EXC Unit Delays Grid Upgrade Plan - Analyst Blog

By Zacks Equity Research,

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Exelon Corporation 's ( EXC ) subsidiary Commonwealth Edison Company ("ComEd") has announced to delay its plan related to installation of few important elements of its grid modernization program under the Energy Infrastructure Modernization Act ("EIMA"). The company is taking this step due to denial of two of its main appeals related to cost recovery by the Illinois Commerce Commission ("ICC").

Currently, ComEd will delay some of its key elements until the company will get outcome from the courts. The new project operation plan will be replicated in the company's today's filing.  

Initially, ICC rejected ComEd's 13 issues related to the cost recovery; subsequently the commission agreed to reconsider only 3 of the issues. Finally, the verdict allowed the company to recover only pension costs, which will result the increase of average residential customer bill by approximately 0.7%, starting at the end of October, 2012.     

EIMA was introduced by Illinois General Assembly in the last year. The purpose of this regulation is to make investment for the development and modernization of the state's electric infrastructure, creation of jobs, enhance reliability and attract investment to the state. This rule also allows the utility providers the right to recover their actual investments in the future.

To follow the EIMA, ComEd has started a 10-year investment program worth $2.6 billion. Per the program, the company will invest $1.3 billion to strengthen the electric system and an additional $1.3 billion will be deployed to adjoin new digital smart grid and advanced meter technology. In this year, the company has already invested substantial amount in smart grid technology and several projects associated with improvement of customer-reliability.

Rolling out of this program will gradually enable ComEd to add value to its customers in terms of providing electricity service with less outages and faster restoration. It also offers customers more information along with minimization of electricity bill, which is expected to be more than $2.3 billion in customer savings. In addition, this new project will create 2,000 full-time jobs in the future.

We know that utility providers invest regularly for improvement of energy transmission and distribution operations, and installation of modern technologies to provide uninterrupted services to its customers. Further, we believe it is difficult for the companies to follow these efforts with their own fund, therefore they appeal for the rate hike to recover their prior investments.

ComEd has followed the same path, but the commission rejected the company's appeal due to differentiation of some conditions. The impact of rejection of appeals will be approximately $100 million annually in 2014, which will subsequently weaken ComEd's ability to finance its future long-term investment programs.

Exelon Corporation currently retains a short-term Zacks #3 Rank (Hold Rating).  

Chicago, Illinois-based Exelon Corporation, a utility services holding company, engages in the generation, transmission, distribution and sale of electricity to residential, commercial, industrial and wholesale customers. The company competes with Ameren Corporation ( AEE ).

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EXELON CORP (EXC): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AEE , EXC

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