Exelon Corporation (EXC) announced second-quarter 2010 operating earnings of 99 cents per share compared with operating earnings of $1.03 per share in the year-ago quarter. The results of the company outstripped the Zacks Consensus Estimate, as provided by 14 coverings analysts, by 9 cents.

The operating results exceeded the per-share guidance range of 80 cents to 90 cents provided by the company. The guidance beat was supported by strong results across all of Exelon’s operating companies.

GAAP earnings of Exelon for the second quarter of 2010 were 67 cents per share compared with 99 cents per share recorded in the year-ago period. The difference between operating and GAAP earnings during the second quarter was owing to the following one-time items: an impact of 11 cents for mark-to-market losses, primarily from Generation segment hedging activities, 10 cents for non-cash, re-measurement of income tax uncertainties, 8 cents for unrealized losses related to nuclear decommissioning trust, 2 cents for the cost associated for retirement of assets and another 1 cent for rate case settlement in Illinois.

Exelon’s operating total revenue for second-quarter 2010 was $4.4 billion versus $4.1 billion reported in the year-ago period. The actual results of the company exceeded the Zacks Consensus Estimate of $4.1 billion by $0.3 billion.

Generation

Exelon Generation achieved nuclear capacity factor of nearly 95% in the second quarter of 2010. Generation’s average realized margin on all electric sales, including sales to affiliates and excluding trading activity, was $36.87 per megawatt/hr (MWh) in the second quarter of 2010 compared with $38.96 per MWh in the second quarter of 2009.

Commonwealth Edison Company (ComEd)

In the second quarter of 2010, cooling degree-days in the ComEd service territory were up 76.3% relative to the same period in 2009 and were 39.3% above normal. ComEd’s total retail electric deliveries increased by 4.9% quarter over quarter, with gains in deliveries across all customer classes, primarily driven by favorable weather conditions.

PECO Energy Company (PECO)

Cooling degree-days in the PECO service territory were down 66.5% year over year, but were 76.5% above normal. Total retail electric deliveries were up 7.3% from last year, reflecting an increase in deliveries across all customer classes, driven by favorable weather conditions. On the retail gas side, deliveries in the second quarter of 2010 were 16.3% lower than the year-ago level, largely due to heating degree-days that were 27.8% below last year and 34.7% below normal.

Exelon reported operating net income of $656 million for the second quarter of 2010, down $27 million from the year-ago period. The year-over-year decline in earnings can be attributable to an unfavorable market at Exelon Generation Company and increased nuclear fuel costs.

Other factors contributing to the decline are higher storm costs at Commonwealth Edison Company (ComEd) and PECO, and higher depreciation and amortization expenses. The decline in interest expenses at PECO and Exelon Corporate had a positive impact on the quarterly results.

Hedging Status

Exelon’s hedging program involves the hedging of commodity risk for Exelon’s expected generation, typically on a ratable basis over a three-year period. The proportion of expected generation hedged as of June 30, 2010, is 96% – 99% for 2010, 86% – 89% for 2011 and 57% – 60% for 2012.

Others

On June 30, 2010, ComEd filed a rate increase request with the Illinois Commerce Commission (ICC) to increase revenue by $396 million. If approved, it will raise the average $86 residential monthly bill by approximately 7% or less than $6 per month. Even if approved by ICC the new rates would not take effect until June 2011.

Guidance

Exelon raised the operating earnings guidance for 2010 to a range of $3.80─$4.10 per share from the prior range of $3.70─$4.00 per share, taking into consideration the strong results in the first half of 2010. The guidance assumes normal weather for the balance of the year.

Our View

We presently maintain a short-term Zacks # 3 Rank (Hold) and longer-term Neutral recommendation on Exelon.

Based in Chicago, Illinois, Exelon Corporation, a utility services holding company, through its subsidiaries, engages in the generation, transmission, distribution and sale of electricity to residential, commercial, industrial and wholesale customers.
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