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Exelon: Retail Margins "Relatively Stable"
January 26, 2012
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Copyright 2010-
Exelon's Generation unit, which includes competitive retail operations, reported lower adjusted earnings for the fourth quarter of 2011 of $359 million, versus $538 million a year ago.
This $179 million decrease primarily reflected lower capacity prices, higher nuclear fuel costs, higher operation and maintenance costs, and increased depreciation and amortization expense.
These items were partially offset by the net favorable effect on energy margins primarily reflecting market and portfolio conditions in the Mid-Atlantic and Midwest regions.
Generation's average realized margin on all electric sales, including sales to affiliates and excluding trading activity, was $39.31 per megawatt-hour (MWh) in the fourth quarter of 2011 compared with $41.45 per MWh in the fourth quarter of 2010.
Market and Retail sales by Generation for the fourth quarter were 41,083 GWh, versus 32,462 GWh a year ago.
Generation's quarterly earnings on a GAAP basis were $446 million, versus $424 million a year ago.
Exelon executives also offered the following discussion concerning the retail supply business and margins during yesterday's earnings call.
Kenneth Cornew, Senior Vice President, said that retail supply is, "not the answer to the [wholesale] price decline, but the retail channel is a channel that allows for incremental margin."
"It is a channel that allows for you not to transact in the standard or over-the-counter product markets and with [the lack of] liquidity ... it's always positive to have other channels [in which] to transact and sell your power besides over-the-counter markets and standard trading hubs," Cornew said.
"We have seen retail margins be cyclical and inversely correlated to price in natural gas cycles. However, there are a couple of comments to that. The market has not really been very cyclical in the last couple of years, and has been steadily declining. The competitive environment on the retail side, particularly in new markets like Pennsylvania, where you do have many, many players looking for market share, has put pressure on margins. That being said, in our business, we're seeing relatively stable margins in the areas where we're transacting," Cornew said.
John Rowe, Exelon chairman and CEO, added, "One of the reasons Exelon was interested in acquiring Constellation is that in general, the margin, if you go all the way to the retail customer, is somewhat larger than it is just selling into the wholesale market. And indeed, Constellation has been successful in securing quite attractive margins on [a] regular basis. Now what Ken is trying to say is that when wholesale prices rise, retail margins tend to shrink a little. But when wholesale margins fall, it goes in the same direction, but there's a lag, and the retail margins get a little bit larger."
Email This StoryCopyright 2010-
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