Exelon enters ‘hunker down mode’ on power markets

During an earnings conference call July 31, Exelon (NYSE:EXC) President and CEO Chris Crane touched upon everything from his company’s potential purchase of EDF Group’s interest in the Constellation Energy Nuclear Group (CENG) to worrisome market conditions in the East.

Exelon announced the day before that it has agreed to assume operation of CENG nuclear plants in New York and Maryland – and secured an option to purchase EDF’s nearly 50% stake in the joint nuclear venture with Constellation Energy.

Exelon merged with Constellation in 2012. Crane said that both his company and EDF will pick investment bankers to determine a fair market price for the CENG units. The process could eventually involve “baseball-type arbitration,” Crane said.

The CENG deal allows Exelon “to do what we do best,” Crane said. Exelon is the largest nuclear operator in the United States.

The deal will immediately slash operating costs at affected smaller nuclear units, Crane said. Exelon is particularly happy to bring the 614-MW (nameplate) R.E. Ginna plant into its fleet as the move will give Exelon a bigger footprint in the New York market, Crane said.

As for the existing Exelon nuclear fleet, no reactors are in short-term danger of premature retirement, Crane said. “There is nothing on the chopping block right now,” he said in response to a question from an analyst.

This year’s premature retirement, for economic reasons, of the Dominion (NYSE:D) Kewaunee plant has caused market concern about the fate of certain small merchant nuclear units in a market where natural gas is cheap.

Exelon is looking to cut costs in connection with market realities. For example, the company has gone to a 12-month refueling schedule at the Clinton nuclear plant, Crane said.

By contrast, most U.S. nuclear plants employ either an 18-month or 24-month refueling cycle. Exelon has also cancelled plans for extended power uprates at a couple of its nuclear units, Crane noted.

Exelon has doubts about announced gas units in PJM

The Exelon chief said the company is in a “hunker down mode” on its non-utility generation. But Crane also said Exelon is among the best leveraged companies for a power market recovery.

Crane called the current competitive market situation “disappointing but not devastating.”

Exelon officials said they would raise issues of concern about the PJM Interconnection capacity markets with PJM and FERC.

Plenty of PJM coal-fired capacity is scheduled to be retired by 2016, but “will the new generation get built at these prices?” said Exelon Senior Executive Vice President Ken Cornew.

While there is a growing list of announced combined-cycle gas units planned to serve PJM markets, Crane remains skeptical about the market demand at today’s prices. “We can’t get the economics [to work] even on a brownfield site,” he said.

Crane is happy to see Exelon’s growth in the renewable sector but said he is wary of becoming too reliant on a highly-subsidized product.

Exelon said recent legislation in Illinois clears the way for installation of smart meters in the state.

Exelon’s adjusted (non-GAAP) operating earnings declined to 53 cents per share in 2Q13 from 61cents per share in 2Q12.

Earnings were hurt by lower energy margins at Exelon Generation, resulting from decreased capacity pricing related to the Reliability Pricing Model (RPM) for the PJM market, higher nuclear fuel costs, lower realized energy prices, and a reduction in load volumes. Higher operating and upkeep expenses, including labor, were also factors – along with unfavorable weather in certain service areas, the company said.

The downside was partly offset by mitigating factors including favorable income taxes, primarily reflecting an increase in investment tax credit (ITC) benefit related to the AVSR (Antelope Valley Solar Ranch) project in California. About half of that eventual 200-MW project has been installed.

Exelon Generation’s nuclear fleet, including its owned output from the Salem station, produced 34,601 gigawatt-hours (GWh) in the second quarter of 2013, compared with 35,137 GWh in the second quarter of 2012. The output data excludes the units owned by CENG.

Excluding Salem and the units owned by CENG, the Exelon-run nuclear plants achieved a 92.8% capacity factor for the second quarter of 2013, compared with 93.4% for 2Q12. The number of planned refueling outage days totaled 47 in the second quarter of 2013 versus 51 days in 2Q12. The number of non-refueling outage days totaled 31 days in 2Q13, compared with 16 days in 2Q12.

The company will add 46 MW to its wind portfolio in 2014 with the Beebe 1B project, according to Exelon.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.