The energy world is awash in price wars and environmental policy, and certain companies are ill-prepared to absorb any unforeseen regulatory shifts. But there's one utility out there offering the ultimate package: cost-competitive diversification. I'll let you in on this policy-proof company, and explain two reasons it's ready for regulation's best shot, and why now might be just the right time to pick this stock for your portfolio.

Drum roll, please...
Exelon
(NYSE:EXC) is the nation's largest power generator, with 35,000 megawatts to its name and some of the cleanest and cheapest energy around. Its total coverage includes 47 states, DC, and three Canadian provinces. In addition to its power generation division, Exelon also operates three regulated utilities with more than 6.6 million customers.

But size isn't everything, and giants fall the hardest. Where Exelon excels is its geographic and energy diversity.

Ain't no river wide enough
Those 35,000 megawatts don't make themselves, and Exelon has amassed a nationwide array of generation plants to keep America's light bulbs on. The company currently generates wholesale electricity in 20 states and three Canadian provinces.

Exc Generation Assets

Source: Exelon EEI Presentation 

Revenue is also nicely sliced up between regions:

Exc Geographic Revenue

Source: Author, data from Exelon 10-Q 

Geographic diversification is good for two reasons: population changes and the "regulatory walk away." Increasing its customer base is the most valuable way for a utility company to increase revenue, and having plants poised to power new homes across the nation is key to cost efficiency. Check out the most recent population growth data, and you'll notice that not all states are booming:

Exc Population Growth

Source: Census.gov

A 10-year glance puts countywide population shifts as high as 110% and as low as 47%.

Exc Population Growth

Source: Census.gov 

A solid state-by-state spread can also help to dull the pointed sword of unexpected regulation. With plants across North America, state policy has less of an effect on Exelon than, say, Consolidated Edison's (NYSE:ED) almost exclusively Northeast focus.

Utilities shouldn't necessarily dodge all regulation-heavy states, but Exelon's geographic presence helps it to shift and adapt its national strategy based on location-specific policies.

Energy from everything
But having plants in Alaska and Puerto Rico won't help utilities a bit if national energy policy gives a thumbs down to coal. Energy sources are the beginning and end of any utility company's success story, and diversification is paramount.

Exelon takes this notion seriously, and has made strides in recent years to adapt its energy offerings to modern day realities. The company operates the nation's largest nuclear fleet of more than 19,000 megawatts, but it's toning down its uranium infatuation and bringing in other sources to fuel its financials. Here's the quick breakdown:

Exc Energy Sources

 Source: Author, data from Exelon EEI Presentation 

As the EPA ramps up its efforts to fulfill President Obama's goal of 80% clean electricity by 2035, Exelon's energy portfolio is ahead of the game. The company operates one of the nation's cleanest fleets as measured by CO2, SO­2, and NOx. Even as Exelon moves away from dirtier sources like oil and coal, it estimates that just 5% of its current generation capacity will require capital expenditures to get it up to code with the EPA's Air Toxics rules.

In FY 2011, Exelon spent just 7% of total sales on capital expenditures, but it sports one of the highest dividends around. If we assume that Exelon isn't trying to paint a rosy picture and knows what it's doing with its money, we can infer that the company is already reaping returns on its "as is" energy portfolio.

Here's how its capex and dividend stand up against other utilities:

 

Capex-to-Revenue Ratio
(%)

Dividend
(% yield)

PPL (NYSE:PPL)

6%

4.9%

Exelon

7%

6.9%

Dynegy (NYSE:DYN) 

15%

0%

National Grid (NYSE:NGG)

22%

7.6%

Southern Company (NYSE:SO)

26%

4.5%

Duke Energy (NYSE:DUK)

30%

4.8%

Atlantic Power (NYSE:AT)

40%

9.8%

Source: Yahoo! Finance and e*trade.com

Looking ahead
With Exelon's 2012 merger with carbon-heavy Constellation, the utility still has a lot more green to go. But with goals set, investments made, and EPA benchmarks met, Exelon is eons ahead of many of its peers. A subpar quarter and fiscal cliff fears have dropped the stock price more than 15% in the last three months, and now could be the perfect time to add this clean-cut stock to your portfolio.

Justin Loiseau has no positions in the stocks mentioned above, but he does use electricity.You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo.

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