Exelon Corporation

Standing by and welcome to the Exelon 2019 Third Quarter Earnings Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I will now have to hand the call over to your speaker today. Dan Eggers, Senior Vice President of Corporate Finance. Please go ahead, sir.

Thank you, Tamara. Good morning, everyone, and thank you for joining our third quarter 2019 earnings conference call. Leading the call today are Chris Crane, Exelon's President and Chief Executive Officer, and Joe Nigro, Exelon's Chief Financial Officer. They're joined by other members of Exelon's senior management team who will be available to answer your questions following our prepared remarks. We issued our earnings release this morning along with the presentation. both of which can be found in the Investor Relations section of Exelon's website. The earnings released and other matters which we discussed during today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. Actual results could differ from our forward-looking statements based on factors and assumptions discussed in today's material and comments made during this call. Please refer to today's 8K and Exelon's other SEC filings for discussions of risk factors. and factors that may cause results to differ from management's projections, forecasts, and expectations. Today's presentation also includes references to adjusted operating earnings and other non-GAAP measures. Please refer to the information contained in the appendix of our presentation and our earnings release for reconciliations between the non-GAAP measures and the nearest equivalent GAAP measures. I'll turn the call over to Mr. Chris Crane, Excellence Chief Executive Officer.

Thank you, Dan, and good morning, everyone. We had a good quarter. delivering strong earnings, excellent customer service across our utilities, and our nuclear units ran at high levels of reliability. I'll turn to our regular reporting of our financial performance in a minute, but I first want to address a matter that I know is on all of our minds. We have publicly reported we have received two grand jury subpoenas, the subjects which are our lobbying practices in Illinois, and the company's relationship with an Illinois state senator. These subpoenas and the speculation about what's behind them have dominated the news about Exelon and ComEd. Given that the investigations are ongoing, we cannot discuss many details, but I'll tell you this. When we learned of these investigations, we pledged complete cooperation with the government. And that is the path we have taken. The company's outside lawyers are undertaking an exhaustive investigation of the facts relevant to the subpoenas. A special committee of the board represented by its own outside counsel has also been formed and is being briefed on the investigation. Exelon's outside lawyers are sharing the results of the investigation with the government on an ongoing basis. Their investigation is enabling us to determine what changes are necessary internally to ensure that going forward, we operate at the highest possible standards, not whether actions have been legal or not, but rather which go beyond the ethical reproach. We are keeping our eye on the ball by staying focused in the operational and the strategic path that has delivered the success. Now I'll turn to the regular report and answer any questions about that I can at the end of the call. Starting on slide five, we've had positive developments over the quarter. First, we were named Dow Jones Sustainability Index for the 14th year in a row, with Exelon continuing to score in the top 20% of North American companies in all industries. Second, we launched the Climate Investment Initiative to invest $20 million and startups in our service territories that are working on new technologies to reduce greenhouse gas emissions and climate change, mitigating climate change. Third, PEPCO Maryland was granted a 9.6 allowed ROE in its most recent rate case. This is an improvement, and the results continue through the enhancement in our reliability and customer service for our customers. Fourth, the Maryland PESC issued an order in the alternative rate-making proceeding known as PC-51, allowing Maryland utilities to file a multi-year rate plan as soon as next year. Fifth, the New York Supreme Court rejected challenges to the New York ZEC program, removing the last remaining legal challenge in front of us. Sixth, Governor Wolf issued an executive order beginning the process for Pennsylvania to join Reggie, the Regional Greenhouse Gas Initiative. This will allow Pennsylvania to meet its climate goals while helping to preserve the state's remaining zero carbon nuclear plants. Seventh, earlier this week, we announced an agreement with Governor Hogan in Maryland that will allow us to continue to operate Conowingo Dam and protect the long-term health of the Chesapeake Bay. Continued production of carbon-free energy from the dam is vital to support Governor Hogan's goal in generating 100% clean electricity in Maryland by 2040. Finally, we're announcing a new round of cost savings at XGen. Finding an additional $100 million in savings, we continue to work hard at driving efficiencies and adapting to our current market conditions. These savings will help XGen navigate the depressed forwards, but will not be enough to overcome the financial challenges of some of our Illinois nuclear plants. I realize there has been some discussion on the potential impact of the investigation on the prospects of a clean energy legislation in Illinois. The need for clean energy legislation is bigger than just one stakeholder or one company. We are one part, but only one part. of the ongoing discussion about the urgent need for legislation in Illinois. With the roadblocks, with the road, excuse me, with the rollback of environmental regulations in Washington, states across the country are taking action to require emission reductions so they can benefit from clean energy economy that will result. This is true in Illinois, where many stakeholders and policymakers want to put Illinois on a path to 100% clean and drive electrification of transportation to protect our communities. They believe the action is urgently needed in Illinois to ensure clean air, reliable service, and affordable rates for Illinois consumers. Exelon nuclear plants are essential to achieving these goals. The four plants without ZEX avoid 45 million metric tons of carbon dioxide emission, contribute $4.5 billion in state gross domestic product, pay $149 million in state taxes, and if they were to retire prematurely, Illinois consumers will pay more than $483 million more in electricity annually. I should point out that the delays in enacting the legislation are in part linked to FERC's delay in issuing an order on PGM market capacity. This is due to the lack of quorum until the end of November when Commissioner Glick completes his reclusal period. And while the FERC delay is very frustrating, it does allow Illinois more time to enact and implement the legislation changes in time to protect the clean energy programs from negative treatment and PGM capacity auction. The delay in FERC order will push back the 2022 and 23 auction until at least late fall of 2020. Spring passage of legislation will allow for Illinois clean energy procurement mechanism to be in place before the 2023-2024 capacity auction and potentially before the 2022-2023 auction as well. Moving our financial results, we have had a strong quarter with earnings above our guidance. On a GAAP basis, we earned 79 cents per share versus 76 per share last year. On a non-GAAP basis, we earned 92 cents per share versus 88 cents per share last year. Joe will cover these details in his remarks. Moving on to slide six, operational performance at the utilities was mixed this quarter. Each of our utilities performed well on customer operations side. with mostly top quartile performance. However, only ComEd performed in the first quartile in outage frequency and duration metrics. This year in the Mid-Atlantic, we have seen significantly more storms and abnormally higher temperatures, which increased vegetation impacts it caused on the reliability-related issues. For instance, PHI had 27 minor storms in 2019 compared to four in 2018. These drove the lower reliability metrics for our mid-Atlantic utilities. Generation performed well during the quarter. Nuclear produced 39.2 terawatt hours of zero emission electricity with a capacity factor of 95.5. Exelon power exceeded our plan and had a gas and hydro dispatch match of 97.5 and a wind and solar capture of 96.5. That said, we also had some outages in Texas during critical hours that were disappointing and caused us to miss out on some of the bigger opportunities in ERCOT. For now, I'll turn it over to Joe, and then we'll go to the questions after. Thank you.