1 Big Change in This Dividend Stock's Strategy

Exelon presented at the Barclays CEO Energy Conference earlier this week, giving investors a sneak peek into this company's future plans. With nuclear on the fritz and natural gas prices up and down, here's the latest on Exelon's adventures.

Competition's overrated
Exelon may have 35,000 MW of competitive capacity to its name and 20% of our nation's entire nuclear fleet, but it's got more on its mind than competition . Power prices have fallen 44% since 2008 , and competitive economies just are not what they used to be. Despite the company's 10,000 MW natural gas "hedge" on its nuclear assets, the company announced additional $350 to $400 million reductions off 2014 and 2015 sales estimates as PJM prices stay dirt cheap .

Derisked regulation
To make up for risky and potentially problematic competitive sales, Exelon is focusing on its regulated subsidiaries. Currently, the company operates three major utilities serving 6.6 million customers across Illinois, Maryland, and Pennsylvania . In the next two years, Exelon will invest a whopping $13.5 billion of growth capital into its utilities, and will push regulators for a coinciding rate base growth of 5% to 6% annually.

While the majority of each utility's rate base is allocated to electricity distribution, the company is also expanding its transmission and gas delivery services. For investors, the most important metric to keep an eye on is return-on-equity (ROE)-essentially the percentage amount that regulators allow Exelon to keep as profit. With 7% to 8% ROE at its BGE utility and 8% to 9% at ComEd, there's plenty of room for improvement .

Source: Exelon

Other utilities have been ragging on regulators for similar upgrades. Duke Energy settled with South Carolina regulators earlier this week on a 10.2% ROE, the equivalent of a 8.2% rate hike for customers over the next two years . TECO Energy bid farewell to single-digit ROE in Florida, where regulators gave the go-ahead to 10.25% ROE for TECO's Tampa Electric utility. The approval was more than welcome, considering TECO's CEO had previously expected ROE of less than 9% for 2013 .

Policy pushing
While Exelon pours capital into utilities and pushes regulators for new rates, it's also continuing to push for positive policy. Despite owning 44 wind farms capable of generating 1,300 MW of clean electricity , the utility has been an outspoken opponent of extending production tax credits for wind . A removal would've decimated wind-centric NextEra Energy's future plans to push its 10,000 MW fleet even further, but would've allowed Exelon's other energies (namely nuclear) a better chance at competitive pricing. Congress approved the extension in January, and wind power is expected to increase 34% over the next three years.

But while Exelon didn't have much luck with opposition, its support of Illinois' Energy Infrastructure and Modernization plan proved more positive. Exelon has been a leader in the push for smart grid technology, and this approval put it and fellow Illinois utility Ameren in positions to spend significantly more on these initiatives. Exelon expects the legislation to add $25 million to this year's revenue, with an additional $65 million in 2014 .

Can Exelon still cut it?
Utilities nationwide have been hit hard by declining demand and plummeting prices, and Exelon is no different. But with an eye toward regulated earnings, its sales should be more sustainable headed into the future. With current ROE's at sub-par levels, investors should also expect regulators to play nice over the next few years. And if the company can get policymakers to support its initiatives from the start, the utility will have set itself up for increasingly enviable earnings.

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The article 1 Big Change in This Dividend Stock's Strategy originally appeared on Fool.com.

Fool contributor Justin Loiseau has no position in any stocks mentioned, but he does use electricity. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo.The Motley Fool recommends Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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