Exelon Reports First Quarter 2018 Results

Earnings Release Highlights

GAAP Net Income of $0.60 per share and Adjusted (non-GAAP) Operating Earnings of $0.96 per share for the first quarter of 2018.
New Jersey zero emissions certificate (ZEC) legislation passed by both Houses of the legislature on April 12, 2018; bill awaiting Governor Phil Murphy’s signature before becoming law.
Pepco filed settlement agreements for distribution rate cases in Washington, D.C., and Maryland on April 17, 2018, and April 20, 2018, respectively.
More than $500 million in ongoing annual savings will go to Exelon’s electric and gas distribution customers as part of the Tax Cuts & Jobs Act (TCJA).
Reiterating non-GAAP earnings per share (EPS) guidance of $2.90-$3.20 per share in 2018 and providing EPS guidance of $0.55-$0.65 per share for the second quarter of 2018.

CHICAGO — Exelon Corporation (NYSE: EXC) today reported its financial results for the first quarter 2018.

“Exelon had a strong first-quarter, delivering significant financial, operational and policy results. New Jersey followed New York and Illinois to create a ZEC program that more properly values the clean energy attributes of nuclear power, preserves thousands of jobs, and provides customer and economic benefits that outweigh costs by a factor of 6 to 1,” said Christopher M. Crane, Exelon’s President and CEO. “Pepco also reached constructive distribution rate case settlements in Washington, D.C., and Maryland that will support continued investments to improve efficiency, reliability and customer service. The sharing of resources across our utilities platform resulted in faster and more efficient power restoration following the three nor’easters that struck the mid-Atlantic in March, as more than 1,200 ComEd employees and contractors were deployed to the region to aid recovery efforts. As part of our continuing commitment to protect the environment, we also launched a new goal to reduce greenhouse gas emissions from our internal operations by 15 percent by 2022.”

“Exelon once again delivered strong financial performance with non-GAAP operating earnings of $0.96 per share, exceeding the mid-point of our guidance range and overcoming $0.06 per share of unplanned storm costs,” said Jonathan W. Thayer, Exelon’s Senior Executive Vice President and CFO. “Exelon remains on track to meet our full-year guidance range of $2.90-3.20 per share as well as our capital allocation priorities.”

First Quarter 2018

Exelon's GAAP Net Income for the first quarter 2018 decreased to $0.60 per share from $1.06 per share in the first quarter of 2017; Adjusted (non-GAAP) Operating Earnings increased to $0.96 per share in the first quarter of 2018 from $0.64 per share in the first quarter of 2017. For the reconciliations of GAAP Net Income to Adjusted (non-GAAP) Operating Earnings, refer to the tables beginning on page 7.

Adjusted (non-GAAP) Operating Earnings in the first quarter of 2018 primarily reflect the favorable impacts of the New York Clean Energy and Illinois Zero Emission Standards, including the impact of zero emission credits generated in Illinois from June 1, 2017 through December 31, 2017, increased capacity prices, decreased nuclear outage days and tax savings related to the TCJA at Generation, favorable weather at PECO, DPL and ACE and higher utility earnings due to regulatory rate increases at BGE and PHI and higher electric distribution and transmission earnings at ComEd, partially offset by the conclusion of the Ginna Reliability Support Services Agreement and lower realized energy prices at Generation and increased storm costs at PECO and BGE.

Operating Company Results¹

ComEd

ComEd's first quarter 2018 GAAP Net Income increased to $165 million from $141 million in the first quarter of 2017. ComEd’s Adjusted (non-GAAP) Operating Earnings increased to $165 million for the first quarter 2018 from $141 million in the first quarter 2017, primarily reflecting higher electric distribution and transmission earnings. Due to revenue decoupling, ComEd is not affected by actual weather or customer usage patterns.

PECO

PECO’s first quarter 2018 GAAP Net Income decreased to $113 million from $127 million in the first quarter of 2017. PECO’s Adjusted (non-GAAP) Operating Earnings for the first quarter 2018 decreased to $114 million from $129 million in the first quarter of 2017, primarily reflecting increased storm costs related to the March 2018 winter storms, partially offset by favorable weather.

Heating degree days were up 15.5 percent relative to the same period in 2017 and were 1.1 percent below normal. Total retail electric deliveries were up 3.8 percent compared with the first quarter of 2017. Natural gas deliveries (including both retail and transportation segments) in the first quarter of 2018 were up 10.6 percent compared with the same period in 2017.

_{1 Exelon’s five business units include ComEd, which consists of electricity transmission and distribution operations in northern Illinois; PECO, which consists of electricity transmission and distribution operations and retail natural gas distribution operations in southeastern Pennsylvania; BGE, which consists of electricity transmission and distribution operations and retail natural gas distribution operations in central Maryland; PHI, which consists of electricity transmission and distribution operations in the District of Columbia and portions of Maryland, Delaware, and New Jersey and retail natural gas distribution operations in northern Delaware; and Generation, which consists of owned and contracted electric generating facilities and wholesale and retail customer supply of electric and natural gas products and services, including renewable energy products and risk management services.}

BGE

BGE’s first quarter 2018 GAAP Net Income increased to $128 million from $125 million in the first quarter of 2017. BGE’s Adjusted (non-GAAP) Operating Earnings for the first quarter 2018 increased to $129 million from $126 million in the first quarter of 2017, primarily reflecting transmission rate increases, partially offset by increased storm costs related to the March 2018 winter storms. Due to revenue decoupling, BGE is not affected by actual weather or customer usage patterns.

PHI

PHI’s first quarter 2018 GAAP Net Income decreased to $65 million from $140 million in the first quarter of 2017. PHI’s Adjusted (non-GAAP) Operating Earnings for the first quarter 2018 decreased to $65 million from $81 million in the first quarter of 2017, primarily reflecting increased uncollectible accounts expense and depreciation and amortization expense, partially offset by regulatory rate increases and favorable weather in the DPL and ACE service territories. Due to revenue decoupling, PHI's revenues related to Pepco and DPL Maryland are not affected by actual weather or customer usage patterns.

Generation

Generation's first quarter 2018 GAAP Net Income decreased to $136 million from $418 million in the first quarter of 2017. Generation’s Adjusted (non-GAAP) Operating Earnings for the first quarter 2018 increased to $474 million from $167 million in the first quarter of 2017, primarily reflecting the impact of the New York Clean Energy and Illinois Zero Emission Standards, including the impact of zero emission credits generated in Illinois from June 1, 2017 through December 31, 2017, increased capacity prices, decreased nuclear outage days and tax savings related to the TCJA, partially offset by the conclusion of the Ginna Reliability Support Services Agreement and lower realized energy prices.

The proportion of expected generation hedged as of March 31, 2018 was 91.0 percent to 94.0 percent for 2018, 63.0 percent to 66.0 percent for 2019 and 33.0 percent to 36.0 percent for 2020.

First Quarter and Recent Highlights

Tax Cuts and Jobs Act Tax Savings: The Utility Registrants have made filings with their respective State regulators to begin passing back to customers the ongoing annual tax savings resulting from the TCJA. The amounts being proposed to be passed back to customers reflect the annual benefit of lower income tax rates and the settlement of a portion of deferred income tax regulatory liabilities established upon enactment of the TCJA. The Utility Registrants have identified over $500 million in ongoing annual savings to be returned to customers related to TCJA from their distribution utility operations.

ComEd and BGE have received orders approving the pass back of the ongoing annual tax savings of $201 million and $103 million, respectively, beginning February 1, 2018. DPL received an order from the MDPSC approving the pass back of $14 million of ongoing annual tax savings beginning April 20, 2018 and a one-time bill credit to customers of $2 million for TCJA tax savings from January 1, 2018 through March 31, 2018. As further discussed below, Pepco has entered into settlement agreements with parties in both Maryland and the District of Columbia providing for the pass back of the ongoing annual tax savings beginning June 1, 2018 and July 1, 2018, respectively, and one-time bill credits to customers for TCJA tax savings from January 1, 2018 through the effective date of the rate changes. PECO’s, DPL Delaware’s and ACE’s filings are still pending and management cannot predict the amount or timing of the refunds their respective regulators will ultimately approve. For PECO, BGE, DPL Delaware and ACE, it is expected that the treatment of the TCJA tax savings through the effective date of any final customer rate adjustments will be addressed in future rate proceedings.

In addition, ComEd, BGE, Pepco, DPL, and ACE each filed with FERC to revise their transmission formula rate mechanisms to facilitate passing back to customers ongoing annual TCJA tax savings and to permit recovery of transmission-related income tax regulatory assets. PECO is currently in settlement discussions regarding its transmission formula rate and expects to pass back TCJA benefits to customers through its annual formula rate update.

PECO, BGE, Pepco, DPL and ACE recognized new regulatory liabilities in the first quarter 2018 reflecting the TCJA tax savings that are anticipated to be passed back to customers in the future.
New Jersey Zero Emission Certificate Program: On April 12, 2018, a bill was passed by both Houses of the New Jersey legislature that would establish a ZEC program providing compensation for nuclear plants that demonstrate to the NJBPU that they meet certain requirements, including that they make a significant contribution to air quality in the state and that their revenues are insufficient to cover their costs and risks. The program provides transparency and includes robust customer protections. The New Jersey Governor has up to 45 days to sign the bill with the bill becoming effective immediately upon his signing. The NJBPU then has 180 days from the effective date to establish procedures for implementation of the ZEC program and 330 days from the effective date to determine which nuclear power plants are selected to receive ZECs under the program.
Winter Storm-related Costs: During March 2018, a series of powerful nor’easter storms that brought a mix of heavy snow, ice and high sustained winds and gusts to the region that interrupted electric service delivery to customers in PECO’s, BGE’s, Pepco’s, DPL’s and ACE’s service territories. Restoration efforts included significant costs associated with employee overtime, support from other utilities and incremental equipment, contracted tree trimming crews and supplies, which resulted in incremental operating and maintenance expense and capital expenditures in the first quarter of 2018 of $93 million and $93 million, respectively. In addition, PHI's utilities recognized regulatory assets of $22 million in the first quarter of 2018 for incremental storm costs that are probable of recovery through customer rates.
Pepco Maryland Electric Distribution Base Rates Settlement: On April 20, 2018, Pepco entered into a settlement agreement with several parties to resolve all issues in the rate case and filed the settlement agreement with the MDPSC. The settlement agreement provides for a net decrease to annual electric distribution base rates of $15 million, which includes annual ongoing TCJA tax savings, and reflects a ROE of 9.5 percent. The parties to the settlement agreement have requested that Pepco’s new rates be effective on June 1, 2018. In addition, the settlement agreement separately provides a one-time bill credit to customers of approximately $10 million representing the TCJA benefits for the period January 1, 2018 through the expected rate effective date of June 1, 2018. Pepco expects a decision in the matter in the second quarter of 2018.
Pepco District of Columbia Electric Distribution Base Rates Settlement: On April 17, 2018, Pepco entered into a settlement agreement with several parties to resolve both the pending electric distribution base rate case and the TCJA proceeding and filed the settlement agreement with the DCPSC. The settlement agreement provides for a net decrease to annual electric distribution rates of $24 million, which includes annual ongoing TCJA tax savings, and reflects a ROE of 9.525 percent. The parties to the settlement agreement have requested that Pepco’s new rates be effective on July 1, 2018. In addition, the settlement agreement separately provides a one-time bill credit to customers of approximately $19 million representing the TCJA benefits for the period January 1, 2018 through the expected rate effective date of July 1, 2018. Pepco expects a decision in the matter in the second quarter of 2018.
PECO Pennsylvania Electric Distribution Rate Case: On March 29, 2018, PECO filed a request with the PAPUC seeking approval to increase its electric distribution base rates by $82 million, beginning January 1, 2019. This requested amount includes the effect of an approximately $71 million reduction as a result of the ongoing annual tax savings beginning January 1, 2019 associated with the TCJA. The requested ROE is 10.95 percent. In addition, PECO is seeking approval to pass back to electric distribution customers $68 million in 2018 TCJA tax savings, which would be an additional offset to the proposed increase to its electric distribution rates. PECO cannot predict what increase, if any, the PAPUC will approve.
Mystic Generating Station Early Retirement: On March 29, 2018, based on ISO-NE capacity auction results for the 2021 - 2022 planning year in which Mystic Unit 9 did not clear, Generation announced it had formally notified grid operator ISO-NE of its plans to early retire its Mystic Generating Station assets on June 1, 2022 absent any interim and long-term solutions for reliability and regional fuel security. The ISO-NE recently announced that it would take a three-step approach to fuel security. First, ISO-NE will make a filing soon to obtain tariff waivers to allow it to retain Mystic 8 and 9 for fuel security for the 2022 - 2024 planning years. Second, ISO-NE will file tariff revisions to allow it to retain other resources for fuel security in the capacity market if necessary in the future. Third, ISO-NE will work with stakeholders to develop long-term market rule changes to address system resiliency considering significant reliability risks identified in ISO-NE’s January 2018 fuel security report. Changes to market rules are necessary because critical units to the region, such as Mystic Units 8 and 9, cannot recover future operating costs including the cost of procuring fuel. As a result of these developments, Generation completed a comprehensive review of the estimated undiscounted future cash flows of the New England asset group during the first quarter of 2018 and no impairment charge was required. Further developments with Generation’s intended use of the Mystic Generating Station assets or failure of ISO-NE to adopt interim and long-term solutions for reliability and fuel security could potentially result in future impairments of the New England asset group, which could be material.
Nuclear Operations: Generation’s nuclear fleet, including its owned output from the Salem Generating Station and 100 percent of the CENG units, produced 46,941 gigawatt-hours (GWhs) in the first quarter of 2018, compared with 43,504 GWhs in the first quarter of 2017. Excluding Salem, the Exelon-operated nuclear plants at ownership achieved a 96.5 percent capacity factor for the first quarter of 2018, compared with 94.0 percent for the first quarter of 2017. The number of planned refueling outage days in the first quarter of 2018 totaled 68, compared with 95 in the first quarter of 2017. There were 6 non-refueling outage days in the first quarter of 2018, compared with 8 days in the first quarter of 2017.
Fossil and Renewables Operations: The Dispatch Match rate for Generation’s gas and hydro fleet was 98.1 percent in the first quarter of 2018, compared with 99.1 percent in the first quarter of 2017. The lower performance in the quarter was primarily due to outages at gas units in Texas and Alabama. The first quarter of 2018 reported performance includes Wolf Hollow II and Colorado Bend II, the two new combined-cycle gas turbine units that went into full commercial operation in the second quarter of 2017.
Financing Activities:

◦ On February 23, 2018, PECO issued $325 million aggregate principal amount of its First and Refunding Mortgage Bonds, 3.900 percent Series due March 1, 2048. PECO used the proceeds from the Bonds to refinance a portion of PECO’s First and Refunding Mortgage Bonds which were due March 1, 2018.

◦ On February 20, 2018, ComEd issued $800 million aggregate principal amount of its First Mortgage Bonds, 4.000 percent Series 124, due March 1, 2048. ComEd used the proceeds from the Bonds to refinance maturing First Mortgage Bonds, to repay a portion of ComEd’s outstanding commercial paper obligations and for general corporate purposes.

GAAP/Adjusted (non-GAAP) Operating Earnings Reconciliation

Adjusted (non-GAAP) Operating Earnings for the first quarter of 2018 do not include the following items (after tax) that were included in reported GAAP Net Income:

(in millions)	Exelon Earnings per Diluted Share	Exelon	ComEd	PECO	BGE	PHI	Generation
2018 GAAP Net Income	$0.60	$585	$165	$113	$128	$65	$136
Mark-to-Market Impact of Economic Hedging Activities (net of taxes of $69)	0.20	197	—	—	—	—	197
Unrealized Losses Related to Nuclear Decommissioning Trust (NDT) Fund Investments (net of taxes of $29)	0.07	66	—	—	—	—	66
Merger and Integration Costs (net of taxes of $1)	—	3	—	—	—	—	3
Cost Management Program (net of taxes of $1, $0, $0 and $1 respectively)	0.01	5	—	1	1	—	3
Plant Retirements and Divestitures (net of taxes of $32)	0.10	92	—	—	—	—	92
Noncontrolling Interests (net of taxes of $5)	(0.02)	(23)	—	—	—	—	(23)
2018 Adjusted (non-GAAP) Operating Earnings	$0.96	$925	$165	$114	$129	$65	$474

Adjusted (non-GAAP) Operating Earnings for the first quarter of 2017 do not include the following items (after tax) that were included in reported GAAP Net Income:

(in millions)	Exelon Earnings per Diluted Share	Exelon	ComEd	PECO	BGE	PHI	Generation
2017 GAAP Net Income¹	$1.06	$990	$141	$127	$125	$140	$418
Mark-to-Market Impact of Economic Hedging Activities (net of taxes of $19)	0.03	30	—	—	—	—	30