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TMFDeej (99.47)

POWER! POWER!!! POWER!!!

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May 11, 2009 – Comments (6) | RELATED TICKERS: EXC

 

I realize that utilities are usually fairly boring, but I am excited about this company so I took a piece of advise from the comments section of my previous post and spiced up the title of this one a little bit.

Using the Energy Information Administration's projections that U.S. electricity demand will grow by 50% over the next 30 years, the Nuclear Regulatory Commission Commissioner Kristine Svinicki estimates that America will need the equivalent of 50 new 1,000-mega-watt nuclear power plants for nuclear energy to continue to generate the 20% of American power that it does today.

This statement brings me to a company that I am long and have been extolling the virtues of here on CAPS for some time, Exelon (EXC). 

Exelon is the United States' second largest generator of nuclear power.  While many people hate nuclear, no new nuclear plants have been built in the U.S. since 1979 (I suppose that I wouldn't want one built in my neighborhood either), it fits the bill in being a low carbon source of electricity.  If the current Administration is successful in getting some sort of cap and trade or carbon tax law passed it would be tremendous for clean power companies like EXC.  If not, the naturally growing need for power cited above and embedded call option that plug-in electric vehicles may become reality and actually popular in the future should be more than enough to lift this well-run company on their own.

Despite the slumping economy, which hurts the demand for power, EXC managed to raise its net income by 23% during the first quarter.  Plus, the company reaffirmed its guidance for the rest of the year.

With a dividend yield of 4.2%, Excelon is a company that pays investors, who are its rightful owners, to come along for the ride on the rising tide of a growing need for power and the government's desire for that power to come from clean, domestic sources.

Deej

Long EXC

6 Comments – Post Your Own

#1) On May 11, 2009 at 2:26 PM, motleyanimal (97.93) wrote:

Electricity costs are going to become very expensive even without cap and trade. Wind and solar only produce 18% of capacity and still do not recover their production costs after decades of use before they are obsolete.

My electric bills are set to rise 13% over the next two years due to mandatory green energy requirements in California and a decline in hydroelectric resources. My solution will be to use more firewood in the winter months. The tree I took down two weeks ago will provide about 2 1/2 cords of wood and heat for 1-2 years.

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#2) On May 11, 2009 at 2:57 PM, HansHauge (37.73) wrote:

Deej, do you worry that the government will increase their meddling in the power industry? I have been studying the great depression, and most recently reading the book "The forgotten man" by Amity Shaels.

I can't help but wonder if utilities are put at risk by government intervention as they were back in the days of Hoover and Roosevelt.

There was a great power struggle (pardon the pun) during and after the Great Depression between the administration and private companies over who would supply power to the public. What are your thoughts on this?

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#3) On May 11, 2009 at 3:08 PM, TMFDeej (99.47) wrote:

Good question Hans.  I also read The Forgotten Man.  No one knows for certain what the future holds in terms of future government regulation of industries, but I personally feel as though the danger of the complete nationalization of power companies is long gone. 

Back during the New Deal, the government used taxpayer dollars to create cheap competition for public power companies.  The need for power is so much greater today than it was back when the public versus private power company debate was going on.  I don't think that the government could supply anywhere near enough power for the country even if it wanted to. 

To me, the greatest risk of government overregulation today comes on the environmental side, from some sort of cap and trade system.  Who knows what would happen if one was passed.  It could have the unintended consequence of making producing "stuff" in the United states much more expensive doing so abroad and it theoretically could act as a drag on economic activity as it forces consumers to pay more for power.  Before I get yelled at by someone, I'm not saying that I hate the environment or that pollution controls are a bad thing...just that one has to think about all of the potential consequences of their actions before making drastic changes.

If some sort of carbon tax comes to pass, owners of clean power companies like EXC and FPL will be amongst the biggest beneficiaries.

Deej

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#4) On May 11, 2009 at 6:33 PM, soycapital (< 20) wrote:

"My solution will be to use more firewood in the winter months. The tree I took down two weeks ago will provide about 2 1/2 cords of wood and heat for 1-2 years."

I hope you paid your carbon tax on that tree! What were you thinking you animal!

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#5) On May 12, 2009 at 4:12 PM, HansHauge (37.73) wrote:

LOL @ soy!

Thanks Deej, good insight.

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#6) On May 13, 2009 at 7:03 PM, stan8331 (95.97) wrote:

Looks pretty good to me.  Lately Iv'e begun to realize how powerful dividends can be, especially in a tax-free retirement portfolio.  My hesitation with Exelon would be the relatively high debt ratio, but they do seem very likely to profit from any anti-carbon initiatives.     

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