Exelon "Shifts" Focus Of Generation Business To Customer-Facing Constellation Business

Company "Transforms" Generation Business Due To Weak Wholesale Conditions

Exelon Says Customer-Facing Constellation Business Continues To Perform "Very Well", With "Good", "Sustained" Margins

Company Cuts Expected Gross Margin For Overall Generation Segment Due To Weak Wholesale Market

Exelon Targets $100 Million In Additional Run-Rate Cost Reductions At ExGen By 2022

October 31, 2019

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During an earnings call today, executives at Exelon said that its customer-facing Constellation business continues to perform, "very well," as executives detailed challenging conditions for the company's Generation segment from wholesale market conditions

Citing declining wholesale prices, a lack of volatility, and reduced liquidity out on the curve, Exelon reduced its targeted gross margin for its "Power New Business" segment by $50 million in 2020 and 2021, and its "Non-Power New Business" segment by $50 million in 2021, versus the targets as of June 30, 2019. The segments include both wholesale and retail activities, and executives stressed that the declines are driven by conditions which are reducing opportunities for wholesale optimization activities, not retail

"Our customer-facing Constellation businesses continue to perform very well, with sustained margins and success in delivering new products for our customers," said Joseph Nigro, Exelon's Chief Financial Officer

"The customer-facing businesses are performing very strongly. The stable value has been there for a while; we still see good margins," added James McHugh, CEO of Constellation

With the reduction in wholesale optimization opportunities, 70-75% of gross margin for the New Business category will come from the stable customer-facing businesses, "that are still performing strongly," McHugh said. As a result, a smaller portion of overall gross margin will come from the wholesale optimization activities

"We're able to shift our business focus to this customer-facing business that's more stable. We can reduce our costs to match that new business model, and really provide an environment that is a less-risk environment for the generation company," McHugh said

Exelon said that it is committing to $100 million in additional run-rate cost reductions at ExGen by 2022, reflecting $75 million of O&M savings and $25 million of other P&L savings

Nigro said that Exelon would continue to work to use free cash flow generated from the Generation business to invest in its regulated utilities, manage its balance sheet, and return value to shareholders, "and we will continue to work hard to do that as we continue to transform the Generation business."

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