Morningstar | Exelon Keeps Winning the Nuclear Fight, Reports First-Quarter Earnings
We are reaffirming our $43 fair value estimate and our narrow moat and stable moat trend ratings for Exelon after the company announced adjusted first-quarter earnings per share of $0.87, down from $0.96 in the same year-ago period. Management reaffirmed 2019 EPS guidance range of $3.00-$3.30, consistent with our full-year expectation.Exelon has a strong track record of lobbying and securing support for its economically challenged nuclear fleet. In New Jersey, the Board of Public Utilities voted 4-1 to award zero emission credits, or ZECs, to its partially owned Salem nuclear plant, with the first payment to be received in August. The award is for three years, plus a stub year. To date, Exelon is three-for-three, securing over $400 million in annual zero emission credits in Illinois, New Jersey, and New York.
The next challenge for Exelon is Pennsylvania, where legislation HB11 and SB510 propose to amend the Pennsylvania Alternative Portfolio Standard to include nuclear. All Exelon's nuclear generation in Pennyslvania would be eligible for the proposed $6.08-$7.90/MWh subsidy. The subsidy could add up to $2 per share to our fair value estimate, but we think the legislation is too uncertain to incorporate in our fair value estimate for now.
Pennsylvania's abundance of low-cost in-state natural gas production and generation makes it different from Illinois, New York, and New Jersey. Plentiful, low-cost gas has opponents challenging the need to prop up nuclear. However, nuclear generation still provides 39% of the state's electricity, on average. Generation retirements would require more gas use, which would make it more difficult for the state to hit lower carbon targets.
For the quarter, Exelon Generation earnings suffered from lower realized energy prices and timing of zero emission credit revenue. Exelon's regulated businesses continue to perform well. Rolling 12-month earned returns ticked up to 10.2% from 9.5% last quarter.
Management is directing the bulk of growth investment toward the regulated businesses, which we think is a good move for shareholders. Distribution rate increases, investments, and lower storm costs helped first-quarter results.
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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