Exelon Corporation — Q2 2023 Form 10-Q
Business context and reporting period
Exelon is a regulated electric and gas transmission and distribution holding company, operating through ComEd, PECO, BGE, and Pepco Holdings’ Pepco, DPL, and ACE utilities. This combined, unaudited Form 10-Q covers the three and six months ended June 30, 2023; dollar amounts below are in millions unless stated otherwise. Generation was separated into Constellation in February 2022 and is reported as discontinued operations for applicable 2022 periods.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenue | $4,818 | $4,239 | $10,380 | $9,566 |
| Operating income | $704 | $694 | $1,809 | $1,593 |
| Net income from continuing operations | $343 | $465 | $1,012 | $946 |
| Diluted EPS from continuing operations | $0.34 | $0.47 | $1.02 | $0.96 |
| Adjusted operating earnings (non-GAAP) | $408; $0.41/share | $433; $0.44/share | $1,104; $1.11/share | $1,065; $1.08/share |
Six-month operating cash flow was $1,761, down from $3,240; capital expenditures were $3,685, up from $3,507. Cash flow from operations less capital expenditures was therefore negative $1,924 for the period. Cash, restricted cash, and cash equivalents totaled $1,035 at June 30, 2023, versus $1,090 at year-end 2022.
At June 30, total debt was approximately $42,623, including short-term borrowings, current maturities, long-term debt, and debt to financing trusts; this compares with approximately $40,050 at December 31, 2022. Exelon issued $5,200 of long-term debt in the first half and retired $1,209. Its balance sheet reported $399 of cash and cash equivalents and $435 of restricted cash. The registrants reported aggregate credit facilities of $4.0 billion, with $3.7 billion available to support additional commercial paper. Management said expected operating cash flows, capital-market access, and credit facilities should provide sufficient liquidity. Exelon paid $717 in common dividends in the first half; its declared 2023 quarterly dividend was $0.36 per share.
Calculated from reported figures, Exelon’s operating margin was approximately 14.6% in Q2 2023 versus 16.4% a year earlier, and 17.4% for the first half versus 16.7%. Continuing-operations net margin was approximately 7.1% in Q2 versus 11.0%, and 9.7% for the first half versus 9.9%.
Material changes versus comparable periods
- Q2 revenue rose about 14%, but continuing-operations net income fell $122 and diluted EPS declined from $0.47 to $0.34. Exelon attributed the decline mainly to higher interest expense, unfavorable PECO weather, and higher PECO depreciation, partly offset by rate increases and ComEd formula-rate and CMC-related earnings.
- First-half revenue increased about 9%; continuing-operations net income rose $66 and diluted EPS increased from $0.96 to $1.02. Rate increases and ComEd formula-rate earnings were partly offset by unfavorable weather, higher interest expense, PECO costs, and increased PHI environmental liabilities.
- Adjusted operating earnings, a non-GAAP measure, increased year over year for the first half but decreased in Q2. The reported reconciliation adds back, among other items, environmental-liability changes, the SEC matter contingency, and a FERC audit liability adjustment.
- Operating cash flow declined substantially year over year, with the filing citing changes in collateral, working capital, regulatory balances, and pension contributions as important factors. Capital spending also increased.
Outlook, management commentary, risks, and unusual items
- The filing does not provide a clear full-year earnings or EPS guidance figure in the supplied text. Management expects cash flows and financing access to fund operations, debt service, and capital needs. Estimated 2023 capital expenditures are $7,175 for Exelon; these estimates are subject to revision.
- Several rate cases remain pending. ComEd’s Illinois 2024–2027 multi-year rate plan seeks a total revenue-requirement increase of approximately $1.545 billion, with an ICC decision expected in Q4 2023. Other pending cases include BGE electric and gas, and Pepco, DPL, and ACE proceedings. Requested increases are not approved outcomes.
- ComEd must procure carbon mitigation credits under Illinois law; the related regulatory asset was $1,079 at June 30. Recovery is through a customer rider and is subject to regulatory mechanisms and timing.
- On July 27, 2023, after quarter-end, FERC issued its final ComEd audit report concerning, among other matters, allocation of overhead costs to capitalized construction. ComEd disputes findings; additional losses above the recorded accrual could be material, but cannot presently be reasonably estimated.
- In Q2, Exelon recorded a $46.2 loss contingency related to the SEC investigation and related matters. ComEd’s three-year deferred prosecution agreement ended July 17, 2023, and the court dismissed the deferred charge; the SEC investigation remains ongoing. Other shareholder and consumer litigation continues, although certain claims have been dismissed or settled.
- Environmental remediation liabilities totaled $423, including $334 related to manufactured-gas-plant sites. Some site work and other environmental matters remain uncertain, and additional costs could adversely affect results.
- ComEd’s proposed Chicago franchise and energy-equity agreements remain subject to approvals. Exelon notes that material changes or adverse actions affecting ComEd’s Chicago operations could have a material adverse impact.
- Exelon’s 2023 financing included debt issued at interest rates generally above 4.9%; higher interest costs were cited as a factor weighing on results. The registrants reported compliance with debt covenants and no credit-rating changes during the first half; S&P upgraded ComEd’s long-term issuer rating in July.
Important facts for investors to verify
- Track final decisions on ComEd’s multi-year rate plan, other pending rate cases, and the recoverability and timing of regulatory assets, particularly the CMC balance.
- Review subsequent updates to the FERC audit, including any incremental accruals or effect on ComEd and Exelon.
- Monitor the SEC investigation, the recorded $46.2 contingency, and the status and financial effects of related litigation and settlements.
- Assess cash generation against capital spending, debt maturities, borrowing costs, and the availability of credit facilities; distinguish restricted from unrestricted cash.
- Check the status of the Chicago franchise agreements and environmental remediation estimates, including potential exposure beyond amounts accrued.
- Reconcile GAAP results with management’s non-GAAP adjusted operating earnings and confirm the basis for any future guidance; the filing text provided here does not state a clear full-year EPS target.