EXELON CORP annual report, FY2019

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Exelon Corporation — 2019 Form 10-K

Reporting period: Fiscal year ended December 31, 2019. This is an annual filing; quarterly data shows Q4 2019 results where noted. Exelon combines competitive power generation and energy marketing with regulated electric and gas utilities.

Financial performance and position

  • Revenue: $34.44 billion, down 4.3% from $35.98 billion in 2018.
  • Profit: Operating income was $4.37 billion, up from $3.89 billion. Net income attributable to common shareholders was $2.94 billion, or $3.01 diluted EPS, versus $2.01 billion and $2.07 per share in 2018. Adjusted operating earnings, a non-GAAP measure, were $3.14 billion ($3.22 per diluted share), versus $3.02 billion ($3.12 per share).
  • Margins: Operating margin was approximately 12.7% versus 10.8%; net margin attributable to common shareholders was approximately 8.5% versus 5.6%.
  • Q4: Net income attributable to common shareholders was $773 million, or $0.79 per diluted share, versus $152 million and $0.16 in Q4 2018.
  • Cash flow: Operating cash flow was $6.66 billion, down from $8.64 billion. Capital expenditures were $7.25 billion, leaving operating cash flow less capital expenditures of approximately negative $589 million, compared with approximately positive $1.05 billion in 2018.
  • Debt and liquidity: At year-end, long-term debt including financing-trust debt was $31.72 billion; adding short-term borrowings and current maturities gives approximately $37.8 billion of debt. Cash and cash equivalents were $587 million, plus $358 million restricted. Current assets of $12.04 billion were below current liabilities of $14.19 billion. Credit facilities totaled $10.56 billion, with $9.12 billion available, including $7.35 billion available to support additional commercial paper.
  • Dividend: Exelon paid $1.45 per share in 2019, up from $1.38. The board declared a Q1 2020 dividend of $0.3825 per share.

Material changes and drivers

  • Higher net income primarily reflected improved nuclear trust fund investment results, lower Generation operating and maintenance costs, fewer nuclear outage days, reduced early-retirement charges, and utility rate increases. These benefits were partly offset by lower realized energy and capacity prices and unfavorable weather or volume at certain utilities.
  • Generation’s revenue net of purchased power and fuel expense declined 7.7% to $8.07 billion. Nuclear output was 181,326 GWh, down 2.0%; the operated fleet capacity factor improved to 95.7% from 94.6%.
  • Net income included substantial investment-market variability: Generation reported $411 million in unrealized NDT gains and $253 million in realized gains in 2019, compared with $483 million in unrealized losses and $180 million in realized gains in 2018.
  • Operating cash flow fell amid working-capital movements and increased collateral posted. The filing reports a net $520 million adverse year-over-year change in collateral-related operating cash flows.

Outlook, risks, and unusual items

  • Management expects the utilities to invest approximately $26 billion over four years in infrastructure, projected to increase rate base by approximately $13 billion by year-end 2023. Estimated 2020 capital expenditures are $8.18 billion for Exelon, including $1.73 billion for Generation.
  • Exelon announced additional Generation cost savings of approximately $100 million annually by 2022. Its stated dividend policy called for 5% annual increases through 2020; future results and policy execution remain subject to business conditions.
  • Generation’s 2020 expected output was 91%–94% hedged; 2021 was 61%–64% hedged. Unhedged exposure leaves earnings sensitive to energy and capacity prices.
  • FERC’s December 2019 PJM minimum-offer-price ruling may disadvantage state-supported nuclear plants in capacity auctions unless Illinois and New Jersey can implement an alternative program. Management said the financial impact could be material and the outcome was uncertain.
  • Three Mile Island permanently ceased operations in September 2019; the filing reports $176 million in 2019 pre-tax charges related to early retirement. Oyster Creek’s sale and transfer of decommissioning responsibility closed in July 2019. Dresden, Byron, and Braidwood remained exposed to economic distress and potential retirement risk.
  • EDF’s CENG put option automatically exercised in January 2020. The purchase price for EDF’s 49.99% interest was unresolved and could require arbitration and regulatory approvals; timing could take one to two years or longer.
  • PG&E’s bankruptcy triggered an event of default on Antelope Valley Solar Ranch’s nonrecourse debt; approximately $485 million was outstanding and classified as current. The PPA or project assets could face material risk if circumstances change.
  • Exelon and ComEd received U.S. Attorney and SEC subpoenas/investigation notices concerning Illinois lobbying activities. They said they were cooperating; potential outcomes, penalties, and financial effects were not estimable in the filing.
  • Other notable exposures include nuclear decommissioning estimates ($10.5 billion ARO), environmental remediation, climate and reliability regulation, severe weather, cybersecurity, credit downgrades and collateral calls. Management reported that the NDT fair value exceeded nuclear ARO at year-end.
  • The filing revised prior-period Exelon, PHI, and Pepco results for an immaterial error in Pepco’s Maryland decoupling mechanism. Auditors issued unqualified opinions; management reported effective internal controls. The audit identified nuclear decommissioning obligations, generation-asset impairment assessments, Level 3 derivatives, and regulatory accounting as critical audit matters.

Most important facts for investors to verify

  • How much of the 2019 earnings increase reflects recurring operations versus NDT gains, tax benefits, and other non-recurring or market-sensitive items.
  • Whether operating cash flow, collateral needs, and planned utility capital spending support the dividend and debt-management objectives.
  • The outcome and financial implications of the PJM MOPR proceedings, state policy responses, and the pending CENG ownership transfer.
  • Whether the ComEd/Exelon investigations, Antelope Valley default, and environmental or nuclear obligations result in material costs, penalties, or impairment charges.
  • Progress on utility rate cases, cost-savings targets, and the planned infrastructure investment and rate-base growth.