Exelon Corporation — FY2020 Form 10-K
Business context and reporting period. This is a combined annual filing for Exelon and its subsidiaries, including competitive power generator Exelon Generation and six regulated utilities. It reports the fiscal year ended December 31, 2020, with comparisons to FY2019; it is not a standalone Q4 report, and the supplied filing text does not provide a clear standalone fourth-quarter financial summary. Unless noted, amounts are in millions of dollars.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Operating revenue | $33,039 | $34,438 |
| Operating income | $2,823 | $4,374 |
| Net income attributable to common shareholders | $1,963 | $2,936 |
| Diluted EPS | $2.01 | $3.01 |
| Adjusted operating earnings (non-GAAP) | $3,149; $3.22 per diluted share | $3,139; $3.22 per diluted share |
| Cash flows from operating activities | $4,235 | $6,659 |
| Capital expenditures | $8,048 | $7,248 |
Revenue fell about 4%; operating income fell about 35%. Calculated operating margin declined to approximately 8.5% from 12.7%, while calculated net margin declined to approximately 5.9% from 8.5%. Adjusted operating earnings were essentially flat, highlighting the effect of excluded items on GAAP results.
- Cash and liquidity: Cash and cash equivalents were $663 at year-end, with $438 of restricted cash; the cash-flow statement reports $1,166 of cash, restricted cash and equivalents. Total assets were $129,317.
- Debt: Balance-sheet debt included $35,093 long-term debt, $1,819 due within one year, $2,031 short-term borrowings and $390 owed to financing trusts. Long-term debt was 50% of reported capital structure. Total contractual obligations were $88,938, including $36,839 of debt principal and $24,486 of estimated debt interest.
- Credit access: Registrants had $10.6 billion of aggregate bank commitments, with $7.7 billion available to support additional commercial paper at year-end. Management said liquidity was sufficient. Exelon reported issuing $5.3 billion of long-term debt during 2020 and completing planned issuances.
- Dividend: Exelon paid $0.3825 per share quarterly in 2020 and maintained that rate for 2021.
- Regulatory balances: Exelon reported approximately $10.0 billion of regulatory assets and $10.1 billion of regulatory liabilities, making future recovery and refund determinations relevant to reported results.
Material changes versus FY2019
- GAAP net income attributable to common shareholders declined $973, while adjusted operating earnings increased $10.
- Generation’s net income attributable to membership interest fell to $589 from $1,125. Its revenues net of purchased power and fuel expense were $8,018 versus $8,068; operating income fell to $256 from $1,323.
- Generation’s results reflected early-retirement charges and accelerated depreciation, a $500 impairment of its New England asset group, lower capacity revenue and realized energy prices, COVID-related load reductions, and higher nuclear outage days. Higher mark-to-market gains and lower operating costs partly offset those pressures.
- Utility earnings were mixed: ComEd $438 (down $250), PECO $447 (down $81), BGE $349 (down $11), and PHI $495 (up $18). ComEd’s decline included the DPA payment and a transmission-asset impairment; PECO faced adverse weather and storm costs. Regulatory rates and higher rate base supported results at some utilities.
- Operating cash flow decreased $2,424, principally reflecting working-capital and other asset/liability movements. Investing cash flow included collection of $3,771 of deferred purchase price related to Generation receivables, while capital expenditures increased.
Outlook, risks and unusual items
- Planned separation: On February 21, 2021, the board approved a plan to separate the regulated utilities and Generation into two public companies, targeting completion in Q1 2022. The transaction remains subject to approvals, SEC effectiveness of a Form 10, other conditions and the expected tax-free treatment; completion and timing are not assured.
- Generation retirements: Generation announced plans to retire Byron in September 2021, Dresden in November 2021, and Mystic Units 8 and 9 in May 2024. Management disclosed $929 of incremental pre-tax expense in 2020 associated with early retirements and related matters, and projected further material accelerated depreciation in 2021. Byron may require up to $90 of additional financial assurance and up to $185 of supplemental cash for spent-fuel management, net of taxes, over ten years after shutdown.
- Solar sale and CENG: Generation agreed to sell a substantial portion of its solar business for $810, with a projected pre-tax gain of $75–$125 and expected closing in the first half of 2021. Separately, EDF exercised its option to sell its 49.99% CENG interest; the purchase price was not reasonably estimable, and NYPSC approval remained outstanding.
- COVID-19: Management estimated the 2020 net-income impact at approximately $170 for Generation and $75 for the utilities, partly offset by about $250 of cost savings. Effects included lower demand, higher credit losses and direct protective costs. The impacts remained uncertain.
- Texas weather event after year-end: Severe February 2021 cold weather caused outages at Generation’s Texas plants and extreme market prices. Exelon estimated a $560–$710 first-quarter 2021 net-income impact, with $410–$490 expected to be offset through revenue opportunities and cost actions. Generation had posted approximately $1.4 billion of ERCOT collateral as of February 22, 2021.
- Legal and regulatory exposure: ComEd paid $200 under a three-year DPA; breach could lead to prosecution or further penalties. The SEC investigation into lobbying activities remained ongoing, with no loss contingency recorded because the outcome was not considered probable or reasonably estimable. Capacity-market rules, clean-energy support programs, rate proceedings, environmental remediation, nuclear decommissioning and spent-fuel disposal also pose risks.
- Management plans: Utilities projected approximately $27 billion of infrastructure investment over four years, expected to increase rate base by about $15 billion by end-2024. Exelon projected 2021 capital expenditures of $7.775 billion. Management noted ongoing uncertainty around market prices, economic recovery, weather and regulatory cost recovery.
The auditors issued unqualified opinions on Exelon’s consolidated financial statements and internal control over financial reporting. Critical audit matters included nuclear decommissioning obligations, generation-asset impairment and rate-regulated accounting.
Important facts for investors to verify
- Reconcile GAAP earnings with adjusted operating earnings and assess the scale and recurrence of excluded charges, especially retirement-related costs and impairments.
- Track Generation’s post-retirement earnings, capacity-market exposure and the outcomes of Illinois, New Jersey and PJM policy proceedings.
- Verify the separation’s approvals, tax treatment, final terms, timetable and expected credit profiles of the resulting companies.
- Monitor the ultimate cost and funding of nuclear decommissioning, including Byron assurance needs, and the CENG purchase price and approvals.
- Assess the realized financial and collateral effects of the February 2021 Texas event against management’s estimates, offsets and credit-loss assumptions.
- Review the SEC investigation and DPA compliance, plus the status and potential exposure of material environmental and other contingencies.