Exelon Reports Impact On Competitive Business From COVID-19

Asked About Prospects For Divesting Generation, CEO Says Non-Nuclear Merchant Generation In Constant "Flux", From Annual Valuation Review

August 4, 2020

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In reporting second quarter results, Exelon reported that the estimated impact of COVID-19 to Exelon utilities’ and Generation’s GAAP Net income as a result of COVID-19 is approximately $100 million and $50 million, respectively, for the second quarter of 2020 and primarily reflects the impact of a reduction in load, incremental credit loss expense and direct costs related to COVID-19. Direct costs related to COVID-19 are excluded from Adjusted (non-GAAP) Operating Earnings.

Specifically, in the Generation segment, second quarter Adjusted Operating Earnings were $0.04 per share (about $39 million) lower than the year-ago due to Market and Portfolio Conditions, which primarily reflects the reduction in load due to COVID-19, partially offset by higher portfolio optimization. Additionally, Adjusted Operating Earnings for the Generation segment were $0.01 per share (about $9.7 million) lower in the second quarter of 2020, versus the year-ago, due to Credit Loss Expense

COVID-19 "Direct Costs" for the Generation segment were $16 million (net of taxes) for the second quarter of 2020

Exelon's Utility Registrants and Generation also expect a reduction in operating revenues for the second half of 2020 due to expected reduction in electric load. Further, Generation expects an increase in credit loss expense in the second half of 2020. "There remains significant uncertainty in the economic forecast for the remainder of the year and its impact on Exelon’s operating revenues. However, Exelon identified and is pursuing approximately $250 million in cost savings across its operating companies to offset part of the expected unfavorable impacts on operating revenues," Exelon said

For Exelon Generation, 2020 Total Gross Margin is projected to be flat. Generation said in a second quarter update that it executed a combined $150M of power and non-power new business

For Exelon Generation, 2021 Total Gross Margin is projected to be flat primarily due to increased power prices, offset by hedges. Generation said in a second quarter update that it executed a combined $100M of power and non-power new business

Exelon reported that at Constellation, Commercial & Industrial load during the second quarter was in line with Constellation's expectations, down 9% to 15% as projected, though it varied week to week

Exelon's Generation segment reported Total Supply/Sales by Region as follows:

Total Supply/Sales by Region (GWhs)
              2Q 2020   2Q 2019 
Mid-Atlantic   17,604    17,547 
Midwest        24,364    24,574 
New York        6,390     6,678 
ERCOT           4,506     4,279 
Other Regions  13,906    13,630 
Total          66,770    66,708 

During an earnings call, an analyst asked about the prospect for Exelon to divest its competitive generation business, given similar actions recently undertaken by other integrated energy companies.

As he has said on prior calls, CEO Chris Crane reiterated that Exelon conducts an annual review on all of the non-nuclear assets to see if they would provide more value to others than to Exelon, and such annual review will continue. Crane again noted that the generation business has over time provided free cash flow that has supported greater investment in the company's regulated businesses

However, if Exelon finds assets that could perform better in somebody else's portfolio and there is an opportunity to monetize those assets, "we'll do that," Crane said

Crane also noted that the company won't hesitate to shut down non-performing assets. "And so there is a constant flux in our non-nuclear business that we'll continue to evaluate with our focus on strong balance sheet, debt reduction, and optimizing what we have on the balance sheet," Crane said

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