Understanding Exelon’s Return on Equity
Return on equity
Exelon’s (EXC) ROE (return on equity) has fallen sharply in the past few years, mostly driven by the fall in competitive power prices. It currently stands near 10%—close to the industry average (XLU).
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The chart above shows how Exelon is currently earning lower ROE than permitted on many of its rate bases. In determining the rate that a utility can charge its customers, utilities are allowed to add certain rates of return, which are referred to as authorized ROE, for its equity holders as the cost of equity capital. This ROE has to be approved by regulators.
It should be noted that the ROE shown in the above graph gives the last 12 months. Exelon refers to “Legacy Exelon Utilities” as one of its subsidiaries, excluding Pepco.
Many of Exelon’s utilities are currently generating lower ROE, and there seems some room to garner higher ROE as allowed by the state regulators.
In the next part, we’ll assess Exelon’s debt profile.