Federal and state policies to aid struggling nuclear and coal-fired generators loomed large as Exelon Corp. reported its 2017 fourth-quarter earnings Feb. 7. Investors peppered Exelon's executives about the next steps for the U.S. Department of Energy's failed proposal on grid resiliency, seeking clarity on how Exelon will engage in the Federal Energy Regulatory Commission's new docket exploring the issue.
Exelon reported fourth-quarter 2017 adjusted operating earnings of $536 million, or 55 cents per share, compared with $410 million, or 44 cents per share, in the prior-year period. The S&P Capital IQ consensus normalized EPS estimate for the 2017 fourth quarter was 60 cents per share.
CEO Christopher Crane said 2017 brought a recognition of the need to address the resiliency of the power system as a whole through the DOE's controversial proposed rule. While FERC rejected that proposal in January, the commission did open a new proceeding to examine the issue further. This new docket, Crane said, is an important step to addressing resiliency concerns. He also noted that Exelon is urging FERC to adopt a power price formation proposal created by the PJM Interconnection, and a comprehensive long-term resiliency solution.
Joseph Dominguez, Exelon executive vice president of governmental and regulatory affairs and public policy, said PJM will lead the way on the resilience issue with its price formation proposal either through a FERC-directed process within the context of the resiliency proceeding or through a stakeholder process at PJM. Dominguez said the leadership shown by FERC and PJM gives him confidence that reforms will be implemented in 2018, especially given recent testimony by PJM CEO Andy Ott on the issue.
Exelon was one of the utilities impacted by a major cold snap in January across the Northeast. Crane said the company's fleet, including nuclear facilities, performed very well and demonstrated their value as a highly reliable carbon-free source of power.
On the state policy front, Crane reported that zero-emissions credit programs in New York and Illinois have preserved and extended the useful lives of the company's "most valuable nuclear plants." Crane said Exelon will continue to defend the programs and promote similar rules in New Jersey and Pennsylvania.
Also on executives minds is tax reform, and Crane reported that the changes passed by Congress at the end of 2017 are positive for Exelon. Crane explained that the tax package allows for significant savings for utility customers. CFO Jonathan Thayer said tax reform will increase Exelon's rate base by approximately $1.7 billion in 2020, compared to the company's previous expectations. Moreover, the new tax policy is expected to increase run rate EPS by 10 cents per share in 2019. Because of those benefits, Thayer said Exelon intends to pass on "meaningful savings" to utility customers across the company's subsidiaries.
"We're thrilled that our customers will benefit so much from tax reform," Thayer said.
