August 01, 2012

 Exelon Announces Second Quarter 2012 Results 

 Exelon Corporation (NYSE: EXC) announced second quarter 2012 consolidated earnings. 

 

CHICAGO — Exelon Corporation (NYSE: EXC) announced second quarter 2012 consolidated earnings as follows: 

Second Quarter
   2012 2011
Adjusted (non-GAAP) Operating Results:
  Net Income ($ millions) $522 $697
  Diluted Earnings per Share $0.61 $1.05
GAAP Results:
  Net Income ($ millions) $286 $620
  Diluted Earnings per Share $0.33 $0.93

“We have delivered on our financial and operating commitments with solid second quarter earnings, and are reaffirming our full-year operating earnings guidance of $2.55 to $2.85 per share,” said Christopher M. Crane, Exelon’s president and CEO. “Our businesses are performing well. Exelon Generation’s nuclear fleet achieved a capacity factor of 93.4 percent, and our delivery companies – BGE, ComEd and PECO – provided strong operational and financial performance for the quarter. We are also pleased with the results of our merger integration efforts to date and are confident of realizing the value investors expect from the Exelon-Constellation merger.”

Second Quarter Operating Results

Second quarter 2012 earnings include financial results for Constellation Energy (Constellation) 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 $0.61 per share in the second quarter of 2012 from $1.05 per share in the second quarter of 2011. Earnings in second 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 in the Midwest and Mid-Atlantic regions;
• Higher operating and maintenance expenses, including increased labor, contracting and benefit costs;
• Impact of increased average diluted common shares outstanding as a result of the merger; and
• Increased depreciation and amortization expense due to ongoing capital expenditures.

These factors were partially offset by:

• The addition of BGE’s financial results and Constellation’s contribution to Generation’s energy margins; and
• Fewer nuclear outage days.

Adjusted (non-GAAP) operating earnings for the second 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 gains primarily from Generation’s economic hedging activities, net of intercompany eliminations   

$123
 

$0.15
Unrealized losses related to Nuclear Decommissioning Trust (NDT) fund investments to the extent not offset by contractual                                                  


$(19)   



$(0.02)
Financial impacts associated with plant retirements and divestitures
$1

-
Certain costs related to the merger and integration initiatives
$(67)

(0.08)
Non-cash amortization of intangible assets, net, related to commodity contracts recorded at fair value at the merger date

$(281)


$(0.33)
Non-cash amortization of certain debt recorded at fair value at the merger date 
$3 

-
Non-cash benefit resulting from reassessment of state deferred income taxes
$4

-


Adjusted (non-GAAP) operating earnings for the second 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 losses primarily from Generation’s economichedging activities    
$(75)
 
$(0.12)
Unrealized gains related to NDT fund investments to the extent not offset by contractual accounting 

$6


$0.01
One-time benefits for the recovery of previously incurred costs per ComEd’s 2011 distribution rate case order

$17


$0.03
Certain costs related to the merger and integration initiatives
$(15)

$(0.02)
Financial impacts associated with the planned retirement of certain Generation fossil generating units

$(10)


$(0.02)


Second Quarter and Recent Highlights

• Nuclear Operations:
Generation’s nuclear fleet, including its owned output from the Salem Generating Station, produced 35,137 gigawatt-hours (GWh) in the second quarter of 2012, compared with 33,167 GWh in the second 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 93.4 percent capacity factor for the second quarter of 2012, compared with 89.6 percent for the second quarter of 2011. The Exelon-operated nuclear plants completed one scheduled refueling outage in the second quarter of 2012, compared with completing two scheduled refueling outages in the second quarter of 2011. The number of planned refueling outage days totaled 51 in the second quarter of 2012 versus 103 days in the second quarter of 2011. The number of non-refueling outage days at the Exelon-operated plants totaled 16 days in the second quarter of 2012, compared with 24 days in the second quarter of 2011.

• Fossil and Renewables Operations: The equivalent demand forced outage rate for Generation’s fossil fleet is 4.5 percent in the first half of 2012, compared with 5.0 percent in the first half of 2011. The 2012 fossil fleet results include former Constellation plants, exclusive of the Maryland Clean Coal plants to be sold, whereas 2011 data include only legacy Exelon plants. The equivalent availability factor for the hydroelectric facilities was 96.2 percent in the second quarter of 2012, compared with 93.4 percent in the second quarter of 2011. The change was largely due to planned outages in April 2011. The energy capture for the wind fleet was 95.0 percent in the second quarter of 2012, compared with 93.0 percent in the second quarter of 2011.

• ComEd Distribution Formula Rate Cases: On November 8, 2011, ComEd filed its initial formula rate tariff and associated testimony based on 2010 costs and 2011 plant additions. The primary purpose of this initial proceeding was to establish the formula rate under which rates will be calculated going-forward, and the initial rates, which went into effect in late June. On May 30, 2012, the Illinois Commerce Commission (ICC) issued its final Order (Order) in ComEd’s 2011 formula rate proceeding under the Energy Infrastructure Modernization Act (EIMA). The Order reduced the annual revenue requirement by $168 million, or approximately $110 million more than the reduction proposed by ComEd. Of this incremental revenue requirement reduction, approximately $50 million reflected the ICC's determination that certain costs should be recovered through alternative rate recovery tariffs available to ComEd or will be reflected in the annual reconciliation, thereby primarily delaying the timing of cash flows.  In the second quarter of 2012, ComEd recorded a reduction of revenue of approximately $100 million pre-tax to decrease the regulatory asset for the 2011 and 2012 reconciliations consistent with the terms of the Order. On June 22, 2012, the ICC granted expedited rehearing on ComEd’s pension asset recovery, the use of average or year-end rate base in determining ComEd’s reconciliation revenue requirement and the interest rate charged on over/under recovered costs. A final order on rehearing is due by September 19, 2012.

• BGE Electric and Gas Distribution Rate Case:  On July 27, 2012, BGE filed an application for increases of $151 million and $53 million to its electric and gas base rates, respectively, with the Maryland Public Service Commission (MDPSC). The requested rate of return on equity in the application is 10.5 percent. The MDPSC will determine any increase in rates after a 7-month proceeding with input from all interested parties. The new electric and gas distribution base rates are expected to take effect in late February 2013.

• Debt Exchange: On June 13, 2012, Generation commenced private offers to certain eligible holders to exchange any and all of the $700 million outstanding 7.60 percent Senior Notes due 2032 (Old Notes) of Exelon Corporation, which were assumed by Exelon in the merger with Constellation Energy Group, Inc., for:

-- Generation’s newly issued 4.25 percent Senior Notes due 2022, plus a cash payment; and

-- Generation’s newly issued 5.60 percent Senior Notes due 2042, plus a cash payment.
 
Pursuant to an exchange offer completed on July 12, 2012, Generation purchased $442 million of the outstanding Old Notes in exchange for issuing $535 million of new notes, including a cash payment of $60 million.  Generation incurred gains associated with the early retirement of debt of approximately $13 million as a result of paying a price less than book value of the Old Notes.  The gain was recorded as an increase to Long-term Debt within Generation’s Consolidated Balance Sheets and will be amortized to income over the life of the debt as a reduction in interest expense.

• 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, 2012, is 99 to 102 percent for 2012, 79 to 82 percent for 2013 and 46 to 49 percent for 2014.  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.

Second quarter 2012 net income was $166 million, compared with $443 million in the second quarter of 2011. Second quarter 2012 net income included (all after tax) mark-to-market gains of $120 million from economic hedging activities, unrealized losses of $19 million related to Nuclear Decommissioning Trust (NDT) fund investments, net impact of $1 million for plant retirements and divestitures, certain costs of $57 million associated with the merger and integration initiatives, amortization of commodity contract intangibles of $281 million and $3 million of amortization of the fair value of certain debt expected to be retired in 2013. Second quarter 2011 net income included (all after tax) mark-to-market losses of $75 million from economic hedging activities, net costs of $10 million associated with the planned retirement of certain fossil generating units, unrealized gains of $6 million related to NDT fund investments and certain costs of $1 million associated with the proposed merger with Constellation. 

Excluding the effects of these items, Generation’s net income in the second quarter of 2012 decreased $124 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 in the Midwest and Mid-Atlantic regions;
• Higher operating and maintenance expenses; and
• Increased depreciation and amortization expense due to ongoing capital expenditures.

These items were partially offset by increased nuclear volumes, lower nuclear refueling outage costs and the contribution to Generation’s energy margins from Constellation.

Generation’s average realized margin on all electric sales, including sales to affiliates and excluding trading activity, was $26.15 per megawatt-hour (MWh) in the second quarter of 2012, compared with $41.59 per MWh in the second quarter of 2011.

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

ComEd recorded net income of $42 million in the second quarter of 2012, compared with net income of $114 million in the second quarter of 2011. Second quarter net income in 2011 included an after-tax non-cash credit of $17 million for the recovery of previously incurred costs pursuant to the 2011 distribution rate case order. Excluding the effects of this  item, ComEd’s net income in the second quarter of 2012 was down $55 million from the same quarter in 2011, primarily due to decreased distribution revenues as a result of a final order issued by the ICC on the 2011 performance based formula rate proceeding under the EIMA, higher operating and maintenance expenses reflecting increased labor and contracting costs, driven, in part, by EIMA initiatives and one-time benefits recorded in the second quarter of 2011 related to the 2011 ComEd electric distribution rate case.

These unfavorable items were partially offset by the effect of favorable weather in ComEd’s service territory and lower interest expense.

In the second quarter of 2012, heating degree-days in the ComEd service territory were down 33.9 percent relative to the same period in 2011 and were 28.9 percent below normal. For the second quarter of 2012, cooling degree-days in the ComEd service territory were up 78.5 percent relative to the same period in 2011 and were 94.0 percent above normal. Total retail electric deliveries increased 3.2 percent quarter over quarter.

Weather-normalized retail electric deliveries decreased 1.3 percent in the second quarter of 2012 relative to 2011, reflecting decreases in deliveries to both residential and small commercial and industrial (C&I) customers that were partially offset by an increase in deliveries to large C&I customers. For ComEd, weather had a favorable after-tax effect of $11 million on second quarter 2012 earnings relative to 2011 and a favorable after-tax effect of $12 million relative to normal weather. 

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

PECO’s net income in the second quarter of 2012 was $79 million, compared with $82 million in the second quarter of 2011. Second quarter net income in 2012 included certain after-tax costs of $2 million associated with the merger and integration initiatives. Excluding the effect of this item, PECO’s net income in the second quarter of 2012 was down $1 million from the same quarter in 2011, primarily reflecting the effect of unfavorable weather in PECO’s service territory and lower load.

These unfavorable items were partially offset by lower operating and maintenance expenses, reflecting decreased labor and contracting costs.

In the second quarter of 2012, heating degree-days in the PECO service territory were up 1.8 percent from 2011 and were 27.2 percent below normal. Total retail electric deliveries were down 4.5 percent quarter over quarter. On the retail gas side, deliveries in the second quarter of 2012 were down 6.0 percent from the second quarter of 2011.   

Weather-normalized retail electric deliveries were down 2.7 percent in the second quarter of 2012 relative to 2011, reflecting declines in deliveries to all customer classes. Weather-normalized retail gas deliveries were down 3.7 percent in the second quarter of 2012. For PECO, weather had an unfavorable after-tax effect of $8 million on second quarter 2012 earnings relative to 2011 and a favorable after-tax effect of $1 million relative to normal weather.

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

BGE’s net income in the second quarter of 2012 was $13 million. The net income included after-tax costs of $1 million associated with the merger and integration initiatives. Excluding the effects of these items, BGE’s net income in the second quarter of 2012 was $14 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. Additional earnings release attachments, which include the reconciliation 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 August 1, 2012.  

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 Registrant’s First 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 presentation. 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.

###

 

About Exelon

Exelon Corporation (NYSE:EXC) is the nation’s leading competitive energy provider, with approximately $33 billion in annual revenues. Headquartered in Chicago, Exelon has operations and business activities in 47 states, the District of Columbia and Canada. Exelon is the largest competitive U.S. power generator, 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 approximately 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

Ravi Ganti Investor Relations
312.394.2348
Judy Rader Exelon Corporate Communications
312.394.7417
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