Excelon Corp (EXC)

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I feel that EXC is due for a rebound for the following reasons:

1) 5200 MW of Power production capacity appears poised to come out of the Chicago market as Midwest generation is in default of their bond payments (see link below) and is teetering on the brink of bankruptcy. Because coal is at an economic disadvantage due to pricing it is unlikely that any other producers will step in and make the $700 million in improvements necessary to comply with the Clean Air Act. Over capacity in the Midwest power generation market has been the chief thorn in EXC's side.

http://www.reuters.com/article/2012/11/20/idUSWNA980120121120

2) Nat gas prices are now at $3.90 mmBTU and have doubled since earlier this year. The nat gas rig count has dropped precipitously as drillers are now pursuing oil rather than nat gas. I believe the nat gas producers are looking for prices to stabilize in the $4-$5 area. A couple of months ago the Cleveland Plain Dealer indicated that First Energy and Dominion were pricing 2013 power generation $5.50 MWhr reflecting the uncertainty in nat gas pricing. I believe the pricing is approaching the threshold where EXC's nuclear plants are competitive, especially if weaker players like Midwest Generation exit the market.

3) EXC's share price appears to be finding support at $28 which is approximately a 76% retracement from the $90 highs achieved in early 2008. I would not be surprised to see a retest of this Fibonacci support level. I would view such a dip as an opportunity to buy. I have filled out most of the position I desire in the past week.

4) The Obama administration is likely to make carbon tax and global warming a part of the agenda. Thus Coal burning plants are unlikely to get significant relief from the Clean Air Act and USEPA enforcement.

Illinois has allowed municipalities to seek bids from power suppliers. EXC has lost power generation contracts for many of the Chicago suburbs. Some of this is a result of some of their hedging strategies. Reportedly, many of these hedges expire in 2013 allowing EXC to price contracts more aggressively and profitably. As indicated previously, the competition which relies on nat gas generation capacity will likely increase rates for the rebids since the feedstock prices are increasing. Chicago is reportedly bidding the City's contract before year end. I think they missed the boat and will not see as sizeable a decrease in power supply rates as was gained by the suburbs. More importantly, I suspect that EXC will win this contract and it will put a solid floor in under the EXC share price (at least I have invested accordingly). It is important to recognize that the Chicago market is large and their are few companies with sufficient available capacity to reliably serve this market. Thus, EXC is well situated for this bid.

The dividend may be trimmed however, EXC has less debt than most other elec utilities making it likely that they can maintain the dividend longer than most.


FL