Exelon bids $6.2 billion for fossil-fuel-user NRG

If Exelon Corp.'s $6.2 billion bid for NRG Energy Inc. succeeds, it will transform the Chicago nuclear giant into a heavy fossil-fuel user.

Executives at Exelon, the parent of Peco Energy Co., said the proposed purchase of NRG, of Princeton, announced late Sunday, did not undermine Exelon's position as the nation's leading producer of low-cost, carbon-free electricity.

"We are not decreasing our nuclear footprint," Christopher M. Crane, Exelon's president and chief operating officer, said in an interview yesterday. "That is still a substantial competitive advantage."

The NRG deal would add one nuclear plant in Texas to Exelon's existing fleet of 11, which produces 18 percent of U.S. nuclear power at a lower cost than fossil-fuel-powered plants.

However, the combined companies would generate just 38 percent of their electricity from nuclear plants. Currently, Exelon uses nuclear for 68 percent of its energy production.

The portion of power generated from coal would climb from 6 percent at Exelon to 20 percent at the combined operations. That would cause Exelon to lose its position to FPL Group Inc. as the lowest emitter of carbon among the country's largest electricity producers, Crane said.

Hugh Wynne, an analyst at Sanford C. Bernstein & Co. L.L.C., of New York, told management during yesterday's conference call on the proposed deal that it was "taking a fairly radical step here in the sense of diluting your brand or your strategic advantage in investors' eyes" of having relatively little exposure to anticipated regulations of carbon dioxide emissions.

"We have no intention of backing down on our commitment to low-carbon operation," said John W. Rowe, Exelon's chairman and chief executive officer. In July, Exelon said it would spend more than $10 billion to dramatically reduce carbon emissions by 2020.

Even so, Rowe, who as CEO of Exelon predecessor Unicom Corp. oversaw the $4.8 billion sale of fossil-fuel electric plants in 1999, said Exelon had no intention of selling any of NRG's coal plants because of greenhouse-gas issues.

"A big part of the value here is in the coal, especially the Texas coal," he said.

Travis Miller, an analyst at Morningstar Inc., praised the deal because it would give Exelon plants in attractive markets at bargain prices. "We don't think it destroys the low-carbon profile the fleet already has," he said.

Miller said he expected state regulators, particularly in Texas, where NRG is the second-largest power generator, to make it tough to complete the deal because of concerns about the size of the combined companies.

NRG, which operates 48 plants that generate enough power for nearly 20 million homes, had no comment beyond confirming that it had received the offer.

Exelon's all-stock offer valued NRG at $26.43 a share, a 37 percent premium to Friday's close. The offer was 44 percent lower than NRG's 52-week high of $47.19.

Exelon's shares closed up 9 cents at $54.59 on the New York Stock Exchange. They are well off their 52-week high of $92.13.

Analysts grilled Rowe on whether he was really getting the best deal for Exelon shareholders by pursuing NRG, rather than following through on a $1.5 billion stock-repurchase plan announced last month. "This," Rowe said, "is the best thing we've looked at for a long time."