Morningstar | Exelon Continues to Identify Cost Savings, Helping Mitigate ExGen Headwinds
We are reaffirming our $37 fair value estimate and our narrow-moat and stable moat trend ratings for Exelon after the company announced adjusted third-quarter EPS of $0.88, up from $0.85 per share in the same year-ago period. Management increased the lower end of its 2018 guidance range to $3.00-$3.20 from $2.90-$3.20, consistent with our full-year expectations.During the quarter, both the Seventh and Second Circuit Court of Appeals upheld the legality of ZECs supporting Exelon's nuclear fleet in New York and Illinois. We expected a positive ruling at both courts, and have fully incorporated these states' ZEC payments into our outlook. In New Jersey, the process for implementation of the ZEC program is on track for a second-quarter initiation, with utilities having filed tariffs to recover ZEC charges. Exelon continues to actively lobby for PJM reform that would give states flexibility in securing capacity that aligns with state public policy goals.
Earned returns at the company's regulated utilities ticked up to 9.6% from the prior rolling 12-month 9.4% return. Returns were supported by favorable weather and rate case outcomes resulting in increased rates. Further outstanding rate cases should continue the positive trend in regulated returns.
Management announced $200 million in additional cost savings, with $150 million assigned to ExGen, by 2021. Management has been successful at driving efficiencies, having identified $900 million of reductions since 2015.
Exelon is a utility services holding company engaged in the generation, delivery and marketing of energy through Exelon Generation Company, LLC and the energy distribution and transmission businesses through Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company, Potomac Electric Power Company, Delmarva Power & Light Company and Atlantic City Electric Company. Through its business services subsidiary Exelon Business Services Company, LLC, the company provides its subsidiaries with a variety of support services.
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