Exelon (NYSE:EXC) CEO Christopher Crane said emphatically April 30 that the Chicago-based company is not seeking a “bailout” for its nuclear fleet in Illinois.
“We are not looking for legislation for a bailout of our market nuclear fleet in Illinois,” Crane said during a quarterly earnings call that was dominated by discussion of Exelon’s agreement to buy Pepco Holdings (NYSE:POM).
On the nuclear front, Exelon is looking for a market solution to better compensate its baseload nuclear fleet, Crane said. Exelon’s nuclear units are loaded with fuel every 18-to-24 months and can typically run continuously through weather extremes, the CEO said.
Exelon has taken the public position that the production tax credit (PTC) is no longer necessary for wind-powered generation.
Exelon and Pepco have signed a definitive agreement to combine both companies in an all-cash transaction consideration of $27.25 per share, “We think this deal is the right deal at the right time for Exelon,” Crane said.
Combining with Washington, D.C.-based Pepco is a natural geographic fit with Exelon, which in 2012 closed on its merger with Baltimore-based Constellation Energy.
By acquiring Pepco and its regulated Mid-Atlantic utilities, Exelon hopes that the deal will make Exelon more attractive to the major credit-rating agencies. Crane said, however, that Exelon is not seeking a set percentage of regulated-to-non-regulated businesses.
Exelon plans to close the transaction in the second to third quarter of 2015. The companies expect to make all the necessary regulatory filings within the next 45 days.
Pepco CEO Joseph M. Rigby has previously announced his plans to retire in 2015. On April 30, Rigby praised the Exelon announcement and said it made sense for Pepco to become part of a larger, more capitalized company.
The transaction is supported by a fully committed $7.2bn bridge facility with Barclays and Goldman Sachs. Exelon expects the permanent financing plan to include a combination of Exelon equity issuance, long-term debt and corporate cash. The timing of the permanent financing is subject to a number of factors, including but not limited to market conditions.
The deal also does not close the door on future Exelon purchases. When asked, Crane said that many power generation assets now on the market are seeking a premium that Exelon was not willing to pay.
Exelon could end up divesting roughly $1bn of non-core assets to help fund the Pepco deal.
Exelon officials review weather, earnings data
The cold weather created an elevated demand for power during the first quarter, Exelon officials said.
Of the top ten all-time winter peak load records in PJM, eight occurred in January, Exelon said. Heating degree days for the quarter were higher than the 30-year normal in Philadelphia and Chicago by 15% and more than 22%, respectively. At the same time, the forced outage rate during January cold events was two to three times higher than the normal.
Exelon officials said that its 2 GW of dual-fuel plans in PJM provided value during extreme peaking periods.
“Our portfolio management team managed through this volatility extremely well, and we would have had an even more positive quarter except for outages that required us to purchase replacement power in the spot markets,” said Exelon Executive Vice President Joseph Nigro
“Calvert Cliffs was out for five days during the first extreme cold period in January, and was followed by a few other less impactful outages. This served to highlight the importance of having a balanced and diversified portfolio in fuel type, geography and commodity,” Nigro said.
The impact from power plant outages was about $125m primarily at Calvert Cliffs. With the higher spot prices experienced during the quarter, an outage for a short duration can have a significant impact, the company said.
Exelon officials said they have seen some improvement in the capacity markets for New York and New England. The company will also be looking to see the auction results next months at PJM.