Exelon Corporation — Q3 2022 Form 10-Q
Business context and period. This combined, unaudited quarterly report covers the three and nine months ended September 30, 2022, for Exelon and its regulated utility subsidiaries: ComEd, PECO, BGE, Pepco, DPL, and ACE. Exelon completed the separation of Generation into Constellation on February 1, 2022; Generation is presented as discontinued operations, making some comparisons with 2021 less directly comparable.
Financial performance
| Exelon consolidated | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $4.845 billion | $4.863 billion | $14.412 billion | $13.514 billion |
| Operating income | $1.011 billion | $756 million | $2.606 billion | $2.160 billion |
| Net income from continuing operations | $676 million | $457 million | $1.622 billion | $1.307 billion |
| Diluted EPS from continuing operations | $0.68 | $0.47 | $1.65 | $1.33 |
| Operating margin (operating income/revenue) | 20.9% | 15.5% | 18.1% | 16.0% |
- Q3 revenue was nearly flat year over year; nine-month revenue increased about 6.6%. Higher operating income and continuing-operations earnings reflected rate and rate-base benefits at ComEd and rate increases at PECO, BGE, and PHI, among other factors.
- Reported Q3 2021 net income included $772 million from discontinued operations; Q3 2022 had none. For nine months, discontinued-operations income was $117 million in 2022 versus $134 million in 2021. Continuing-operations earnings are therefore the clearer operating comparison.
- Management’s non-GAAP adjusted operating earnings were $745 million, or $0.75 per diluted share, in Q3 2022, versus $522 million, or $0.53, in Q3 2021. Nine-month adjusted earnings were $1.811 billion, or $1.84 per diluted share, versus $1.405 billion, or $1.43. These exclude specified items and are not GAAP measures.
- Nine-month operating cash flow was $4.141 billion, unchanged from 2021. Capital expenditures were $5.179 billion, producing operating cash flow less capital expenditures of negative $1.038 billion. Investing cash outflow was $4.986 billion; financing cash inflow was $499 million.
- At September 30, cash and cash equivalents were $446 million, restricted cash was $744 million, and total cash, restricted cash, and cash equivalents were $1.273 billion. Short-term borrowings were $1.690 billion; long-term debt, including amounts due within one year and financing-trust debt, totaled approximately $36.973 billion.
- Exelon reported $93.455 billion in total assets and $24.582 billion in shareholders’ equity. Compared with year-end 2021, balance-sheet totals are substantially affected by the Constellation separation and should not be read as a like-for-like change.
Material changes and developments
- Exelon’s continuing-operations results benefited from higher allowed distribution returns and rate base at ComEd, rate increases at PECO, BGE, and PHI, lower storm costs at PECO and BGE, and reduced corporate service costs remaining in continuing operations after the separation. Higher depreciation and interest expense partly offset these benefits.
- ComEd, PECO, and PHI reported higher nine-month net income than in 2021; BGE, Pepco, DPL, and ACE reported lower net income. Exelon’s nine-month capital expenditures were $5.179 billion, compared with $5.970 billion, though this comparison includes Generation activity in 2021.
- Exelon issued 12.995 million shares in August, raising $563 million before expenses, and used the proceeds with available cash to repay $575 million of term-loan borrowings. Its $1.0 billion at-the-market equity program had no sales through September 30.
- The board declared a fourth-quarter 2022 dividend of $0.3375 per share. Management estimated 2022 capital expenditures of $6.950 billion for Exelon.
Outlook, risks, and unusual items
- The filing does not provide a clear full-year earnings guidance figure. Management said cash flows, access to credit markets, and credit facilities are expected to provide sufficient liquidity for estimated future cash needs. The utilities had $4.0 billion of aggregate revolving credit commitments, with $3.4 billion available to support additional commercial paper at September 30; no amounts were drawn on the revolving facilities.
- Exelon estimated that the Inflation Reduction Act’s 15% corporate minimum tax could increase cash taxes by approximately $200 million annually beginning in 2023; the company was still assessing the impact.
- Pennsylvania’s phased corporate tax-rate reduction resulted in a one-time $38 million income-tax expense, net of federal taxes, at Exelon and PECO. BGE recorded a $46 million pre-tax impairment after deciding to stop renovating and dispose of an office building.
- ComEd recorded a $534 million regulatory asset related to Carbon Mitigation Credit customer credits and expected recovery from participating generators. Illinois legislation and pending regulatory proceedings, including ComEd’s planned four-year rate plan for 2024–2027, may affect future rates and recovery.
- ACE’s termination of two power-purchase agreements resulted in a $203 million regulatory asset and liability; $45 million had been paid by September 30, leaving $158 million outstanding, due by the end of 2024.
- ComEd’s deferred-prosecution agreement matter resulted in an approximately $38 million customer refund accrual, to be paid in 2023. The SEC investigation remains ongoing, and Exelon and ComEd said its outcome cannot be predicted. Other related litigation and appeals remain pending; the filing records no loss contingency for matters not considered probable or reasonably estimable.
- Environmental investigation and remediation liabilities totaled $405 million at Exelon, including $358 million related to manufactured-gas-plant sites. The company also described reasonably possible additional exposure associated with the Anacostia River matters that it could not estimate beyond accrued amounts.
- Management identified increasing physical-security and cybersecurity threats to utility infrastructure as risks. It also cited exposure to interest rates, counterparty credit, regulatory outcomes, weather, and the cost and timing of capital investment. The Registrants reported compliance with debt covenants and effective disclosure controls.
Important facts for investors to verify
- Review the separation accounting and discontinued-operations presentation when comparing 2022 with 2021, including the treatment of corporate costs and cash flows.
- Track regulatory decisions and recovery of ComEd’s CMC-related balances, ComEd’s upcoming multi-year rate plan, and pending ComEd and DPL rate cases.
- Assess the amount and timing of 2023 cash taxes under the Inflation Reduction Act, alongside Exelon’s capital-spending plans and funding needs.
- Monitor the SEC investigation, customer-refund payments, related litigation, and the company’s environmental remediation exposure.
- Reconcile outstanding debt, short-term borrowing rates, credit-facility availability, and future refinancing needs against cash flow and dividends.