Business context and reporting period
Exelon Corporation’s combined unaudited Form 10-Q covers the three months ended March 31, 2023, with comparison to the three months ended March 31, 2022. Exelon is a regulated electric transmission and distribution utility holding company, operating through ComEd, PECO, BGE and Pepco Holdings (Pepco, DPL and ACE). Generation was separated into Constellation on February 1, 2022; its 2022 results are presented as discontinued operations.
Financial performance and position
Unless noted, amounts are in millions. Exelon’s consolidated results were:
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Operating revenue | $5,563 | $5,327 |
| Operating income | $1,106 | $900 |
| Continuing net income attributable to common shareholders | $669 | $481 |
| Diluted continuing EPS | $0.67 | $0.49 |
| Adjusted operating earnings, non-GAAP | $696; $0.70/share | $634; $0.64/share |
| Cash from operations | $484 | $1,782 |
| Capital expenditures | $1,881 | $1,922 |
Operating margin was approximately 19.9%, versus 16.9% in Q1 2022; continuing net income margin was approximately 12.0%, versus 9.0%. Operating cash flow less capital expenditures was negative $1,397 million, compared with negative $140 million. The filing attributes significant cash-flow variability to collateral movements, regulatory balances, working capital and pension contributions; the 2022 comparison also includes one month of Generation cash flows.
At March 31, 2023, Exelon reported total assets of $96.9 billion, total liabilities of $71.9 billion and shareholders’ equity of $25.1 billion. Cash and restricted cash totaled $1.083 billion. Short-term borrowings were $1.306 billion; long-term debt, including amounts due within one year, was approximately $40.1 billion, excluding $390 million of debt to financing trusts. The company reported $4.0 billion of aggregate credit-facility commitments, with $3.2 billion available to support additional commercial paper. No revolving-credit-facility borrowings were outstanding, and debt covenants were met.
Utility subsidiary net income year over year: ComEd $241 million (up $53 million); PECO $166 million (down $40 million); BGE $200 million (up $2 million); and PHI $155 million (up $25 million). Within PHI, Pepco earned $65 million, DPL $60 million and ACE $33 million.
Material changes and management commentary
- Continuing net income increased $188 million and diluted EPS rose $0.18. Management cited higher ComEd distribution formula-rate earnings, higher rate-base and allowed-return impacts, rate increases at PECO, BGE and PHI, ComEd CMC-related carrying costs, and lower corporate costs previously allocated to Generation. Offsets included unfavorable weather at PECO and PHI, higher interest expense, Pepco environmental costs, higher PECO depreciation and credit-loss expense.
- Q1 2022 net income included $116 million attributable to common shareholders from discontinued operations; Q1 2023 had none. Accordingly, continuing results are the more comparable measure.
- Interest expense, net, increased to $406 million from $332 million. Exelon issued $2.5 billion of notes at 5.15%–5.60% during the quarter; subsidiaries also issued debt. Commercial-paper rates at March 31 were approximately 5.0%–5.2% for issuers with outstanding balances.
- Management expects cash flows, capital-market access and credit facilities to be sufficient for operating and financing needs. Estimated 2023 capital expenditures are $7.175 billion. Exelon declared a Q2 2023 dividend of $0.36 per share, consistent with its stated 2023 quarterly dividend policy.
Outlook, risks, contingencies and unusual items
- No full-year earnings guidance is stated in the supplied filing text. Multiple distribution-rate proceedings are pending, including ComEd’s proposed 2024–2027 multi-year plan, BGE rate filings, and filings by Pepco, DPL and ACE. Requested amounts remain subject to regulator review and approval.
- ComEd recorded a $1.118 billion regulatory asset related to Illinois Carbon Mitigation Credits (CMC). Recovery and customer-credit timing depend on regulatory mechanisms and settlement with participating generators.
- ComEd’s FERC audit remains unresolved. Management determined a loss was probable and recorded its best estimate; the amount is not clearly provided in the filing text, and the eventual result could be material.
- Environmental investigation and remediation liabilities totaled $421 million for Exelon, including $343 million related to manufactured-gas-plant matters. Certain Pepco matters, including the Anacostia River and Buzzard Point, have accrued liabilities; additional exposure may be reasonably possible but not estimable.
- Exelon and ComEd’s SEC investigation relating to lobbying remains ongoing, with no loss accrual recorded because the contingency was not considered probable or reasonably estimable. A separate securities class action has a recorded probable loss of $173 million, which management expects to be fully covered by insurance.
- Other key uncertainties include regulatory recovery delays or limits, rate-case outcomes, credit and collateral requirements, weather, interest rates, environmental obligations and litigation. The filing says risk factors were consistent with those in the 2022 Form 10-K.
Important facts for investors to verify
- Review the amount and potential materiality of the accrued ComEd FERC-audit loss and track the audit’s resolution.
- Assess the timing and regulatory recoverability of the ComEd CMC regulatory asset and the outstanding distribution-rate proceedings.
- Confirm the scope of environmental and litigation exposures, including whether insurance fully covers the $173 million securities-case accrual.
- Reconcile operating cash flow’s sharp year-over-year decline against collateral, working-capital and regulatory-account movements, and monitor funding needs against capital spending and debt maturities.
- Use continuing operations and adjusted operating earnings cautiously: the 2022 comparison includes discontinued-operation effects in reported net income and cash flows, and adjusted earnings is a non-GAAP measure.