Hydro, Wind, and Nuclear

07/17/2014 8:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

At last count, more than half our portfolio holdings traded above my buy targets. However, we are still able to find values in an aging bull market. Here’s a look at two alternative energy plays, says Roger Conrad, editor of Conrad’s Utility Investor.

Exelon Corp. (EXC), a nuclear-focused power producer, has seen its stock give back most of the gains it scored immediately following the Environmental Protection Agency’s June 2 proposal on cutting carbon dioxide emissions from power plants.

The culprit: Maryland regulators cut merger partner Pepco Holdings’ (POM) rate increase to $8.75 million from a proposed $37.4 million. Return on equity was left at a slight increase of 9.62%. This pushback suggests that Exelon likely will have to grant concessions too, for the merger to gain approval in the state.

Also, Illinois’ attorney general charged the company with illegally asking customers to pay $87.9 million in employee bonuses. This suit could take a bite out of the company’s attempt to recover $275 million of total costs in the state.

The two key issues for company and stock are the progress of the Pepco merger and health of the wholesale power market.

Encouragingly, the deal is on track and electricity prices have held steady. We’ll learn more when the utility announces earnings toward the end of July. Until then, Exelon Corp is a buy up to $38.00 per share.

Brookfield Renewable Energy Partners LP (BEP), the world’s largest pure play on hydropower and wind power—in late June—completed its acquisition of Irish wind-generating capacity.

The partnership’s economic interest is 40% of 321 mega-watts (MW), with an additional 137 MW in construction and another 300 MW under development.

The new assets will begin to contribute cash flow in the third quarter. The CA$325 million equity offering used to pay down debt will, however, show up as dilution in the partnership’s second-quarter numbers.

Meanwhile, the CA$613 million cost of buying the rest of Exelon Corp.’s stake in the Safe Harbor hydroelectric facility will dilute the partnership’s third-quarter results, though the company is unlikely to book any cash flows until the fourth quarter.

I’ll factor out the distortion related to these timing issues in my analysis of Brookfield Energy Partners’ quarterly results, which are slated for release in early August.

In the meantime, Brookfield Renewable Energy Partners LP is a buy up to US$33.00 for those who don’t already own it.

Subscribe to Conrad’s Utility Investor here…

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