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Updated: Exelon Evaluating "All Options" With Respect To ERCOT Business

Exelon To Spin-off Its Competitive Retail Supply, Generation Business Into Separate Company; Exelon Will Focus Solely On Regulated Utilities

Exelon Reports Up To $710 Million Negative Impact From Texas Weather Event, Provides Liquidity Update

February 24, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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Updated, 2/24:

Exelon, which earlier today announced that it would spin-off its competitive generation and retail business, further said during an earnings call that, "we are evaluating all our options with respect to our ERCOT business," which consists of generation and retail supply, noting any decision will be driven in part by ongoing discussions on potential changes to the ERCOT market design

As noted in our original story below, Exelon estimated the impact to net income for the first quarter of 2021 arising from the ERCOT market and weather conditions to be approximately $560 million to $710 million.


Exelon Corp. today announced its Board of Directors has approved a plan to separate Exelon Utilities (RemainCo), comprised of the company’s six regulated electric and gas utilities, and Exelon Generation (SpinCo), its competitive power generation and customer-facing energy businesses, including its competitive retail supply business, into two publicly traded companies

"The separation gives each company the financial and strategic independence to focus on its specific customer needs, while executing its core business strategy," Exelon said

Spinco was described as, "a competitive generation and customer-facing company with the agility to adapt to a rapidly changing energy landscape as the nation’s largest provider of clean energy and leading integrated platform for sustainable energy solutions."

Spinco will include Exelon Generation and Constellation (both Constellation's retail and wholesale businesses), and Exelon's Breaker Box broker business

Spinco was described as the (as of December 31, 2020), "Largest customer-facing platform in the U.S., serving ~215 TWhs of load, including ~155 TWhs of primarily C&I retail and ~60 TWhs of wholesale volumes."

Retail load served by Spinco was listed as 155 TWh for 2020 (this does not equate to annualized retail load volumes under contract). In terms of market size, Spinco retail load, reflecting 2019 annualized retail load volumes under contract, was listed as 161 TWh, versus 164 TWh by NRG after NRG's recent Direct Energy acquisition. The vast majority of Spinco retail load is C&I

Spinco serves more than 2 million customers

Spinco was described as, "#1 retail C&I power provider and #5 residential power provider in the U.S., supplying ~152 TWh to business and public sector customers and ~9 TWh to residential customers." (reflecting 2019 annualized retail load volumes under contract)

Spinco's capital allocation priorities are as follows:

• Available cash flow used to manage debt in order to support investment grade credit ratings

• Then, SpinCo will consider the following:

--- Incremental return of capital to shareholders

--- Investing in clean energy solution

RemainCo will be the parent company for Exelon’s fully regulated transmission and distribution utilities, delivering electricity and natural gas to more than 10 million customers. With operations across five states and the District of Columbia, the utilities include Atlantic City Electric in southern New Jersey, BGE in central Maryland, ComEd in northern Illinois, Delmarva Power in Delaware and eastern Maryland, Pepco in Washington, D.C., and central Maryland, and PECO in southeastern Pennsylvania.

Exelon said, "SpinCo will be the largest supplier of clean energy and sustainable solutions to homes, businesses and public-sector customers across the continental U.S., backed by more than 31,000 megawatts of generating capacity consisting of nuclear, wind, solar, natural gas and hydro assets. The company will produce about 12 percent of the nation’s carbon-free energy, making it an indispensable partner to businesses and state and local governments that are setting ambitious carbon-reduction goals and seeking long-term solutions to the climate crisis."

Exelon said, "SpinCo’s clean generation fleet will be paired with the nation’s leading retail and wholesale supplier of power, natural gas and clean energy products and services for about two million homes, businesses and public-sector entities across the continental U.S., including three-fourths of the Fortune 100."

Exelon said, "SpinCo will operate the nation’s largest fleet of carbon-free nuclear power plants, which produced 150 million megawatt hours of electricity last year."

SpinCo also operates approximately 12,000 megawatts of hydroelectric, wind, solar, natural gas and oil generation assets, which provide a mix of baseload, intermediate and peak power generation.

Under the separation plan, Exelon Corporation shareholders will retain their current shares of Exelon stock and receive a pro-rata dividend of shares of the new company’s stock in a transaction that is expected to be tax-free to Exelon and its shareholders for U.S. federal income tax purposes. The actual number of shares to be distributed to Exelon shareholders will be determined prior to closing. Exelon is targeting to complete the separation in the first quarter of 2022.

Exelon will continue to be led by CEO Chris Crane and the existing management team until the separation is complete through the public listing of SpinCo. Further details about each company will be released in the coming months, including information about senior management teams, board appointments and company names, Exelon said

Exelon is targeting to complete the separation in the first quarter of 2022, subject to final approval by the company’s Board of Directors, a Form 10 registration statement being declared effective by the Securities and Exchange Commission, regulatory approvals and satisfaction of other conditions. The transaction is subject to approval by the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission and New York Public Service Commission. Exelon shareholder approval is not required. There can be no assurance that any separation transaction will ultimately occur or, if one does occur, of its terms or timing.

Impacts of February 2021 Weather Events and Texas-based Generating Assets Outages:

Exelon also reported 4th quarter and full year earnings, and also provided an update on the impact from the recent Texas weather event

"Beginning on Feb. 15, 2021, Generation’s Texas-based generating assets within the Electric Reliability Council of Texas (ERCOT) market, specifically Colorado Bend II, Wolf Hollow II, and Handley, experienced periodic outages as a result of historically severe cold weather conditions. In addition, those weather conditions drove increased demand for service, limited the availability of natural gas to fuel power plants and dramatically increased wholesale power and gas prices," Exelon said

Exelon noted that such plants on outage were not available when prices hit the $9,000 per MWh administrative cap

"Exelon and Generation estimate the impact to their Net income for the first quarter of 2021 arising from these market and weather conditions to be approximately $560 million to $710 million. The estimated impact includes favorable results in certain regions within Generation’s wholesale gas business," Exelon said

Exelon said that data, such as load and other ISO charges, is still unavailable, so a complete picture on impacts will take some time

"The ultimate impact to Exelon’s and Generation’s consolidated financial statements may be affected by a number of factors, including final settlement data, the impacts of customer and counterparty credit losses, any state sponsored solutions to address the financial challenges caused by the event, and litigation and contract disputes which may result," Exelon said

"Exelon expects to offset between $410 million and $490 million of this impact primarily at Generation through a combination of enhanced revenue opportunities, deferral of selected non-essential maintenance, and primarily one-time cost savings," Exelon said

"Generation used a combination of commercial paper and letters of credit to manage collateral needs and has posted approximately $1.4 billion of collateral with ERCOT as of Feb. 22, 2021. Generation continues to believe it has sufficient cash on hand and available capacity on its revolver, which was $2.4 billion as of Feb. 22, 2021, to meet its liquidity requirements," Exelon said

Retail Business

In reporting 4th quarter and full-year earnings, Exelon reported "stable retail margins" in its competitive retail business

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