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Exelon Corporation’s (EXC - Analyst Report) business unit, Constellation Energy Resources, LLC, has entered into a power supply agreement with the City of Chicago.

Per the agreement, the company will supply carbon emission-free power to the City of Chicago for a period of 25 months at a lower market price, reflecting a 2% discount from the last electricity contract rate. Constellation will produce electricity from its Illinois-based nuclear and natural gas generation facilities. The new rate will help the City of Chicago to reduce its electricity costs by $1.2 million over two-year period.

The City of Chicago will be utilizing the power for its Fleet and Facility Management portfolio, including police and fire stations and libraries, as well as important buildings such as the Cultural Center, Harold Washington Library, City Hall, and O’Hare and Midway airports.

In Jun 2013, the U.S. President Mr. Barack Obama announced the National Climate Plan, aimed at implementing stringent carbon pollution standards at power generation plants. In Sep 2013, the U.S. Environmental Protection Agency (“EPA”) introduced emission standards for new power plants.

As per World Resources Institute’s report, the state of Illinois has already taken several measures to control carbon dioxide (“CO2”) emission. In 2011, CO2 emissions from the state’s power sector were 2% below the 2005 level. We believe that the present agreement will enable the City of Chicago to reduce the state’s CO2 emission by 35% from the 2011 level by 2020.

After the Japanese nuclear plant accident, governments of many countries implemented stringent rules on nuclear-fuelled power generation. However, we note that Exelon has a strong expertise in nuclear operations and generates 55% of electricity from nuclear power plants. The company invests substantially to maintain its nuclear set-up while scrutinizing infrastructure at regular intervals. These positives will enable Constellation to win more power supply awards while competing with several bidders.

We appreciate Exelon’s steady effort towards diversification of its power generation portfolio. Apart from nuclear-fuelled generation facility, the company is also venturing into environment-friendly power projects as well as traditional fuel-based generation set-ups. Currently, nearly 10% of Exelon’s total production comes from renewable sources with the ratio rising gradually.

It is evident from past record that Constellation gets power supply orders from several government as well as private establishments at regular intervals. Earlier, the company had inked an agreement to supply fixed-price electricity to 20 Illinois communities.

We believe signing long-term power supply agreements on a frequent basis will enable Exelon to secure a stable revenue stream going forward. A steady cash inflow will also support the company to invest more in new projects.

Chicago, Ill.-based Exelon Corporation currently has a Zacks Rank #2 (Buy). Other stocks from the industry that are presently performing well include Brookfield Infrastructure Partners L.P. (BIP - Snapshot Report), Alliant Energy Corporation (LNT - Snapshot Report) and NiSource Inc. (NI - Analyst Report). All the three stocks carry a comparable Zacks Rank #2 (Buy).

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