Exelon said Wednesday it plans to split into two companies, a gambit it hopes will increase value for shareholders, but one that analysts and utility watchdogs said leaves key questions unanswered.
The Chicago-based company plans to separate its publicly regulated utilities from its unit that’s among the nation’s largest owners of nuclear power plants. Exelon’s six utilities include ComEd, which serves northern Illinois.
With 10 million customers across five states and Washington D.C., Exelon serves more people than any U.S. utility. But the company’s fiscal performance has been held back by the aging nuclear plants, which have faced lower-cost competition with the decline in energy prices.
In Illinois, Exelon has proposed closing two of its six nuclear plants, Byron and Dresden, eliminating about 1,500 jobs. The threat gives the company leverage in demanding legislation to increase purchases from the plants to support carbon-free energy sources.
“Our industry is changing at a rapid pace and our customers expect us to continuously innovate to stay ahead of growing demand for clean energy, evolving business conditions and changing technology,” said Christopher Crane, president and CEO of Exelon.
“Now is the right time to take this step to best serve our customers, employees, community partners and shareholders. These are two strong, distinct businesses that will benefit from the strategic flexibility to focus on their unique customer, market and community priorities.”
Some analysts said the breakup was about the only option available to Exelon and that it may have no impact on the nuclear unit’s underlying challenges. Consumer advocates questioned whether states will be asked to bail out the nuclear plants and whether the breakup will affect public safety.
Also tied up in the issue is ComEd’s admission that it bribed associates for former Illinois House Speaker Michael Madigan to buy favorable legislation. Madigan has not been charged. ComEd agreed to a $200 million fine as part of a deferred prosecution deal and has pledged to cooperate in the federal probe.
“State legislators and governors dealing with energy legislation – as is currently occurring in Illinois – will need to be increasingly vigilant about this, since the federal Nuclear Regulatory Commission has become a rubber-stamp for the nuclear industry,” said Dave Kraft, co-founder and director of the Nuclear Energy Information Service in Chicago.
Kraft said the spinoff may be tempted to cut costs at the nuclear plants, which could affect safe operations.
Abe Scarr, director of the consumer advocacy group Illinois PIRG, said the breakup could help ratepayers but that the state Legislature should examine the ties between Exelon and ComEd. “Every year, Exelon bills hundreds of millions of dollars of services to ComEd, a subsidiary it controls, a subsidiary which can fully recover those costs from its captured customers,” he said. “Illinois policy has so far failed to adequately recognize, much less mitigate, the numerous potential conflicts inherent in this relationship.”
Andrew Bischof, senior equity analyst at Morningstar, said Exelon has been considering its options for the nuclear unit but that it has probably drawn little interest from buyers. It produces almost 12% of clean energy in the U.S., but Bischof said it “will face the same challenges of declining energy prices, changing power market rules and lack of additional subsidies as a standalone entity.”
He has a $42 per share “fair value” estimate on the stock price, meaning he’s essentially neutral on the stock. Exelon closed Wednesday at $40.19 per share, down 61 cents for the day. Last year, activist investor Corvex Management said Exelon could be worth $60 a share if broken up.
Exelon said it expects to finalize the split in the first quarter of 2022 pending shareholder and regulatory approvals. Investors will keep their Exelon shares while getting stock in the new company at a ratio to be determined.
The split will be tax-free, Exelon said, and details about management teams and company names will be announced.
The plan was announced as Exelon reported a fourth-quarter profit of $360 million, or 37 cents a share, vs. 79 cents a share for the same quarter in 2019. Earnings, adjusted for non-recurring costs, were 76 cents per share.
The results beat Wall Street expectations. The average estimate of five analysts surveyed by Zacks Investment Research was for earnings of 71 cents per share.
The energy company posted revenue of $8.12 billion in the period, down 2.6% from fourth quarter of 2019.
For the year, the company reported profit of $1.96 billion, or $2.01 per share, vs. $3.01 for 2019. Revenue fell 4% to $33.04 billion.
Exelon expects full-year earnings in the range of $2.60 to $3 per share.
Contributing: The Associated Press
