Utility Sector.


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