EXC

Exelon Corporation 8-K Summary

Business Context and Reporting Period

This Form 8-K, dated June 2, 2016, reports a material event for Exelon Corporation and its subsidiary, Exelon Generation Company, LLC. The filing announces the decision to permanently cease generation operations at two nuclear facilities: the Clinton Nuclear Generating Station (effective June 1, 2017) and the Quad Cities Nuclear Power Station (effective June 1, 2018). This decision was driven by deteriorating economic value due to low wholesale power prices, unfavorable capacity auction results, and a lack of progress on Illinois energy legislation intended to compensate nuclear plants for reliability and carbon-free attributes.

Key Financial Metrics and Impacts

The filing details significant one-time charges and ongoing non-cash expenses associated with the early retirement of the plants. The filing does not provide current revenue, profit, or cash flow figures for the reporting period, focusing instead on the projected costs of the shutdown.

• One-Time Charges (June 2016): Estimated between $150 million and $200 million, covering inventory reserves, employee costs, and construction work-in-progress impairment.
• Future One-Time Charges: Up to $25 million annually in 2017 and 2018.
• Cash Expenditures: Estimated total cash outflows for one-time charges (primarily employee-related) range from $75 million to $100 million.
• Decommissioning Guarantees: Potential parental guarantees of up to $385 million for Clinton and up to $65 million for Quad Cities may be required to access Nuclear Decommissioning Trust Funds (NDTF).
• Supplemental Funding Risks: If NRC exemptions are not granted for non-radiological costs, Generation could face supplemental cash costs of up to $160 million for Clinton and up to $180 million for Quad Cities over the next 10 years.

Material Changes and Ongoing Expenses

The early retirement decision triggers significant incremental non-cash expenses due to accelerated depreciation and amortization. The following table summarizes the estimated annual pre-tax income statement expenses:

Note: Quad Cities is a jointly owned plant; amounts reflect Exelon Generation's 75% undivided ownership interest.

Guidance, Risks, and Contingencies

Management attributes the shutdown to prolonged low power prices and regulatory constructs that fail to fairly compensate nuclear assets. Key risks and contingencies include:

• Regulatory Uncertainty: The future of the Clean Power Plan and flaws in the MISO capacity market design contributed to the decision.
• Funding Shortfalls: Clinton and Quad Cities may fail to meet NRC minimum funding requirements for decommissioning due to the shortened time horizon for trust fund appreciation.
• Exemption Requirements: Generation requires NRC approval to use NDTF funds for non-radiological costs (spent fuel management and site restoration). Without this exemption, these costs must be funded via supplemental cash.
• Legislative Stalemate: The decision was expedited due to a lack of progress on Illinois energy legislation.

Investor Verification Checklist

• Verify the final amount of the one-time charges recognized in the June 2016 financial statements.
• Monitor the status of Illinois energy legislation and its potential impact on future nuclear plant economics.
• Track the NRC's decision on exemptions for using NDTF funds for non-radiological decommissioning costs.
• Assess the actual cash impact of employee-related costs versus the estimated $75 million to $100 million range.
• Review the updated decommissioning cost study for Quad Cities expected in the second quarter of 2016.