Exelon Announces Second Quarter Results; Raises Guidance Range for Full Year 2010 Earnings 

 Exelon Corporation (NYSE: EXC) announced second quarter 2010 consolidated earnings. 

 

CHICAGO – Exelon Corporation (NYSE: EXC) announced second quarter 2010 consolidated earnings as follows:                                                                                                                                                                   Second Quarter
                                                                                 2010      2009                         
Adjusted (non-GAAP) Operating Results:   
  Net Income ($ millions)                                             $656       $683
  Diluted Earnings per Share                                        $0.99      $1.03

GAAP Results:   
  Net Income ($ millions)                                             $445       $657
  Diluted Earnings per Share                                        $0.67      $0.99

Chairman and CEO John W. Rowe said, “All three of our companies delivered sound financial and operating performance.  As a result, our second quarter earnings results again exceeded our guidance range of $0.80 to $0.90 per share.  Exelon Generation achieved a nuclear capacity factor of nearly 95 percent in the second quarter, and ComEd and PECO delivered strong performance amidst severe storms and record hot weather.”  Because of favorable first half results, Rowe announced that Exelon has raised its 2010 earnings guidance range from $3.70 to $4.00 per share to $3.80 to $4.10 per share.

Rowe added, “Going forward, we are optimistic about Exelon’s prospects as we evaluate the coming effects of EPA regulation, act on our views of the power market recovery and pursue disciplined organic growth across our regulated and unregulated businesses.”

Second Quarter Operating Results

As shown in the table above, Exelon’s adjusted (non-GAAP) operating earnings decreased to $0.99 per share in the second quarter of 2010 from $1.03 per share in the second quarter of 2009, primarily due to:
• Lower energy gross margins at Exelon Generation Company, LLC (Generation) largely reflecting unfavorable market and portfolio conditions and increased nuclear fuel costs;
• Increased depreciation and amortization expense primarily related to the higher scheduled competitive transition charge (CTC) amortization expense at PECO Energy Company (PECO) and increased depreciation expense across the operating companies due to ongoing capital expenditures; and
• Higher storm costs at Commonwealth Edison Company (ComEd) and PECO.

Lower second quarter 2010 earnings were partially offset by:
• The effects of favorable weather conditions in the ComEd and PECO service territories; and
• Decreased interest expense at PECO and Exelon Corporate related to lower outstanding debt.

Adjusted (non-GAAP) operating earnings for the second quarter of 2010 do not include the following items (after tax) that were included in reported GAAP earnings:

                                                                                   (in millions) (per diluted share)
Mark-to-market losses primarily from Generation’s                                                        economic hedging activities                                                $(75)             $(0.11)
Non-cash remeasurement of income tax uncertainties                                                    related to ComEd’s 1999 sale of fossil generating                                                           assets and related to CTCs received by PECO                      $(65)             $(0.10)
Unrealized losses related to nuclear decommissioning                                                    trust (NDT) fund investments to the extent not offset by                                                 contractual accounting                                                        $(53)             $(0.08)
Costs associated with the retirement of certain                                                              Generation fossil generating units                                        $(12)             $(0.02)
Costs associated with the 2007 Illinois electric rate                                                        settlement agreement                                                        $(4)               $(0.01)
Costs associated with ComEd’s 2007 settlement                                                            agreement with the City of Chicago                                     $(2)                    -

Adjusted (non-GAAP) operating earnings for the second quarter of 2009 did not include the following items (after tax) that were included in reported GAAP earnings:

                                                                                   (in millions) (per diluted share)
Mark-to-market losses primarily from Generation’s                                                        economic hedging activities                                                $(106)             $(0.16)
Non-cash remeasurement of income tax uncertainties                                                    related to ComEd’s 1999 sale of fossil generating assets                                                 and a reassessment of state deferred tax rates                   $66                  $0.10
Unrealized gains related to NDT fund investments to the                                                 extent not offset by contractual accounting                         $64                  $0.10
Charge for severance costs as a result of headcount                                                      reductions as part of Exelon’s cost savings program                                                       announced in June 2009                                                   $(24)                $(0.04)
Costs associated with the 2007 Illinois electric rate                                                        settlement agreement                                                      $(20)                $(0.03)
External costs related to Exelon’s previously proposed                                                   acquisition of NRG Energy, Inc.                                         $(6)                  $(0.01)

2010 Earnings Outlook

Exelon raised its guidance range for 2010 adjusted (non-GAAP) operating earnings from $3.70 to $4.00 per share to $3.80 to $4.10 per share.  Operating earnings guidance is based on the assumption of normal weather for the balance of the year.

The outlook for 2010 adjusted (non-GAAP) operating earnings for Exelon and its subsidiaries excludes the following items:
• Mark-to-market adjustments from economic hedging activities
• Unrealized gains and losses from NDT fund investments to the extent not offset by contractual accounting as described in the notes to the consolidated financial statements
• Significant impairments of assets, including goodwill
• Changes in decommissioning obligation estimates
• Costs associated with the 2007 Illinois electric rate settlement agreement
• Costs associated with ComEd’s 2007 settlement with the City of Chicago
• Costs associated with the retirement of fossil generating units
• Non-cash charge resulting from the passage of Federal health care legislation
• Non-cash remeasurement of income tax uncertainties
• Other unusual items
• Significant future changes to GAAP

Proposed Clean Air Transport Rule

On July 6, 2010, the U.S. Environmental Protection Agency (EPA) published the proposed Clean Air Transport Rule (CATR) as the replacement to the Clean Air Interstate Rule (CAIR) that had been remanded by the U.S. Court of Appeals for the District of Columbia Circuit in 2008.  The proposed CATR is one of a number of significant regulations that the EPA expects to issue that will impose more stringent requirements relating to air, water and waste controls on electric generating units.  Due to its low carbon generation portfolio, Exelon will not be as significantly affected by these regulations, which would therefore result in a comparative advantage for Exelon relative to electric generators that are more reliant on fossil-fuel plants.  After a period of public comments and hearings, a final CATR is expected by mid-2011.  Under the proposal, the first phase of nitrogen oxide and sulfur dioxide (SO2) emissions reductions under the CATR will commence in 2012, with further reductions of SO2 emissions proposed to become effective in 2014.

Second Quarter and Recent Highlights

• Nuclear Operations:  Generation’s nuclear fleet, including its owned output from the Salem Generating Station, produced 35,035 gigawatt-hours (GWh) in the second quarter of 2010, compared with 34,995 GWh in the second quarter of 2009.  The Exelon-operated nuclear plants achieved a 94.8 percent capacity factor for the second quarter of 2010 compared with 93.9 percent for the second quarter of 2009.  The Exelon-operated nuclear plants completed three scheduled refueling outages in the second quarter of 2010, the same number of scheduled refueling outages completed in the second quarter of 2009.  During the second quarter of 2010, Byron Unit 2 achieved a 541-day continuous run prior to its refueling outage – a station record.  The number of refueling outage days totaled 44 in the second quarter of 2010 versus 57 days in the second quarter of 2009.  The number of non-refueling outage days at the Exelon-operated plants totaled 15 days in the second quarter of 2010 compared with 21 days in the second quarter of 2009.

• Fossil and Hydro Operations:  The equivalent demand forced outage rate for Generation’s fossil fleet was 3.8 percent in the second quarter of 2010, compared with 3.0 percent in the second quarter of 2009.  The change was largely due to higher forced outages at the Eddystone Generating Station.  The equivalent availability factor for the hydroelectric facilities was 98.1 percent in the second quarter of 2010, compared with 98.8 percent in the second quarter of 2009, largely due to a major overhaul at Conowingo Generating Station in 2010.

• 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 June 30, 2010 is 96 to 99 percent for 2010, 86 to 89 percent for 2011 and 57 to 60 percent for 2012.  The primary objectives of Exelon’s hedging program are 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.

• Fossil Plant Retirements Update:  On May 10, 2010, PJM Interconnection, LLC (PJM) informed Exelon Power that transmission system upgrades, necessary to allow two aging fossil-fuel generating units to retire, can be completed sooner than its original analysis indicated.  PJM has determined that Cromby Generating Station Unit 2 and Eddystone Generating Station Unit 2 are needed to remain in operation until December 31, 2011 and December 31, 2012, respectively, to support transmission system reliability.  Previously, PJM indicated that it needed Cromby Unit 2 to remain in operation through May 31, 2012, and Eddystone Unit 2 through December 31, 2013.  While it originally announced on December 2, 2009 that the units would retire for economic reasons, Exelon Power agreed to extend their operation through the timeframe defined by PJM for system reliability reasons.  On June 10, 2010, Exelon filed a reliability-must-run rate schedule with the Federal Energy Regulatory Commission (FERC) to compensate for the costs of maintaining and operating the units beyond May 31, 2011, plus a reasonable return on investment.  A FERC decision is expected in the fourth quarter of 2010.  Also as originally announced in December 2009, two additional fossil-fuel generating units, Cromby Unit 1 and Eddystone Unit 1, will retire effective May 31, 2011.

 ComEd Electric Delivery Rate Case:  On June 30, 2010, ComEd filed a rate increase request with the Illinois Commerce Commission (ICC) to allow the utility to continue modernizing its electric delivery system and recover the cost of substantial investments made since the last rate filing in 2007.  The requested revenue increase of $396 million would raise the average $86 residential monthly bill by approximately 7 percent or less than $6 per month.  The ICC will determine any increase in rates after an 11-month proceeding with input from all stakeholders.  If approved, the new rates would not take effect until June 2011.

• PECO Energy Procurement:  On June 23, 2010, PECO announced the results of the third of four planned electricity purchases under its Default Service Provider program to serve residential customers that have not chosen a competitive electric generation supplier beginning January 1, 2011.  At that time, the prices PECO and its customers pay for electricity will be based on competitive electric market pricing, after having been capped for more than 10 years.

The latest purchases in May 2010 resulted in an energy price of 7.95 cents per kilowatt hour (kWh) for PECO’s residential customers.  PECO’s third procurement also included electricity purchases for the small and medium customer class.  When combined with 2009 purchases, the May purchases result in a price of 8.91 cents per kWh for residential customers, 8.66 cents per kWh for small commercial customers, and 8.63 cents per kWh for medium commercial customers.  PECO will complete the remaining purchases in September 2010.  The results of all four purchases will determine the exact price PECO’s customers will pay for electricity beginning January 1, 2011.

For the large commercial and industrial class, PECO conducted one procurement in May 2010 for full requirements fixed price products at an average winning wholesale bid price of $77.55 per kWh and will conduct one procurement in September 2010 for full requirements spot price products.

OPERATING COMPANY RESULTS

Generation consists of owned and contracted electric generating facilities, wholesale energy marketing operations and competitive retail sales operations. 
 
Second quarter 2010 net income was $382 million compared with $512 million in the second quarter of 2009.  Second quarter 2010 net income included (all after tax) mark-to-market losses of $75 million from economic hedging activities before the elimination of intercompany transactions, a gain of $70 million related to the non-cash remeasurement of income tax uncertainties, unrealized losses of $53 million related to NDT fund investments, costs of $12 million associated with the retirement of certain fossil generating units and a charge of $4 million for costs associated with the 2007 Illinois electric rate settlement.  Second quarter 2009 net income included (all after tax) mark-to-market losses of $106 million from economic hedging activities before the elimination of intercompany transactions, unrealized gains of $64 million related to NDT fund investments, the benefit from a reassessment of state deferred income taxes of $38 million, a charge of $18 million for the costs associated with the 2007 Illinois electric rate settlement and a charge of $9 million for the costs incurred for severance.  Excluding the effects of these items, Generation’s net income in the second quarter of 2010 decreased $87 million compared with the same quarter last year primarily due to:
• Lower energy gross margins, largely due to unfavorable market and portfolio conditions, lower pricing from PECO under the power purchase agreement, and higher nuclear fuel costs; and
• Higher operating and maintenance expense, primarily reflecting the effect of inflation.

Generation’s average realized margin on all electric sales, including sales to affiliates and excluding trading activity, was $36.87 per MWh in the second quarter of 2010 compared with $38.96 per MWh in the second quarter of 2009.

ComEd consists of the electricity transmission and distribution operations in northern Illinois. 
 
ComEd recorded net income of $9 million in the second quarter of 2010, compared with net income of $116 million in the second quarter of 2009.  Second quarter net income in 2010 included an after-tax charge of $106 million related to the non-cash remeasurement of income tax uncertainties and after-tax costs of $2 million for the City of Chicago settlement agreement.  Second quarter 2009 net income included (all after tax) the benefit from the non-cash remeasurement of income tax uncertainties of $40 million, a charge of $11 million for the costs incurred for severance, and $2 million for the costs associated with the Illinois electric rate settlement.  Excluding the effects of these items, ComEd’s net income in the second quarter of 2010 was up $28 million from the same quarter last year reflecting:
• The effects of favorable weather conditions;
• Load growth; and
• Projected refunds related to Illinois electric distribution taxes.

The increase in net income was partially offset by:
• Higher storm costs.

In the second quarter of 2010, cooling degree-days in the ComEd service territory were up 76.3 percent relative to the same period in 2009 and were 39.3 percent above normal.  ComEd’s total retail electric deliveries increased by 4.9 percent quarter over quarter, with gains in deliveries across all customer classes, primarily driven by the effects of favorable weather conditions.

Weather-normalized retail electric deliveries increased by 1.8 percent from the second quarter of 2009, primarily reflecting customer growth and increased average use per customer.  For ComEd, weather had a favorable after-tax effect of $10 million on second quarter 2010 earnings relative to 2009 and a favorable after-tax effect of $5 million relative to normal weather that is incorporated in Exelon’s earnings guidance. 

PECO consists of the electricity transmission and distribution operations and the retail natural gas distribution business in southeastern Pennsylvania. 
 
PECO’s net income in the second quarter of 2010 was $75 million, up from $71 million in the second quarter of 2009.  Second quarter 2010 net income included an after-tax interest expense charge of $22 million related to the non-cash remeasurement of income tax uncertainties.  Second quarter 2009 net income included an after-tax charge of $3 million for the costs incurred for severance.  Excluding the effects of these items, PECO’s net income in the second quarter of 2010 was up $23 million from the same quarter last year reflecting:
• Increased CTC revenue to ensure full recovery of stranded costs during 2010, the final year of the transition period, due to lower than expected sales volume in 2009, which resulted in lower energy prices under the power purchase agreement with Generation;
• The effects of favorable weather conditions; and
• Lower interest expense on long-term debt.

The increase in net income was partially offset by:
• Higher CTC amortization, which was in accordance with PECO’s 1998 Restructuring Settlement with the PAPUC; and
• Increased storm costs.

In the second quarter of 2010, cooling degree-days in the PECO service territory were up 66.5 percent from 2009 and were 76.5 percent above normal.  Total retail electric deliveries were up 7.3 percent from last year, reflecting an increase in deliveries across all customer classes, primarily driven by the effects of favorable weather conditions.  On the retail gas side, deliveries in the second quarter of 2010 were down 16.3 percent from the second quarter of 2009, largely reflecting heating degree-days that were 27.8 percent below last year and 34.7 percent below normal.  

Weather-normalized retail electric deliveries decreased by 0.7 percent from the second quarter of 2009, primarily reflecting decreased residential and small commercial and industrial deliveries.  For PECO, reflecting electric and gas deliveries, weather had a favorable after-tax effect of $22 million on second quarter 2010 earnings relative to 2009 and a favorable after-tax effect of $17 million relative to normal weather that is incorporated in Exelon’s earnings guidance.

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.  Additional earnings release attachments, which include the reconciliations on pages 7 and 8, are posted on Exelon’s Web site (download attachments) and have been furnished to the Securities and Exchange Commission on Form 8-K on July 22, 2010.
 
Conference call information: Exelon has scheduled a conference call for 11:00 AM ET (10:00 AM CT) on July 22, 2010.  The call-in number in the U.S. and Canada is 800-690-3108, and the international call-in number is 973-935-8753.  If requested, the conference ID number is 85980766.  Media representatives are invited to participate on a listen-only basis.  The call will be web-cast and archived in the Investor Relations section.

Telephone replays will be available until August 5.  The U.S. and Canada call-in number for replays is 800-642-1687, and the international call-in number is 706-645-9291.  The conference ID number is 85980766.

Forward Looking Statements

This press release includes 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 these forward-looking statements include those discussed herein as well as those discussed in (1) Exelon’s 2009 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) Exelon’s Second Quarter 2010 Quarterly Report on Form 10-Q (to be filed on July 22, 2010) in (a) Part II, Other Information, ITEM 1A. Risk Factors, (b) Part 1, Financial Information, ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) Part I, Financial Information, ITEM 1. Financial Statements: Note 12 and (3) other factors discussed in filings with the Securities and Exchange Commission (SEC) by Exelon Corporation, Commonwealth Edison Company, PECO Energy Company and Exelon Generation Company, LLC (Companies). Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this press release. None of the Companies undertakes any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this press release.


 

###

 

About Exelon

Exelon Corporation is one of the nation’s largest electric utilities with more than $17 billion in annual revenues. The company has one of the industry’s largest portfolios of electricity generation capacity, with a nationwide reach and strong positions in the Midwest and Mid-Atlantic. Exelon distributes electricity to approximately 5.4 million customers in northern Illinois and southeastern Pennsylvania and natural gas to approximately 486,000 customers in the Philadelphia area. Exelon is headquartered in Chicago and trades on the NYSE under the ticker EXC.

Contacts

Stacie Frank Investor Relations
312.394.3094
Judy Rader Exelon Corporate Communications
312.394.7417
pr_20100722_EXC_q2earnings