Exelon Fights Low Commodity Prices, Sandy Costs in 2012, Expects Benefits from Constellation Merger

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading U.S. energy company Exelon Corporation (NYSE:EXC) (Chicago, Illinois) battled rough market conditions in fourth-quarter and full-year 2012. Despite a beneficial merger with Constellation Energy (NYSE:CEP) (Baltimore, Maryland), the company endured lower commodity prices, reduced low-growth expectations, and a major storm in two service areas. Net income was reported to be $378 million for the quarter, a 37.62% decrease from fourth-quarter 2011, and $1.16 billion for the year, a 53.51% decrease from 2011.

Exelon executives noted that results were not as dramatically low when excluding irregular and one-time expenses, such as the mark-to-market effects of economic hedging activities; plant retirements and divestitures; costs related to the company's merger with Constellation; the amortization of commodity contract intangibles and the fair value of certain debt; asset retirement obligations; and unrealized gains related to Nuclear Decommissioning Trust Fund investments. With these adjustments, income was $547 million for the quarter, an increase of less that 1% from the same period last year, and $2.33 billion for the year, a 15.67% decrease from 2011.

Consolidated operating revenues stood at $6.28 billion for the quarter, a 44.19% increase from fourth-quarter 2011, and $23.49 billion for the year, a 23.22% increase from 2011. Exelon's major segments include ComEd, which covers transmission and distribution operations in Northern Illinois; PECO, which covers transmission, distribution, and retail natural gas distribution in southeastern Pennsylvania; and BGE, which covers the same in central Maryland. Retail electric deliveries improved in PECO and were down only 0.1% in ComEd during the fourth quarter, while weather had a mostly favorable effect on Exelon's bottom line, with a major exception being higher storm costs incurred from Superstorm Sandy in PECO and BGE.

The ComEd segment also benefited from a Rehearing Order issued by the Illinois Commerce Commission that addressed pension asset recovery and other issues. The result was a $135 million pre-tax revenue increase for ComEd.

Exelon's largest segment, Generation, consists of owned and contracted electric generating facilities, and wholesale and retail electric and natural gas products and services, including renewable energy products. The segment's earnings were negatively affected in the fourth quarter by lower market prices for energy sales and higher nuclear fuel costs. Earnings also were affected by lower capacity pricing in parts of the Eastern U.S. power grid.

Capital expenditures were reported to be $5.79 billion for 2012, compared with $4.04 billion in 2011. The company incurred higher maintenance and operating expenses during the quarter and year.

Industrial Info is tracking $1.87 billion in projects involving Exelon, including a planned $400 million in power uprates at the Peach Bottom Nuclear Power Station in Delta, Pennsylvania. The project involves performing power uprates in two GE Hitachi boiling water reactors that power two GE turbine generators by replacing feedwater heaters, steam dryers (if approved), valves and other equipment to extend the units' lives and reliability.

"2012 was an important and eventful year for Exelon," said Christopher Crane, the president and chief executive officer of Exelon, in a conference call. "In March, we completed our successful merger with Constellation; in addition to over $550 million in expected synergies, the transaction resulted in commercial balance of generation and load, reducing earnings volatility in our merchant business."

Most of the declines in quarterly and annual earnings came from the Generation segment:

• The Generation segment reported net income of $137 million for the quarter, a 69.28% decrease from the same period last year, and $562 million for the full year, a 68.27% decrease from 2011. Operating revenues stood at $3.93 billion for the quarter, a 55.38% increase from the same period last year, and $14.44 billion for the full year, a 38.19% increase from 2011.
• The ComEd segment reported net income of $160 million for the quarter, a 32.23% increase from the same period last year, and $379 million for the full year, an 8.89% decrease from 2011. Operating revenues stood at $1.29 billion for the quarter, a 5.36% decrease from the same period last year, and $5.44 billion for the full year, a 10.12% decrease from 2011.
• The PECO segment reported net income of $79 million for the quarter, an 8.22% increase from the same period last year, and $377 million for the full year, a 2.08% decrease from 2011. Operating revenues stood at $790 million for the quarter, a 1.54% increase from the same period last year, and $3.19 billion for the full year, a 14.35% decrease from 2011.
• The BGE segment reported net income of $15 million and operating revenues of $703 million for the quarter, and a net loss of $42 million and operating revenues of $2.09 billion for the year.
• Other segments reported a total net loss of $13 million for the quarter, compared with a net loss of $34 million in the same period last year, and a net loss of $116 million for the full year, compared with a loss of $77 million in 2011. Operating revenues stood at a loss of $426 million for the quarter, compared with a loss of $310 million in the same period last year, and a loss of $1.67 billion for the full year, compared with a loss of $1.16 billion in 2011.

"Over the last three years, we've invested over $6 billion across the energy value chain via organic growth in mergers and acquisitions, which does not include our merger with Constellation," Crane said in the conference call. "This includes upstream activities, conventional gas-fired generation, nuclear uprates, renewable generation, investment in our utilities, and expansions into our retail platform." He expects Exelon to capitalize on these investments throughout 2013.

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