Exelon Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. This combined filing covers Exelon and its regulated utilities: ComEd, PECO, BGE, Pepco Holdings, Pepco, DPL, and ACE.
Business context and reporting changes
Exelon completed the separation of its generation business on February 1, 2022, distributing Constellation shares to Exelon shareholders. Generation is reported as discontinued operations, so comparisons with 2021 are not fully like-for-like. Exelon’s continuing business is focused on regulated electricity and gas transmission and distribution.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Continuing operating revenue | $5.327 billion | $4.632 billion |
| Operating income | $900 million | $824 million |
| Income from continuing operations attributable to common shareholders | $481 million; $0.49 diluted EPS | $525 million; $0.53 diluted EPS |
| Adjusted operating earnings (non-GAAP) | $634 million; $0.64 diluted EPS | $542 million; $0.55 diluted EPS |
| Net income (loss) attributable to common shareholders, including discontinued operations | $597 million | $(289) million |
| Cash from operating activities | $1.782 billion | $(1.261) billion |
| Capital expenditures | $1.922 billion cash outflow | $2.140 billion cash outflow |
Continuing revenue increased about 15%, while operating income rose about 9%. Higher purchased power and fuel, operating costs, and depreciation absorbed much of the revenue growth. Operating margin was approximately 16.9%, compared with 17.8% a year earlier. Exelon’s reported operating cash flow benefited from working-capital and collateral movements; the filing also notes that 2022 cash flows include one month of Generation activity, versus three months in 2021.
At March 31, 2022, Exelon reported cash and cash equivalents of $2.476 billion and restricted cash of $430 million. Short-term borrowings were $1.900 billion, current long-term debt $2.154 billion, long-term debt $35.008 billion, and debt to financing trusts $390 million. The filing reports $4.0 billion of aggregate revolving credit commitments and $3.7 billion available to support additional commercial paper. Exelon’s 2022 capital expenditure estimate was approximately $6.9 billion.
Changes and material developments
- Continuing net income fell $44 million year over year, principally reflecting separation-related income tax expense, higher depreciation at BGE and PHI, and higher PHI storm costs. This was partly offset by stronger rate-based earnings and rate increases.
- Exelon recorded approximately $148 million of continuing-operations income tax expense in connection with the separation. Its adjusted-earnings reconciliation adds back $134 million of income-tax-related adjustments.
- Utility results were mixed: PECO net income increased $39 million to $206 million; ACE increased $12 million to $26 million; ComEd decreased $9 million to $188 million; BGE decreased $11 million to $198 million; Pepco decreased $13 million to $46 million; DPL was unchanged at $56 million; and PHI increased $2 million to $130 million.
- Exelon paid $1.75 billion to Constellation in connection with the separation and issued new term loans and notes. Total long-term debt rose from year-end, reflecting new issuance and the post-separation capital structure. Fitch lowered Exelon’s long-term and senior unsecured ratings from BBB+ to BBB in January; the filing says the registrants remained in compliance with debt covenants.
- ACE ended two coal-generation PPAs on March 31 and recorded a $203 million termination liability with a corresponding regulatory asset. Payment is due by the end of 2024.
- ComEd accrued a proposed $38 million customer refund related to the ICC investigation of conduct described in its Deferred Prosecution Agreement. The refund is not to be recovered from customers through rates.
Outlook, risks, and contingencies
Management stated that cash flows, capital-market access, and credit facilities are expected to be sufficient for estimated operating, financing, and capital needs. The filing does not provide a consolidated earnings forecast. Pending rate cases include ComEd’s requested $199 million electric revenue requirement increase and PECO’s requested $82 million natural-gas increase, both with expected decisions in the fourth quarter of 2022; DPL requested a $15 million Delaware natural-gas increase, with expected timing in the first quarter of 2023. Outcomes are uncertain and subject to regulatory review.
Key exposures include regulatory decisions and rate recovery, customer credit losses, storm and operating costs, financing rates and credit ratings, commodity and counterparty risks, and environmental remediation. The SEC investigation into Exelon and ComEd lobbying activities remains ongoing; the companies said they could not predict its outcome and had recorded no related loss contingency because it was not then probable or reasonably estimable. Other customer and shareholder litigation is ongoing. Environmental liabilities include $354 million accrued by Exelon, of which $305 million relates to manufactured-gas-plant remediation; additional costs at certain sites may not be estimable. Forward-looking statements are subject to the risks described in the filing and prior SEC reports.
Investor verification checklist
- Separate continuing utility performance from discontinued Generation results, and account for the different number of Generation months included in the comparative cash flows.
- Review the drivers and durability of the operating-cash-flow increase, particularly collateral, receivables, and other working-capital movements.
- Track debt and refinancing needs after the separation, variable-rate term loans, credit availability, and the effect of Exelon’s rating downgrade.
- Monitor the outcomes of pending rate cases and the recoverability and timing of the ACE PPA termination costs.
- Follow the ComEd refund proceeding, SEC investigation, related litigation, and environmental remediation estimates for potential changes in exposure.