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Meghan Schiller/MEDILL

Although fourth quarter net income increased compared with the year-ago quarter, Exelon's annual net income has decreased each of the last three years.

Exelon earnings less than excellent

by Meghan Schiller
Jan 25, 2012

For most Chicago residents, a warmer than usual winter comes as a pleasant surprise. But the parent company of Commonwealth Edison Co., Exelon Corp., felt the financial repercussions of relatively balmy temperatures and reported fourth-quarter earnings that missed analyst estimates.

In the last three months of the year, Exelon’s net income rose to $606 million, or 91 cents per diluted share, from $524 million, or 79 cents per diluted share, a 16 percent increase from the year-earlier quarter. The Chicago-based company said that 2011 earnings were reduced by increased operating costs for its large nuclear fleet and more days when nuclear reactors were idle due to refueling.

Its ComEd unit recorded a profit of $121 million, up 33 percent from $91 million a year ago despite increased operating costs for its large nuclear fleet of power plants.

Even so, revenues dropped to $4.3 billion from $4.5 billion a year ago, a 5.4 percent decrease. The company cited increased operating and maintenance cost in addition to warmer than usual weather as the causes.

The warm weather resulted in a decreased demand for heating in the operating territories of two Exelon subsidiaries: PECO Energy Co. in Philadelphia and ComEd.

But despite shrinking revenues, company executives argued a strong future lies ahead. CEO John W. Rowe told analysts during a conference call that the company’s continued strength will come from continually evaluating power output, looking for ways to cut costs, and successfully completing the merger with Constellation Energy Group Inc. The acquisition is expected to be completed by April.

“Our full year 2011 operating earnings were within our guidance range as well as above our original expectations for the year,” said Rowe. “Despite the impact of adverse economic market and weather conditions, we achieved our financial commitments and operational excellence across the company.”

If Exelon suffers, the rest of the industry can’t be doing well, said Christopher Crane, Exelon’s chief operating officer. “We’re the lowest cost in stack. Where do [the other energy companies] fall and how is this sustainable?”

Wells Fargo Securities analyst Neil Kalton thinks the earnings outlook isn't surprising. "It's a tough power market. Power prices are going down and so their earnings outlook is going down."

With natural gas prices bottoming out, company executives optimistically expect a cycling-up of power prices.

"Even the transaction with Constellation doesn't reduce their exposure to power prices, but we see it as being additive value," Kalton added. "We think it's a positive merger, but if long term natural gas prices stay between three and four dollars for length time it's going to strain Exelon's outlook."

In addition to the merger, Exelon touted some of its green energy initiatives to analysts. Exelon Wind’s Michigan Wind 2 project, located in Minden City, Mich., was completed at the end of December. It is the first commercial wind project developed by the company and paves the way for the next construction on Harvest II Wind, a project set to begin in early 2012.

For all of 2011, Exelon’s net income dropped 2.7 percent to $2.5 billion, or $3.75 per diluted share, from $2.6 billion, or $3.87 per diluted share, in 2010. Annual revenue increased to $19.2 billion, a 3 percent increase from $18.6 billion.

Exelon said no 2012 earnings forecasts will be provided until the company completes its merger with Constellation.

Exelon shares closed Wednesday at $40.01, up 79 cents, or 2 percent.