Exelon Corporation · NASDAQ:EXC
Exelon — Edison Electric Institute Finance Meeting 2005
44 slides from Exelon's conference presentation, May 18, 2005
Slide 1: Edison Electric Institute Finance Meeting
Edison Electric Institute Finance Meeting New York City May 19, 2005 Exelon Corporation
Slide 2: Safe Harbor Language
Safe Harbor Language This presentation includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, for example, statements regarding benefits of the proposed merger of Exelon and PSEG, integration plans,
Slide 3: Additional Information
Additional Information This presentation is not a solicitation of a proxy from any security holder of Exelon or PSEG. The above- referenced Registration Statement on Form S-4 contains a preliminary joint proxy statement/prospectus and other relevant documents regarding the proposed merger of Exelon
Slide 4: Agenda
Agenda Corporate Overview 2004 Performance and 2005 Outlook Illinois Post-2006 Update Merger Update Appendix
Slide 5: Exelon Overview - 2004
Exelon Overview - 2004 Earnings $1.86B EPS $2.78 ROE 21% Assets $42.8B Pennsylvania Utility Illinois Utility Nuclear Fossil Power Team EPS $1.00 ROE 22% Assets $16.4B EPS $1.69 ROE (1) 12% Assets $27.6B (1) Reflects parent company receivable added back to PECO Shareholders' Equity.
Slide 6: 2004 Financial Summary
2004 Financial Summary $2.78 Operating EPS (+6.5% over 2003) Core growth in retail volumes Higher generation margins Acquisition of the second half of AmerGen Exelon Way cost savings Reduced losses at Enterprises Lower interest expense Dividend increases totaling 60% in 2004 (current annual rate $1.
Slide 7: Looking Back: 2000 - 2004
Looking Back: 2000 - 2004 Exelon had 9.6% average annual earnings per share growth driven by: PECO / Unicom merger Cost management initiatives Debt reduction and refinancings Effective commodity risk management Despite: Retail rate freeze Merchant power overbuild Volatile wholesale prices Note: See
Slide 8: 2004 Guidance to 2005 Guidance
2004 Guidance Weather ComEd CTC Amort. / Depr. Nuclear Outages /Fuel Exelon Way Load Growth Other RNF Interest 2005 Guidance Invisible dataset 0 2.78 2.86 2.81 2.76 2.76 2.81 2.91 2.96 0 Green 2.78 0.11 0.03 0.05 0.05 0.05 0.1 0.05 0.09 3.1 2004A 2005E Interest O&M Expense/ Other ComEd CTC Expected
Slide 9: 1Q05 Financial Summary
1Q05 Financial Summary $0.67 Operating EPS (+9.8% over 1Q04) Higher generation margins Lower interest expense Funded essentially all outstanding pension obligations with $2 billion cash contribution Exited from Generation's investment in Sithe Approximately $820 million of debt deconsolidated from b
Slide 10: Illinois Post 2006
Illinois Post 2006 Exelwn.
Slide 11: Illinois Post-2006 Update - Competition Benefiting IL Customers
Illinois Post-2006 Update - Competition Benefiting IL Customers Since the onset of customer choice in 1997, more than 70% of ComEd's biggest customers have chosen alternatives to bundled rates, some saving up to 15% Residential customers saved 20% with a rate reduction, and even more considering a 1
Slide 12: Illinois Post-2006 Update - Process Moving Forward
Illinois Post-2006 Update - Process Moving Forward 12/3/04 ICC staff report to General Assembly endorsed an auction process similar to New Jersey's (best fit with consensus of Procurement Working Group) ComEd made filings at the ICC on February 25 proposing an auction process Details of the filing a
Slide 13: Understanding the Auction: Product Laddering
Understanding the Auction: Product Laddering ComEd Suggested Load Auctioned by Term 50% Auction Load Cap allows ExGen to sell slightly less than 50% of its economic generation directly to ComEd; remainder sold through other channels Annual auctions allow for rebalancing position up to the load cap c
Slide 14: ComEd Bundled Tariff for Mass Market
ComEd Bundled Tariff for Mass Market 2000 2004 2007 Distr 22 23 26 Trans 2 3 3 Line Losses 4 4 4 Energy/Other 49 47 45 10 77 77 Assumes increase in wires charges to recover increased investment in transmission and distribution infrastructure and costs. Notes: 2000 and 2004 are representative of unbu
Slide 15: Fourth annual reverse auction in NJ completed
Fourth annual reverse auction in NJ completed 2/16/05 While the wholesale price of energy increased by 18% over last year's prices, the staggered terms of the auction contracts will result in customers of NJ's largest utility (PSE&G) seeing an annual increase to total bills of 2.8% Only 1/3 of the e
Slide 16: 2005 BGS Auction Results
2005 BGS Auction Results 2003 Auction 2004 Auction 2005 Auction East 32.1 36.9 45.14 West 20.6 17.55 20.77 $32 - $33 $36 -$37 $52.70 (10 Month NJ Avg.) $54.45 (12 Month NJ Avg.) $65.91 (36 Month NJ Avg.) $44 -$46 Transmission Ancillary services Load shape Congestion Risk premium Capacity ~ $20 ~ $18
Slide 17: Merger Update
Merger Update Exelon. © PSEG
Slide 18: Key Transaction Terms
Key Transaction Terms Offer Price: 1.225 shares of Exelon per PSEG share Ownership: 68% Exelon shareholders 32% PSEG shareholders Governance: John W. Rowe to be CEO E. James Ferland to be non-executive Chairman 18 Board members - 12 nominated by Exelon - 6 nominated by PSEG Timing: Expected to close
Slide 19: A "Win-Win" Combination
A "Win-Win"Combination Combined Company Enhanced earnings Regulatory and market diversity Increased operating flexibility Strong, stable cash flow with commitment to solid investment grade ratings Experienced management team PSEG Brings Excellence in transmission and distribution operations Expertis
Slide 20: Strong Generation Platform
Strong Generation Platform Premier nuclear operator, based on consistent top quartile performance Balanced and diverse generation portfolio Reliable and commercially responsive fossil operations Experienced leader in wholesale power marketing and risk management Complementary Generation Portfolio Po
Slide 21: Opportunity for Improved Nuclear Performance
Exelon has proven track record of improving and sustaining safety, operating and cost performance Significant opportunity to improve PSEG fleet performance under Nuclear Operating Services Contract, started January 2005 Every 1% increase in capacity factor for PSEG's nuclear fleet generates pre-tax
Slide 22: Premier U.S. Utility Company
Premier U.S. Utility Company Generation PEG: EXC: Three urban utilities, with a low-cost, low-emissions generation fleet, in an integrated Regional Transmission Organization (MWs) Exelon PSEG EE&G U.S. Rank Nuclear 16,751 3,484 20,235 1 TOTAL MWs (1) 34,457 17,018 51,475 1 Elec. Customers 5,200,000
Slide 23: Market Power Mitigation
Market Power Mitigation 2/4/05 - Filed the merger application with FERC 5/9/05 - Filed answer to intervener motions with FERC Proposed Divestiture (5/9/05 filing) "Virtual Divestiture" Transfer control of 2,600MW of baseload nuclear energy (no change from 2/4 filing) Divest a total of 4,000MW fossil
Slide 24: Opportunity for Improved T&D Reliability
Opportunity for Improved T&D Reliability 2003 Key Performance Indicators Exelon Exelon PSE&G PSE&G Performance Quartile Performance Quartile Reliability - Outage Frequency (SAIFI) 1.09 2nd 0.63 1st Customer Satisfaction (ACSI) 70 4th 76 2nd Safety (OSHA Recordables Rate) 2.40 2nd 2.88 2nd Total T&D
Slide 25: Financial Benefits
Financial Benefits Stronger platform to achieve consistent earnings growth Annual synergies of approximately $400 million in year 1 growing to $500 million by year 2 Earnings accretion for both companies' shareholders in year 1 Nuclear contract provides earnings benefit for both companies starting i
Slide 26: $500 Million of Synergies in Year 2
$500 Million of Synergies in Year 2 Corporate/BSC 0.39 T&D 0.11 GENCO Corp 0.07 Trading 0.09 Nuclear 0.34 7% 9% 34% 39% 11% Trading Genco Corp/ Fossil T&D Corporate, Business Services Nuclear (1) Staffing 0.43 Nuclear Production Improvements 0.14 Nuclear Outages 0.03 IT 0.09 Corp Programs 0.15 Suppl
Slide 27: Solid Balance Sheet
Solid Balance Sheet Exelon and PSEG believe they will retain solid investment-grade ratings on a combined basis Pro Forma Key Ratios (1) Year 1 Year 2 Funds from Operations / Average Total Debt 28% 31% Funds from Operations Interest Coverage 5.8x 6.2x EBITDA Interest Coverage 7.0x 7.1x Debt / Capita
Slide 28: Strong Cash Flow
Strong Cash Flow EXC PEG Merger Adj EEG ($ in Billions) 2007 20072007 2007 (1) (2) Estimated Net Income 2.2 1.00.3 3.5 Depreciation & Amortization 1.9 1.0- 2.9 CapEx (2.0) (0.9)(0.1) (3) (3.0) Dividends (1.2) (0.6)- (1.8) Cash Before Debt Maturities 0.9 0.50.2 1.6 Securitized Debt Retired (0.6) (0.2
Slide 29: EE&G Value Proposition
EE&G Value Proposition Solid Delivery Business Stable growth Improving operations Constructive regulatory processes in IL, NJ and PA Geographic diversity Exceptional Generation Business Large, low cost, low emissions generation fleet in competitive markets with strengthening wholesale prices Fuel, d
Slide 30: Anticipated Timeline - Update
Anticipated Timeline - Update Dec 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Announce Transaction 12/20/04 Exelon & PSEG Shareholder Meetings FERC, NJBPU, ICC Regulatory Filings 2/4/05 File Joint Proxy Statement 2/10/05 Work to Secure Regulatory Approvals (FERC, SEC, NRC, DOJ, NJBPU, NJDEP*, PAPUC
Slide 31: Appendix
APPENDIX Exelwn.
Slide 32: Illinois Procurement Filing Overview
Illinois Procurement Filing Overview Annual "reverse auction" to procure supply for customers post 2006 Staggered 1, 3 and 5 year contracts for <1 MW customers Staggering creates rate stability for customers 100% of load bid out in year 1; 40% each year thereafter Recent New Jersey BGS auction resul
Slide 33: ComEd Delivery Service Investments
ComEd Delivery Service Investments (Pro forma $ in Millions) 2000 2004Chg. Gross DST Plant $ 8,518 $ 11,300 33% LESS: Accumulated (3,747) (4,760) 27% Depreciation PLUS: Other Addt's (CWIP, (325) 60-- Mtrls, Oper. Reserves, OPEB) LESS: Deferred Taxes (829) (1,190) 44% Rate Base $ 3,617 $ 5,410 50% We
Slide 34: ComEd Goodwill Impairment
ComEd Goodwill Impairment assessment performed at least annually (4th quarter) to determine if estimated fair value (FV) of ComEd supports recorded goodwill Assessment uses discounted cash flow analysis to estimate FV Dependent on variables including interest rates, utility sector market performance
Slide 35: ComEd Balance Sheet/Capital Structure
ComEd Balance Sheet/Capital Structure 12/31/03 12/31/03 12/31/04 12/31/04 Illustrative 12/31/05(1) Illustrative 12/31/05(1) $ in Billions % of Total Cap. $ in Billions % of Total Cap. $ in Billions % of Total Cap. Goodwill 4.7 - 4.7 - 2.4 - Debt 6.4 50% 4.9 42% 4.6 51% Common Equity 6.3 50% 6.7 58%
Slide 36: Rolling Forward ATC Power Prices
New England Mid Atlantic Northern Illinois Rolling Forward 12 Month (Year 1) ATC Prices Rolling Forward 13-24 Month (Year 2) ATC Prices Source: Morgan Stanley Research 4/21/05 Higher gas & coal prices, declining capacity margins and higher emission standards causing higher around- the- clock (ATC) p
Slide 37: Break-Even Price for New Construction
Break-Even Price for New Construction Energy/ Capacity $/MWh POLR Price $/MWh Variable Costs Fixed Costs 0 13 26 40 53 66 79 92 2,230 Net MWe 93% Capacity Factor ~$1,250 / kWe $7.15/MWh Fuel ~3 years to Permit ~4 years to Construct Tech. Readiness: Low 670 Net MWe 85% Capacity Factor ~$1,550 / kWe $
Slide 38: GAAP EPS Reconciliation 2000-2002
GAAP EPS Reconciliation 2000-2002 2000 GAAP Reported EPS $ 1.44 Change in common shares (0.53) Extraordinary items (0.04) Cumulative effect of accounting change -- Unicom pre-merger results 0.79 Merger-related costs 0.34 Pro forma merger accounting adjustments (0.07) 2000 Adjusted (non-GAAP) Operati
Slide 39: GAAP EPS Reconciliation 2003-2004
GAAP EPS Reconciliation 2003-2004 2003 GAAP Reported EPS $ 1.38 Boston Generating impairment 0.87 Charges associated with investment in Sithe Energies, Inc. 0.27 Severance 0.24 Cumulative effect of adopting SFAS No. 143 (0.17) Property tax accrual reductions (0.07) Enterprises’ Services goodwill imp
Slide 40: GAAP EPS Reconciliation 1Q05/1Q04
GAAP EPS Reconciliation 1Q05/1Q04 1Q04 GAAP Reported EPS $ 0.62 Cumulative effect of adopting FIN No. 46-R (0.05) Boston Generating, LLC 2004 impact 0.03 Mark-to Market 0.03 Investments in synthetic fuel-producing facilities (0.02) 1Q04 Adjusted (non-GAAP) Operating EPS $ 0.61 1Q05 GAAP Reported EPS
Slide 41: Full Year 2004 Cash Reconciliation
Full Year 2004 Cash Reconciliation Total Increase in Cash and Cash Equivalents to Free Cash Flow Reconciliation ($ in millions) GAAP Increase in Cash and Cash Equivalents $ 35 Adjustments for Goal: Discretionary Debt Activity: - Change in Short-Term Debt (164) - Net Long-Term Debt Retirements(1) 1,4
Slide 42: 2005 Earnings Guidance
2005 Earnings Guidance Exelon's adjusted (non-GAAP) operating earnings for 2005 are expected to be in the range of $2.90 to $3.10 per share. Exelon's outlook for adjusted (non-GAAP) operating earnings excludes income resulting from investments in synthetic fuel-producing facilities, the financial im
Slide 43: Cash Flow Definitions
Cash Flow Definitions We define free cash flow as: Cash from operations (which includes pension contributions and the benefit of synthetic fuel investments), less Cash used in investing activities, less Transition debt maturities Common stock dividend payments at 2003 rates Other routine activities
Slide 44: Well Positioned for Continued Earnings Growth
Well Positioned for Continued Earnings Growth 2005 2006 2007 2008 2009 2010 Load growth Repricing wholesale contracts Reinvesting/returning Free Cash Merger synergies Increasing environmental costs (fossil) Increasing capacity values Generation rate increase in PA DST rate relief in Illinois Market
Exelon — Edison Electric Institute Finance Meeting 2005 on 6ix