We think Exelon Corporation’s (EXC) Chief Lobbyist Elizabeth Moler said it best when she said that Exelon is “The President’s Utility.” President Obama was the most popular political figure during the summer of 2008 and Exelon’s stock had reached a peak of $92.13 in July 2008. In our widely followed analysis and evaluation of Exelon’s performance, we were amused at some of the responses we have seen from Exelon’s stockholders with regard to our evaluation of EXC’s performance. However, we aren’t bothered by it because many of those same critics came to realize that we were right about Exelon’s weak performance due to its business model. The catalyst that compelled Exelon stakeholders to realize we were right was when EXC’s CEO hinted at cutting Exelon’s $2.10/share annualized dividend, which represents a 6.7% yield as of Nov. 9.
Exelon was formed from the merger of PECO Energy and Unicom Corp. in October 2000. In 1999, PECO and Commonwealth Edison’s holding company Unicom agreed to a blockbuster merger that created the largest nuclear power plant operator. At the time, Unicom owned four plants with 13.47 GW of capacity and PECO owned two plants outright with 4.07 GW of capacity. PECO also owned 50% of a joint venture with British Energy called Amergen and Amergen owned four plants with 3.625 GW of capacity. The purpose of this deal was to combine to historically mediocre performing utilities located in big urban metropolitan areas which had large nuclear power operations in order to potentially take advantage of the emerging wholesale power distribution markets. Exelon later bought out British Energy’s share of Amergen and renamed it Exelon Generation LLC. For a period of time, Exelon was able to take advantage of its low operating costs for its nuclear power plants and the steadily rising prices of energy commodities (in particular natural gas, which serves as the biggest influence in wholesale power pricing decisions at the margin) in order to grow its ExGen wholesale power generation profits from $260 million in 2000 to $2.28 billion in 2008.
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