Exelon Corporation · NASDAQ:EXC
Exelon — EEI Financial Conference 2017
55 slides from Exelon's conference presentation, Nov 6, 2017
Slide 1: EEI Financial Conference November 2017
EEI Financial Conference November 2017
Slide 2: Cautionary Statements Regarding Forward-Looking Information
2 Cautionary Statements Regarding Forward-Looking Information This presentation 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 m
Slide 3: Non-GAAP Financial Measures
3 Non-GAAP Financial Measures Exelon reports its financial results in accordance with accounting principles generally accepted in the United States (GAAP). Exelon supplements the reporting of financial information determined in accordance with GAAP with certain non-GAAP financial measures, including
Slide 4: Non-GAAP Financial Measures Continued
4 Non-GAAP Financial Measures Continued This information is intended to enhance an investor’s overall understanding of period over period financial results and provide an indication of Exelon’s baseline operating performance by excluding items that are considered by management to be not directly rel
Slide 5: Exelon: An Industry Leader
5 Exelon: An Industry Leader Note: All numbers reflect year-end 2016; revenue accounts for PHI as of the merger effective date of March 24, 2016 through December 31, 2016.
Slide 6: The Exelon Value Proposition
6 The Exelon Value Proposition Regulated Utility Growth with utility EPS rising 6-8% annually from 2017- 2020 and rate base growth of 6.5%, representing an expanding majority of earnings ExGen’s strong free cash generation will support utility growth while also reducing debt by ~$3B over the nex
Slide 7: Exelon Utilities Overview
7 Exelon Utilities Overview Note: All numbers reflect year-end 2016; revenue number accounts for PHI revenue as of March 24, 2016 merger date.
Slide 8: Exelon Utilities are an Industry Leader
8 Exelon Utilities are an Industry Leader 15.217.719.620.2 23.724.925.0 31.732.435.1 50.0 57.0 PEG FE D ETR XEL EIX ED EXC PCG AEP SO DUK Total Utility Rate Base ($B)(1) Total Capital Expenditures 2017-2019 ($B)(1) 6.9 10.210.410.911.112.0 14.317.3 18.0 22.125.5 3 .9 SO DUK FE PEG ETR D ED XEL EIX A
Slide 9: Our Capital Plan Drives Stable Earnings Growth
9 Our Capital Plan Drives Stable Earnings Growth Capital Expenditures ($M) Over $20B of capital is being invested at utilities from 2017-2020 to improve reliability 2,200 2,025 1,675 1,775 925 950 975 875 775 800 775 750 1,375 1,400 1,350 1,425 2019E 4,775 2018E 5,175 2020E 4,825 2017E 5,275 Note: C
Slide 10: Utility CapEx Update 2017
10 Utility CapEx Update 2017 Exelon Utilities CapEx Spend ($M) Notable Projects • Pepco’s Waterfront Substation − $182 million invested to date. Expected completion by end of 2017 − Part of “Capital Grid” project − Replaces aging infrastructure and improves substation performance − Will support exis
Slide 11: Proven Track Record of Improving Operational Performance
11 Proven Track Record of Improving Operational Performance Operations Metric At CEG Merger (2012) 2015 Q3 2017 BGE ComEd PECO PHI BGE ComEd PECO PHI Electric Operations OSHA Recordable Rate 2.5 Beta SAIFI (Outage Frequency)(1) 2.5 Beta CAIDI (Outage Duration) Customer Operations Customer Satisfacti
Slide 12: Formulaic Mechanisms Cover Bulk of Rate Base Growth
12 Formulaic Mechanisms Cover Bulk of Rate Base Growth 2.1 1.1 1.3 9.0 0.7 2.3 0.9 0.8 Total 9.0 2020E 2.1 2019E 2.0 2018E 2.1 (0.1) 2017E 2.8 Of the approximately $9.0 billion of rate base growth Exelon Utilities forecasts over the next 4 years, ~75% will be recovered through existing formula and t
Slide 13: Q3 2017 TTM Earned ROE
13 Q3 2017 TTM Earned ROE Trailing 12 Month ROE vs Allowed ROE Twelve Month Trailing Earned ROEs* 9.7% 9.9%9.9% ACE Delmarva Consolidated EU Pepco(1) Legacy EU Allowed ROE Note: Represents the period from 10/1/2016 to 9/30/2017. ROEs represent weighted average across all lines of business (Electric
Slide 14: Exelon Utilities' Distribution Rate Case Updates
14 Exelon Utilities’ Distribution Rate Case Updates Pepco DC Order Authorized Revenue Requirement Increase(1) $36.9M Authorized ROE 9.50% Common Equity Ratio 49.14% Order Received 7/25/17 Pepco MD Order Authorized Revenue Requirement Increase(1) $32.4M Authorized ROE 9.50% Common Equity Ratio 50.15%
Slide 15: Exelon Utilities EPS Growth of 6-8% to 2020
15 Exelon Utilities EPS Growth of 6-8% to 2020 $0.00 $1.70 $1.90 $1.60 $1.50 $1.80 $1.40 $2.00 $2.10 $1.80 2017E $1.90 $1.70 2019E $2.05 2020E 2018E $1.60 $1.50 U ti lit y O p erat in g E a rnin g s Rate base growth combined with PHI ROE improvement drives EPS growth $1.40 $1.75 Exelon Utilities Ope
Slide 16: Exelon Generation Overview
16 Exelon Generation Overview Note: All numbers reflect year-end 2016
Slide 17: Constellation Overview
17 Constellation Overview Note: All numbers reflect year-end 2016 (1) As calculated based on the national average generation supply mix used in EPA eGRID2014.
Slide 18: Exelon Generation: Gross Margin Update
18 Exelon Generation: Gross Margin Update • Delay in recognition of Illinois ZEC revenues lowers the Capacity and ZEC Revenues line in 2017 by $150M and increases the 2018 line by $150M – see slide 19 for details • Excluding impact of Illinois ZEC timing: − In 2017, $50M reduction in Power New Busin
Slide 19: ExGen Forward Total Gross Margin Walk: Q3 2017 vs. Q2 17
19 ExGen Forward Total Gross Margin* Walk: Q3 2017 vs. Q2 2017 Cumulative Rounding $50 Power New Business ($50) IL ZEC Timing ($150) Q2 $8,150 Q3 $8,000 $150 Q3 $8,050 IL ZEC Timing(5) Capacity Revenues(2,4) ($50) Energy Prices ($50) Power New Business ($100) Q2 $8,100 Energy Prices ($100) Q2 Capaci
Slide 20: Forward Market Liquidity
20 Forward Market Liquidity Total calendar peak traded volumes for the rolling 5-year window have been trending lower over the past year Calendar peak traded volumes beyond prompt year +1 account for less than 10% of total traded volumes * Please note that hedging strategy utilizes various price poi
Slide 21: Exelon's Policy Priorities
21 Exelon’s Policy Priorities
Slide 22: Resiliency and Energy Market Reform
22 Resiliency and Energy Market Reform Price Formation Resiliency • PJM has stated that it is prepared to implement its reforms allowing all resources to set LMP by mid-2018 • “FERC should expedite its efforts with states, RTO/ISOs, and other stakeholders to improve energy price formation in central
Slide 23: ZEC Updates
23 ZEC Updates New York ZEC Legal Challenges IL ZEC Legal Challenges Federal Case: • Case dismissed on July 25 and judgment entered on July 27 • “The ZEC program does not thwart the goal of an efficient energy market; rather, it encourages through financial incentives the production of clean energy.
Slide 24: Exelon Policy Priorities
24 Exelon Policy Priorities Create support for current challenged plants through federal and state initiatives Support the ultimate pricing of carbon in the market on a regional or national level Modernize Utility Ratemaking to Ensure Appropriate Recovery Secure Proper Policies to Enable Innovat
Slide 25: Our Carbon Policy Principles
25 Our Carbon Policy Principles • Exelon believes in our nation’s ability to transition the generation fleet to a zero-carbon future while maintaining affordable and reliable electric service for consumers • For the foreseeable future, the most cost-effective carbon solution for our customers will b
Slide 26: Financial Overview
26 Financial Overview
Slide 27: Strong Third Quarter Results
27 Note: Amounts may not sum due to rounding * Refer to pages 3 and 4 for information regarding non-GAAP financial measures Strong Third Quarter Results $0.85 $0.00 $0.20 $0.12 $0.16 $0.06 $0.32 Q3 2017 EPS Results • GAAP earnings were $0.85/share in Q3 2017 vs. $0.53/share in Q3 2016 • Adjusted ope
Slide 28: Narrowing 2017 Adjusted Operating Earnings Guidance Range
28 ~($0.20) $0.40 - $0.50 $2.50 - $2.80(1) $0.60 - $0.70 $0.30 - $0.40 $1.05 - $1.15 $0.25 - $0.35 2017 Initial Guidance $1.00 - $1.10 $0.25 - $0.35 $0.30 - $0.40 $0.40 - $0.50 $0.60 - $0.70 $2.55 - $2.75(1) 2017 Revised Guidance ExGen BGE ExGen BGE PHI PECO ComEd HoldCo ~($0.15) HoldCo PECO ComEd P
Slide 29: Cost Management is Integral to Our Business Strategy
29 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Ann oun ced Cos t Re duct ions Cost Management is Integral to Our Business Strategy ExGen Forecast O&M* Q3 2017 ($M)(1) ExGen Forecast O&M*: Q3 2017 vs. Q4 2016(1) 125 225 150 25075 2018 4,300 2020 2019 4,450 4,600 50 2017 4,850 ExGen and BSC Cost
Slide 30: ExGen's Strong Free Cash Flow Supports Utility Growth and Debt Reduction
30 ExGen’s Strong Free Cash Flow Supports Utility Growth and Debt Reduction 2017-2020 Exelon Generation Free Cash Flow* and Uses of Cash ($B) (1) Sources include change in margin, tax parent benefit, equity investments, and acquisitions and divestitures Redeploying Exelon Generation’s free cash flow
Slide 31: Maintaining Strong Investment Grade Credit Ratings is a Top Financial Priority
31 Maintaining Strong Investment Grade Credit Ratings is a Top Financial Priority Current Ratings(2,3) ExCorp ExGen ComEd PECO BGE ACE DPL Pepco Moody’s Baa2 Baa2 A1 Aa3 A3 A3 A2 A2 S&P BBB- BBB A- A- A- A A A Fitch BBB BBB A A A- A- A A- (1) Due to ring-fencing, S&P deconsolidates BGE from Exelon a
Slide 32: Theoretical Dividend Affordability from Utility less HoldCo
32 Theoretical Dividend Affordability from Utility less HoldCo(1,2) Utility less HoldCo payout ratio falling consistently even as dividend grows (1) Chart is illustrative and shows theoretical payout ratio if utilities supported 100% of the external dividend and interest expense at HoldCo. Currently
Slide 33: Recognition for Stewardship and Employee Engagement
33 Recognition for Stewardship and Employee Engagement Supplier Diversity: Exelon is the only utility and energy company to be inducted into the Billion Dollar Roundtable, which recognizes corporations that have achieved spending of $1 billion with minority and women- owned suppliers; our 2016 spend
Slide 34: Hurricane Support
34 Hurricane Support • More than 2,200 employees, contractors and support personnel from Exelon’s six utilities mobilized to assist residents in the southeastern U.S. impacted by Hurricane Irma − Exelon teams shared our experience with severe weather restoration efforts and industry-leading best pra
Slide 35: Appendix
35 Appendix
Slide 36: Exelon Debt Maturity Profile
36 Exelon Debt Maturity Profile(1) ,594 312 500 910 800 833 500 850 360 763 295 175 1,430 675 700 600 650 1,200 18597 788 350 900 258 1,023 2,512 623 700 750741 833 750 807 1,150 300 900 2027 2026 2025 2024 2023 2019 2018 2017 26 2022 2021 1,189 2020 2041 1,400 2042 2044 2043 2045 1,225 1,275 2046 2
Slide 37: PJM Capacity Revenues
37 PJM Capacity Revenues(1,2,3) (1) Revenues reflect capacity cleared in Base, CP transitional & incremental auctions and are for calendar years (2) Revenues reflect owned and contracted generation (3) Reflects 50.01% ownership at CENG (4) Volumes at ownership and rounded $1,300 $1,200 $1,100 $1,000
Slide 38: Portfolio Management Strategy
38 Portfolio Management Strategy Protect Balance Sheet Ensure Earnings Stability Create Value Exercising Market Views % H e d ge d Purely ratable Actual hedge % Market views on timing, product allocation and regional spreads reflected in actual hedge % High End of Profit Low End of Profit % Hedged O
Slide 39: Components of Gross Margin Categories
39 Components of Gross Margin Categories Open Gross Margin •Generation Gross Margin at current market prices, including ancillary revenues, nuclear fuel amortization and fossils fuels expense •Power Purchase Agreement (PPA) Costs and Revenues •Provided at a consolidated level for all regions (includ
Slide 40: ExGen Disclosures
40 ExGen Disclosures Gross Margin Category ($M) (1) 2017 2018 2019 Open Gross Margin (including South, West & Canada hedged GM) (2,5) $3,600 $3,900 $3,700 Capacity and ZEC Revenues (2,5,6) $1,700 $2,300 $2,000 Mark-to-Market of Hedges (2,3) $2,150 $650 $450 Power New Business / To Go $100 $700 $850
Slide 41: ExGen Disclosures
41 ExGen Disclosures (1) Expected generation is the volume of energy that best represents our commodity position in energy markets from owned or contracted for capacity based upon a simulated dispatch model that makes assumptions regarding future market conditions, which are calibrated to market quo
Slide 42: ExGen Hedged Gross Margin Sensitivities
42 ExGen Hedged Gross Margin* Sensitivities (1) Based on September 30, 2017, market conditions and hedged position; gas price sensitivities are based on an assumed gas-power relationship derived from an internal model that is updated periodically; power price sensitivities are derived by adjusting t
Slide 43: ExGen Hedged Gross Margin Upside/Risk
43 ExGen Hedged Gross Margin* Upside/Risk 6,000 6,500 7,000 7,500 8,000 8,500 9,000 2017 2018 2019 A p p ro xima te G ro ss Margin* ( $ m illion )( 1 ,2 ,3 ) $8,050 $7,950 $8,250 $7,800 (1) Represents an approximate range of expected gross margin, taking into account hedges in place, between the 5th
Slide 44: Illustrative Example of Modeling Gross Margin
44 Row Item Midwest Mid-Atlantic ERCOT New York New England South, West & Canada (A) Start with fleet-wide open gross margin (B) Capacity and ZEC (C) Expected Generation (TWh) 95.8 60.5 19.5 15.5 8.0 (D) Hedge % (assuming mid-point of range) 75.5% 91.5% 78.5% 72.5% 87.5% (E=C*D) Hedged Volume (TWh)
Slide 45: Additional ExGen Modeling Data
45 Additional ExGen Modeling Data Total Gross Margin Reconciliation (in $M)(1) 2017 2018 2019 Revenue Net of Purchased Power and Fuel Expense*(2,3) $8,575 $8,575 $8,025 Non-cash amortization of intangible assets, net, related to commodity contracts recorded at fair value at merger date $50 - - Other
Slide 46: Appendix Reconciliation of Non-GAAP Measures
46 Appendix Reconciliation of Non-GAAP Measures
Slide 47: Q3 2016 QTD GAAP EPS Reconciliation
47 Q3 2016 QTD GAAP EPS Reconciliation NOTE: All amounts shown are per Exelon share and represent contributions to Exelon's EPS. Amounts may not add due to rounding. Three Months Ended September 30, 2016 ExGen ComEd PECO BGE PHI Other Exelon 2016 GAAP Earnings (Loss) Per Share $0.25 $0.04 $0.13 $0.0
Slide 48: Q3 2017 QTD GAAP EPS Reconciliation
48 Q3 2017 QTD GAAP EPS Reconciliation NOTE: All amounts shown are per Exelon share and represent contributions to Exelon's EPS. Amounts may not add due to rounding. Three Months Ended September 30, 2017 ExGen ComEd PECO BGE PHI Other Exelon 2017 GAAP (Loss) Earnings Per Share $0.32 $0.20 $0.12 $0.0
Slide 49: Q3 2016 YTD GAAP EPS Reconciliation
49 Q3 2016 YTD GAAP EPS Reconciliation NOTE: All amounts shown are per Exelon share and represent contributions to Exelon's EPS. Amounts may not add due to rounding. Nine Months Ended September 30, 2016 ExGen ComEd PECO BGE PHI Other Exelon 2016 GAAP Earnings (Loss) Per Share $0.58 $0.32 $0.37 $0.20
Slide 50: Q3 2017 YTD GAAP EPS Reconciliation
50 Q3 2017 YTD GAAP EPS Reconciliation Nine Months Ended September 30, 2017 ExGen ComEd PECO BGE PHI Other Exelon 2017 GAAP Earnings (Loss) Per Share $0.51 $0.47 $0.35 $0.24 $0.38 $0.06 $2.01 Mark-to-market impact of economic hedging activities 0.10 - - - - - 0.10 Unrealized gains related to NDT fun
Slide 51: GAAP to Operating Adjustments
51 GAAP to Operating Adjustments • Exelon’s 2017 adjusted (non-GAAP) operating earnings excludes the earnings effects of the following: − Mark-to-market adjustments from economic hedging activities − Unrealized gains from NDT fund investments to the extent not offset by contractual accounting as des
Slide 52: YE 2017 Exelon FFO Calculation
52 (1) All amounts rounded to the nearest $25M (2) Calculated using S&P Methodology. Due to ring-fencing, S&P deconsolidates BGE from Exelon and analyzes solely as an equity investment. (3) Reflects impact of operating adjustments on GAAP EBITDA (4) Includes other adjustments as prescribed by S&P (5
Slide 53: YE 2017 ExGen Net Debt Calculation
53 YE 2017 ExGen Net Debt Calculation ($M) (1,3) Long-Term Debt (including current maturities) $8,775 Short-Term Debt $350 - Surplus Cash Adjustment ($300) = Net Debt (a) $8,825 YE 2017 Book Debt / EBITDA Net Debt (a) = 3.1x Operating EBITDA (b) (1) All amounts rounded to the nearest $25M (2) Reflec
Slide 54: GAAP to Non-GAAP Reconciliations
54 GAAP to Non-GAAP Reconciliations (1) ACE, Delmarva, and Pepco represents full year of earnings Q3 2017 Operating ROE Reconciliation ($M)(1) ACE Delmarva Pepco Legacy EXC Consolidated EU Net Income (GAAP) (1) $85 $114 $210 $1,281 $1,690 Operating Exclusions ($23) ($12) ($25) $34 ($25) Adjusted Ope
Slide 55: GAAP to Non-GAAP Reconciliations
55 GAAP to Non-GAAP Reconciliations 2017-2020 ExGen Free Cash Flow Calculation ($M)(1) Cash from Operations (GAAP) $15,150 Other Cash from Investing and Activities ($650) Baseline Capital Expenditures (4) ($4,025) Nuclear Fuel Capital Expenditures ($3,625) Free Cash Flow before Growth CapEx and Divi