Exelon Earnings Call Insights: Growth Strategy and Sizing the Dividend
Exelon Corp (NYSE:EXC) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Stephen Byrd – Morgan Stanley: I wanted to go back, Chris, you had a talked a bit about the growth strategy and had sort of discussed the risk tolerance on that. I just wanted to make sure that I had understood clearly that, can you talk just a bit more about as you think about the degree of merchant risk that you’re willing to, to take as you think about using your excess cash flow to grow the business over time and how you assess those versus say more contracted opportunities?
Christopher M. Crane – President and CEO: Yeah, we would at this point, we would be looking at lower certainty in returns. Well, I think we have adequate risk in the portfolio at this point. So, it would be more around contracted assets, renewables that are contracted making investments in that area, the big opportunity that we have is the growing investments we can make in the utilities. So, it would always be about value and how we think it fits in the portfolio. So I would not rule out our merchant opportunity if it was the right opportunity, but that would not be our priority at this point.
Stephen Byrd – Morgan Stanley: Just as a follow-up, Chris maybe just talking more broadly, there’s President Obama had mentioned a carbon regulation effectively recently and I was just curious from – as you all look at a landscape and the potential for carbon regulation, what’s your sense of the landscape or the prospects for carbon regulation over time?
Christopher M. Crane – President and CEO: I think there’s going to be a lot of battling over the next four years in Washington. It’s very hard to predict that they would be able to produce anything. It is not something that we’re basing ourselves on right now. I think the regulation would have a fight. We would like to see a bipartisan approach to deal with the environmental issues and would hope at some point that that will happen, but not a strong likelihood right now. David or Joe do you want to add anything to that?
Joseph Dominguez – SVP, Exelon Generation: Chris, I think you covered it. It’s Joe. I think there’s a lot of different proposals out there right now for greenhouse gas regulation of existing sources. We think that’s going to take a number of years to sort itself out. We are aware that NRDC and others have put forward some proposals and undoubtedly we will see some new proposals in the coming months. We would expect EPA to take its time with us.
Sizing the Dividend
Greg Gordon – ISI Group: I know that you went over what sounds like an extremely rigorous thought process in terms of sizing the dividend. Was this policy change previewed with the rating agencies or are we going to now sort of, is it the first time they are seeing your philosophy on the new payout?
Christopher M. Crane – President and CEO: Greg as you might imagine, we’ve had rather extensive dialogue with all the constituent agencies on this topic and throughout the year. It certainly was developed and deliberated the stress cases were analyzed and reviewed and shared with them, and I would expect that their commentary on our actions announced today will incorporate their thoughts on the impact on the dividend reduction on our overall credit outlook and ratings.
Greg Gordon – ISI Group: And as a follow-up, I noticed that the hedge profile in NiHub has increased modestly since the last disclosure, but at the same time when I look at the sensitivity that you guys disclosed to $5 change plus or minus to power prices, unless I’m reading it wrong, your 2014 and 2015 exposure is higher now than it was in the last quarterly disclosure. Is that reflective of a hedging strategy where you are trying to express your view that rates are too low and you are keeping your heat rate position open?
Kenneth W. Cornew – EVP and Chief Commercial Officer, Exelon Corporation; President and CEO Constellation: Greg, you are spot on. As we talked about, we clearly see that this upside in the market exists in heat rates. We have adjusted our hedging strategies to keep more heat rate upside than we actually had the quarter before. That’s a combination of slowing down our hedging, putting on some more put options, positions and so on some gas. So, we’ve shifted our strategy and our confidence in that heat rate upside is there and that’s what you are seeing in our hedge disclosure.