Exelon Reports Fourth Quarter and Full Year 2019 Results and Initiates 2020 Financial Outlook

Exelon Corporation (Nasdaq: EXC) today reported its financial results for the fourth quarter and full year 2019.

"Each of our utilities achieved record-high customer satisfaction in 2019 as we continued to invest in infrastructure to increase reliability and prepare the grid to accommodate more renewable energy, electric vehicles and other technology necessary to meet the challenge of climate change,” said Christopher M. Crane, president and CEO of Exelon. "Our nuclear fleet achieved its highest capacity factor in company history, and our total generation output accounted for about 12 percent of all the carbon-free energy produced in the U.S., avoiding nearly 81 million metric tons of greenhouse gas emissions. We continued to support the communities we serve last year by volunteering a record-breaking 251,000 hours and donating nearly $52 million to nonprofits.”

"We reported another strong year, with full-year adjusted (non-GAAP) earnings of $3.22 per share coming in above our revised guidance of $3.05 to $3.20 per share,” said Joseph Nigro, senior executive vice president and CFO, Exelon. "Last year we invested $5.5 billion in capital at the utilities - or about $150 million more than originally planned - to modernize the electric grid, and we are on track to invest an additional $6.5 billion in the year ahead as we work to provide our customers with more reliable service and help our states meet their environmental goals. With these investments and our continuing focus on reducing costs, we are providing 2020 adjusted (non-GAAP) earnings guidance of $3.00 to $3.30 per share.”

Fourth Quarter 2019

Exelon's GAAP Net Income for the fourth quarter of 2019 increased to $0.79 per share from $0.16 per share in the fourth quarter of 2018. Adjusted (non-GAAP) Operating Earnings increased to $0.83 per share in the fourth quarter of 2019 from $0.58 per share in the fourth quarter of 2018. For the reconciliations of GAAP Net Income to Adjusted (non-GAAP) Operating Earnings, refer to the tables beginning on page 6.

Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2019 primarily reflect:

• Higher utility earnings due to regulatory rate increases at PECO, BGE and PHI; and
• Higher Generation earnings due to higher realized energy prices, decreased nuclear outage days, lower operating and maintenance expense and research and development income tax benefits, partially offset by lower capacity prices.

Full Year 2019

Exelon's GAAP Net Income increased to $3.01 per share from $2.07 per share in 2018. Exelon's Adjusted (non-GAAP) Operating Earnings for 2019 increased to $3.22 per share from $3.12 per share in 2018.

Adjusted (non-GAAP) Operating Earnings for the full year 2019 primarily reflect:

• Higher utility earnings due to regulatory rate increases at PECO, BGE and PHI and higher electric distribution, transmission and energy efficiency earnings at ComEd; partially offset by,
• Lower Generation earnings due to lower realized energy and capacity prices, partially offset by lower operating and maintenance expense, decreased nuclear outage days and research and development income tax benefits.

Operating Company Results¹

ComEd

ComEd's fourth quarter of 2019 GAAP Net Income and Adjusted (non-GAAP) Operating Earnings remained relatively consistent with the fourth quarter of 2018. Due to revenue decoupling, ComEd's distribution earnings are not affected by actual weather or customer usage patterns.

PECO

PECO’s fourth quarter of 2019 GAAP Net Income and Adjusted (non-GAAP) Operating Earnings remained relatively consistent with the fourth quarter of 2018. The favorable impacts of regulatory rate increases were offset by unfavorable weather conditions and volume and higher storm costs.

BGE

BGE’s fourth quarter of 2019 GAAP Net Income increased to $99 million from $71 million in the fourth quarter of 2018. BGE’s Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2019 increased to $101 million from $72 million in the fourth quarter of 2018, primarily due to regulatory rate increases. Due to revenue decoupling, BGE's distribution earnings are not affected by actual weather or customer usage patterns.

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¹Exelon’s five business units include ComEd, which consists of electricity transmission and distribution operations in northern Illinois; PECO, which consists of electricity transmission and distribution operations and retail natural gas distribution operations in southeastern Pennsylvania; BGE, which consists of electricity transmission and distribution operations and retail natural gas distribution operations in central Maryland; PHI, which consists of electricity transmission and distribution operations in the District of Columbia and portions of Maryland, Delaware, and New Jersey and retail natural gas distribution operations in northern Delaware; and Generation, which consists of owned and contracted electric generating facilities and wholesale and retail customer supply of electric and natural gas products and services, including renewable energy products and risk management services.

PHI

PHI’s fourth quarter of 2019 GAAP Net Income and Adjusted (non-GAAP) Operating Earnings remained relatively consistent with the fourth quarter of 2018. The favorable impacts of regulatory rate increases were offset by an increase in various expenses. Due to revenue decoupling, PHI's distribution earnings related to Pepco Maryland, DPL Maryland and Pepco District of Columbia are not affected by actual weather or customer usage patterns.

Generation

Generation had GAAP Net Income of $397 million in the fourth quarter of 2019 compared with a GAAP Net Loss of $178 million in the fourth quarter of 2018. Generation’s Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2019 increased to $427 million from $221 million in the fourth quarter of 2018, primarily reflecting higher realized energy prices, decreased nuclear outage days, lower operating and maintenance expense and research and development income tax benefits, partially offset by lower capacity prices.

The proportion of expected generation hedged for the Mid-Atlantic, Midwest, New York and ERCOT reportable segments as of Dec. 31, 2019, was 91.0% to 94.0% for 2020 and 61.0% to 64.0% for 2021.

Initiates Annual Guidance for 2020

Exelon introduced a guidance range for 2020 Adjusted (non-GAAP) Operating Earnings of $3.00-$3.30 per share. The outlook for 2020 Adjusted (non-GAAP) Operating Earnings for Exelon and its subsidiaries excludes the following items:

• Mark-to-market adjustments from economic hedging activities;
• Unrealized gains and losses from NDT funds to the extent not offset by contractual accounting as described in the notes to the consolidated financial statements;
• Certain costs related to plant retirements;
• Certain costs incurred to achieve cost management program savings;
• Other items not directly related to the ongoing operations of the business; and
• Generation's noncontrolling interest related to exclusion items

Recent Developments and Fourth Quarter Highlights

• ComEd Distribution Formula Rate: On Dec. 4, 2019, the Illinois Commerce Commission issued an order approving ComEd’s 2019 annual distribution formula rate update. The final order resulted in a $17 million decrease to the revenue requirement, reflecting a $51 million increase for the initial revenue requirement for 2019 and a $68 million decrease related to the annual reconciliation for 2018. The decrease was set using an allowed return on rate base of 6.51% for the initial revenue requirement and the annual reconciliation, inclusive of an allowed ROE of 8.91%. The rates were effective on Jan. 1, 2020.
• PECO Transmission Formula Rate: On Dec. 5, 2019, the Federal Energy Regulatory Commission (FERC) issued an order approving a settlement agreement related to PECO’s May 2017 request to implement a formula rate. The settlement agreement provided for an increase of $14 million with a return on base of 7.62% compared with PECO's initial formula rate filing and allows for an ROE of 10.35%, inclusive of a 50 basis point adder for being a member of a Regional Transmission Organization.
• BGE Maryland Natural Gas and Electric Distribution Base Rate Case: On Dec. 17, 2019, the Maryland Public Service Commission (MDPSC) issued an order approving a settlement under which BGE’s annual electric and natural gas distribution revenues were increased by $18 million and $45 million, respectively. The rates were effective on Dec. 17, 2019. Under the settlement, the ROEs for purposes of calculating the Allowance for Funds Used During Construction and all authorized surcharges and regulatory asset carrying costs shall be 9.70% for electric and 9.75% for gas.
• DPL Maryland Electric Distribution Rate Case: On Dec. 5, 2019, DPL filed an application with the MDPSC to increase its annual electric distribution rates by $19 million, reflecting a requested ROE of 10.3%. DPL currently expects a decision in the third quarter of 2020 but cannot predict if the MDPSC will approve the application as filed.
• FERC Order on the PJM MOPR: On Dec. 19, 2019, FERC issued an order directing PJM Interconnection, LLC (PJM) to extend the Minimum Offer Price Rule (MOPR) to include new and existing resources, including nuclear, that receive state subsidies, effective as of PJM’s next capacity auction. Unless Illinois and New Jersey can implement a Fixed Resource Requirement (FRR) program in their PJM zones, the MOPR will apply to Generation's nuclear plants in those states receiving ZEC benefits, resulting in higher offers for those units that may not clear the capacity market. On Jan. 21, 2020, Exelon, PJM and a number of other entities submitted individual requests for rehearing. Exelon is currently working with PJM and other stakeholders to pursue the FRR option but cannot predict whether the legislative and regulatory changes can be implemented prior to the next capacity auction in PJM. If Generation’s state-supported nuclear plants in PJM or NYISO are subjected to the MOPR without compensation under an FRR or similar program, it could have a material adverse impact on Exelon's and Generation's financial statements.
• CENG Put Option: On Nov. 20, 2019, Generation received notice of EDF’s intention to exercise the put option to sell its 49.99% equity interest in CENG to Generation and the put automatically exercised on Jan. 19, 2020 at the end of the sixty-day advance notice period. Under the terms of the Put Option, the purchase price is to be determined by agreement of the parties, or absent such agreement, by a third-party arbitration process. Any resulting sale would be subject to the approval of the New York Public Service Commission, FERC and the Nuclear Regulatory Commission. The process and regulatory approvals could take one to two years or more to complete.
• Nuclear Operations: Generation’s nuclear fleet, including its owned output from the Salem Generating Station and 100% of the CENG units, produced 44,647 gigawatt-hours (GWhs) in the fourth quarter of 2019, compared with 45,809 GWhs in the fourth quarter of 2018. Excluding Salem, the Exelon-operated nuclear plants at ownership achieved a 95.0% capacity factor for the fourth quarter of 2019, compared with 95.1% for the fourth quarter of 2018. Excluding Salem, the number of planned refueling outage days in the fourth quarter of 2019 totaled 64, compared with 76 in the fourth quarter of 2018. There were eight non-refueling outage days in the fourth quarter of 2019, compared with 18 in 2018 in the fourth quarter of 2018.
• Fossil and Renewables Operations: The Dispatch Match rate for Generation’s gas and hydro fleet was 98.6% in the fourth quarter of 2019, compared with 99.3% in the fourth quarter of 2018.

Energy Capture for the wind and solar fleet was 96.2% in the fourth quarter of 2019, compared with 97.0% in the fourth quarter of 2018.

• Financing Activities:
  • On Nov. 12, 2019, ComEd issued $300 million of its First Mortgage Bonds, 3.20% Series due Nov. 15, 2049. ComEd used the proceeds to repay a portion of outstanding commercial paper obligations and for general corporate purposes.
  • On Dec. 12, 2019, DPL issued $75 million of its First Mortgage Bonds, 4.14% Series due Dec. 12, 2049. DPL used the proceeds to repay existing indebtedness and for general corporate purposes.

GAAP/Adjusted (non-GAAP) Operating Earnings Reconciliations

Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2019 do not include the following items (after tax) that were included in reported GAAP Net Income:

Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2018 do not include the following items (after tax) that were included in reported GAAP Net Income:

Adjusted (non-GAAP) Operating Earnings for the full year 2019 do not include the following items (after tax) that were included in reported GAAP Net Income:

Adjusted (non-GAAP) Operating Earnings for the full year 2018 do not include the following items (after tax) that were included in reported GAAP Net Income:

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(a) Exelon’s and PHI’s amounts have been revised to reflect the correction of an error.

Note:
Unless otherwise noted, the income tax impact of each reconciling item between GAAP Net Income and Adjusted (non-GAAP) Operating Earnings is based on the marginal statutory federal and state income tax rates for each Registrant, taking into account whether the income or expense item is taxable or deductible, respectively, in whole or in part. For all items except the unrealized gains and losses related to NDT funds, the marginal statutory income tax rates for 2019 and 2018 ranged from 26.0% to 29.0%. Under IRS regulations, NDT fund returns are taxed at different rates for investments if they are in qualified or non-qualified funds. The effective tax rates for the unrealized gains and losses related to NDT funds were 46.1% and 41.4% for the three months ended Dec. 31, 2019 and 2018, respectively; and were 47.3% and 46.2% for the twelve months ended Dec. 31, 2019 and 2018, respectively.

Webcast Information

Exelon will discuss fourth quarter 2019 earnings in a one-hour conference call scheduled for today at 9 a.m. Central Time (10 a.m. Ea?stern Time).? The webcast and associated materials can be accessed at www.exeloncorp.com/investor-relations.

About Exelon

Exelon Corporation (Nasdaq: EXC) is a Fortune 100 energy company with the largest number of electricity and natural gas customers in the U.S. Exelon does business in 48 states, the District of Columbia and Canada and had 2019 revenue of $34 billion. Exelon serves approximately 10 million customers in Delaware, the District of Columbia, Illinois, Maryland, New Jersey and Pennsylvania through its Atlantic City Electric, BGE, ComEd, Delmarva Power, PECO and Pepco subsidiaries. Exelon is one of the largest competitive U.S. power generators, with more than 31,000 megawatts of nuclear, gas, wind, solar and hydroelectric generating capacity comprising one of the nation’s cleanest and lowest-cost power generation fleets. The company’s Constellation business unit provides energy products and services to approximately 2 million residential, public sector and business customers, including three fourths of the Fortune 100. Follow Exelon on Twitter @Exelon.

Non-GAAP Financial Measures

In addition to net income as determined under generally accepted accounting principles in the United States (GAAP), Exelon evaluates its operating performance using the measure of Adjusted (non-GAAP) Operating Earnings because management believes it represents earnings directly related to the ongoing operations of the business. Adjusted (non-GAAP) Operating Earnings exclude certain costs, expenses, gains and losses and other specified items. This measure is intended to enhance an investor’s overall understanding of period over period operating results and provide an indication of Exelon’s baseline operating performance excluding items that are considered by management to be not directly related to the ongoing operations of the business. In addition, this measure is among the primary indicators management uses as a basis for evaluating performance, allocating resources, setting incentive compensation targets and planning and forecasting of future periods. Adjusted (non-GAAP) Operating Earnings is not a presentation defined under GAAP and may not be comparable to other companies’ presentation. The Company has provided the non-GAAP financial measure as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. Adjusted (non-GAAP) Operating Earnings should not be deemed more useful than, a substitute for, or an alternative to the most comparable GAAP Net Income measures provided in this earnings release and attachments. This press release and earnings release attachments provide reconciliations of adjusted (non-GAAP) Operating Earnings to the most directly comparable financial measures calculated and presented in accordance with GAAP, are posted on Exelon’s website: www.exeloncorp.com, and have been furnished to the Securities and Exchange Commission on Form 8-K on Feb. 11, 2020.

Cautionary Statements Regarding Forward-Looking Information

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. The factors that could cause actual results to differ materially from the forward-looking statements made by the Registrants include those factors discussed herein, as well as the items discussed in (1) the Registrants' 2018 Annual Report on Form 10-K in (a) Part I, ITEM 1A. Risk Factors, (b) Part II, ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) Part II, ITEM 8. Financial Statements and Supplementary Data: Note 22, Commitments and Contingencies; (2) the Registrant’s Third Quarter 2019 Quarterly Report on Form 10-Q in (a) Part II, ITEM 1A. Risk Factors, (b) Part I, ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) Part I, ITEM 1. Financial Statements: Note 16, Commitments and Contingencies; and (3) other factors discussed in filings with the SEC by the Registrants. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this press release. None of the Registrants undertakes any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this press release.

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