Generation Spotlight – The New Exelon

Issue 9 and Volume 116.

The new company has one of the industry’s cleanest and lowest-cost power generation fleets.

By Sharryn Dotson, online editor

After its merger with Constellation Energy was completed on March 12, Exelon Corp. became a company with one of the nation’s largest power generation fleets with approximately 35,000 MW of owned power generation, including 19,000 MW of nuclear.

The combined company generates 22 percent of the nation’s nuclear power and 4 percent of all electricity in the U.S. Exelon’s 11 nuclear plants generate 80 percent of the company’s total electricity output.

The $7 billion merger quickly moved Exelon up the list of the biggest power generators in the U.S. Exelon did not always have such a smooth road when it came to business deals, but a recent market analysis from Morningstar has high hopes for its future.


Exelon was first incorporated in 2000 and was led by then-CEO John Rowe. Under Rowe’s direction, the company grew to be the second-largest power generator in the U.S. While Rowe made a lot of great decisions in expanding the company’s generation portfolio, he did not fare as well when it came to some merger attempts.

Exelon attempted to merge with New Jersey-based PSEG, but that deal was called off in September 2006. In October 2008, Exelon then offered New Jersey-based NRG Energy $6.2 billion to buy the company. NRG declined, saying Exelon had undervalued its worth. Rowe then went to NRG’s shareholders with an exchange offer for all outstanding shares of NRG’s common stock, saying that he would have preferred to negotiate directly with NRG’s board and management, but they left him no choice since they rejected the last offer. Exelon also filed a lawsuit in the Delaware Chancery Court against NRG and its directors alleging a breach of fiduciary duty by NRG’s directors for various reasons, including the failure of the directors to consider or take action on Exelon’s proposal. That move started Exelon’s bid for a hostile takeover. NRG said Exelon was trying to capitalize on the company’s weakened stock price that had fallen as a result of the economic downturn and rejected that offer as well. Exelon then raised the bid to $8 billion in July 2009, saying that it was NRG’s “best and final offer.” Exelon said it had increased the bid because of an additional $1.5 billion in potential savings from the layoff of 500 workers and taking a $40 million severance in the second quarter as part of a massive cost-cutting program. Exelon also said the extra money offered was due to NRG’s acquisition of Reliant Energy’s retail business in May 2009. However, NRG rejected the final offer, ending Exelon’s attempts at taking over NRG.

The rejections from NRG could be considered a blessing in disguise as Exelon then looked to Maryland-based Constellation Energy for a potential merger. The two companies signed an agreement in April 2011 to combine Exelon’s generation fleet and Constellation’s customer-facing business in a stock-for-stock transaction. As part of the agreement, Exelon would own approximately 78 percent of the combined company and Constellation would own 22 percent on a fully diluted basis. In addition, Exelon’s power marketing business and Constellation’s retail and wholesale business would be consolidated under the Constellation brand and headquartered in Baltimore as part of the deal. After receiving approvals from the shareholders of both companies, the U.S. Nuclear Regulatory Commission (NRC), the Federal Energy Regulatory Commission (FERC) and other state and federal regulators, the merger was completed in March.

The combined company is currently led by president Christopher Crane and executive chairman Mayo Shattuck III, the former president and CEO of Constellation. Crane also retained his title as president of Exelon Generation. He was promoted to chief operating officer of Exelon’s generation division in September 2008 and held that position until he was named president when the merger was completed. Shattuck became CEO of Constellation in 2001.

The rest of the executive branch includes Ruth Ann Gillis, executive vice president and chief administrative and diversity officer of Exelon, president of the Exelon Business Services Co. Craig Adams is the executive vice president of Exelon and the president and CEO of PECO, while Kenneth DeFontes Jr. is the president and CEO of Baltimore Gas & Electric Co. Anne Pramaggiore is the president and CEO of ComEd., and Mike Pacilio rounds out the executive branch as the president of Exelon Nuclear and the chief nuclear officer. The company is headquartered in Chicago with competitive energy sales run by Constellation out of Maryland, and the transmission and delivery side run by Baltimore Gas & Electric, Commonwealth Edison in Illinois and PECO Energy Co. in Pennsylvania.

Management touted some $8 billion of investment opportunities at its regulated utilities in 2012-2014 while emphasizing the flexibility in its $10.5 billion Exelon Generation investment plan, according to market analysis from Morningstar. Exelon said it will stay away from regulated utility mergers and acquisitions for the time being, but can still remain in the market for retail or small generation acquisitions.

Nuclear fleet & EDF’s opposition

The NRC approved the indirect transfer of operating licenses for the nuclear power plants and storage installations on Feb. 16, 2012. The combined company owns approximately 19,000 MW of nuclear capacity in its fleet. Exelon also owns approximately 50.01 percent of Constellation Energy Nuclear Group (CENG), which was jointly owned by Constellation Energy Group and EDF Inc. CENG holds licenses for five nuclear power plants: Units 1 and 2 at the 1,750 MW Calvert Cliffs plant in Maryland, units 1 and 2 at the 1,768 MW Nine Mile Point plant and the single-unit 580 MW R.E. Ginna plant, both in New York, as well as independent spent fuel storage installations at Calvert Cliffs and Ginna.

The 1,065 MW Clinton Power Station in Illinois has been running since Sept. 15, 1987. Courtesy: Exelon Corp.
The 1,065 MW Clinton Power Station in Illinois has been running since Sept. 15, 1987. Courtesy: Exelon Corp.

EDF, however, which bought half of Constellation’s nuclear power fleet in 2008 for about $4.5 billion, asked the Maryland Public Service Commission in October 2011 to block the merger, saying it would have a “negative impact” on its relationship with Constellation. The two companies had been working together to develop a new 1,500 MW Areva EPR nuclear reactor at the Calvert Cliffs plant through their joint venture, UniStar. In October 2010, Constellation pulled out of negotiations for a $7.5 billion federal loan guarantee, saying a required credit subsidy would force UniStar to pay the U.S. Treasury $880 million to obtain the loan for the reqactor. Shortly after, EDF purchased Constellation’s half of UniStar for $249 million in cash and stocks. In January 2012, EDF said it was “satisfied” with the merger agreement between Constellation and Exelon and withdrew its opposition.

The two-unit, 2,300 MW Braidwood Generating Station in Illinois underwent equipment upgrades, safety inspections and plant improvements at Unit 1 during a refueling and maintenance outage in April 2012.

According to Morningstar’s Miller, Exelon is taking a measured approach to its remaining $3.5 billion, six-year nuclear uprate program, including delaying investment at the LaSalle plant until northern Illinois power prices improve. The company already performed equipment upgrades, safety inspections and plant improvements at Unit 1 of the two-unit, 2,300 MW Braidwood Generating Station in Illinois during a refueling and maintenance outage in April 2012.


Exelon Generation was a part of NuStart Energy Development LLC, a partnership formed in 2004 to obtain a construction and operating license (COL) for new nuclear reactors in the U.S. and complete the design engineering for the Westinghouse AP1000 reactor. The AP1000 was approved by the NRC in December 2011 and a COL was approved in February for two new nuclear reactors at Southern Co.’s Plant Vogtle in Georgia. The reactors are expected to be completed in 2016 and 2017. NuStart said that it would disband on June 30.

The 1,070 MW Muddy Run Pumped Storage Facility in Maryland is used to generate electricity for peak demand. Courtesy: Exelon Corp.
The 1,070 MW Muddy Run Pumped Storage Facility in Maryland is used to generate electricity for peak demand. Courtesy: Exelon Corp.

Exelon also joined The Shaw Group and NET Power LLC to develop a new gas-fired power generation technology. The technology uses a new oxyfuel, high pressure, supercritical carbon dioxide cycle named the Allam Cycle. It inherently produces pipeline-ready CO2 for sequestration or use in enhanced oil recovery without reducing plant efficiency or increasing costs. As part of the deal, Exelon will have options for the first full-scale commercial plants when development is complete.

Market analysis

A report from Paragon Financial Limited said Exelon may be forced to take a 40 percent cut on three coal-fired power plants in Maryland that they are trying to sell before the end of August. The plants are valued at $1 billion total, but offers have ranged from $600 million to $700 million, said Travis Miller, director of utilities research for Morningstar Inc., in the report. The sale of these plants will be a sort of benchmark for other utilities that are planning on selling their coal-fired power plants, the report said.

Morningstar’s Miller gave Exelon five stars in his June 8 market analysis, saying a positive surprise was the management’s new $500 million run-rate operating cost synergy target by 2014, up from $310 million one year earlier. Management also said it would go to great lengths to protect its investment-grade credit rating if needed, possibly issuing equity, Miller said.

“We continue to believe Exelon’s cash on hand, cash flow prospects and flexible growth investment plan will allow it to support the dividend and credit metrics at least through 2014,” Miller said. “Management spent most of its dividend discussion focusing on its safety, not its growth, which leads us to believe management is not comfortable with a payout ratio around 70 percent.”

In the period ending Dec. 30, 2011, Exelon had a gross income of $6,784,000, down from $7,756,000 from the same time period the previous year. The net income from continuing operations was $2,494,000 in Dec. 2011, down from $2,563,000 in 2010.

“As expected, our lower operating earnings for first quarter 2012 reflected unfavorable market factors and mild weather,” Crane said in Morningstar’s analysis. “However, I am pleased with our continued strong operational performance, such as the 93.6 percent capacity factor achieved by our nuclear operations.”

Miller warns that, although greenhouse gas legislation and customer rates in Illinois, Pennsylvania and Maryland demand most of the attention, investors should pay attention to regulatory risks that could possibly bring down competitive electricity markets in the Midwest and Mid-Atlantic.

“Sharp increases in power prices could lead politicians and regulators to pursue price caps as they did earlier in the 2010s,” Miller said. “If market power prices are capped or regulated, Exelon loses its primary profit source. Re-regulation would also destroy Exelon’s retail business, which would eliminate Exelon’s hedge against its generation fleet.”

Exelon Corp.

Christopher Crane  
  • Incorporated: 2000
  • Based in Chicago, Ill. The Constellation business unit is based in Baltimore
  • Merged with Constellation: March 2012
  • President and CEO: Christopher Crane
  • Executive Chairman: Mayo Shattuck III
  • Operating revenues: $32.7 billion (combined for 2011)
  • Employees: 27,000 (combined for 2011)
  • The company serves 47 states, the District of Columbia and Canada with a generating capacity of 35 GW.
  • NYSE ticker symbol: EXC
  Mayo Shattuck III,
Christopher Crane is the president and CEO of Exelon Mayo Shattuck III, former president and CEO of Constellation, is the executive chairman of Exelon