Exelon/energy: Texas toast | Financial Times

If you are a lucky CEO, a strategy switch you sweat over for months will come with unexpected meteorological validation. Christopher Crane of Exelon has confirmed the US energy titan will separate its regulated business from a generation division that sells electricity at market prices. The risks and opportunities of the latter business were fortuitously highlighted by last week’s Texas deep freeze.

Peers have made the same move previously. Investors prefer steady dividends from regulated utilities over erratic profits in the freewheeling American power production industry.

Exelon this week announced that the Texas weather episode would cost it between $750m-$950m. Three Exelon power plants powered by natural gas were forced offline for a time. The peculiarities of the Texas power grid have proved so jarring that Exelon told investors it was “evaluating all options” for its business in the Lone Star State.

Exelon’s market capitalisation of roughly $40bn makes it among the largest power utilities in America. Yet its share price is less than half its peak level from 2008. Since then, the collapse in natural gas prices has hurt the profitability of the company’s vast nuclear fleet, which has struggled to compete. 

Ironically, the Texas debacle could have been a once-in-a-lifetime opportunity for a windfall. According to calculations by S&P, a one-gigawatt gas plant could have earned 80 per cent of its $1bn capital cost last week given that wholesale power price spiked to $9,000 per MW/h.

Winners and losers are emerging. For so me, such as Exelon and Germany’s RWE, extreme weather events have been nightmares. Unable to fulfil supply contracts with their own juice, they were forced to cover shortfalls on the open market. 

In addition to economic losses, Exelon was forced to post more than $1bn of collateral with Texas authorities. That forced the company to draw on its borrowing capacity. Exelon shareholders will still bear such risks from the unregulated business until a demerger. After that, they can sell the shares and stick with the safer regulated business if they choose.

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