Recent Developments and First Quarter Highlights
COVID-19: Exelon is closely monitoring developments related to the global outbreak (pandemic) of the 2019 novel coronavirus (COVID-19) pandemic and is taking proactive measures to protect the health and safety of employees, contractors and customers. As a provider of critical resources, Exelon has robust plans and contingencies in place to ensure business and operational continuity across a wide range of potentially disruptive events, including extensive preparedness for major public health crises. Exelon and its operating companies are working in close coordination with designated state and local emergency preparedness and health officials, and at the federal level through the Electric Subsector Coordinating Council. All Exelon employees have access to up-to-date information and resources and are following Centers for Disease Control guidelines to ensure safety. In addition, Exelon utilities have established incident command centers to address emergent customer and employee needs in real time.
While there was no material impact to Exelon’s financial statements for the first quarter of 2020 due to COVID-19, PECO, DPL Delaware, ACE and Generation expect a reduction in operating revenues for the nine months ending December 31, 2020 due to expected reduction in electric load. There remains significant uncertainty in the economic forecast for the remainder of the year and its impact on Exelon’s operating revenues. However, Exelon identified and is pursuing approximately $250 million in cost savings across its operating companies to offset part of the expected unfavorable impacts on operating revenues.
ComEd Distribution Formula Rate: On April 16, 2020, ComEd filed its annual distribution formula rate update with the Illinois Commerce Commission (ICC). The ICC approval is due by December 2020 and the rates will take effect in January 2021. The filing request includes a total decrease to the revenue requirement of $11 million, reflecting an increase of $51 million for the initial revenue requirement for 2020 and a decrease of $62 million related to the annual reconciliation for 2019. The revenue requirement for 2020 and annual reconciliation for 2019 provide for a weighted average debt and equity return on distribution rate base of 6.28% inclusive of a requested ROE of 8.38%.
DPL Delaware Gas Base Rate Case: On Feb. 21, 2020, DPL Delaware filed an application with the Delaware Public Service Commission (DPSC) to increase its annual gas distribution rates by $9 million, reflecting an ROE of 10.3%. DPL currently expects a decision in the first quarter of 2021 but cannot predict if the DPSC will approve the application as filed.
DPL Delaware Electric Base Rate Case: On March 6 2020, DPL Delaware filed an application with the DPSC to increase its annual electric distribution rates by $24 million, reflecting an ROE of 10.3%. DPL currently expects a decision in the first quarter of 2021 but cannot predict if the DPSC will approve the application as filed.
Nuclear Operations: Generation’s nuclear fleet, including its owned output from the Salem Generating Station and 100% of the CENG units, produced 42,555 gigawatt-hours (GWhs) in the first quarter of 2020, compared with 45,715 GWhs in the first quarter of 2019. Excluding Salem, the Exelon-operated nuclear plants at ownership achieved a 93.9% capacity factor for the first quarter of 2020, compared with 97.1% for the first quarter of 2019. The number of planned refueling outage days in the first quarter of 2020 totaled 94, compared with 74 in the first quarter of 2019. There were 11 non-refueling outage days in the first quarter of 2020 and none in the first quarter of 2019.
Fossil and Renewables Operations: The Dispatch Match rate for Generation’s fossil and hydro fleet was 98.2% in the first quarter of 2020, compared with 97.8% in the first quarter of 2019. Energy Capture for the wind and solar fleet was 94.7% in the first quarter of 2020, compared with 96.5% in the first quarter of 2019.
- On April 1, 2020, Exelon Corporate issued notes for $1.25 billion at 4.05%, which are due in 2030 and notes for $750 million at 4.70%, which are due in 2050. A portion of the net proceeds from the sale of these notes, together with available cash balances, will be used to repay Exelon Corporate notes maturing in June of 2020. The remainder of the net proceeds will be used for general corporate purposes.
- On Feb. 25, 2020, ComEd issued $350 million of its First Mortgage Bonds, 2.20% Series due March 1, 2030 and $650 million of its First Mortgage Bonds, 3.00% Series due March 1, 2050. ComEd used the proceeds to repay a portion of outstanding commercial paper obligations and for general corporate purposes.
- On Feb. 25, 2020, Pepco issued $150 million of its First Mortgage Bonds, 2.53% Series due Feb. 25, 2030. Pepco used the proceeds to repay existing indebtedness and for general corporate purposes.
- On March 19, 2020, Generation entered into a term loan agreement for $200 million. The loan agreement has an expiration of March 18, 2021. Pursuant to the loan agreement, loans made thereunder bear interest at a variable rate equal to LIBOR plus 0.50% and all indebtedness thereunder is unsecured.
- On March 31, 2020, Generation entered into a term loan agreement for $300 million. The loan agreement has an expiration of March 30, 2021. Pursuant to the loan agreement, loans made thereunder bear interest at a variable rate equal to LIBOR plus 0.75% and all indebtedness thereunder is unsecured.
- On April 8, 2020, NewEnergy Receivables LLC, a bankruptcy remote, special purpose entity, which is wholly owned by Generation, entered into an accounts receivable financing facility with a number of financial institutions and a commercial paper conduit to sell certain customer accounts receivables. Generation received approximately $500 million of cash in accordance with the initial sale of approximately $1.2 billion receivables.
GAAP/Adjusted (non-GAAP) Operating Earnings Reconciliation
Adjusted (non-GAAP) Operating Earnings for the first quarter of 2020 do not include the following items (after tax) that were included in reported GAAP Net Income:
|2020 GAAP Net Income||$0.60||$582||$168||$140||$181||$108||$45|
|Mark-to-Market Impact of Economic Hedging Activities (net of taxes of $32 and $33, respectively)||(0.10)||(94)||—||—||—||—||(97)|
|Unrealized Losses Related to Nuclear Decommissioning Trust (NDT) Fund Investments (net of taxes of $405)||0.50||485||—||—||—||—||485|
|Asset Impairments (net of taxes of $1)||—||2||—||—||—||—||2|
|Plant Retirements and Divestitures (net of taxes of $4)||0.01||13||—||—||—||—||13|
|Cost Management Program (net of taxes of $3, $0, $1 and $3, respectively||0.01||9||—||—||1||2||8|
|Income Tax-Related Adjustments (entire amount represents tax expense)||—||(2)||—||—||—||—||—|
|Noncontrolling Interests (net of taxes of $30)||(0.15)||(144)||—||—||—||—||(144)|
|2020 Adjusted (non-GAAP) Operating Earnings||$0.87||$851||$168||$140||$182||$110||$312|
Adjusted (non-GAAP) Operating Earnings for the first quarter of 2019 do not include the following items (after tax) that were included in reported GAAP Net Income:
|2019 GAAP Net Income||$0.93||$907||$157||$168||$160||$117||$363|
|Mark-to-Market Impact of Economic Hedging Activities (net of taxes of $12 and $10, respectively)||0.03||31||—||—||—||—||26|
|Unrealized Gains Related to NDT Fund Investments (net of taxes of $161)||(0.20)||(193)||—||—||—||—||(193)|
|Asset Impairments (net of taxes of $1)||—||4||—||—||—||—||4|
|Plant Retirements and Divestitures (net of taxes of $6)||0.02||19||—||—||—||—||19|
|Cost Management Program (net of taxes of $3, $0, $0, $0 and $3, respectively)||0.01||11||—||1||1||1||8|
|Noncontrolling Interests (net of taxes of $13)||0.07||67||—||—||—||—||67|
|2019 Adjusted (non-GAAP) Operating Earnings||$0.87||$846||$157||$169||$161||$118||$294|
Amounts may not sum due to rounding.
Unless otherwise noted, the income tax impact of each reconciling item between GAAP Net Income and Adjusted (non-GAAP) Operating Earnings is based on the marginal statutory federal and state income tax rates for each Registrant, taking into account whether the income or expense item is taxable or deductible, respectively, in whole or in part. For all items except the unrealized gains and losses related to NDT fund investments, the marginal statutory income tax rates for 2020 and 2019 ranged from 26.0% to 29.0%. Under IRS regulations, NDT fund investment returns are taxed at different rates for investments if they are in qualified or non-qualified funds. The effective tax rates for the unrealized gains and losses related to NDT fund investments were 45.5% and 45.4% for the three months ended March 31, 2020 and 2019, respectively.
Exelon will discuss first quarter 2020 earnings in a one-hour conference call scheduled for today at 9 a.m. Central Time (10 a.m. Eastern Time). The webcast and associated materials can be accessed at www.exeloncorp.com/investor-relations
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 Net Income 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 8, 2020.
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, including, among others, statements related to the expected or potential impact of the novel coronavirus (COVID-19) pandemic, and the related responses of various governments and regulatory bodies, customers, and the company, on our business, financial condition and results of operations, and any such forward-looking statements, whether concerning the COVID-19 pandemic or otherwise, involve risks, assumptions and uncertainties. Words such as “could,” “may,” “expects,” “anticipates,” “will,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “predicts,” and variations on such words, and similar expressions that reflect our current views with respect to future events and operational, economic and financial performance, are intended to identify such forward-looking statements.
The factors that could cause actual results to differ materially from the forward-looking statements made by the Registrants include those factors discussed herein, as well as the items discussed in (1) the Registrants' 2019 Annual Report on Form 10-K in (a) Part I, ITEM 1A. Risk Factors, (b) Part II, ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) Part II, ITEM 8. Financial Statements and Supplementary Data: Note 18, Commitments and Contingencies; (2) the Registrants' First Quarter 2020 Quarterly Report on Form 10-Q (to be filed on May 8, 2020) in (a) Part II, ITEM 1A. Risk Factors; (b) Part I, ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) Part I, ITEM 1. Financial Statements: Note 14, Commitments and Contingencies; and (3) other factors discussed in filings with the SEC by the Registrants.
Investors are cautioned not to place undue reliance on these forward-looking statements, whether written or oral, 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.