Is the low cost of natural gas what prompted utility companies to switch from coal to the recently abundant alternative? Weren't these lower input costs supposed to help utilities become more profitable? Unfortunately, as of late, input costs have been keeping the market price of electricity at a point that has begun to squeeze the margins for these power providers.
Exelon (EXC -0.29%) is the nation's largest provider of electricity generated by nuclear reactors. It is also the second-largest utility in the nation by customer base, behind Duke Energy (DUK 0.08%), after completing its merger with Constellation in March of this year. It is this merger to which management attributes much of the success for increasing revenue for the second straight quarter. However, much to the chagrin of investors, Exelon's generation business continues to be squeezed by tighter margins.
Every quarter this year has seen a reduction in profits with little end in sight. Until the price of natural gas rises, companies in the sector are likely to continue feeling the pinch. Exelon's CEO believes that if natural gas prices rose above $6, Exelon would increase its gross margin by $1.9 billion. With this outlook, the future appears bright, but only if the supply and demand for natural gas start to align more evenly.
