Exelon CEO On Retail: "We Don't Need To Chase Volume, We Chase Margin"

During an earnings call, Exelon executives discussed their retail strategy and position.

Joseph Nigro, CEO of Constellation, said a discussion concerning market liquidity and the forward curves, "does imply that the best way for us to get to market with our generation is through our load serving business," including its retail business, as well as through wholesale load serving auctions

While Exelon's generation and retail portfolios are currently well-balanced, Nigro responded, to a question concerning additional retail acquisitions, "If we see an opportunity and it makes economic sense, I think you've seen in the past with the acquisitions of both Integrys as well as ConEd [Solutions], they've been value-enhancing to the bottom line, and we've been disciplined in how we'll do it, and we'll continue to take that approach. And if there's an opportunity in the future to bolt-on more retail that would be a good fit for our portfolio, we would definitely do that."

Another analyst asked about the effectiveness of using retail sales to C&I customers, who are sophisticated and review the same forward curves as Exelon, in hedging for additional margin, since such customers will seek to minimize retail margins on top of the forwards. The analyst asked if Exelon would shift to more mass market retail sales as an avenue to unlock greater value for its generation.

Nigro noted that Constellation is the fifth largest residential marketer in the country on the power side, "and we will continue to focus on growing that business, similar to the way we're continuing to focus to grow our commercial and industrial business."

"Like C&I marketing, it is a competitive market, and you have headroom that you have to take into account and customer behavior. But we continue to focus on all of that, and our mass market business continues to grow each year, and we've been very successful in that regard and we'll continue to push it," Nigro said

"With reasonable margins," Exelon CEO Chris Crane emphasized

"Absolutely," Nigro concurred

"The discipline that's required to continue to grow in residential, versus some competitors that may not have the same pricing margin, we don't need to chase volume, we chase margin," Crane said

Another analyst noted the recent successful Vistra Energy flotation on the New York Stock Exchange, and asked if Exelon is contemplating splitting its merchant business from its utility business, and given the recent successes from some of its peers, whether there would be now an increased probability of such action

"I wouldn't say there's an increased probability. As you would imagine, we need to look at our business strategy on some routine basis, as we do. We look at the combination of the ExGen and the Utility business right now, and our capabilities, while maintaining strong balance sheets, [to] be able to do significant investment for our customers around reliability and innovation on the utilities. So, having a free cash flow machine that's being given more certainty on its capabilities by programs like the ZEC and the fantastic work that Constellation achieves through the margins that they create, we like what we're doing right now," Crane said