Exelon Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Exelon is now a regulated electric and gas transmission and distribution utility holding company, following the February 1, 2022 separation of Generation into Constellation. Unless noted, amounts are in millions. Year-over-year comparisons are affected by the separation and the presentation of Generation as discontinued operations.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $4,239 | $4,020 | $9,566 | $8,652 |
| Operating income | $694 | $580 | $1,593 | $1,404 |
| Continuing-operations net income attributable to common shareholders | $465 | $326 | $946 | $851 |
| Diluted continuing-operations EPS | $0.47 | $0.33 | $0.96 | $0.87 |
| Adjusted operating earnings (non-GAAP) | $433 | $348 | $1,065 | $887 |
Revenue rose about 5% for the quarter and 11% year to date. Management attributed improved continuing earnings principally to higher ComEd distribution earnings, including higher allowed returns and rate base, rate increases at PECO, BGE and PHI, and lower continuing costs previously allocated to Generation. These gains were partly offset by increased depreciation, credit-loss expense, storm costs and interest expense. Q2 operating margin was approximately 16.4%, compared with 14.4% a year earlier; six-month operating margin was approximately 16.7%, versus 16.2%.
Consolidated operating cash flow was $3,240 for the six months, compared with $1,138 in 2021; capital expenditures were $3,507, versus $4,040. Cash flow comparisons are substantially affected by the separation, Generation-related cash flows, working-capital movements and increased collateral received as energy prices rose. The cash flow statement includes one month of Generation cash flows in 2022 and six months in 2021.
Balance sheet, debt and liquidity
At June 30, 2022, Exelon reported total assets of $92,295, total liabilities of $68,639 and shareholders’ equity of $23,656. Cash and restricted cash totaled $1,777 on the balance sheet; the cash-flow reconciliation, including long-term restricted cash, reports $1,836. Short-term borrowings were $2,003, current maturities of long-term debt were $505, and long-term debt was $35,789, plus $390 of debt to financing trusts. December 2021 balance-sheet comparisons include Generation assets and liabilities and are therefore not directly comparable.
Exelon reported $4.0 billion of aggregate revolving credit commitments, with $3.6 billion available to support commercial paper as of June 30. Management said operating cash flows, capital-market access and credit facilities were expected to provide sufficient liquidity for operating, financing and capital needs. Fitch lowered Exelon Corporate’s long-term and senior unsecured ratings from BBB+ to BBB in January 2022; the filing says the Registrants remained in compliance with debt covenants.
Material changes, outlook and notable items
- Separation: Exelon distributed Constellation shares to shareholders and paid Constellation $1.75 billion. Generation is presented as discontinued operations. Continuing-operations net income for the six months includes $116 of discontinued-operations income separately; prior-year discontinued results were a $739 attributable loss for the six months.
- Capital and shareholder returns: 2022 estimated capital expenditures are $6.9 billion. Exelon’s stated quarterly dividend for 2022 is $0.3375 per share. The company anticipates issuing up to $1.0 billion of registered common stock through 2025, including approximately $500 million in 2022 through an ATM program, a one-time offering or both.
- Regulatory pipeline: Pending rate cases include ComEd electric ($199 requested), PECO natural gas ($82), and DPL natural gas in Delaware ($15) and electric in Maryland ($38). Expected approval timing ranges from Q4 2022 to Q1 2023; requested increases are not approved outcomes.
- Illinois clean-energy programs: ComEd recorded a $255 regulatory asset for Carbon Mitigation Credit customer credits and related amounts due from participating nuclear plants. ComEd also proposed a beneficial-electrification plan that could spend about $300 million over 2023–2025, subject to regulatory approval.
- ComEd investigation: The ICC administrative law judge’s proposed order accepted ComEd’s voluntary $38 customer refund related to the Deferred Prosecution Agreement matter and rejected larger alternative rate adjustments. A final order was expected by September 9, 2022. The SEC investigation remained ongoing, with no loss contingency accrued because it was not considered probable or reasonably estimable.
- Other contingencies: Environmental investigation and remediation liabilities totaled $347, including $299 related to manufactured-gas-plant sites. The ACE power-purchase-agreement termination obligation was $180 at June 30, 2022, with a corresponding regulatory asset; payment is due by the end of 2024. Exelon and affiliates also face litigation and regulatory proceedings whose outcomes may be uncertain.
- Taxes and proposed legislation: Pennsylvania enacted a corporate income-tax reduction after quarter-end. Exelon and PECO expected a Q3 one-time net income-tax expense of about $38. The proposed Inflation Reduction Act was estimated by Exelon to potentially increase annual cash taxes by about $300 beginning in 2023 if enacted as proposed; it was not yet law as of the filing date.
- Principal risks: The filing highlights regulatory and rate-recovery uncertainty, environmental remediation, credit and collateral demands, interest-rate and refinancing exposure, and increasingly sophisticated physical-security and cybersecurity threats. Management reported no material security breach or operational disruption to date.
The filing provides capital-spending and dividend expectations but does not provide a clear full-year earnings or EPS guidance value in the supplied text.
Most important facts for investors to verify
- How post-separation continuing earnings and cash generation compare with prior periods on a like-for-like basis.
- Whether Exelon executes the anticipated 2022 equity issuance and how it affects share count, financing needs and dividends.
- Outcomes and timing of the pending rate cases, ComEd’s ICC refund order, and ComEd’s proposed electrification plan.
- Actual collateral requirements and liquidity availability if energy-market conditions or credit ratings deteriorate.
- Developments in the SEC investigation, related litigation, environmental remediation estimates and the ACE PPA termination obligation.
- The enacted tax-law effects and any resulting change to cash taxes, reported tax expense or customer recovery.