Is the "President's utility" destined for a 30% pop later this year?
Despite the fact that Cap and Trade legislation has already been passed by Congress, it appears to have stalled out in the Senate. This does not mean that the issue is completely dead. The government will likely attempt to utilize the public outrage associated with the recent Gulf spill to aid it in its attempt to pass some sort of climate bill. According to an article in last week's Wall Street Journal, White House to Talk Range of Energy Ideas. The current Administration now seems willing to consider backing a a watered-down version of the original bill that affects only power companies to get something through the Senate. In the article, the White House Chief of Staff Rahm Emanuel is quoted as saying the following on the subject “The idea of a ‘utilities only’ [approach] will also be welcomed...”
To me, the Administration's willingness to consider a utilities-only bill is remarkably similar to its softening its stance on healthcare to get a bill passed. If some sort of utility-only cap and trade or carbon tax is becomes law, what companies stand to benefit? At the top of the list is Exelon (EXC), one of the cleanest major power companies in the United States.
Rahm Emanuel, was heavily involved in the creation of Exelon power company in his former life. In addition to its ties with Emanuel, the Company is also the former employer of senior White House adviser David Axelrod. It even has extensive operations, six nuclear power plants, in President Obama's former home state of Illinois. In an article published in Forbes at the end of 2009, Exelon's chief lobbyist Elizabeth Moler called the company "the President's utility" (author's note, I personally think that such a statement is idiotic and irresponsible, way to bring unnecessary scrutiny upon yourself). Needless to say, Exelon has extensive ties to the current Administration, so if anyone is going to benefit from a change in the regulation of utilities they are.
The same Forbes article quotes an analyst from Bernstein Research's who believes that the making of the Climate bill that passed Congress into law would increase the present value of Exelon's earnings stream by $14 a share. That's more than a 35% increase from today's share price. Now we know that the bill that Congress passed won't make it through the Senate, but if a smaller bill that impacts only utilities is passed it would likely still be a huge boon for the company.
I'm not saying that I'm for Cap and Trade, just looking at the odds of whether it would pass and who would benefit from its passage. This will be an interesting issue to keep an eye on over the next several months.