Exelon will divide its utility holdings and generation assets into two specialized companies beginning in 2022, company leadership announced on Wednesday.
"RemainCo," as CEO Chris Crane termed the company that will be made up of Exelon's regulated utility business, will operate across seven jurisdictions and "provide platforms to enable a transition to a clean energy economy without owning the generation," he told investors during a Wednesday earnings call. "SpinCo" will assume management of a coal-free generation portfolio to become "America's clean energy leader," Crane said.
Exelon is the latest in a series of utilities that have spun off generation assets to conform to current market expectations and investment trends, according to Edward Jones senior analyst Mike Doyle.
After a months-long strategic review, Exelon has determined that spinning the company's generation assets into a new company will be best for both business divisions, allowing each to focus on "strategies tailored to the distinct business investment profiles and meeting unique customer needs," Exelon executives told investors.
But the rather unsurprising move, Doyle said, is probably more about aligning the company with investor expectations.
"We've been seeing this kind of thing for years," Doyle said, "because the market has been rewarding utility companies where 90-95% or more of their business earnings come from regulated sources."
Investors may have once preferred conglomerates with diverse revenues, but they have become somewhat choosier, Doyle said. "Investors prefer a simpler story, a pure play, of what they're trying to own," he said. "They'd rather buy a utility and, if there's another sector they want to own in, they can choose, rather than having a hodgepodge of companies put together."
Doyle noted the move could also help Exelon de-risk its generation assets, including 21 nuclear reactors spread across three states.
"I don't think there's a market for a bunch of nuclear plants right now," Doyle said, "and all the regulation that comes with that, not to mention power prices that have been really low."
During Wednesday's earnings call, Crane touted the "strong" performance of the company's nuclear fleet, but the press release announcing the pending split of the company reported that "the company will retire uneconomic assets that negatively affect its ability to provide a reliable source of clean power."
Exelon Chief Financial Officer Joe Nigro also touted the renewable energy holdings that will be transferred to SpinCo, which Nigro said will produce one of every 9 MW of carbon-free electricity in the U.S. when it splits from Exelon.
"SpinCo is and will be the leading clean energy producer in the United States," he said. "It does not own coal-fired generation and 90% of its output is emissions free."
While SpinCo will "continue to be a leading advocate for clean energy policies aimed at preserving and growing clean energy to combat the climate crisis," Nigro said, RemainCo plans to invest $27 billion over the next four years to address customer needs and grow the company's rate base to $15 billion by 2024.
The announcement has created some uncertainty in Illinois, where the Citizens Utility Board and other advocates hope nuclear power plants operated in that state by Exelon will contribute to a clean energy transition. However, David Kolata, executive director of the Citizens Utility Board, said he remained hopeful that Illinois will pass new clean energy legislation and that the division of Exelon will in the long term help to protect ratepayers by eliminating conflicts of interest.
Crane also noted the impact of last week's events in Texas on the company, noting that several of the company's plants in Texas experienced "operational issues" and went offline as a result of extreme weather. Crane anticipated a financial impact of $750-950 million as a result, though he said a lag in available data from ERCOT and the Public Utility Commission of Texas means that Exelon will need to refine these estimates as more details become available.