Exelon Corp., the largest U.S. power company by 2011 sales, fell the most in almost four years after saying it may cut its dividend for the first time to maintain an investment grade credit rating as power prices decline.
Exelon dropped 6.2 percent to $33.58 at the close in New York, the biggest drop since Dec. 4, 2008. Exelon, formed in 2000 by the merger of Unicom and Peco Energy, has never cut its regular cash dividend.
Investment grade credit is “fundamental” to about half of Exelon’s business, Chief Executive Officer Chris Crane said on a conference call today. The company’s credit is rated at the second-lowest investment grade, BBB by Standard & Poor’s and Baa2 by Moody’s Investors Service.
“With so much of their business dependent on commodity prices and given where those prices are, one should realize that potential for a dividend cut exists,” Paul Patterson, a New York-based utility analyst for Glenrock Associates LLC, said today in a telephone interview. He doesn’t own or rate the stock. “This is not your grandfather’s utility company.”
Exelon has paid 52.5 cents a share each quarter since November 2008. Benchmark wholesale electricity prices in PJM Interconnection LLC, the nation’s largest power market, have fallen 35 percent since that time to average $41.60 a megawatt-hour in October, according to data compiled by Bloomberg.
“This is a stressed period,” Crane said. “We don’t want to live on the edge.”