Exelon to invest cash on hand in business

Demand for electricity, especially among industrial customers, has dropped because of the recession. As a result, utilities have been hoarding cash, cutting capital expenditures, freezing salaries and cutting jobs.

Exelon Corp., one of the nation's largest power generators that operates the ComEd utility in Chicago and the PECO utility in Philadelphia, announced last month it would eliminate 500 jobs as part of a restructuring plan in which intends to cuts operations and maintenance spending by 3.5 percent in 2009, a move expected to save about $350 million.

In a conference call with analysts Friday, Exelon Chairman and CEO John Rowe discussed what plans the company has for its cash on hand.

QUESTION: "Your cash is balance is a very robust at $1.8 billion, maybe $1.5 billion more than you what you need to run the company. You also mentioned you are expecting another $700 million in cash from operations relative to earlier estimates in 2009. So my question is whether you will consider resuming the value return policy and maybe distribute this excess cash, which is equivalent to about 4 percent of the market capitalization of Exelon or whether your intention is to accumulate cash or pay down debt in light of a potential reduction in long-term earnings power?

ANSWER: Simply put, with earnings that are relatively flat for a couple of years, it's not a very good time to increase the dividend and with Standard & Poor's and the other rating agencies' demands for better fund flow from operations to debt coverage to maintain our credit ratings, we need to keep the cash in the business right now. I mean it has been very clear on the part of the rating agencies that, with Exelon's earnings coming about three-quarters from the power markets and about one-quarter from the regulated utilities, with those numbers changing a little bit from year-to-year, the rating agencies think we have different risk characteristics than a normal utility and expect that we have a somewhat stronger balance sheet as a result. So while we are very pleased with the way the cash is building up, it doesn't really give us the opportunity to go back to the share buyback program. So our plan is to use the cash in the business and make certain the balance sheet keeps us all happy till we have better power markets or carbon prices.

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