UPDATE 2-NRG holders should reject Exelon slate -proxy firm

(Adds Exelon response, updates share price)

NEW YORK, July 10 (Reuters) - Proxy Governance Inc on Friday recommended that NRG Energy Inc (NRG.N) shareholders reject Exelon Corp's (EXC.N) attempt to elect a slate of dissident directors, an important step for the power company to achieve its hostile takeover of NRG.

"Far from being entrenched, the company's management and board are open to strategic discussions which might maximize shareholder value -- and that the issue remains what it was last September, the question of whether Exelon will pay full value for the company's existing operations and future potential," the proxy advisory firm wrote in its report.

Exelon, which raised its bid for NRG last week, made its initial hostile bid for the independent power producer in October. It is currently offering 0.545 of a share -- or about $26.32 on Friday afternoon -- for each NRG share. NRG shares currently trade around $23.40.

NRG rejected Exelon's increased bid on Wednesday, saying the offer was still too low. But the company nevertheless left the door open for talks if Exelon increases what it has characterized as its best and final offer.

Exelon, the largest U.S. nuclear power company, has proposed to expand the board to 19 seats from 14 and elect 9 new directors into those seats in order to further its bid for NRG. Shareholders are set to vote on the proposals at NRG's annual meeting on July 21.

Proxy Governance recommended shareholders should reject both proposals.

If completed, a merger between Exelon and NRG would create the nation's biggest electricity generator, with the largest number of nuclear power plants.

Exelon said it was disappointed with the Proxy Governance recommendations.

"Despite this, we continue to pursue this transaction as long as there is investor interest," the company said in a statement.

"Our focus now is to make sure NRG shareholders understand the immediate and long-term value provided by this transaction, and the implications to NRG's stock price if this transaction doesn't happen," the statement said.

NRG shares were down 56 cents, or 2.3 percent, at $23.42 and Exelon shares fell 10 cents, or 0.2 percent, to $48.34 in afternoon trading on the New York Stock Exchange. (Reporting by Michael Erman)