Exelon Stock's 3 Worst Nightmares

Source: Exelon. 

Exelon (NYSE: EXC  ) is off to a roaring start for 2014. After falling significantly at the end of April of last year, Exelon stock is already up 11% this year. But as the biggest nuclear user around, Exelon still has plenty of enemies. Here are the utility's three worst nightmares.

1. Cheap natural gas
Exelon owns 19,000 megawatts of nuclear generating capacity -- that's equal to 4% of the United States' entire generation fleet. But despite the company's scale, a booming natural gas revolution has left nuclear costs uncompetitive. As Exelon stock suffered, natural gas companies such as Spectra Energy (NYSE: SE  ) and its master limited partnership Spectra Energy Partners (NYSE: SEP  ) have seen shares skyrocket.

SE Chart

SE data by YCharts.

Spectra Energy and Spectra Energy Partners are loading the East Coast with natural gas pipelines, moving to exploit a competitive edge against relatively expensive Appalachian coal. .

Nuclear has been put in a tough spot here, too. Whhen Entergy (NYSE: ETR  ) announced that it would close its 604-megawatt Vermont Yankee nuclear plant, the forward basis swap for natural gas prices shot up 7% for the month the plant will breathe its last breath, showing how easily investors can switch sides to natural gas.

Spectra Energy and Spectra Energy Partners both exceeded expectations on their latest quarterly earnings, and recently received full approval to partner with NextEra Energy (NYSE: NEE  ) to install Florida's third major natural gas pipeline at a cost of $3 billion. With a whopping $25 billion in near- to midterm growth projects lined up, booming natural gas infrastructure at competitive prices is a nuclear nightmare.

2. Wind energy

Source: NextEra Energy. .

Over in the Midwest, wind power is blowing in trouble for Exelon stock. Despite owning 44 wind projects totaling 1,300 megawatts of capacity, Exelon  has opposed production tax credits that wind-centric utilities such as NextEra Energy have been fighting for all along. Wind is booming in the region, where NextEra Energy is pushing out wind power from facilities across Iowa and the Dakotas.

Source: NextEra Energy Wind Farms.

Exelon is competing in many of the same markets as wind, and the double trouble of cheap natural gas and government-supported wind energy has pushed electricity prices down 40% since 2008.

3. Clean coal

Source: Southern. 

Since the Obama administration announced a series of new air emissions standards, utilities have been closing coal plants left and right to exit before the 2016 deadline lays down steep fines for noncompliance. From 2012 to 2016, utilities have already reported 40,000 megawatts of retired coal capacity, with government estimates predicting actual closures closer to 60,000 MW.

But some companies are holding out, pushing for "clean coal" facilities that could keep this fuel within the lines of the Environmental Protection Agency's new standards. Southern (NYSE: SO  ) has poured the most money into the initiative, shelling out more than $5 billion to get its 582-megawatt Kemper County, Miss., facility up and running.

The project is 65% over budget and construction continues to be delayed, but Southern is determined to bring coal back from the brink. This is understandable, considering that natural gas profit clocks in at $3.04 per megawatt-hour, compared to $31.58 for coal, according to Bloomberg estimates. While the Department of Energy estimates that clean coal is twice as expensive as conventional coal, the numbers could still keep profit well above what Exelon could hope to nab from nuclear.

No Nuclear Nightmares, Just Sweet Dreams
Nuclear's future may still be in flux, but record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg.

For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

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  • Report this Comment On February 25, 2014, at 7:21 PM, fool1953 wrote:

    The reason Exelon has been going up is that PJM market prices for the first two months have been double what they were in 2012, 2013. This is due to high natural gas prices that should continue into the summer. Actually nuclear power is the cheapest energy(with the exception of hydo) to produce followed by coal and then natural gas. Nuclear and coal costs are very stable where as natural gas is very volatile.(check EIA data) For the first two months of this year NG costs are so high many of the NG plants are shut down. This has been mainly due to demand for heating NG because of the cold winter. Keep in mind that the margins NG supplier make on heating customers is huge compared to what they make on Power Generators, plus NG use for heating homes dwarfs that of NG used for power generation. The other thing with NG prices is that producers have been losing money because they overbuilt on rigs. Rig count within the last two years have gone down by almost 50%. Producers won't be opening them because depending on the well the profit margins are not a lot or a loss. The more efficient drilling sites have been kept open. What the NG industry wants are higher margin customers like LPG to Europe or Japan or maybe in the future a lot of NG cars. Wind and renewables are insignificant as far as competitors because they don't make much capacity and can't supply power on demand. They run at 20% capacity factors and wouldn't exist without the Government mandating them. Clean coal would just be to expensive. Also remember that if you generate power with nukes you reduce CO2 drastically. Natural gas produces CO2 and NOX, just not as much as coal. Not that I believe that is a problem. Government should back loans for nuclear power. Look at France they produce 75% of power with nuclear. Probably the only thing they do right. If we did that here and got rid of all this renewable crap we could lower the price of power. The nuclear plants have a very small foot print. They don't destroy thousand of acres like the wind turbines in which most components are built overseas. Wind is not competitive it is subsidized, if not they would all go bankrupt.

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