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Exelon Announces First Quarter 2016 Results

 

​CHICAGO Exelon Corporation (NYSE: EXC) announced first quarter 2016 consolidated earnings as follows:

First Quarter
2016 2015
Adjusted (non-GAAP) Operating Results:
Net Income ($ millions)$632$615
Diluted Earnings per Share$0.68$0.71
GAAP Results:
Net Income ($ millions)$173$693
Diluted Earnings per Share$0.19$0.80

“We are delighted to have closed the PHI acquisition during the first quarter, establishing Exelon Utilities as the largest utility in the U.S. by number of customers and also delivering on our commitment to increase the earnings mix from regulated and contracted businesses,” said Christopher M. Crane, Exelon’s president and CEO. “Unfortunately, we are also announcing plans to retire the economically challenged Clinton and Quad Cities nuclear plants in Illinois on June 1, 2017 and June 1, 2018, respectively, without passage of adequate legislation in the current spring legislative session and Quad Cities clearing in the 2019-20 RPM capacity auction.”

First Quarter Operating Results

As shown in the table above, Exelon’s adjusted (non-GAAP) Operating Earnings decreased to $0.68 per share in the first quarter of 2016 from $0.71 per share in the first quarter of 2015. Exclusive of $0.03 unfavorable earnings impacts of the PHI acquisition and other financing arrangements, quarter over quarter Operating Earnings are essentially flat reflecting:

  • Nuclear refueling outage timing, fewer non-refueling outage days and increased capacity pricing offset by lower realized energy pricing and increased nuclear decommissioning amortization expense at Generation; and
  • Favorable impacts at the utilities of regulatory rate increases mostly offset by less favorable weather.
First quarter 2016 results also include $2 million, net of tax, of PHI Operating Earnings from March 24, 2016 to March 31, 2016

Adjusted (non-GAAP) Operating Earnings for the first quarter of 2016 do not include the following items (after tax) that were included in reported GAAP Net Income:

(in millions)(per dilluted share)
Exelon Adjusted (non-GAAP) Operating Earnings$632$0.68
Mark-to-Market Impact of Economic Hedging Activities640.07
Unrealized Gains Related to NDT Fund Investments310.03
Amortization of Commodity Contract Intangibles120.01
Merger and Integration Costs(1)(76)(0.08)
Merger Commitments(2)(394)(0.42)
Long-Lived Asset Impairment(71)(0.07)
Cost Management Program(14)(0.02)
CENG Non-Controlling Interest(11)(0.01)
Exelon GAAP Net Income
$173$0.19

(1) Includes a pre-tax charge to GAAP earnings of approximately $52 million of PHI related merger severance.

(2) Approval of the merger across all regulatory jurisdictions was conditioned on Exelon and PHI agreeing to certain commitments pursuant to which Exelon recorded a total pre-tax charge to GAAP earnings of $508 million.

Adjusted (non-GAAP) Operating Earnings for the first quarter of 2015 do not include the following items (after tax) that were included in reported GAAP Net Income:

(in millions)(per diluted share)
Exelon Adjusted (non-GAAP) Operating Earnings$615$0.71
Mark-to-Market Impact of Economic Hedging Activities1000.11
Unrealized Gains Related to NDT Fund Investments240.03
Amortization of Commodity Contract Intangibles240.03
Merger and Integration Costs(21)(0.02)
Mark-to-Market Impact of PHI Merger Related Interest Rate Swap(48)(0.06)
Midwest Generation Bankruptcy Recoveries60.01
CENG Non-Controlling Interest(7)(0.01)
Exelon GAAP Net Income$693$0.80

First Quarter and Recent Highlights

  • PHI Acquisition: On March 23, 2016, Exelon completed the all cash $7 billion acquisition of PHI.  As such, Exelon’s first quarter 2016 earnings include the consolidated results of PHI for the period March 24, 2016, to March 31, 2016.  Approval of the merger across all jurisdictions was conditioned upon Exelon agreeing to certain commitments providing direct benefits to customers, for which Exelon recorded a total pre-tax charge of $508 million (or $394 million after-tax) in the first quarter 2016, which has been excluded from adjusted (non-GAAP) Operating earnings.
  • Early Retirement of Clinton and Quad Cities Nuclear Facilities: In 2015, Exelon and Generation deferred retirement decisions on Clinton and Quad Cities until 2016 in order to participate in the 2016-2017 MISO primary reliability auction and the 2019-2020 PJM capacity auction to be held in April and May 2016, respectively, as well as to provide Illinois policy makers with additional time to consider needed reforms and for MISO to consider market design changes to ensure long-term power system reliability in southern Illinois. In April 2016, Clinton cleared the MISO primary reliability auction as a price taker for the 2016-2017 planning year. The resulting capacity price is insufficient to cover cash operating costs and a risk-adjusted rate of return to shareholders. The results of the 2019-2020 PJM capacity auction will be available on May 24, 2016.  On May 6, 2016 Exelon and Generation announced intentions to shut down the Clinton nuclear plant on June 1, 2017 and Quad Cities nuclear plant on June 1, 2018 if Illinois does not pass adequate legislation by May 31, 2016 and if Quad Cities does not clear the 2019-2020 PJM capacity auction.
  • Nuclear Operations: Generation’s nuclear fleet, including its owned output from the Salem Generating Station and 100 percent of the CENG units, produced 44,802 gigawatt-hours (GWh) in the first quarter of 2016, compared with 42,657GWh in the first quarter of 2015. Excluding Salem, the Exelon-operated nuclear plants at ownership achieved a 95.8 percent capacity factor for the first quarter of 2016, compared with 92.7 percent for the first quarter of 2015. The number of planned refueling outage days in the first quarter of 2016 totaled 70, compared with 89 in the first quarter of 2015. There were 10 non-refueling outage days in the first quarter of 2016, compared with 32 days in the first quarter of 2015.
  • Fossil and Renewables Operations: The Dispatch Match rate for Generation’s gas and hydro fleet was 93.5 percent in the first quarter of 2016, compared with 98.0 percent in the first quarter of 2015. The lower performance in the quarter was primarily due to an unplanned outage in January at Mystic 8 and 9, in Massachusetts. Energy Capture for the wind and solar fleet was 96.2 percent in the first quarter of 2016, compared with 95.9 percent in the first quarter of 2015.
  • Ginna Nuclear Power Plant Reliability Support Services Agreement (RSSA): In April 2016, FERC and NYPSC approved an RSSA under which Ginna would continue to operate during the RSSA term and, in return, Ginna would be paid revenues to compensate it for the reliability benefits that it provides to the transmission grid. Generation will also recognize a one-time revenue adjustment in April 2016 of approximately $101 million representing the net cumulative previously unrecognized amount of revenue retroactive from the April 1, 2015 effective date through March 31, 2016.  A 49.99 percent portion of the one-time adjustment will be removed from Generation’s results by the non-controlling interest in CENG. 
  • Pepco Electric Distribution Rate Case: On April 19, 2016, Pepco filed an application with the MDPSC requesting an increase of $127 million to its annual service revenues for electric delivery, based on a requested ROE of 10.6 percent. Any adjustments to rates approved by the MDPSC are expected to take effect in November 2016.
  • ACE Electric Distribution Rate Case: On March 22, 2016, ACE filed an application with the NJBPU requesting an increase of $84 million to its annual service revenues for electric delivery, based on a requested ROE of 10.6 percent. A decision by the NJBPU is expected in the first half of 2017.
  • Financing Activities: On April 7 2016, Exelon issued and sold $1.8 billion aggregate principal amount of notes consisting of $300 million of 2.450 percent Notes due in 2021, $750 million of 3.400 percent Notes due in 2026 and $750 million of 4.450 percent Notes due in 2046. A portion of the proceeds of the Notes will be used to repay commercial paper issued by PHI and for general corporate purposes, which may include the repayment of outstanding indebtedness.
  • 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. This strategy has not changed as a result of recent and pending asset divestitures. The proportion of expected generation hedged as of March 31, 2016, is 96.0 percent to 99.0 percent for 2016, 69.0 percent to 72.0 percent for 2017, and 37.0 percent to 40.0 percent for 2018. Expected generation is the volume of energy that best represents our financial exposure through owned or contracted capacity. 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

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

ComEd's first quarter 2016 GAAP Net Income was $115 million compared with $90 million in the first quarter of 2015.   Adjusted (non-GAAP) Operating Earnings for the first quarter of 2016 and 2015 do not include merger and integration costs that were included in reported GAAP earnings. A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is presented in the table below:

($ millions)1Q161Q15
ComEd Adjusted (non-GAAP) Operating Earnings$110$92
Merger and Integration Costs5(2)
ComEd GAAP Net Income$115$90

ComEd’s Adjusted (non-GAAP) Operating Earnings in the first quarter of 2016 increased by $18 million from the same quarter in 2015, primarily due to higher electric distribution and transmission formula rate earnings, partially offset by less favorable weather.

For the first quarter of 2016, heating degree-days in the ComEd service territory were down 20.2 percent relative to the same period in 2015 and were 8.3 percent below normal. Total retail deliveries decreased by 4.6 percent in the  first quarter of 2016 compared with the same period in 2015.

Weather-normalized retail electric deliveries were slightly less in the first quarter of 2016 compared with the same period in 2015. 

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

PECO’s first quarter 2016 GAAP Net Income was $124 million compared with $139 million in the first quarter of 2015. Adjusted (non-GAAP) Operating Earnings for the first quarter of 2016 and 2015 do not include certain items (after tax) that were included in reported GAAP earnings. A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is presented in the table below:

($ millions)1Q161Q15
PECO Adjusted (non-GAAP) Operating Earnings$126$140
Merger and Integration Costs(1)(1)
Cost Management Program(1)---
PECO GAAP Net Income$124$139

PECO’s Adjusted (non-GAAP) Operating Earnings in the first quarter of 2016 decreased $14 million from the same quarter in 2015, primarily due to less favorable weather, partially offset by increased electric distribution revenue pursuant to the 2015 PAPUC authorized electric distribution rate increase effective January 1, 2016. 

For the first quarter of 2016, heating degree-days in the PECO service territory were down 27.2 percent relative to the same period in 2015 and were 13.7 percent below normal. Total retail electric deliveries were down 8.2 percent compared with the first quarter of 2015. Natural gas deliveries (including both retail and transportation segments) in the first quarter of 2016 were down 20.1 percent compared with the same period in 2015.

Weather-normalized retail electric deliveries remained relatively consistent while gas deliveries increased 4.0 percent in the first quarter of 2016 compared with the same period in 2015.  The increased gas volumes were driven primarily by moderate economic conditions and customer growth.

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

BGE’s first quarter 2016 GAAP Net Income was $98 million, compared with $106 million in the first quarter of 2015. Adjusted (non-GAAP) Operating Earnings for the first quarter of 2015 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 presented in the table below:

($ millions)1Q161Q15
BGE Adjusted (non-GAAP) Operating Earnings$100$107
Merger and Integration Costs(1)(1)
Cost Management Program(1)__
BGE GAAP Net Income$98$106

BGE’s Adjusted (non-GAAP) Operating Earnings in the first quarter of 2016 decreased $7 million from the same quarter in 2015, primarily due to increased storm costs in BGE's service territory. Due to revenue decoupling, BGE is not affected by actual weather with the exception of major storms.

PHI 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.

PHI’s GAAP Net Loss from March 24-31, 2016 was $309 million. Adjusted (non-GAAP) Operating Earnings for the successor period do not include merger and integration costs and merger commitments that were included in reported GAAP earnings. A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is presented in the table below:

($ millions)March 24-31, 2016
PHI Adjusted (non-GAAP) Operating Earnings$2
Merger and Integration Costs(33)
Merger Commitments(278)
PHI GAAP Net Loss$(309)

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.

Generation's first quarter 2016 GAAP Net Income was $310 million compared with $443 million in the first quarter of 2015. Adjusted (non-GAAP) Operating Earnings for the first quarter of 2016 and 2015 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)1Q161Q15
Generation Adjusted (non-GAAP) Operating Earnings$315$303
Mark-to-MArket Impact of Economic Hedging Activities64100
Unrealized Gains Related to NDT Fund Investments3124
Amortization of Commodity Contract Intangibles1224
Merger and Integration Costs(10)(7)
Merger Commitments(2)--
Midwest Generation Bankruptcy Recoveries--(6)
Long-Lived Asset Impairment(71)--
Reassessment of State Deferred Income Taxes(6)--
Cost Management Program(12)--
CENG Non-Controlling Interest(11)(7)
Generation GAAP Net Income$310$443

Generation's Adjusted (non-GAAP) Operating Earnings in the first quarter of 2016 increased by $12 million compared with the same quarter in 2015. This increase primarily reflects nuclear refueling outage timing, fewer non-refueling outage days, and increased capacity pricing, partially offset by lower realized energy prices and increased nuclear decommissioning amortization expense.

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 Net Income to adjusted (non-GAAP) Operating Earnings for historical periods is attached. Additional earnings release attachments 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 May 6, 2016.

Cautionary Statements Regarding Forward-Looking Information

This press 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, Exelon Generation Company, LLC, Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company,  Pepco Holdings LLC (PHI), Potomac Electric Power Company, Delmarva Power & Light Company, and Atlantic City Electric Company (Registrants) include those factors discussed herein, as well as the items discussed in (1)  Exelon's 2015 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 23; (2) PHI's 2015 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 16; and (3) 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 press 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 press release.



 

 

 

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