Can Exelon Still Compete Against Duke Energy and Southern?

Exelon (EXC 0.65%) will release its quarterly report on Wednesday, and the utility has continued to see its stock price languish in recent months, hitting a new decade-low. The cost-effectiveness of natural gas has hurt Exelon's former competitive advantage in nuclear power production, but will the same trends that have vaulted rivals Southern (SO 0.89%) and Duke Energy (DUK 0.71%) to higher profits eventually reverse and give Exelon a chance at its own growth prospects?

Exelon saw impressive performance in the years leading up to the financial crisis, as prices for oil and natural gas soared in a commodity boom that made nuclear power look extremely cheap by comparison. More recently, though, the explosion in production of natural gas has revolutionized the power-generation industry, with Southern, Duke, and other players looking closely at converting coal-fired power plants to natural gas and making generation a lot cheaper overall. Can Exelon respond, or does it have to wait and hope for higher gas prices in the future? Let's take an early look at what's been happening with Exelon over the past quarter and what we're likely to see in its report.

Stats on Exelon

Source: Yahoo! Finance.

Can Exelon turn its earnings around this quarter?
Analysts have kept pulling back on their views about Exelon earnings in recent months, cutting third-quarter estimates by $0.02 per share and reducing their full-year 2013 and 2014 projections by 1%-3%. The stock has continued its downswing, falling another 10% since late July.

Exelon's second-quarter report continued its streak of downbeat performances, as the utility managed to top revenue estimates but fell short on net income. That's consistent with Exelon's longer-term performance, as sales have consistently risen but adjusted profits have plunged by about two-thirds over the past year.

Unfortunately, things don't look like they'll improve for Exelon and peers Southern and Duke Energy on the pricing front anytime soon. Auctions for electricity capacity in future years drive the majority of Exelon's generation-fleet results, and projections for lower power prices well into the future have hurt Exelon's long-term prospects.

In response, Exelon has focused much more on its regulated-utility businesses, which serve 6.6 million customers in Pennsylvania, Maryland, and Illinois. With plans to turn to regulators for rate increases, Exelon has a better chance at reaping growth in that segment than in the wholesale power-generation business. Duke Energy recently got a rate hike of more than 8% over the next two years for its South Carolina operations, although Southern has seen more controversy in requests to regulators for higher rates.

Exelon is also pressing for more dramatic policy changes in the industry. Pushing for smart electric meters could enable Exelon to better serve customers by helping it manage base-load demand as prices change from hour to hour. At the same time, ensuring continued credits for renewable energy will also help Exelon as it diversifies further beyond its nuclear focus.

In the Exelon earnings report, watch to see how the utility's efforts at containing costs and raising revenue are going. In the long run, Exelon most needs higher natural-gas prices to make its generation business more competitive against Southern and Duke Energy, but initiatives to focus on higher-growth opportunities could bear fruit in the meantime.

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