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Exelon Announces First Quarter 2017 Results

Exelon Corporation (NYSE: EXC) announced first quarter 2017 consolidated earnings.

CHICAGO — Exelon Corporation (NYSE: EXC) announced first quarter 2017 consolidated earnings as follows:

First Quarter

2017 2016

GAAP Results:
Net Income ($ millions)	$995	$173
Diluted Earnings per Share	$1.07	$0.19
Adjusted (non-GAAP) Operating Results:
Net Income ($ millions)	$605	$632
Diluted Earnings per Share	$0.65	$0.68

"Exelon delivered solid performance for shareholders and customers in the first quarter, achieving record reliability and operational excellence. We marked the one-year anniversary of our merger with Pepco Holdings, successfully executing on merger commitments and integration targets, while delivering tangible benefits to our new customers," said Christopher M. Crane, Exelon President and CEO. “We completed the acquisition of the FitzPatrick power plant, and recently began earning zero-emissions credit revenues in New York, helping to preserve jobs and deliver clean energy across the state. I am proud of the hard work of our 34,000 employees who safely deliver on our commitments to customers, shareholders and communities every day."

First Quarter Operating Results

Exelon's GAAP Net Income increased to $1.07 per share in the first quarter of 2017 from $0.19 per share in the first quarter of 2016. Exelon’s adjusted (non-GAAP) Operating Earnings decreased to $0.65 per share in the first quarter of 2017 from $0.68 per share in the first quarter of 2016.

First quarter 2017 results include $0.09 per share of PHI Adjusted (non-GAAP) Operating Earnings. Adjusted (non-GAAP) Operating Earnings in the first quarter of 2017 reflect the following unfavorable factors:

• Unfavorable impact of declining natural gas prices on Generation's natural gas portfolio

• Unfavorable impact of increased nuclear outage days at Generation

• Lower capacity prices at Generation, and

• Lower realized energy prices at Generation

These factors were partially offset by:

• Higher utility earnings due to regulatory rate increases, and

• Higher revenue at Generation under the Ginna Reliability Support Services

Agreement

Adjusted (non-GAAP) Operating Earnings for the first quarter of 2017 do not include the following items (after tax) that were included in reported GAAP Net Income:

(in millions) (per diluted share)

Exelon GAAP Net Income	$995	$1.07
Mark-to-Market Impact of Economic Hedging Activities	30	0.03
Unrealized Gains Related to Nuclear Decommissioning Trust (NDT) Fund Investments	(99)	(0.10)
Amortization of Commodity Contract Intangibles	3	—
Merger and Integration Costs	25	0.03
Merger Commitments (1)	(137)	(0.15)
Reassessment of State Deferred Income Taxes	(20)	(0.02)
Cost Management Program	4	—
Tax Settlement	(5 )	(0.01 )
Bargain Purchase Gain	(226 )	(0.24 )
CENG Noncontrolling Interest	35	0.04
Exelon Adjusted (non-GAAP) Operating Earnings	$605	$0.65

(1) Represents a decrease in reserves for uncertain tax positions related to the deductibility of certain merger commitments associated with the 2012 CEG and 2016 PHI acquisitions.

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 diluted share)

Exelon GAAP Net Income	$173	0.19
Mark-to-Market Impact of Economic Hedging Activities	(64)	(0.07)
Unrealized Gains Related to Nuclear Decommissioning Trust (NDT) Fund Investments	(31)	(0.03)
Amortization of Commodity Contract Intangibles	(12)	(0.01)
Merger and Integration Costs	76	0.08
Merger Commitments	3.94	0.42
Long Lived Asset Impairments	71	0.07
Cost Management Program	14	0.02
CENG Noncontrolling Interest	11	0.01
Exelon Adjusted (non-GAAP) Operating Earnings	$632	$0.68

First Quarter and Recent Highlights

• FitzPatrick Acquisition: On March 31, 2017, Generation acquired the James A. FitzPatrick nuclear station located in Scriba, New York for a total purchase price of $293 million. The total purchase price consisted of a cash purchase price of $110 million and a net cost reimbursement to and on behalf of Entergy of $183 million. As part of the acquisition agreements, Generation provided nuclear fuel and reimbursed Entergy for incremental costs to prepare for and conduct a plant refueling outage; and Generation reimbursed Entergy for incremental costs to operate and maintain the plant for the period after the refueling outage through the acquisition closing date. These reimbursements covered costs that Entergy otherwise would have avoided had it shut down the plant as originally intended in January 2017. Generation recognized a $226 million after-tax bargain purchase gain as a result of the FitzPatrick acquisition.

• Generation Renewable JV Transaction: On March 31, 2017, ExGen Renewables Holdings, LLC entered into a sales agreement for 49 percent of the membership interest in its renewable generation portfolio for a purchase price of $400 million, subject to certain working capital and post-closing adjustments. These proceeds, net of approximately $115 million of income taxes on the sale, will be used by Generation to pay down debt and for general corporate purposes. Upon consummation of the transaction, ExGen Renewables Holdings will be the managing member over the joint venture and its renewable generation portfolio. Consummation of the transaction is expected in the late second quarter or early third quarter and is subject to various customary closing conditions, including receipt of regulatory approvals from the Federal Energy Regulatory Commission and Public Utility Commission of Texas.

• DPL Maryland Electric Distribution Rate Case: On Feb. 15, 2017, the MDPSC approved an electric distribution rate increase of $38 million based on an allowed ROE of 9.6 percent. The new rates became effective for services rendered on or after February 15, 2017.

• DPL Delaware Electric and Natural Gas Distribution Rate Case: On May 17, 2016, DPL filed applications with the DPSC requesting increases of $63 million (which was updated to $60 million on March 8, 2017) and $22 million to its electric and natural gas distribution rates, respectively, each based on a requested ROE of 10.6 percent. On March 8, 2017, DPL entered into a settlement agreement with the Division of the Public Advocate, Delaware Electric Users Group and the DPSC Staff in its electric distribution rate proceeding, which provides for an increase in DPL electric distribution rates of $32 million based on an allowed ROE of 9.7 percent. On April 6, 2017, DPL entered into a settlement agreement with the Division of the Public Advocate and the DPSC Staff in its natural gas distribution rate proceeding, which provides for an increase in DPL natural gas distribution rates of $4.9 million based on an ROE of 9.7 percent.

• Pepco Maryland Electric Distribution Rate Case: On March 24, 2017, Pepco filed an application with the MDPSC requesting an electric rate increase of $69 million based on a requested ROE of 10.1 percent. Pepco expects a decision in this matter in the fourth quarter of 2017.

• ACE Electric Distribution Rate Case: On March 30, 2017, ACE filed an application with the NJBPU requesting an electric distribution rate increase of $70 million, based on a requested ROE of 10.1 percent. ACE currently expects a decision in this matter in the first quarter of 2018.

• 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 is the volume of energy that best represents our commodity position in energy markets from owned or contracted generating facilities upon a simulated dispatch model that makes assumptions regarding future market conditions, which are calibrated to market quotes for power, fuel, load following products, and options. The proportion of expected generation hedged as of March 31, 2017, was 97.0 percent to 100.0 percent for 2017, 60.0 percent to 63.0 percent for 2018, and 30.0 percent to 33.0 percent for 2019. 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.

• Nuclear Operations: Generation’s nuclear fleet, including its owned output from the Salem Generating Station and 100 percent of the CENG units, produced 43,504 gigawatt-hours (GWh) in the first quarter of 2017, compared with 44,802 GWh in the first quarter of 2016. Excluding Salem, the Exelon-operated nuclear plants at ownership achieved a 94.0 percent capacity factor for the first quarter of 2017, compared with 95.8 percent for the first quarter of 2016. The number of planned refueling outage days in the first quarter of 2017 totaled 95, compared with 70 in the first quarter of 2016. There were 8 non-refueling outage days in the first quarter of 2017, compared with 10 days in the first quarter of 2016.

• Fossil and Renewables Operations: The dispatch match rate for Generation’s gas and hydro fleet was 99.1 percent in the first quarter of 2017, compared with 93.5 percent in the first quarter of 2016. Energy capture for the wind and solar fleet was 95.7 percent in the first quarter of 2017, compared with 96.2 percent in the first quarter of 2016.

• Financing Activities:

◦ On March 10, 2017, Generation issued $250 million aggregate principal amount of its 2.950 percent Senior Notes due in 2020 and $500 million aggregate principal amount of its 3.400 percent Senior Notes due in 2022. The proceeds from the sale of the Senior Notes were used to repay outstanding commercial paper obligations and for general corporate purposes.

◦ On April 3, 2017, Exelon completed the remarketing of $1.15 billion aggregate principal amount of its 2.500 percent Junior Subordinated Notes due 2024, originally issued as components of its equity units issued in June 2014. As contemplated in the June 2014 equity unit structure, Exelon completed the remarketing of the 2024 notes into $1.15 billion aggregate principal amount of 3.497 percent junior subordinated notes due in 2022. Exelon conducted the remarketing on behalf of the holders of equity units and did not directly receive any proceeds therefrom. Instead, the former holders of the 2024 notes may use debt remarketing proceeds towards settling the forward equity purchase contract with Exelon on June 1, 2017. Exelon will receive $1.15 billion upon settlement on June 1, 2017 of the forward equity purchase contract. Exelon currently expects the number of equity shares to be issued to range from 26 million to 33 million, dependent on Exelon’s stock price at the time of settlement pursuant to the equity unit terms.

◦ In September 2014, EGTP, an indirect subsidiary of Exelon and Generation, issued $675 million aggregate principal amount of a nonrecourse senior secured term loan. On May 2, 2017, EGTP entered into a consent agreement with its lenders to permit EGTP to draw on its revolving credit facility and initiate an orderly sales process to sell the assets of its wholly-owned subsidiaries, the proceeds from which will first be used to pay the administrative costs of administering the sale, the normal and ordinary costs of operating the plants and repayment of the secured debt of EGTP, including the revolving credit facility. As a result, in the second quarter, Exelon and Generation will reclassify certain EGTP’s assets and liabilities on Exelon’s and Generation’s Consolidated Balance Sheets as held for sale at their respective fair values. Exelon and Generation estimate a pre-tax impairment charge upon reclassification ranging from $300 million to $400 million will be recognized in the second quarter of 2017.

Operating Company Results

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

ComEd's first quarter 2017 GAAP Net Income was $141 million compared with $115 million in the first quarter of 2016.

Adjusted (non-GAAP) Operating Earnings for the first quarter of 2016 do not include merger and integration costs that were included in reported GAAP Net Income as reconciled in the table below:

($ millions)	1Q17	1Q16
ComEd GAAP Net Income	$141	$115
Merger and Integration Costs	—	(5)
ComEd Adjusted non-GAAP Operating Earnings	$141	$110

ComEd’s Adjusted (non-GAAP) Operating Earnings in the first quarter of 2017 increased by $31 million from the same quarter in 2016, primarily due to higher electric distribution and transmission formula rate earnings. Pursuant to the Illinois Future Energy Jobs Act, beginning in 2017, customer rates for ComEd will be adjusted to eliminate the favorable and unfavorable impacts of weather and customer usage patterns on distribution volumes.

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

PECO’s first quarter 2017 GAAP Net Income was $127 million compared with $124 million in the first quarter of 2016. Adjusted (non-GAAP) Operating Earnings for the first quarter of 2017 and 2016 do not include merger and integration costs and cost management program costs that were included in reported GAAP Net Income as reconciled in the table below:

($ millions)	1Q17	1Q16
PECO GAAP Net Income	$127	$124
Merger and Integration Costs	1	1
Cost Management Program	1	1
PECO Adjusted non-GAAP Operating Earnings	$129	$126

PECO’s Adjusted (non-GAAP) Operating Earnings in the first quarter of 2017 remained relatively consistent with the same quarter in 2016.

For the first quarter of 2017, heating degree days were down 2.0 percent relative to the same period in 2016 and were 15.4 percent below normal. Total retail electric deliveries and natural gas deliveries (including both retail and transportation segments) remained relatively consistent in the first quarter of 2017 compared with the same period in 2016.

Weather-normalized retail electric deliveries were down 1.0 percent in the first quarter of 2017 compared with the same period in 2016, while natural gas deliveries remained relatively consistent.

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

BGE’s first quarter 2017 GAAP Net Income was $125 million compared with $98 million in the first quarter of 2016. Adjusted (non-GAAP) Operating Earnings do not include merger and integration costs in the first quarter of 2017, and do not include merger and integration costs and cost management program costs in the first quarter of 2016, that were included in reported GAAP Net Income as reconciled in the table below:

($ millions)	1Q17	1Q16
BGE GAAP Net Income	$125	$98
Merger and Integration Costs	1	1
Cost Management Program	—	1
BGE Adjusted non-GAAP Operating Earnings	$126	$100

BGE’s Adjusted (non-GAAP) Operating Earnings in the first quarter of 2017 increased by $26 million from the same quarter in 2016, primarily due to increased distribution revenue pursuant to increased rates effective in June 2016 and decreased storm costs in the BGE service territory, partially offset by increased amortization due to the initiation of cost recovery of the AMI programs. 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 first quarter 2017 GAAP Net Income was $140 million compared with a GAAP Net Loss of $309 million for the period of March 24, 2016 to March 31, 2016. Adjusted (non-GAAP) Operating Earnings for the first quarter of 2017 and for the period of March 24, 2016 to March 31, 2016 do not include merger and integration costs and merger commitments that were included in reported GAAP Net Income (Loss) as reconciled in the table below:

($ millions)	1Q17	March 24 - 31, 2016
PHI GAAP Net Income (Loss)	$140	$(309)
Merger and Integration Costs	(3)	33
Merger Commitments (1)	(56)	278
PHI Adjusted non-GAAP Operating Earnings	$81	$2

(1) Represents a decrease in reserves for uncertain tax positions related to the deductibility of certain merger commitments associated with the 2016 PHI acquisition.

PHI’s Adjusted (non-GAAP) Operating Earnings for the first quarter of 2017 includes the impact of approved rate orders in 2016 and 2017.

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 and risk management services.

Generation's first quarter 2017 GAAP Net Income was $423 million compared with GAAP Net Income of $310 million in the first quarter of 2016. Adjusted (non-GAAP) Operating Earnings for the first quarter of 2017 and 2016 do not include various items (after tax) that were included in reported GAAP Net Income as reconciled in the table below:

($ in millions) 1Q17 1Q16

Generation GAAP Net Income	$423	$310
Mark-to-Market Impact of Economic Hedging Activities	30	(64)
Unrealized Gains Related to Nuclear Decommissioning Trust (NDT) Fund Investments	(99)	(31)
Amortization of Commodity Contract Intangibles	3	(12)
Merger and Integration Costs	26	10
Merger Commitments (1)	(18)	2
Long Lived Asset Impairments	—	71
Reassessment of State Deferred Income Taxes	—	6
Cost Management Program	3	12
Tax Settlements	(5)	—
Bargain Purchase Gain	(226)	—
CENG Noncontrolling Interest	35	11
Generation Adjusted non-GAAP Operating Earnings	$172	$315

(1) Represents a decrease in reserves for uncertain tax positions related to the deductibility of certain merger commitments associated with the 2012 CEG and 2016 PHI acquisitions.

Generation’s Adjusted (non-GAAP) Operating Earnings in the first quarter of 2017 decreased by $143 million compared with the same quarter in 2016, primarily reflecting the unfavorable impacts of declining natural gas prices on Generation's natural gas portfolio, increased nuclear outage days, decreased capacity prices and lower realized energy prices, partially offset by the impact of the Ginna Reliability Support Services Agreement in 2017.

Non-GAAP Financial Measures

In addition to net income as determined under generally accepted accounting principles in the United States (GAAP), Exelon evaluates its operating performance using the measure of Adjusted (non-GAAP) Operating Earnings because management believes it represents earnings directly related to the ongoing operations of the business. Adjusted (non-GAAP) Operating Earnings exclude certain costs, expenses, gains and losses and other specified items. This measure is intended to enhance an investor’s overall understanding of period over period operating results and provide an indication of Exelon’s baseline operating performance excluding items that are considered by management to be not directly related to the ongoing operations of the business. In addition, this measure is among the primary indicators management uses as a basis for evaluating performance, allocating resources, setting incentive compensation targets and planning and forecasting of future periods. Adjusted (non-GAAP) Operating Earnings is not a presentation defined under GAAP and may not be comparable to other companies’ presentation. The Company has provided the non-GAAP financial measure as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. Adjusted (non-GAAP) Operating Earnings should not be deemed more useful than, a substitute for, or an alternative to the most comparable GAAP measures provided in this earnings release and attachments. This press release and earnings release attachments provide reconciliations of adjusted (non-GAAP) Operating Earnings to the most directly comparable financial measures calculated and presented in accordance with GAAP, are posted on Exelon’s website: www.exeloncorp.com, and have been furnished to the Securities and Exchange Commission on Form 8-K on May 3, 2017.

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, 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 2016 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 24, Commitments and Contingencies; (2) Exelon’s First Quarter 2017 Quarterly Report on Form 10-Q (to be filed on May 3, 2017) 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 17; and (2) 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.