Exelon Corp. (EXC:US), the biggest U.S. utility owner, said it will pay $800 million of a $1 billion electricity rate settlement announced yesterday by Illinois officials. The other utility owner involved, Ameren Corp. (AEE:US), said its portion will cut earnings this year.
Exelon's generation unit, the largest operator of nuclear- power plants in the U.S., will fund $747 million in refunds and discounts over four years and utility Commonwealth Edison will pay $53 million, Exelon said today in a statement. Ameren said separately its $150 million portion will cut profit this year by about 26 cents a share.
Illinois electricity bills surged in January as utilities began buying power at higher prices set in a state-supervised auction in September aimed at opening the state's power market to competition. The agreement would end a seven-month dispute in which state lawmakers threatened to cut rates and the companies countered their utilities would go bankrupt.
Jim Halloran, who manages $35 billion at National City Private Client Group in Cleveland and has held on to 1.1 million Exelon shares and 50,000 Ameren shares throughout the controversy, said he expected Exelon would pay between $750 million and $800 million.
The compromise calls for a new Illinois Power Agency that would buy power for utilities. The agency also could build plants or authorize utilities to build them. Exelon's Commonwealth Edison, which sells power to 70 percent of people in Illinois and Ameren's three utilities, sold its power plants as the state opened its wholesale power markets to competition.
``It ends the debate over electric rates in Illinois in a productive manner,'' Commonwealth Edison Chief Executive Officer Frank M. Clark said in today's statement. ``This settlement moved the competitive model forward in Illinois.''
The agreement preserves the ability of Exelon to spin off Commonwealth Edison from the generation unit, Clark said today in a conference call with reporters. Such a decision is up to Exelon Chief Executive Officer John W. Rowe and Exelon's board and ``I know of no immediate plans to do a spinoff of Com Ed,'' he said.
The deal also clears the way for Commonwealth Edison to seek a rate increase based on higher electric delivery costs later this year, Clark said. An unfavorable ruling on delivery rates cut Commonwealth Edison's profit this year, Exelon has said.
The agreement scraps the annual power auction, which Illinois Attorney General Lisa Madigan had complained led to price manipulation and inflated prices.
Changing to a process in which the state power agency solicits sealed bids and has authority to negotiate lower prices will change only bidding strategy by generators, Halloran said.
``Politicians may think they were born and bred smarter but they're not,'' Halloran said. ``A utility guy is not going to bid against himself.''
Commonwealth Edison customers will get $413 million in rate relief, including $250 million this year, Anne Pramaggiore, the utility's chief of regulatory affairs, told reporters. The result will be a 13.5 percent average power-bill increase, down from a 24 percent increase that took effect in January. The average household will pay $7 a month less this year, she said.
Exelon didn't provide an estimate of the effect on its earnings over the four years covered by the settlement. St. Louis-based Ameren said earnings (AEE:US) next year will be reduced by 11 cents a share and results in 2009 and 2010 will have reductions of 7 cents and 1 cent, respectively.
Ameren had been expected to earn $3.53 a share, excluding some items, in 2007, the average estimate of 11 analysts compiled by Bloomberg. Exelon was expected to earn $4.32, the average of 18 estimates, up from $3.33 on that basis in 2006.
Power-generators Dynegy Inc. and Edison International (EIX:US) will each pay $25 million in the settlement and $1 million will be provided by MidAmerican Energy Holdings, a unit of Warren Buffett's Berkshire Hathaway, Exelon said.
Dynegy said in a filing today with the U.S. Securities and Exchange Commission it will record costs of $25 million in the 2007 second quarter to cover its part of the agreement.
Shares of Exelon, which is scheduled to report second- quarter financial results July 26, fell $4.43, or 5.5 percent, to $75.94 in New York Stock Exchange composite trading. Shares of Ameren dropped $1.54, or 3 percent, to $50.19.
Shares of other companies that draw most or all of their profit from power production, rather than regulated utility sales, also fell. NRG Energy Inc., which has an Illinois plant, dropped 6.4 percent, or $2.79, to $40.90. AES Corp. fell 5.4 percent, or $1.21, to $21.41, and Dynegy declined 6.2 percent, or 63 cents, to $9.55.
The agreement drove unjustified investor concern that other states will move to reduce profit from power generators that sell on wholesale markets, said Greg Phelps, who manages $5 billion including utility stocks at MFC Global Investment Management in Boston.
``Illinois is unique,'' said Phelps, who owns an undisclosed number of Ameren shares. ``They should change their license plate motto to `the shakedown state' because that's what they do to their utilities.''
(Exelon will hold an investor call to discuss the settlement at 11 a.m. New York time tomorrow, accessible on the company Web site at http://www.exeloncorp.com).
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