Chicago-based Exelon Corp., the largest vertically integrated investor-owned utility in the U.S., on Tuesday (Feb. 24) announced a divorce. The company said it will spin off its generating assets, primarily the largest nuclear fleet in the country, into a stand-alone, publicly traded enterprise, with the token name of “SpinCo,” while retaining its multi-state regulated transmission and distribution businesses, aka “RemainCo.”
Exelon said it expects the deal to be done by the first quarter of 2022. It requires a green light from the Federal Energy Regulatory Commission, the U.S. Nuclear Regulatory Commission, and the New York Public Service Commission. It does not require Exelon shareholder approval.
The company said, “Under the separation plan, Exelon Corporation shareholders will retain their current shares of Exelon stock and receive a pro-rata dividend of shares of the new company’s stock in a transaction that is expected to be tax-free to Exelon and its shareholders for U.S. federal income tax purposes.”
Long-time Exelon CEO Chris Crane and his management team will remain in control until the divorce is complete.
Exelon operates nuclear plants with more than 18,700 megawatts of nameplate capacity from 21 reactors at 12 facilities in Illinois, Maryland, New York and Pennsylvania. The company also has wind, solar, hydroelectric, natural gas and oil facilities in 17 states and Canada, that provide nearly 12,000 MW of nameplate capacity.
The state and federal regulated Exelon utilities provide electricity and natural gas to about 10 million customers in five states and the District of Columbia.
Reporting on the deal, Bloomberg quoted Katie Bays, a FiscalNote Markets analyst, “The market doesn’t assign a lot of value to merchant fleets.” She said hyping the remaining parent company’s share price is probably one of the main drivers for the transaction. Bays said. “A hybrid company like Exelon will trade at a discount.”
Rod Adams, a nuclear engineer and long-time observer of the business, said in an email, “Spin-cos are often a way to allow under-valued conglomerates to expose specialized subsidiaries to investors who desire more of a ‘pure play’ opportunity. I think a pure nuclear asset owner-operator might achieve high market capitalization in the next decade. Some valuable real estate is locked up inside Exelon Nuclear.”
Bloomberg noted, “Exelon is the latest company to unload power-generating or pipeline assets to focus on regulated utilities that are guaranteed more predictable returns.”
The Chicago Tribune noted that, in a call with financial analysts on Wednesday, Exelon execs said “some uncertainties – including legislation in Illinois – could affect the future of the new power generation company.” The state enacted legislation two years ago to try to keep the states’ nukes competitive in wholesale markets, but the unveiling of a massive bribery scandal in the state legislature could jeopardize the legislation.
The bribery revelations led to the defenestration of the long-time Democratic leader of the Illinois house, Mike Madigan, earlier this year.
Last fall, there was speculation that Exelon was contemplating some sort of divorce from its nuclear generating assets. That speculation turned out to be accurate.
–Kennedy Maize