Exelon Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 5, 2021. Exelon combines competitive power generation and energy marketing with six regulated electric and gas utilities. Figures below are consolidated Exelon amounts unless otherwise specified; dollars in millions.
Financial results and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Operating revenue | $9,890 | $8,747; up 13.1% |
| Operating income (loss) | $(121) | $1,220 |
| Net income (loss) | $(264) | $376 |
| Net income (loss) attributable to common shareholders | $(289); diluted EPS $(0.30) | $582; diluted EPS $0.60 |
| Adjusted operating earnings (non-GAAP) | $(60); $(0.06) per diluted share | $851; $0.87 per diluted share |
| Cash from operating activities | $(1,261) | $1,080 |
| Capital expenditures | $2,140 | $2,016 |
| Cash, cash equivalents and restricted cash, quarter-end | $2,334 | $1,992 at March 31, 2020 |
Revenue growth was more than offset by sharply higher operating expenses, including competitive-business purchased power and fuel costs and accelerated depreciation. The reported operating margin was approximately negative 1.2% of revenue. Operating cash flow declined by $2,341 million year over year, with working-capital and other asset/liability movements a major factor; investing cash flow included $1,574 million collected on deferred purchase price (DPP) receivables and $680 million of asset-sale proceeds.
At March 31, total assets were $130.0 billion and total liabilities $95.7 billion. Cash and cash equivalents were $1.908 billion, plus $374 million restricted cash; current assets of $13.0 billion compared with current liabilities of $13.6 billion. Debt included $3.128 billion of short-term borrowings, $2.281 billion of long-term debt due within one year, $36.248 billion of long-term debt and $390 million of debt to financing trusts. Exelon reported $10.6 billion of aggregate credit facilities, with $6.9 billion available to support additional commercial paper.
The board maintained the quarterly dividend at $0.3825 per share. Exelon paid $374 million of common dividends during the quarter.
Material changes and unusual items
- Extreme cold in Texas: Generation’s ERCOT assets experienced outages during February’s extreme weather and market disruption. Exelon estimated a first-quarter net-income reduction of approximately $880 million. The event drove a steep deterioration in Generation’s ERCOT revenues net of purchased power and fuel expense, to $(1,184) million from $80 million a year earlier.
- Plant retirements: Byron and Dresden are planned to cease operations in 2021; Mystic Units 8 and 9 are planned to retire in 2024. Q1 included $620 million of accelerated depreciation and $54 million of accelerated nuclear fuel amortization, partly offset by a $226 million contractual offset; the total pre-tax impact shown was $450 million.
- Solar-business sale: Generation completed the sale of a significant portion of its solar business on March 31 for a stated purchase price of $810 million. It received $675 million in cash proceeds, net of debt assumed by the buyer and adjustments, and recorded a $68 million pre-tax gain.
- Other income and tax comparability: Results reflected lower unrealized NDT investment losses and higher realized NDT gains than in Q1 2020. The prior-year comparison also included a one-time tax settlement that did not recur.
- Utility results: ComEd, PECO, BGE and PHI reported higher Q1 net income year over year. Drivers included regulated rate-base and rate effects, BGE’s multi-year plan, and favorable weather in certain service territories. Generation’s net loss attributable to its membership interest was $793 million, versus income of $45 million.
Outlook, risks and contingencies
- Texas event outlook: Management estimated a full-year 2021 net-income reduction of $670 million to $820 million from the extreme-weather event, while expecting to offset $410 million to $490 million through enhanced revenue opportunities, deferred non-essential maintenance and primarily one-time cost savings. Ultimate effects remain subject to settlements, customer and counterparty credit losses, potential government action, litigation and contract disputes.
- Planned separation: Exelon is targeting a first-quarter 2022 separation of the regulated utilities and Generation into two publicly traded companies. Completion is conditional on board, regulatory and other approvals, SEC effectiveness of the registration statement, and tax-related rulings and opinions; there is no assurance the transaction will occur on the expected terms or timetable.
- Further asset disposition: After quarter-end, Generation agreed to sell its interest in the Albany Green Energy biomass facility. Closing was expected in the second half of 2021; management expected a pre-tax impairment of $135 million to $150 million in Q2.
- Texas exposures: Generation recorded approximately $28 million for its share of ERCOT market-participant defaults, payable over 96 years under then-current rules, and a separate approximately $40 million liability related to natural-gas operational-flow-order penalties. Related regulatory proceedings and lawsuits remained unresolved; management said outcomes and broader financial impacts could not be predicted.
- Other material risks: Regulatory rate cases and market-rule proceedings may affect future earnings. Generation cited early-retirement economics and potential funding needs for nuclear decommissioning; Byron had not demonstrated adequate funding assurance in the reported status filing, and estimated supplemental cash needs could reach $180 million, net of tax, over ten years. Environmental remediation, asbestos, and other legal matters also remain contingencies.
- Credit and liquidity: S&P lowered Generation’s senior unsecured rating to BBB- in February. Management said liquidity was sufficient, but a loss of investment-grade status could require substantial collateral; Generation estimated approximately $1.4 billion of incremental collateral under the disclosed downgrade scenario. All registrants reported compliance with debt covenants.
- Guidance limitation: The filing gives the specific Texas-event estimate above, but does not provide a clear full-year adjusted-earnings-per-share guidance figure in the supplied text.
Most important facts for investors to verify
- How final ERCOT settlements, recoveries, credit losses, litigation and regulatory decisions change the estimated $670 million to $820 million full-year net-income impact and planned offsets.
- Whether the planned separation receives all approvals and tax assurances, and whether the first-quarter 2022 target remains achievable.
- The sustainability of Generation’s earnings and cash flows after the Texas disruption and the accelerated retirement costs for Byron, Dresden and Mystic.
- Whether utility rate-case outcomes and regulatory cost-recovery mechanisms support the utilities’ investment and earnings plans.
- Potential incremental nuclear decommissioning funding, collateral calls, and environmental or litigation liabilities beyond amounts accrued.