Exelon Announces Fourth Quarter and Full Year 2010 Results; Introduces Guidance Range for Full Year 2011 Earnings
Company projects 2011 operating earnings of $3.90 to $4.20 per share.
CHICAGO – Exelon Corporation (NYSE: EXC) announced fourth quarter and full year 2010 consolidated earnings as follows:
Exelon Consolidated Earnings (unaudited)
Full Year Fourth Quarter
2010 2009 2010 2009
Adjusted (non-GAAP) Operating Results:
Net Income ($ millions) $2,689 $2,723 $631 $610
Diluted Earnings per Share $4.06 $4.12 $0.96 $0.92
Net Income ($ millions) $2,563 $2,707 $524 $581
Diluted Earnings per Share $3.87 $4.09 $0.79 $0.88
“We delivered another exceptional year of financial and operating performance in 2010,” said John W. Rowe, chairman and chief executive officer. “We accomplished this with a keen focus on controlling operating and maintenance expenses across our businesses. At the same time, Exelon Generation attained its eighth consecutive year of nuclear fleet capacity factors that exceeded 93 percent, and ComEd and PECO demonstrated strong service reliability despite severe storms.”
Rowe added, “In 2011, Pennsylvania has fully transitioned to a competitive energy market, and along with our continued diligent focus on cost control and financial discipline, we are introducing full year operating earnings guidance of $3.90 to $4.20 per share.”
Fourth Quarter Operating Results
As shown in the table above, Exelon’s adjusted (non-GAAP) operating earnings increased to $0.96 per share in the fourth quarter of 2010 from $0.92 per share in the fourth quarter of 2009, primarily due to:
• The impact at Exelon Generation Company, LLC (Generation) of favorable capacity pricing related to the Reliability Pricing Model (RPM) for the PJM Interconnection, LLC (PJM) market;
• Increased nuclear output at Generation primarily reflecting the effect of fewer nuclear outage days in 2010; and
• Decreased scheduled competitive transition charge (CTC) amortization expense at PECO Energy Company (PECO).
Higher fourth quarter 2010 earnings were partially offset by:
• Unfavorable market/portfolio conditions and higher nuclear fuel costs at Generation; and
• Increased depreciation expense across the operating companies largely due to ongoing capital expenditures.
Adjusted (non-GAAP) operating earnings for the fourth 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 $(113) $(0.17)
Unrealized gains related to nuclear decommissioning trust (NDT) fund investments to the extent not offset by contractual accounting $26 $0.04
Costs associated with the planned retirement of certain Generation fossil generating units $(17) $(0.03)
Decrease in costs related to adjustments to asset retirement obligations of Commonwealth Edison Company (ComEd) and PECO $7 $0.01
External costs related to Exelon’s acquisition of John Deere Renewables, LLC (now known as Exelon Wind) $(6) $(0.01)
Costs associated with the 2007 Illinois electric rate settlement agreement $(4) $(0.01)
Adjusted (non-GAAP) operating earnings for the fourth quarter of 2009 did not include the following items (after tax) that were included in reported GAAP earnings:
(in millions) (per diluted share)
Costs associated with the planned retirement of certain Generation fossil generating units $(34) $(0.05)
Mark-to-market gains primarily from Generation’s economic hedging activities $26 $0.04
Costs associated with the 2007 Illinois electric rate settlement agreement $(15) $(0.02)
Costs associated with early debt retirement $(15) $(0.02)
Unrealized gains related to NDT fund investments $14 $0.02
Charge associated with ComEd’s 2007 settlement agreement with the City of Chicago $(5) $(0.01)
2011 Earnings Outlook
Exelon introduced a guidance range for 2011 adjusted (non-GAAP) operating earnings of $3.90 to $4.20 per share. Operating earnings guidance is based on the assumption of normal weather.
The outlook for 2011 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 ComEd’s 2007 settlement with the City of Chicago
• Financial impacts associated with the planned retirement of fossil generating units
• Other unusual items
• Significant changes to GAAP
Fourth Quarter and Recent Highlights
• Oyster Creek Nuclear Station Retirement: On December 8, 2010, Exelon announced that the company will operate the Oyster Creek Generating Station in New Jersey until 2019, after which the plant will retire. The 625-megawatt (MW) nuclear plant is federally licensed to operate until 2029. Oyster Creek faces a unique set of adverse economic factors and changing environmental regulations that make ending operations in 2019 the best option. Potential additional environmental compliance costs based on evolving water cooling regulatory requirements at both the federal and state government levels created significant regulatory and economic uncertainty. Due to Exelon's decision to retire the plant early, the New Jersey Department of Environmental Protection will not require the company to install cooling towers at Oyster Creek.
• John Deere Renewables (JDR) Acquisition: On December 9, 2010, Exelon completed its previously announced acquisition of JDR, a leading operator and developer of wind power, adding 735 MW of clean, renewable energy to Exelon’s generation portfolio. The acquisition of JDR marked Exelon’s entry into owning and operating wind projects. The 36 wind projects in eight states are now called Exelon Wind, a division of Exelon Power. The acquisition provides incremental earnings starting in 2012 and cash flows starting in 2013 and is a key part of Exelon 2020, the company’s business strategy to eliminate the equivalent of its 2001 carbon footprint by 2020. Exelon is now halfway to its goal and remains the least carbon-intensive of the large U.S. electric utilities. Approximately 75 percent of the Exelon Wind operating portfolio is already sold under long-term power purchase arrangements. In addition, Exelon has the opportunity to pursue approximately 1,400 MW of new wind projects that are in various stages of development, including 230 MW in advanced stages of development.
• Nuclear Operations: Generation’s nuclear fleet, including its owned output from the Salem Generating Station, produced 35,115 gigawatt-hours (GWh) in the fourth quarter of 2010, compared with 33,609 GWh in the fourth quarter of 2009. The Exelon-operated nuclear plants achieved a 93.1 percent capacity factor for the fourth quarter of 2010 compared with 89.8 percent for the fourth quarter of 2009. The Exelon-operated nuclear plants completed four scheduled refueling outages in the fourth quarter of 2010, compared with completing four and beginning a fifth scheduled refueling outage in the fourth quarter of 2009. Three Mile Island (TMI) Unit 1 was shut down from late October 2009 for an extended refueling outage which included the replacement of steam generators. The steam generator replacement increased the number of refueling outage days in the fourth quarter of 2009. As a result, the number of refueling outage days totaled 97 in the fourth quarter of 2010 versus 136 days in the fourth quarter of 2009. The number of non-refueling outage days at the Exelon-operated plants totaled 18 days in the fourth quarter of 2010 compared with 23 days in the fourth quarter of 2009.
For the full year 2010, the Exelon-operated nuclear plants achieved an average capacity factor of 93.9 percent, as compared with 93.6 percent for 2009. The average annual capacity factor for the Exelon-operated plants during the five years ended 2010 was 94.0 percent.
• Fossil and Hydro Operations: The equivalent demand forced outage rate for Generation’s fossil fleet was 4.6 percent in the fourth quarter of 2010, compared with 12.9 percent in the fourth quarter of 2009. The improvement was largely due to the impact of extended maintenance outages in 2009. The equivalent availability factor for the hydroelectric facilities was 99.8 percent in the fourth quarter of 2010, compared with 99.6 percent in the fourth quarter of 2009.
• 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 December 31, 2010 is 90 to 93 percent for 2011, 67 to 70 percent for 2012 and 32 to 35 percent for 2013. 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.
• ComEd Electric Distribution 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. In testimony submitted on January 3, 2011, ComEd revised its requested revenue increase to $326 million, reflecting certain adjustments made subsequent to its original request of $396 million. The ICC will determine any increase in rates after an 11-month proceeding with input from all stakeholders. The ICC is expected to issue its decision in late May 2011.
• PECO Electric and Gas Distribution Rate Cases: On December 16, 2010, the Pennsylvania Public Utility Commission (PAPUC) approved PECO’s settlements with all interested parties regarding the increase in electric and natural gas distribution rates for customers, which became effective on January 1, 2011. The PAPUC approved an increase of $20 million in annual natural gas distribution revenue, which is approximately 46 percent of the $44 million originally requested, and a $225 million increase in annual electric distribution revenue, which is approximately 71 percent of the $316 million originally requested. Reflecting this and the results of the company’s four competitive electric supply procurements, residential electric customer bills will increase on average about 5 percent, or about $5 a month, beginning in January 2011. Overall bills for PECO residential natural gas customers will increase on average about 1 percent, or about $1 a month.
• Pension Plan Funding: As a result of accelerated cash benefits associated with recent Federal tax legislation, on January 3, 2011, Exelon announced that its board of directors had authorized contributions to the Exelon pension plans in the first quarter of 2011 totaling $2.1 billion. This amount includes contributions that Exelon was previously expected to make in 2011. Exelon expects to fund the contributions with $500 million from cash from operations, $850 million from the accelerated cash tax benefits, and $750 million from the tax benefits of making the pension contributions. Exelon expects that the pension funded status will increase from 71 percent at December 31, 2010, to 89 percent projected at December 31, 2011, subject to actual 2011 asset returns and final actuarial valuations.
• Financing Activities: On January 18, 2011, ComEd issued $600 million of 1.625 percent first mortgage bonds due 2014. The net proceeds of the bonds will be used as an interim source of liquidity for the contribution in the first quarter to the pension plans in which ComEd participates. ComEd anticipates receiving tax refunds as a result of both the pension contribution and the recent Federal tax legislation. As a result, the immediate use of the net proceeds to fund the planned contribution will allow those future cash receipts to be available to fund capital investment and for general corporate purposes.
On October 25, 2010, Exelon announced that it had entered into new credit agreements totaling $94 million with 29 minority and community banks located in the regions the company serves. The lead arranger banks for the credit agreements are Seaway Bank and Trust Company in Chicago, Riverside Community Bank in Rockford, Ill., and United Bank of Philadelphia. The new credit agreements replace a 2009 arrangement for $67 million. Exelon’s minority and community banking program – the only one of its kind in the energy industry – aims to increase the company’s business with local and diverse banks in its key markets.
OPERATING COMPANY RESULTS
Generation consists of owned and contracted electric generating facilities, wholesale energy marketing operations and competitive retail sales operations.
Fourth quarter 2010 net income was $424 million compared with $425 million in the fourth quarter of 2009. Fourth quarter 2010 net income included (all after tax) mark-to-market losses of $113 million from economic hedging activities, unrealized gains of $26 million related to NDT fund investments, costs of $17 million associated with the planned retirement of certain fossil generating units, a charge of $6 million for external costs associated with the acquisition of JDR and a charge of $4 million for costs associated with the 2007 Illinois electric rate settlement. Fourth quarter 2009 net income included (all after-tax) costs of $34 million associated with the retirement of the fossil generating units, mark-to-market gains of $26 million from economic hedging activities before the elimination of intercompany transactions, unrealized gains of $14 million related to NDT fund investments, costs of $13 million associated with the 2007 Illinois electric rate settlement and costs of $9 million associated with early debt retirements. Excluding the effects of these items, Generation’s net income in the fourth quarter of 2010 increased $97 million compared with the same quarter in 2009 primarily due to:
• The impact on energy gross margin of higher energy prices under the power purchase agreement with PECO, favorable capacity pricing related to RPM and increased nuclear output largely reflecting fewer outage days.
The increase in net income was partially offset by:
• The impact on energy gross margin of unfavorable market/portfolio conditions and higher nuclear fuel costs; and
• Increased depreciation expense.
Generation’s average realized margin on all electric sales, including sales to affiliates and excluding trading activity, was $41.45 per MWh in the fourth quarter of 2010 compared with $38.36 per MWh in the fourth quarter of 2009.
ComEd consists of the electricity transmission and distribution operations in northern Illinois.
ComEd recorded net income of $91 million in the fourth quarter of 2010, compared with net income of $98 million in the fourth quarter of 2009. Fourth quarter net income in 2010 included an after-tax decrease in costs of $6 million associated with an adjustment to ComEd’s asset retirement obligation. Fourth quarter net income in 2009 included after-tax costs of $5 million for the City of Chicago settlement agreement and after-tax costs of $2 million associated with the 2007 Illinois electric rate settlement. Excluding the effects of these items, ComEd’s net income in the fourth quarter of 2010 was down $20 million from the same quarter in 2009 primarily reflecting:
• The effect of the September 2010 Illinois Appellate Court ruling;
• Increased operating and maintenance expense; and
• Lower load, partially offset by the effects of favorable weather conditions.
The decrease in net income was partially offset by lower uncollectible accounts expense.
In the fourth quarter of 2010, heating degree-days in the ComEd service territory were up 1.2 percent relative to the same period in 2009 and were 0.6 percent above normal. ComEd’s total retail electric deliveries increased by 0.6 percent quarter over quarter, primarily due to gains in deliveries to large commercial and industrial customers.
Weather-normalized retail electric deliveries decreased by 1.2 percent from the fourth quarter of 2009, primarily reflecting a decrease in deliveries to residential customers. For ComEd, weather had a favorable after-tax effect of $4 million on fourth quarter 2010 earnings relative to 2009 and a favorable after-tax effect of $1 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 fourth quarter of 2010 was $21 million, down from $78 million in the fourth quarter of 2009. Fourth quarter net income in 2010 included an after-tax decrease in costs of $1 million associated with an adjustment to PECO’s asset retirement obligation. Excluding the effect of this item, PECO’s net income in the fourth quarter of 2010 was down $58 million from the same quarter in 2009 primarily reflecting:
• Decreased CTC revenue, as stranded costs were substantially recovered as of the end of the third quarter 2010, resulting in higher energy prices paid to Generation under the power purchase agreement; and
• Increased operating and maintenance expense, primarily reflecting higher contracting and employee benefits expenses.
The decrease in net income was partially offset by:
• Lower CTC amortization expense as scheduled in accordance with PECO’s 1998 Restructuring Settlement with the PAPUC;
• The effects of favorable weather conditions; and
• Lower interest expense on long-term debt.
In the fourth quarter of 2010, heating degree-days in the PECO service territory were up 7.6 percent from 2009 and were 3.2 percent above normal. Total retail electric deliveries were up 1.4 percent from last year, reflecting an increase in deliveries to residential and large commercial and industrial customers. On the retail gas side, deliveries in the fourth quarter of 2010 were up 11.7 percent from the fourth quarter of 2009, primarily driven by the effects of colder weather conditions.
Weather-normalized retail electric deliveries were flat to the fourth quarter of 2009, reflecting a decline in residential and small commercial and industrial deliveries, offset by an increase in large commercial and industrial deliveries. For PECO, weather had a favorable after-tax effect of $6 million on fourth quarter 2010 earnings relative to 2009 and a favorable after-tax effect of $2 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 January 26, 2011.
Conference call information: Exelon has scheduled a conference call for 11:00 AM ET (10:00 AM CT) on January 26, 2011. 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 34838808. Media representatives are invited to participate on a listen-only basis. The call will be web-cast and archived on Exelon’s Web site in the Investor Relations section.
Telephone replays will be available until February 9. 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 34838808.
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 Third Quarter 2010 Quarterly Report on Form 10-Q 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 13 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.
Exelon Corporation is one of the nation’s largest electric utilities with more than $18 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.