Exelon Corp. 8-K Summary: Tax Cuts and Jobs Act Impact
Business Context and Reporting Period
This Form 8-K, dated December 22, 2017, reports on the enactment of the Tax Cuts and Jobs Act (the Act) signed by President Trump. The filing covers Exelon Corporation and its subsidiaries, including Exelon Generation Company, LLC, Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company, Pepco Holdings LLC, Potomac Electric Power Company, Delmarva Power & Light Company, and Atlantic City Electric Company.
Key Financial Metrics and Impacts
- Corporate Tax Rate: Decreasing from 35% to 21% effective January 1, 2018.
- Deferred Tax Liability: Registrants must remeasure existing balances as of December 31, 2017, expected to result in a material decrease to net deferred income tax liability.
- Generation Segment: Projected effective income tax rate for 2018-2020 is approximately 22%. Operating cash inflows are expected to increase due to lower tax rates and full expensing of capital investments.
- Utility Segment: Expected to record regulatory liabilities rather than immediate income tax expense reductions, as savings are generally passed through to customers via rates.
- Rate Base: Expected incremental increase of approximately $1.6 billion by 2020 across Utility Registrants relative to previous expectations.
Material Changes and Outlook
Management projects that adjusted non-GAAP operating earnings per share for Exelon Corporation will increase by approximately $0.10 on a run-rate basis in 2019 relative to pre-Act projections. The one-time 2017 impacts of the Act will be excluded from 2017 adjusted non-GAAP operating earnings. While Generation will see increased net income and cash flows, Utility Registrants are expected to see lower operating cash inflows due to the elimination of bonus depreciation and lower customer rates.
ComEd and BGE plan to file with state regulatory commissions on January 5, 2018, to begin passing income tax savings to customers. Other Utility Registrants are working with commissions to determine the timing and amount of benefits.
Risks and Contingencies
The filing contains forward-looking statements subject to risks and uncertainties. The amount and timing of cash impacts depend on the period over which income tax benefits are provided to customers, which may vary by jurisdiction. Management is still quantifying the full impact on results of operations and financial positions as of December 31, 2017.
Investor Verification Checklist
- Verify the specific timing and amount of rate adjustments filed by ComEd and BGE with state commissions.
- Monitor the quantification of the remeasurement of deferred income tax balances as of December 31, 2017.
- Track the actual realization of the projected $0.10 EPS increase in 2019.
- Review subsequent filings for the funding mix (debt vs. equity) for the projected $1.6 billion rate base increase.
- Assess the impact of the elimination of bonus depreciation on Utility Registrants' cash flows.