Exelon Reports First Quarter 2019 Results

Earnings Release Highlights

GAAP Net Income of $0.93 per share and Adjusted (non-GAAP) Operating Earnings of $0.87 per share for the first quarter of 2019
Exelon and subsidiaries upgraded by S&P and Fitch on successful execution of utility growth strategy
Supreme Court upholds the legality of the ZEC program in Illinois and New York
New Jersey BPU voted to grant ZECs to Hope Creek and Salem 1 and 2
Strong utility operations with every utility achieving top decile CAIDI performance

CHICAGO — Exelon Corporation (NYSE: EXC) today reported its financial results for the first quarter of 2019.

“Delivering clean energy to address climate change while meeting the needs of our customers and the communities we serve continues to drive Exelon’s business results. Our electric and gas companies earned top marks on key customer satisfaction and operating metrics, while our nuclear generation fleet had its best quarterly capacity factor in 10 years,” said Christopher M. Crane, president and CEO. “The Supreme Court declined to hear cases disputing Illinois’ and New York’s Zero Emissions Credit programs, preserving these states’ emissions-free nuclear power plants and the economic and environmental benefits they provide. We marked the anniversaries of our mergers with Constellation and Pepco Holdings, which not only have improved service for our customers but also increased our regulated business mix and provided more stable earnings.”

“Exelon made a strong start to 2019, with adjusted (non-GAAP) operating earnings this quarter above the midpoint of our guidance range, at $0.87 per share,” said Joseph Nigro, Exelon’s senior executive vice president and CFO. “Our strategy to invest in advanced technology and infrastructure to grow our regulated business continues to prove successful and, in recognition of this, both S&P and Fitch upgraded Exelon’s credit ratings.”

First Quarter 2019

Exelon's GAAP Net Income for the first quarter of 2019 increased to $0.93 per share from $0.60 per share in the first quarter of 2018. Adjusted (non-GAAP) Operating Earnings decreased to $0.87 per share in the first quarter of 2019 from $0.96 per share in the first quarter of 2018. For the reconciliations of GAAP Net Income to Adjusted (non-GAAP) Operating Earnings, refer to the tables beginning on page 5.

The Adjusted (non-GAAP) Operating Earnings in the first quarter of 2019 reflect lower realized energy prices and the absence of the revenue recognized in the first quarter of 2018 related to Zero Emissions Credits (ZECs) generated in Illinois from June through December 2017, partially offset by increased capacity prices at Generation. On the utility side, the Adjusted (non-GAAP) Operating Earnings reflect higher utility earnings due to regulatory rate increases at PECO, BGE and PHI and lower storm costs at PECO and BGE.

Operating Company Results¹

ComEd

ComEd's first quarter of 2019 GAAP Net Income and Adjusted (non-GAAP) remained relatively consistent compared with the first quarter of 2018. Due to revenue decoupling, ComEd's distribution earnings are not affected by actual weather or customer usage patterns.

PECO

PECO’s first quarter of 2019 GAAP Net Income increased to $168 million from $113 million in the first quarter of 2018. PECO’s Adjusted (non-GAAP) Operating Earnings for the first quarter of 2019 increased to $169 million from $114 million in the first quarter of 2018, primarily due to regulatory rate increases and the absence of the March 2018 winter storm costs.

BGE

BGE’s first quarter of 2019 GAAP Net Income increased to $160 million from $128 million in the first quarter of 2018. BGE’s Adjusted (non-GAAP) Operating Earnings for the first quarter of 2019 increased to $161 million from $129 million compared with the first quarter of 2018, primarily due to regulatory rate increases and the absence of the March 2018 winter storm costs. Due to revenue decoupling, BGE's distribution earnings are not affected by actual weather or customer usage patterns.

PHI

PHI’s first quarter of 2019 GAAP Net Income increased to $117 million from $65 million in the first quarter of 2018. PHI’s Adjusted (non-GAAP) Operating Earnings for the first quarter of 2019 increased to $118 million from $65 million in the first quarter of 2018, primarily due to regulatory rate increases. Due to revenue decoupling, PHI's distribution earnings related to Pepco Maryland, DPL Maryland and Pepco District of Columbia are not affected by actual weather or customer usage patterns.

Generation

Generation's first quarter of 2019 GAAP Net Income increased to $363 million from $136 million in the first quarter of 2018. Generation’s Adjusted (non-GAAP) Operating Earnings for the first quarter of 2019 decreased to $294 million from $474 million in the first quarter of 2018, primarily due to lower realized energy prices and the absence of the revenue recognized in the first quarter of 2018 related to ZECs generated in Illinois from June through December 2017, partially offset by increased capacity prices.

The proportion of expected generation hedged as of March 31, 2019, was 90 percent to 93 percent for 2019, 64 percent to 67 percent for 2020 and 38 percent to 41 percent for 2021.

_{1Exelon’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.}

Recent Developments and First Quarter Highlights

Credit Ratings Upgrade: On March 1, 2019, S&P upgraded Exelon and all its subsidiaries by one notch. Exelon’s issuer credit rating was raised from BBB to BBB+. On March 14, 2019, Fitch Ratings upgraded the senior unsecured rating for Exelon from BBB to BBB+ and the senior unsecured ratings of PECO and BGE to A- from BBB+. In addition, Fitch upgraded PECO’s first mortgage bonds from A to A+ and BGE’s first mortgage bonds from A- to A. Both agencies noted that their upgrades reflect Exelon’s solid 2018 financial results, which demonstrated successful execution of its value proposition to grow the utilities and harvest free cash flow from Generation to support that growth. S&P and Fitch were encouraged by Exelon’s discipline and commitment to delivering on its long-term strategy to maintain strong operational and financial measures, succeed in the execution of ZECs, improve operations and regulatory framework at PHI, and focus on utility growth. This strategy has led to a meaningful reduction in overall business risk by changing the long-term earnings profile outlook of the Company to become more regulated.

New Jersey Board of Public Utilities (NJBPU) Awards ZEC Payments: In 2017, Public Service Enterprise Group Incorporated (PSEG) announced that its New Jersey nuclear plants, including Salem, of which Generation owns a 42.59 percent ownership interest, were showing increased signs of economic distress, which could lead to early retirement. PSEG is the operator of Salem and has the decision-making authority to retire Salem. In 2018, New Jersey enacted legislation that established a ZEC program that provides 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. On April 18, 2019, the NJBPU approved the award of ZECs to Salem 1 and Salem 2. Assuming the New Jersey ZEC program operates as expected, Generation no longer considers Salem to be at heightened risk for early retirement.
Supreme Court Upholds Illinois and New York ZECs: On April 15, 2019, the U.S. Supreme Court denied the plaintiffs' petition seeking a review of circuit court decisions in Illinois and New York related to ZECs. The U.S. Supreme Court decision affirmed the right for states to create climate and clean energy policies.
ComEd Distribution Formula Rate Filing: On April 8, 2019, ComEd filed its annual distribution formula rate update with the Illinois Commerce Commission (ICC). The ICC approval is due by December 2019 and the rates will take effect in January 2020. The filing request includes a total decrease to the revenue requirement of $6 million, reflecting an increase of $57 million for the initial revenue requirement for 2019 and a decrease of $63 million related to the annual reconciliation for 2018. The revenue requirement for 2019 and annual reconciliation for 2018 provide for a weighted average debt and equity return on distribution rate base of 6.53 percent inclusive of a requested ROE of 8.91 percent.
ACE New Jersey Electric Distribution Base Rate Case: On March 13, 2019, the NJBPU issued its order providing for a net increase to ACE's annual electric distribution base rates of $70 million (before New Jersey sales and use tax) and reflecting a ROE of 9.6 percent. The new rates were effective April 1, 2019.
Nuclear Operations: Generation’s nuclear fleet, including its owned output from the Salem Generating Station and 100 percent of the CENG units, produced 45,715 gigawatt-hours (GWhs) in the first quarter of 2019, compared with 46,941 GWhs in the first quarter of 2018. Excluding Salem, the Exelon-operated nuclear plants at ownership achieved a 97.1 percent capacity factor for the first quarter of 2019, compared with 96.5 percent for the first quarter of 2018. The number of planned refueling outage days in the first quarter of 2019 totaled 74, compared with 68 in the first quarter of 2018. There were no non-refueling outage days in the first quarter of 2019, compared with six in the first quarter of 2018.
Fossil and Renewables Operations: The Dispatch Match rate for Generation’s gas and hydro fleet was 97.8 percent in the first quarter of 2019, compared with 98.1 percent in the first quarter of 2018. Energy Capture for the wind and solar fleet was 96.5 percent in the first quarter of 2019, compared with 95.2 percent in the first quarter of 2018.
Financing Activities:

On February 19, 2019, ComEd issued $400 million aggregate principal amount of its First Mortgage Bonds, 4.00 percent Series 126, due March 1, 2049. ComEd used the proceeds to repay a portion of its 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 2019 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
2019 GAAP Net Income	$0.93	$907	$157	$168	$160	$117	$363
Mark-to-Market Impact of Economic Hedging Activities (net of taxes of $12 and $10, respectively)	0.03	31	—	—	—	—	26
Unrealized Gains Related to Nuclear Decommissioning Trust (NDT) Fund Investments (net of taxes of $161)	(0.20)	(193)	—	—	—	—	(193)
Long-Lived Asset Impairments (net of taxes of $1)	—	4	—	—	—	—	4
Plant Retirements and Divestitures (net of taxes of $6)	0.02	19	—	—	—	—	19
Cost Management Program (net of taxes of $3, $0, $0, $0 and $3, respectively)	0.01	11	—	1	1	1	8
Noncontrolling Interests (net of taxes of $13)	0.07	67	—	—	—	—	67
2019 Adjusted (non-GAAP) Operating Earnings	$0.87	$846	$157	$169	$161	$118	$294

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 NDT Fund Investments (net of taxes of $45)	0.07	66	—	—	—	—	66
Merger and Integrations Costs (net of taxes of $1)	—	3	—	—	—	—	3
Plant Retirements and Divestitures (net of taxes of $32)	0.10	92	—	—	—	—	92
Cost Management Program (net of taxes of $1, $0, $0 and $1, respectively)	0.01	5	—	1	1	—	3
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

Note:

Amounts may not sum due to rounding.

Unless otherwise noted, the income tax impact of each reconciling item between GAAP Net Income and Adjusted (non-GAAP) Operating Earnings is based on the marginal statutory federal and state income tax rates for each Registrant, taking into account whether the income or expense item is taxable or deductible, respectively, in whole or in part. For all items except the unrealized gains and losses related to NDT fund investments, the marginal statutory income tax rates for 2019 and 2018 ranged from 26.0 percent to 29.0 percent. Under IRS regulations, NDT fund investment returns are taxed at different rates for investments if they are in qualified or non-qualified funds. The effective tax rates for the unrealized gains and losses related to NDT fund investments were 45.4 percent and 40.3 percent for the three months ended March 31, 2019 and 2018, respectively.

Webcast Information

Exelon will discuss first quarter 2019 earnings in a one-hour conference call scheduled for today at 9 a.m. Central Time (10 a.m. Eastern Time). The webcast and associated materials can be accessed at www.exeloncorp.com/investor-relations.