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updated: 2/7/2013 12:46 PM

Exelon to make first dividend cut as quarterly profit declines

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Bloomberg News

Exelon Corp., owner of the largest group of U.S. nuclear plants, will cut its quarterly dividend for the first time as falling electricity prices and expiring long-term contracts reduce profit.

Cutting the payment to shareholders will "position us to maintain our investment-grade rating, return a stable dividend and provide capacity to invest in growth," Christopher Crane, chief executive officer of Chicago-based Exelon, said in a statement today.

Exelon will reduce its dividend to 31 cents a share in the second quarter from 52.5 cents. The company hasn't cut its dividend in the 12 years since it was formed by the merger of Unicom Corp. and Peco Energy Inc. Exelon is rated BBB by Standard & Poor's, two levels above junk status.

The change in dividend was announced as Exelon reported fourth-quarter profit declined 38 percent on lower power prices and higher nuclear fuel costs. Net income fell to $378 million, or 44 cents a share, from $606 million, or 91 cents, a year earlier. Excluding one-time costs, per-share profit was a penny less than the 65-cent average of 16 analysts' estimates compiled by Bloomberg.

The 6.78 percent dividend yield offered by Exelon was the highest among its U.S. peer group as of today, according to data compiled by Bloomberg. Exelon will make a first-quarter dividend payment on March 8 to shareholders of record on Feb. 19.

"The big issue is definitely power prices," Paul Patterson, a New York-based utilities analyst with Glenrock Associates LLC, said in a phone interview before earnings were released.

Wholesale Power

Exelon faces greater exposure to falling wholesale power prices as long-term contracts that locked in higher rates expire, Patterson said. Average electricity prices have dropped 45 percent since 2008, the market's most recent peak, in the portion of PJM Interconnection LLC where most of Exelon's fleet is based, according to data compiled by Bloomberg.

Exelon is the largest U.S. nuclear operator, with 35,000 megawatts of capacity. That's enough electricity to light 28 million homes, according to U.S. Energy Department estimates. Exelon's utilities deliver electricity and natural gas to about 6.6 million customers.

The announcement was made before regular trading began on U.S. markets. Exelon, which has five buy, 18 holds and one sale recommendation from analysts, rose 0.4 percent to $30.98 yesterday in New York.

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