February 07, 2013

 Exelon Announces Fourth Quarter and Full Year 2012 Results 

 Introduces 2013 guidance; declares first quarter dividend and sets revised dividend policy 

 

CHICAGO — Exelon Corporation (NYSE: EXC) announced fourth quarter and full year 2012 consolidated earnings as follows:

Exelon Consolidated Earnings (unaudited)

   Full Year   Fourth Quarter
  2012 2011 2012 2011
Adjusted (non-GAAP) Operating Results:     
Net Income ($ millions) $2,330 $2,763 $547 $544
Diluted Earnings per Share   $2.85 $4.16 $0.64 $0.82
GAAP Results:    
Net Income ($ millions) $1,160 $2,495 $378 $606
Diluted Earnings per Share $1.42 $3.75 $0.44 $0.91
     
“Exelon had another strong year of operational performance and closed on a very successful, transformational merger that gives us a presence across the value chain,” said Christopher M. Crane, Exelon’s president and CEO.  “Despite major storms and severe economic challenges, we delivered 2012 earnings within our guidance range.   We have revised our dividend, effective with the second quarter 2013 dividend, to position us to maintain our investment grade rating, return a stable dividend and provide capacity to invest in growth.”

Fourth Quarter Operating Results

Fourth quarter 2012 earnings include financial results for Constellation Energy and Baltimore Gas and Electric Company (BGE).  Therefore, the composition of results of operations from 2012 and 2011 are not comparable for Exelon Generation Company, LLC (Generation), BGE and Exelon.

As shown in the table above, Exelon’s adjusted (non-GAAP) operating earnings declined to $0.64 per share in the fourth quarter of 2012 from $0.82 per share in the fourth quarter of 2011. Earnings in fourth quarter 2012 primarily reflected the following negative factors:

• Lower energy margins at Generation, resulting from decreased capacity pricing related to the Reliability Pricing Model (RPM) for the PJM Interconnection, LLC (PJM) market, higher nuclear fuel costs and lower realized market prices for the sale of energy across all regions;

• Higher operating and maintenance expenses, including increased labor, contracting and materials and the impact of higher storm costs at PECO and BGE due to Sandy;

• Impact of increased average diluted common shares outstanding as a result of the merger; and

• Higher depreciation and amortization expense due to ongoing capital expenditures.
These factors were partially offset by:

• The addition of Constellation Energy’s contribution to Generation’s energy margins; and

• Favorable impacts of weather at ComEd and PECO.

Adjusted (non-GAAP) operating earnings for the fourth quarter of 2012 do not include the following items (after tax) that were included in reported GAAP earnings:
     
  (in millions)  (per diluted share)
 
Mark-to-Market Impact of Economic Hedging Activities $123 $0.14
Unrealized Gains Related to NDT (Nuclear Decommissioning Trust) Fund Investments $2 -
Plant Retirements and Divestitures $(38) $(0.05)
Constellation Merger and Integration Costs $(46) $(0.05)
 Non-Cash Remeasurement of Deferred Income Taxes $1 -
 Amortization of Commodity Contract Intangibles $(211)  $(0.24)
 Amortization of the Fair Value of Certain Debt  $3  -
 Asset Retirement Obligation $5 $0.01
 Midwest Generation Bankruptcy Charges $(8) $(0.01)
Adjusted (non-GAAP) operating earnings for the fourth quarter of 2011 do not include the following items (after tax) that were included in reported GAAP earnings:
   
(in millions) (per diluted share)
Mark-to-Market Impact of Economic Hedging Activities   $45 $0.07
Unrealized Gains Related to NDT Fund Investments $46 $0.07
Plant Retirements and Divestitures  $(4) $(0.01)
Constellation Merger and Integration Costs   $(21) $(0.03)
 Non-Cash Remeasurement of Deferred Income Taxes  $(4) $(0.01)
     
     

Dividend

Exelon’s Board of Directors declared the first quarter 2013 dividend of $0.525 per share and approved a revised dividend policy going forward. The first quarter dividend is payable on March 8, 2013 to shareholders of record at 5:00 PM EST on Feb. 19, 2013.  The first quarter dividend is based on our previous level of $2.10 per share on an annualized basis, while the new dividend contemplates a regular $0.31 per share quarterly dividend beginning in the second quarter of 2013 (or $1.24 per share on an annualized basis). Exelon intends to maintain the normal cadence of quarterly dividend declarations by the Board, so the Board will take formal action to declare the next dividend in the second quarter.

2013 Earnings Outlook

Exelon introduced a guidance range for 2013 adjusted (non-GAAP) operating earnings of $2.35 to $2.65 per share.  Operating earnings guidance is based on the assumption of normal weather.

The outlook for 2013 adjusted (non-GAAP) operating earnings for Exelon and its subsidiaries excludes the following items:

• Mark-to-market adjustments from economic hedging activities;

• Financial impacts associated with the planned retirement of fossil generating units and the sale in the fourth quarter of 2012 of three generating stations as required by the merger;

• Certain costs incurred related to the Constellation merger and integration initiatives;

• Non-cash amortization of intangible assets, net, related to commodity contracts recorded at fair value at the merger date;

• Non-cash amortization of certain debt recorded at fair value at the merger date expected to be retired in 2013;

• Significant impairments of assets, including goodwill;

• Other unusual items; and

• Significant changes to GAAP.

Fourth Quarter and Recent Highlights

• Nuclear Operations: Generation’s nuclear fleet, including its owned output from the Salem Generating Station, produced 34,882 gigawatt-hours (GWh) in the fourth quarter of 2012, compared with 34,893 GWh in the fourth quarter of 2011. The output data excludes the units owned by Constellation Energy Nuclear Group LLC (CENG).  Excluding Salem and the units owned by CENG, the Exelon-operated nuclear plants achieved a 93.0 percent capacity factor for both the fourth quarter of 2012 and fourth quarter of 2011. The number of planned refueling outage days totaled 113 in the fourth quarter of 2012 versus 103 days in the fourth quarter of 2011. The number of non-refueling outage days at the Exelon-operated plants totaled one day in the fourth quarter of 2012, compared with 11 days in the fourth quarter of 2011.

• Fossil and Renewables Operations:  The equivalent demand forced outage rate for Generation’s fossil fleet was 1.5 percent in the fourth quarter of 2012, compared with 1.6 percent in the fourth quarter of 2011. The 2012 results include former Constellation plants, exclusive of the Maryland Clean Coal plants that were sold on Dec. 3, 2012, whereas 2011 data includes only legacy Exelon plants.   The equivalent availability factor for the hydroelectric facilities was 95.0 percent in the fourth quarter of 2012, compared with 95.9 percent in the fourth quarter of 2011. The energy capture for the wind fleet was 92.2 percent in the fourth quarter of 2012, compared with 94.8 percent in the fourth quarter of 2011.

• ComEd Distribution Formula Rate Cases:  On Oct. 3, 2012, the Illinois Commerce Commission (ICC) issued its final Order on Remand (Rehearing Order) in ComEd's expedited rehearing of specific items pursuant to the Electric Infrastructure Modernization Act (EIMA). The Rehearing Order (which covered docket 11-0721) addressed three key conclusions reached in the ICC's May Order: (1) ComEd's pension asset recovery; (2) the rate of interest to affix to over or under recovered costs; and (3) the use of a year-end or an "average year" rate base in determining ComEd's reconciliation revenue requirement. In the Rehearing Order, the ICC adopted ComEd's position on the return on its pension asset.  As a result, ComEd recorded in the fourth quarter an increase in revenue of approximately $135 million pre-tax in 2012 consistent with the terms of the Rehearing Order.

On Dec. 19, 2012, the ICC ruled on ComEd’s formula rate (docket 12-0321) setting rates for 2013 based on (1) 2011 actual costs updated for 2012 plant additions and the associated depreciation and accumulated deferred income taxes and (2) reconciling the revenue requirements underlying the rates in effect in 2011 with 2011 actual costs and factoring in the ROE Collar.  The ICC approved a $72.6 million increase over the rates approved in docket 11-0721 on re-hearing.  ComEd had requested an increase of $74.2 million.  The contested items from docket 11-0721 on re-hearing such as use of average vs. year-end rate base and the interest rate on the reconciliation are currently under appeal with the court and are not included in the approved amount.

• Credit Facility Synergies:   On Dec. 31, 2012, Exelon achieved targeted credit facility reductions and associated synergies with the termination of the $1.5 billion legacy Constellation revolver.  Cost effective liquidity was established earlier in 2012 for all operating companies through 2017.  The ComEd $1 billion facility was established in March 2012.  Via the “Amend and Extend” program executed in August 2012, facilities were refinanced at BGE ($600 million), Exelon Corp ($500 million), Generation ($5.3 billion) and PECO ($600 million),

• Pension Funding Strategy:  Exelon executed a lump sum buyout offering for terminated vested employees in the largest pension plans (approximately 7,500 former employees).  This transaction involved using $260 million of pension trust assets to buyout terminated vested employees and permanently settling the associated obligation.  Exelon’s gross pension liability was reduced by $425 million, resulting in a $165 million improvement in the funded status of the pension plans at year end.  The lump sum buyout option was an incremental step in Exelon’s ongoing effort to manage benefit costs and de-risk the pension plans over time.

• ComEd Like-Kind-Exchange:  As previously disclosed, in 1999 ComEd deferred $1.2 billion of gain on the sale of its fossil generating facilities by acquiring like-kind property in a purchase leaseback transaction. In a recent decision, a court disallowed deductions stemming from a lease-in, lease-out transaction. This decision has caused Exelon to assess whether it is more likely than not that it will prevail in litigation with the IRS concerning the purchase leaseback transaction.  As a result of the assessment, Exelon expects to record in the first quarter of 2013 a non-cash charge to earnings of approximately $270 million, which represents the full amount of interest expense (after-tax) and incremental state tax expense that would be payable if Exelon is unsuccessful in litigation.  Of this amount, approximately $185 million will be recorded at ComEd and the balance at Exelon.  These charges to expense will not be reflected in adjusted (non-GAAP) operating earnings. Exelon intends to hold ComEd harmless from any unfavorable impacts of the after-tax interest amounts on ComEd’s equity. For additional information, please see the Form 8-K that Exelon filed on January 31, 2013.

• Renewable Fleet:  Four wind construction projects (totaling 273 megawatts (MW)) achieved commercial operation in the fourth quarter: Harvest II (59 MW in Huron County, Mich.) on Nov. 1, 2012; Beebe (82 MW in Gratiot, Mich.) on Dec. 18, 2012; Whitetail (92 MW in Webb, Texas) on Dec. 21, 2012; and High Mesa (40 MW in Twin Falls County, Idaho) on Dec. 27, 2012.  In addition, the first block (31 MW) of the Antelope Valley Solar Ranch Project became operational in December 2012. The remaining phases of the project are on track to be completed by the original planned commercial operation date of December 2013.

• Fossil Fleet Sales and Retirements:  Exelon Power finalized the sale of its three Maryland power plants (2,648 MW of installed capacity) to Raven Power Holdings LLC on Dec. 3, 2012. The sale fulfills Exelon’s commitment to divest the plants as a part of its merger with Constellation.   Exelon Power also completed the sale of its ownership stake in ACE Cogeneration, a 102-MW coal facility in Trona, Calif., to DCO Energy on Nov. 6, 2012.  In addition to the asset sales, Exelon Power informed PJM on Oct. 31, 2012 of its intent to retire Schuylkill Unit 1 in Philadelphia and Riverside Unit 6 in Baltimore County. Schuylkill Unit 1 was deactivated on Jan. 1, 2013.  Riverside 6 will be deactivated by Jun. 1, 2014.

• Hedging Update:  Exelon’s hedging program involves the hedging of commodity risk for Exelon’s expected generation, typically on a ratable basis over a three-year period.  Expected generation represents the amount of energy estimated to be generated or purchased through owned or contracted-for capacity.  The proportion of expected generation hedged as of Dec. 31, 2012, is 94 to 97 percent for 2013, 62 to 65 percent for 2014, and 27 to 30 percent for 2015.  The primary objective of Exelon’s hedging program is to manage market risks and protect the value of its generation and its investment-grade balance sheet while preserving its ability to participate in improving long-term market fundamentals.

Operating Company Results

Generation 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, risk management services and natural gas exploration and production activities.

Fourth quarter 2012 GAAP net income was $137 million, compared with $446 million in the fourth quarter of 2011.  Adjusted (non-GAAP) operating earnings for the fourth quarter of 2011 and 2012 do not include various items (after tax) that were included in reported GAAP earnings.   A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is in the table below:  
($ millions) 4Q12 4Q11
Generation Adjusted (non-GAAP) Operating Earnings $283 $359
Mark-to-Market Impact of Economic Hedging Activities $145 $45
Unrealized Gains Related to NDT Fund Investments $2 $46
Plant Retirements and Divestitures $(38) $(4)
Constellation Merger and Integration Costs $(35) $(6)
Non-Cash Remeasurement of Deferred Income Taxes $(9) $6
Amortization of Commodity Contract Intangibles $(211) -
Amortization of Fair Value of Certain Debt $3 -
Asset Retirement Obligation $5 -
Midwest Generation Bankruptcy Charges $(8) -
Generation GAAP Net Income $137 $446

Generation’s Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2012 decreased $76 million compared with the same quarter in 2011. This decrease primarily reflected:

• Lower energy margins at Generation, resulting from decreased capacity pricing related to RPM for the PJM market, higher nuclear fuel costs and lower realized market prices for the sale of energy across all regions;

• Higher operating and maintenance expenses;

• Higher depreciation and amortization expense due to ongoing capital expenditures; and

• Higher interest due to higher outstanding debt balance.

These items were partially offset by contribution to Generation’s energy margins from the addition of Constellation Energy to Generation’s operations.

Generation’s average realized margin on all electric sales, including sales to affiliates and excluding trading activity, was $26.52 per megawatt-hour (MWh) in the fourth quarter of 2012, compared with $39.31 per MWh in the fourth quarter of 2011.

ComEd consists of electricity transmission and distribution operations in northern Illinois. 

ComEd recorded GAAP net income of $160 million in the fourth quarter of 2012, compared with net income of $121 million in the fourth quarter of 2011. Adjusted (non-GAAP) operating earnings for the fourth quarter of 2011 and 2012 do not include an item (after tax) that was included in reported GAAP earnings.   A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is in the table below:

ComEd recorded GAAP net income of $160 million in the fourth quarter of 2012, compared with net income of $121 million in the fourth quarter of 2011. Adjusted (non-GAAP) operating earnings for the fourth quarter of 2011 and 2012 do not include an item (after tax) that was included in reported GAAP earnings.   A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is in the table below:
   
($ millions) 4Q12 4Q11
ComEd Adjusted (non-GAAP) Operating Earnings $162 $121
Constellation Merger and Integration Costs $(2) -
ComEd GAAP Net Income  $160 $121

ComEd’s Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2012 were up $41 million from the same quarter in 2011, primarily due to:

• Impacts of the October 2012 rehearing order issued by the ICC primarily related to ComEd’s recovery of the pension asset;

• Lower interest expense due to tax settlements; and

• Lower income taxes.

These items were partially offset by lower distribution revenue due to lower allowed ROE under the provision of the formula rate mechanism and a 2011 credit for the allowed recovery of certain storm costs pursuant to EIMA.

For the fourth quarter of 2012, heating degree-days in the ComEd service territory were up 10.8 percent relative to the same period in 2011 but were 11.5 percent below normal.  Total retail electric deliveries increased 0.4 percent quarter over quarter.

Weather-normalized retail electric deliveries decreased 0.1 percent in the fourth quarter of 2012 relative to 2011, reflecting decreases in deliveries to residential and large commercial & industrial customers, partially offset by increases in deliveries to small commercial & industrial customers. For ComEd, weather had a favorable after-tax effect of $1 million on fourth quarter 2012 earnings relative to 2011 and an unfavorable after-tax effect of $4 million relative to normal weather.

PECO consists of electricity transmission and distribution operations and retail natural gas distribution operations in southeastern Pennsylvania.

PECO’s GAAP net income in the fourth quarter of 2012 was $79 million, compared with $73 million in the fourth quarter of 2011. Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2011 and 2012 do not include an item (after tax) that was included in reported GAAP earnings.   A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is in the table below:

($ millions) 4Q12 4Q11
PECO Adjusted (non-GAAP) Operating Earnings $81 $74
Constellation Merger and Integration Costs $(2) $(1)
PECO GAAP Net Income  $79 $73

PECO’s Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2012 increased $7 million from the same quarter in 2011, reflecting the impact of favorable weather and lower income taxes primarily due to gas tax repairs deduction; these favorable items were partially offset by higher storm costs from Sandy.

For the fourth quarter of 2012, heating degree-days in the PECO service territory were up 13.8 percent from 2011 but were 9.0 percent below normal. Total retail electric deliveries were up 2.3 percent quarter over quarter. On the gas side, deliveries in the fourth quarter of 2012 were up 12.4 percent from the fourth quarter of 2011.   

Weather-normalized retail electric deliveries were up 0.6 percent in the fourth quarter of 2012 relative to 2011, reflecting increases in deliveries to residential and large consumer & industrial customers and declines in deliveries to small commercial & industrial customers. Weather-normalized gas deliveries were up 0.6 percent in the fourth quarter of 2012. For PECO, weather had a favorable after-tax effect of $17 million on fourth quarter 2012 earnings relative to 2011 and unfavorable after-tax effect of $10 million relative to normal weather.

BGE consists of electricity transmission and distribution operations and retail natural gas distribution operations in central Maryland.

BGE’s GAAP net income in the fourth quarter of 2012 was $15 million. The net income included after-tax costs of $3 million associated with the merger and integration initiatives. Excluding the effects of these items, BGE’s adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2012 were $18 million. 

Adjusted (non-GAAP) Operating Earnings

Adjusted (non-GAAP) operating earnings, which generally exclude significant one-time charges or credits that are not normally associated with ongoing operations, mark-to-market adjustments from economic hedging activities and unrealized gains and losses from NDT fund investments, are provided as a supplement to results reported in accordance with GAAP. Management uses such adjusted (non-GAAP) operating earnings measures internally to evaluate the company’s performance and manage its operations. Reconciliation of GAAP to adjusted (non-GAAP) operating earnings for historical periods is attached. (download attachment) Additional earnings release attachments, which include the reconciliation on pages 10 and 11 are posted on Exelon’s Web site: www.exeloncorp.com and have been furnished to the Securities and Exchange Commission on Form 8-K on February 7, 2013.  

 Cautionary Statements Regarding Forward-Looking Information

This news release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. The factors that could cause actual results to differ materially from the forward-looking statements made by Exelon Corporation, Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company and Exelon Generation Company, LLC (Registrants) include those factors discussed herein, as well as the items discussed in (1)  Exelon’s 2011 Annual Report on Form 10-K in (a) ITEM 1A. Risk Factors, (b) ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) ITEM 8. Financial Statements and Supplementary Data: Note 18; (2) Constellation Energy Group’s 2011 Annual Report on Form 10-K in (a) ITEM 1A. Risk Factors, (b) ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) ITEM 8. Financial Statements and Supplementary Data: Note 12; (3) the Registrants’ Third Quarter 2012 Quarterly Report on Form 10-Q in (a) Part II, Other Information, ITEM 1A. Risk Factors and (b) Part I, Financial Information, ITEM 1. Financial Statements: Note 15; and (4) other factors discussed in filings with the SEC by the Registrants. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this new release. None of the Registrants undertakes any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this news release.

 

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About Exelon

Exelon Corporation is the nation’s leading competitive energy provider, with 2012 revenues of approximately $23.5 billion. Headquartered in Chicago, Exelon has operations and business activities in 47 states, the District of Columbia and Canada. Exelon is one of the largest competitive U.S. power generators, with approximately 35,000 megawatts of owned capacity comprising one of the nation’s cleanest and lowest-cost power generation fleets. The company’s Constellation business unit provides energy products and services to approximately 100,000 business and public sector customers and more than 1 million residential customers. Exelon’s utilities deliver electricity and natural gas to more than 6.6 million customers in central Maryland (BGE), northern Illinois (ComEd) and southeastern Pennsylvania (PECO).

Contacts

Paul Adams Exelon Corporate Communications
410.470.4167
Ravi Ganti Investor Relations
312.394.2348
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