In slashing Exelon's dividend by more than 40 percent Thursday, Exelon CEO Christopher Crane said the move will free up more than $700 million per year to invest in projects that can provide quick returns while the company waits for power prices to recover.
In an interview, Crane said the company would look to invest in its regulated utilities in Illinois, Pennsylvania and Baltimore where the returns it receives on its investments are regulated by law. It would also seek customers interested in contracting with Exelon for wind and solar power. Such power purchase agreements would guarantee steady and predictable returns.
"When the balance sheet is tight like it is right now, you would want to make investments that have a short investment period," Crane said. "Wind and other smaller assets really do fit that profile. Within a year, you're getting a return."
Beginning in the second quarter, Exelon's dividend will drop to $1.24 per share on an annualized basis from $2.10 per share. The company maintained the $2.10 dividend, among the highest of U.S. utilities, since late 2008.
The company said the move, which it shopped to credit raters, will ensure that the company maintains its investment grade status and will provide opportunities for "growth."
Exelon's stock has dropped by nearly two-thirds since its high in 2008. Exelon shares were up 1.5 percent to $31.45 in midday trading on the news.
"We believe that our dividend should be sized to reflect our business model and keep our balance sheet strong," Crane told analysts on a call Thursday morning. "We also think that the dividend must be sized to allow us capacity and flexibility to pursue growth that will enhance the company's long-term value."
At Exelon, all eyes are looking forward to 2015 when approximately 19,000 megawatts of coal-fired electricity plants will have retired. Coal plant retirements are expected to increase electricity prices Exelon's nuclear power plants take and help to counteract stubbornly low natural gas prices have been driving down the company's earnings.
Until then, the company faces significant headwinds and is awaiting word on several legal and regulatory matters that could add to its woes: a dispute with the IRS over a 14-year-old tax treatment, an investigation by the U.S. Nuclear Regulatory Commission, a battle with the Illinois Commerce Commission over a pending rate structure and still unknown costs associated with NRC-mandated upgrades that came out of the 2011 Fukushima Daiichi nuclear disaster in Japan.
Net income for 2012 fell to $1.16 billion, or $1.42 per share, from $2.5 billion, or $3.75 per share. In the fourth quarter, net income fell to $378 million, or 44 cents per share, from $606 million, 91 cents per share, a year earlier.
Revenue was $6.28 billion in the fourth quarter compared to $4.36 billion a year earlier. For the year, revenue rose to $23.49 billion, from $19.06 billion in 2011.
The results were within the company's guidance range.
Exelon said Thursday morning that lower prices for the energy it sells, as well as higher nuclear fuel costs, diminished earnings. Storms, including Sandy, also affected earnings at its regulated utilities in Pennsylvania and Baltimore where 1.2 million customers lost power during the super-storm.
The addition of Constellation Energy's contribution to its margins since the merger and favorable weather elsewhere helped to partially offset some losses, the company said.
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