EXELON CORP quarterly report, Q1 FY2020

Business context and reporting period

Exelon Corporation’s combined Form 10-Q covers the unaudited three months ended March 31, 2020, with comparison to the first quarter of 2019. Exelon is a diversified energy holding company, comprising competitive generation and six regulated electric and gas utilities. Unless noted, financial amounts below are in millions of dollars.

Financial results and liquidity

Operating margin was approximately 14.0%, compared with 12.9% in Q1 2019, calculated as operating income divided by operating revenue. Operating cash flow less capital expenditures was approximately negative $936 million, versus negative $829 million.

At March 31, 2020, total assets were $124.7 billion and total liabilities were $90.1 billion. Cash and cash equivalents were $1.46 billion, with an additional $414 million of restricted cash. Current assets were $12.5 billion against current liabilities of $11.8 billion. Debt included $34.8 billion of long-term debt, $2.85 billion due within one year, $1.98 billion of short-term borrowings, and $390 million of debt to financing trusts. Exelon reported $10.6 billion of aggregate credit-facility commitments, with $5.7 billion available to support additional commercial paper at quarter-end.

Material changes versus the prior comparable period

• Revenue declined $730 million, while operating income was nearly unchanged. Competitive-business revenue fell to $4.40 billion from $4.98 billion; regulated utility revenue fell to $4.28 billion from $4.50 billion.
• Common-shareholder net income declined $325 million and diluted EPS fell from $0.93 to $0.60. Management attributed the decline primarily to lower capacity revenue and realized energy prices, more nuclear outage days, higher net realized and unrealized nuclear decommissioning trust losses, and unfavorable weather at PECO, DPL Delaware, and ACE.
• Generation’s net income attributable to its membership interest fell to $45 million from $363 million. Regulated utility results were mixed: ComEd, BGE, and ACE reported higher net income, while PECO, PHI, Pepco, and DPL reported lower results.
• Cash from operations increased modestly, but capital spending rose. Total cash, cash equivalents, and restricted cash increased to $1.99 billion from $1.12 billion at year-end 2019, alongside higher borrowings and substantial new debt issuance.

Outlook, management commentary, risks, and unusual items

• COVID-19: No material first-quarter net-income impact was reported, but management forecast for the remaining nine months of 2020 a $25 million to $75 million Generation net-income reduction from higher credit-loss expense, and a $75 million to $225 million Generation reduction from lower load. Utility Registrants estimated a $20 million to $40 million net-income reduction from lower load, assuming shelter-in-place restrictions begin to lift in the third quarter. Exelon said it was pursuing approximately $250 million of cost savings. These are estimates, not guarantees.
• Customer disconnections and new late fees were temporarily suspended across the businesses. Management expected customer credit-loss allowances to rise during 2020; some utilities are pursuing regulatory recovery of incremental pandemic-related costs.
• Exelon reported $851 million of adjusted operating earnings, non-GAAP, versus $846 million a year earlier, despite lower GAAP earnings. The reconciliation includes a large adjustment for unrealized nuclear decommissioning trust investment losses and other excluded items. Generation reported $128 million of pre-tax commodity mark-to-market gains, versus $20 million of losses a year earlier.
• A federal tax-refund settlement reduced Exelon and Generation unrecognized tax benefits by approximately $411 million and increased their first-quarter net income by $76 million and $73 million, respectively, according to the filing.
• COVID-related commercial-paper market disruption led Generation to draw $1.5 billion under its revolving facility in March; it repaid the draw on April 3. Subsequent to quarter-end, Exelon issued $2.0 billion of notes, entered a $550 million revolving facility, and Generation received approximately $500 million from an accounts-receivable financing arrangement.
• Generation’s nuclear economics remain exposed to capacity-market outcomes and regulatory action. FERC’s expanded PJM minimum-offer-price rule could impair state-supported nuclear plant revenues absent an alternative such as a fixed resource requirement program. Dresden, Byron, and Braidwood were identified as economically distressed; the filing reported no material first-quarter impairment.
• Other significant uncertainties include the ongoing Antelope Valley project debt default related to PG&E’s bankruptcy, environmental remediation exposures, and DOJ and SEC investigations into Exelon and ComEd lobbying activities. The company said it could not predict the investigations’ outcomes and recorded no loss contingency for them.
• No full-year earnings guidance is clearly provided in the filing text. Exelon expected cash flows, credit-market access, and facilities to meet its needs to date, but cautioned that pandemic developments could affect demand, operations, and access to capital.

Important facts for investors to verify

• How much of the GAAP earnings decline reflects volatile NDT investment performance, tax effects, noncontrolling interests, and recurring operating conditions; compare with the non-GAAP reconciliation.
• Whether COVID-19 load and credit-loss estimates, and the planned $250 million of cost savings, develop as management expected.
• Exelon’s refinancing needs, available credit-facility capacity, borrowing costs, and liquidity after the quarter-end financing actions.
• Regulatory outcomes for PJM capacity-market rules, nuclear support programs, and pending utility rate cases, including the potential consequences for Generation’s nuclear fleet.
• Developments in the Antelope Valley debt default, environmental matters, and DOJ/SEC investigations, including any changes to recorded liabilities or risk disclosures.