Exelon CEO says company is not interested in forming yieldco

Source: Jeffrey Tomich, E&E reporter • Posted: Monday, August 4, 2014

Exelon Corp. owns one of the nation’s largest electric generating fleets, competing with the likes of NRG Energy Inc. and NextEra Energy Inc.

But unlike those rivals, Chicago-based Exelon has no plans to pursue a “yieldco” to house its renewable assets, executives told analysts and investors during a conference call yesterday morning.

“We’ve leaned more toward project financing, and we think that fits our needs better than a yieldco in the long term,” Chris Crane, Exelon’s chief executive, said on the call. “So we’re not heading toward a yieldco.”

Yieldcos are just one method of equity financing for energy projects, but one gaining more traction in recent months (EnergyWire, July 29).

Princeton, N.J.-based NRG raised more than $400 million when it spun off natural gas and renewable assets into NRG Yield a year ago, and its shares have more than doubled. Shares of NextEra Energy Resources LP, a yieldco formed by Juno Beach, Fla.-based NextEra Energy Partners, rose 28 percent in its first day of trading last month.

“Where we sit, yieldcos look like a pretty attractive equity-raising mechanism,” said Travis Miller, a Morningstar analyst. “NRG Energy has done a good job monetizing its assets for shareholders.”

Andy Pusateri, an Edward Jones analyst, said there are pros and cons to yieldcos. Benefits include fetching higher multiples, as investors are willing to pay a premium for higher yields. But yieldcos may also provide a company less flexibility and draw less investor interest in a rising rate environment. Also, renewable assets are already providing tax credits, so there isn’t a huge tax savings in using a special structure, he said.

Mihoko Manabe, a senior vice president with Moody’s Investors Service, told EnergyWire last month that “most other diversified utility holding companies don’t have a big renewable portfolio” to justify forming a yieldco (EnergyWire, June 25).

Exelon, for instance, owns 3,000 megawatts of hydropower, wind, solar and landfill gas generating capacity. NextEra’s wholesale portfolio of 10,000 MW of renewable generation is part of NextEra Energy Resources.

The question about Exelon management’s take on the increasingly popular yieldco structure follows a quarter when the power industry giant made significant acquisitions to beef up its regulated utility business with the announced purchase of Pepco Holdings Inc. This week, it added to its Constellation unit with the announced purchase of Integrys Energy Services Inc.

Exelon also announced this week that it will invest in 21 MW of Bloom Energy fuel-cell projects at 75 commercial sites over the next year in California and the Northeast, with buyers including AT&T Corp.

Exelon described the agreement as a “first step” in a longer-term strategic partnership with Bloom Energy, whose fuel cells produce electricity from natural gas through a cleaner electrochemical process.

The Bloom Energy partnership “is aligned with our goals of keeping up with our customer needs and the growth in demand for distributed generation,” Crane said on yesterday’s conference call.