Exelon Corporation — Q3 2023 Form 10-Q
Business context and period: Exelon is a regulated electricity transmission and distribution utility holding company, with six operating segments: ComEd, PECO, BGE, Pepco, DPL and ACE. This combined filing covers the quarter and nine months ended September 30, 2023; the financial statements are unaudited. Comparisons are with 2022, when the results of the generation business were classified as discontinued operations.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenue | $5.980B | $4.845B | $16.360B | $14.412B |
| Operating income | $1.123B | $1.011B | $2.931B | $2.606B |
| Continuing-operations net income attributable to common shareholders | $700M | $676M | $1.711B | $1.622B |
| Diluted continuing-operations EPS | $0.70 | $0.68 | $1.72 | $1.65 |
| Adjusted operating earnings (non-GAAP) | $671M; $0.67/share | $745M; $0.75/share | $1.774B; $1.78/share | $1.811B; $1.84/share |
Q3 revenue increased 23% and continuing net income rose 4% year over year. For the first nine months, revenue increased 14% and continuing net income rose 5%; adjusted operating earnings declined about 2%. Revenue growth largely reflects regulated rates, regulatory-program recoveries and higher electric revenue. Some purchased-power and program costs are recovered through riders, so revenue increases do not necessarily represent equivalent growth in earnings.
Cash flow and investment: Operating cash flow was $3.292B for the first nine months, down from $4.141B. Capital expenditures were $5.540B, up from $5.179B; operating cash flow less capital expenditures was negative $2.248B. Financing cash flow was $2.080B. Cash, restricted cash and cash equivalents totaled $947M at period end, including $212M of restricted cash reported in other assets.
Debt and liquidity: At September 30, short-term borrowings were $1.720B, current maturities of long-term debt $1.654B, long-term debt $39.431B, and debt to financing trusts $390M. Long-term debt increased from $35.272B at year-end 2022. Exelon reported $4.0B in aggregate credit commitments, with $3.2B available to support additional commercial paper; no revolving credit facility borrowings were outstanding. Management stated that cash flows, capital-market access and credit facilities were expected to be sufficient for estimated future cash requirements. The registrants reported compliance with debt covenants.
Material changes and management commentary
- Management attributed improved GAAP continuing earnings primarily to ComEd distribution formula-rate earnings, reflecting higher allowed returns and rate base, rate increases at several utilities, and carrying costs on ComEd’s carbon mitigation credit regulatory assets. Higher interest, depreciation, storm costs and, at PECO, unfavorable weather offset some gains.
- ComEd’s purchased-power expense increased substantially as carbon mitigation credit costs were recorded, with corresponding recovery through operating revenue and regulatory mechanisms. ComEd’s related regulatory asset was $862M at September 30.
- Exelon’s 2023 capital expenditure estimate was $7.3B. The board declared a fourth-quarter dividend of $0.36 per share, consistent with the stated 2023 quarterly dividend policy.
- The filing does not provide a clear full-year earnings or EPS guidance range. It does provide capital spending estimates and management’s liquidity assessment.
Outlook, regulation, risks and unusual items
- ComEd rate plan: ComEd sought a 2024–2027 multi-year rate plan with a $1.487B total requested revenue requirement increase. In October 2023, administrative law judges recommended a $317M reduction; their recommendation was not final. The ICC decision was expected by mid-December 2023. The outcome affects future rates and investment recovery.
- FERC audit: A final audit report raised findings, including ComEd’s allocation of overhead costs to capitalized construction. ComEd contested issues; the company said additional losses above amounts accrued could be material, but could not reasonably estimate them.
- Legal and environmental matters: Exelon agreed to a $46.2M SEC civil penalty, accrued in Q2 and paid October 4, 2023; the related ComEd deferred-prosecution charge was dismissed in July. Pepco also entered into a $47M Anacostia River settlement, subject to court approval, and a consent order requiring a $10M Buzzard Point penalty plus environmental assessment and potential remediation. The filing reports accrued environmental liabilities of $434M for Exelon; further exposure in certain matters is reasonably possible but not estimable.
- Major investment requirements: PJM-assigned reliability upgrades related to the planned Brandon Shores plant retirement were estimated at approximately $810M for PECO, BGE and Pepco combined, with completion expected by 2028. Separately, PJM recommended additional transmission work estimated at approximately $840M across four utilities; board approval was pending. Estimates and schedules may change.
- Other risks: Results and cash flows are subject to regulatory decisions and recovery timing, construction and financing costs, interest rates, weather, customer credit losses, environmental obligations, and access to capital markets. The filing warns that forward-looking statements are subject to risks and that actual results may differ.
Investor verification priorities
- Track the final ICC decision on ComEd’s multi-year rate plan against the requested increase and the administrative law judges’ proposed reduction.
- Review the FERC audit resolution and any losses beyond amounts accrued.
- Assess whether operating cash flow can support the capital program, dividends and debt needs, given first-nine-month capital expenditures exceeded operating cash flow.
- Monitor the recoverability, timing and customer-rate effects of ComEd’s $862M carbon mitigation credit regulatory asset.
- Confirm court approval and final costs for the Anacostia and Buzzard Point matters, including any additional remediation exposure.
- Compare GAAP earnings with adjusted operating earnings and evaluate the effects of unusual tax, environmental, legal and separation-related items.