Exelon Corporation

Hello, and welcome to Exelon's third quarter earnings call. My name is Gigi, and I'll be your event specialist today. All lines have been placed on mute to prevent any background noise. Please note that today's webcast is being recorded. During the presentation, we'll have a question and answer session. You can ask questions by pressing star 1 on your telephone keypad. If you would like to view the presentation in a full screen view, click the full screen button by hovering your computer mouse cursor over the PowerPoint screen. Press the Escape key on your keyboard to return to your original view. And finally, should you need technical assistance, as a best practice, we suggest you first refresh your browser. If that does not resolve the issue, please click on the Help option in the upper right-hand corner of your screen for online troubleshooting. It is now my pleasure to turn today's program over to Dan Eggers, Senior Vice President of Corporate Finance. The floor is yours.

Thank you, Gigi. Good morning, everyone, and thank you for joining our third quarter 2020 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 a presentation, both of which can be found in the investor relations section of Exelon's website. The earnings release 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 Excellence Other SEC filings for discussions of risk factors and other factors, including uncertainties surrounding the impacts of the COVID-19 pandemic, 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 now turn the call over to Chris Crane, Exelon CEO. Thanks, Dan.

Appreciate it. As you can see from our release, we've had strong earnings and operational performance while continuing to focus on the health and safety of our employees in the communities. Our GAAP basis earned 51 cents per share. Our non-GAAP basis earned $1.04 per share. We did outperform our guidance that we had originally given at 80 to 90 cents per share due to some favorable weather and more cost savings coming through sooner than we anticipated. Joe's going to get into the detail that I want to highlight. In August, we had the tropical storm that battered the East Coast with rain and strong winds, significant impacts to Ace, Delmarvin, Pico, It was Pico's 10th largest storm on record following the 8th largest storm in June. Then a hurricane like Derecho tore through the ComEd service territory, spawning 13 tornadoes. Between the two storms, we had more than 1.5 customers lost power. We had more than 500 employees and contractors. that were helping their sister utilities moving back and forth between the east and the west to try to respond to the needs of the customers. And despite the intensity, we were able to restore the power to our customers at record time. Due to the power of our Exelon Utilities platform, our employees' quick response and collaboration made the difference for our customers. So I really want to thank our employees for their great work. restoring service to customers during not just the pandemic, but a very active storm season as we've seen. As I mentioned on the last call, Exelon is committed to our values of diversity, equality, and inclusion. Part of this commitment calls on our businesses and our partners to recognize these values and include women and people of color in key roles on our accounts. For 10 years, we've recognized partners who have excelled in this area. This year, we've included 30 companies in banking, insurance, legal investment, professional and IT services to our 2020 diversity and inclusion honor roll. We also are committed to delivering clean energy in a clean energy future. Exelon Foundation and Exelon selected 10 startups as part of the first round of 20 million in climate change investment initiatives. Beyond the financial support, Exelon will mentor the startups on accessing capital, structuring the business, capital allocation, and meeting the regulatory requirements. Through this program, the foundation will invest early in stage startups working on climate change, mitigating, adapting and resilience in our service territory. 50% are minority or women owned. 60% of the projects focus on greenhouse gas mitigation, and the others are on resiliency and adapting to the changing climate environment that we're living in. These investments will bring us a step closer to a clean energy future by helping Entrepreneurs translate their ideas for reversing climate change into practical solutions. Finally, we made the difficult decision to retire some on economic generation stations. Mystic Generation Gas Fire Station in Boston will retire in 2024 when the cost of service agreement expires. And very disappointingly, we announced our Dresden Byron and Dresden nuclear stations will retire in 2021. These plants produce 30% of the carbon free electricity in Illinois. They provide over 1500 good paying full time jobs. And they support 2000 supplemental workers during refueling outages, most from local union halls. Paying $63 million in taxes annually to support local schools, fire departments, and other services in their community. Despite being among the most efficient, reliable units in the US nuclear fleet, they face revenue shortfalls, declining energy prices, lack of capacity revenue, and market rules that allow fossil plants to underbid clean energy resources in the PJM market auction. Given these losses, we have made a tough decision to shut these units down and give our employees and the host communities time to manage through the personal and economic challenges ahead. Without these plants and others at risk, customers will pay $483 million in increased annual energy costs under the PJM auction structure that is about to occur. The electric sector emissions will increase by 70%, and instead of growing zero-carbon energy in Illinois to reach the state's goal of clean energy, will fail decades behind. We continue to work with interested parties on the best way to achieve these state goals, but urgent action is needed. We have to protect our consumers from higher bills, our state from dirtier air, and our communities from the loss of these irreplaceable power plants and the jobs that they create. Turning to operations, even with the pandemic conditions, extreme storms, and record heat across our territories, All our utilities have achieved first quartile operating performance and outage duration and frequency. Customer service remains at a top quartile across all utilities with VGE, ComEd, and PECO delivering service in top decile. Power dispatch match of 98.9% and renewable energy capture at 91.9%. Constellation has also had a very strong quarter. of execution as a result was able to increase the new business targets for the year that we talked about that looked at trouble in the first quarter. The nuclear performance was excellent. The plants ran at 96% for the quarter. They led the nation in zero carbon electricity production, producing almost 38 terawatt hours of emission-free generation. Like all of our plants, Dresden, Byron, ran at nearly full power through the hottest summer on record. Employees at Dresden and Byron are entirely focused on ensuring the reliability and safety of these plants through their retirement dates. The plant's forced retirement is simply hard to deal with, and it's a shame. I'll now turn the call over to Joe for a financial update.

Thank you, Chris, and good morning, everyone. Today, I will cover our third quarter results quarterly financial updates, and our hedge disclosures. I will also provide an update on our full year 2020 guidance. Turning to slide seven, we earned 51 cents per share on a gap basis and $1.04 per share on a non-gap basis, which exceeded our guidance range of 80 to 90 cents per share. A key driver in our quarterly EPS performance for both the second and third quarters has been success in managing costs. As you may recall on our first quarter call, we announced $250 million of savings across the organization to help offset the impacts of COVID. At that time, we expected our offices would reopen in late summer. Since then, we have pushed phase one of our reopening for remote-enabled workers until January of next year at the earliest. This change in expectations along with the hard work of the organization, led to higher savings than originally anticipated. For the quarter, Exelon Utilities delivered a combined 57 cents per share net of holding company expenses. Utility earnings were modestly higher relative to expectations, driven primarily by favorable O&M and taxes, earlier recognition of bad debt regulatory assets, and favorable summer weather in our non-decoupled jurisdictions. This was partially offset by costs related to Tropical Storm Isis, which hit the East Coast in August. XGen outperformed expectations for the third quarter, earning 47 cents per share. The upside was largely driven by lower O&M, where targeted savings exceeded our original expectations and were achieved sooner than planned. Additionally, favorable weather and lower cost to serve benefited our gross margin. On slide eight, we show our quarter over quarter earnings walk. The dollar four per share in the third quarter of this year was 12 cents per share higher than the third quarter of 2019. Ex-line utilities less holdco earnings were up a penny per share compared to last year. The earnings growth was driven primarily by higher distribution and transmission rates associated with completed rate cases relative to the third quarter of 2019, as well as favorable weather at PECO. This was partially offset by storm costs at PHI and PECO. Ex-gens earnings were up 11 cents per share compared with last year, benefiting from lower O&M and higher capacity revenues. Turning to slide nine, we are raising our 2020 EPS guidance range to $3 to $3.20 per share from $2.80 to $3.10 per share and are now comfortably within our original 2020 guidance range, of $3 to $3.30 per share. When we revised guidance on the first quarter call, there was a great deal of uncertainty about the severity and the length of the impacts of COVID on our business. Our updated guidance considers the strong action performance to date, our successful cost management, as well as the favorable weather we saw in the third quarter. We're delivering on our financial commitments and we are confident we will be within our revised guidance range at year end. Moving to slide 10, looking at our utility returns on a consolidated basis, we have dipped slightly below our consolidated 9 to 10 percent target range with an 8.9 percent trailing 12-month ROE as of the third quarter. The 20 basis point decline from last quarter was primarily due to equity infusions at BG&E and ComEd to support capital investments. This calculation is backward-looking, so you should continue to see some pressure on ROEs over the next couple of quarters. This is simply due to the roll-off of better pre-COVID-19 quarters, the burden of poor first-quarter weather, summer storms, and the continued impact of lower treasuries on ComEd. Looking further into the future, we remain focused on delivering stronger returns at the utilities and supporting our growth targets. Turning to slide 11, since the last call, we had two major developments on the regulatory front. PEPCO filed its first multi-year plan in Maryland, and PECO filed its first gas distribution case in 10 years. PEPCO was the second utility in Maryland to file a multi-year plan with BGE filing the first plan in May. The filing will support capital investments in the electric distribution system made during 2019 and 20 and planned investments through March of 2024. PEPCO's planned investments will continue to improve reliability and customer service, advanced technologies and investments to modernize the distribution system, support state environmental goals, and provide tools to assist customers in managing their energy use. The filing considers the current health emergency and economic challenges in Maryland while allowing for timely recovery of our investments that benefit our customers. A few highlights from the filing include Flat distribution rates for the first two years of the plan partially offset in year three. Residential electric bills are projected to be lower in 2024 than they were in 2011. Recovery of electric vehicle program costs and COVID-19 costs and inclusion of tracking performance incentive mechanisms focused on system reliability, customer service, the environment we expect an order in may of 2021. on september 30th pico filed a gas distribution case with the pennsylvania public utility commission pico is seeking a revenue increase of 69 million dollars for continued investments in its gas distribution system to maintain and increase safety reliability and customer service We expect an order in June of 21. We also have several rate cases still in progress, two of which we expect orders on this year. In October, evidentiary hearings were conducted as part of BG&E's pending multi-year rate case. As a reminder, the filing supports planned capital investments from 2020 to 23, as well as investments made in late 2019 to maintain and increase reliability and benefit customer service for our electric and gas distribution systems. We expect an order in December. Additionally, ComEd's annual formula rate update filing is expected to be decided in December of this year. On October 14th, Draft proposed orders were filed by ComEd, the ICC staff, and interveners as part of the case. This filing requests a reduction in delivery rates for the third year in a row and the fifth decrease in 10 years. Since the formula rate has been in place, ComEd's investments in grid modernization and enabling clean energy growth have improved reliability by 70%. while keeping bills lower than they were nearly a decade ago. More detail on the rate cases can be found on slides 20 through 27 of the appendix. Turning to slide 12, the utilities continue to deploy capital largely as planned for the year, investing $1.6 billion during the third quarter. And year to date, we have spent $4.5 billion of capital at our utilities, improving our infrastructure, and increasing reliability and resiliency for the benefit of our customers. Despite some early challenges from the pandemic, our capital plan is on track for the year. Today, I will talk about two projects that advance Exelon Utility's strategy. A key element of that strategy is involving our capabilities to anticipate and meet changing customer needs and expectations of the system. The first project is PEPCO's streetlight modernization project in Maryland. This project includes conversion of approximately 66,000 existing streetlights to smart LEDs and integration with a central management system. The new streetlights will send automatic notifications to the central management system, improving outage response time, maintenance efficiency, and customer billing accuracy. Additionally, LEDs improve light quality and benefit public safety and security. This project is included in the PEPCO Maryland multi-year plan filing I discussed earlier. The second project is the Exelon Utilities customer information system upgrade, which was completed on time even though it was done almost fully remotely. This is a $130 million project to upgrade BG&E's customer care and billing system and implement Oracle's Customer Experience Service Cloud at BG&E, ComEd, and PICO. This new system will provide operational efficiencies as well as improve customer satisfaction. It's simply one piece of an ongoing project across the utilities to transform the customer information system. These improvements will support a platform to enable future customer benefits. Improvements will include a more personalized customer experience, allowing for more efficient issue resolution and a streamlined and simplified implementation of billing for new customer offerings, such as community solar, where energy is produced at different locations than the customer's residence. Additionally, it will allow for faster implementation of new rate structures, bringing pricing for new services such as EV charging and storage pricing to market faster. Transitioning to slide 13, we provide our gross margin update and current hedging position at XGEN. Our disclosures now reflect the impacts of the planned retirement of the Byron and Dresden nuclear plants in September and November of 2021, respectively. For 2020, total gross margin is up $50 million. Open gross margin decreased $100 million, primarily due to lower spark spreads in ERCOT, partially offset by higher prices at NYHub and WestHub. Our mark to market of hedges were up $250 million due to our hedge position, which offset the decrease in open gross margin, including the execution of $150 million of power new business. We also executed $50 million in non-power new business during the quarter. Based on the higher load volumes associated with favorable third quarter weather, and lower costs to serve across the portfolio, we are raising our 2020 new business targets by $50 million. For 2021, total gross margin is down $150 million, driven by the retirements of Byron and Dresden nuclear plants, which is flowing through the open gross margin line. However, open gross margin is flat due to higher prices at West Hub, Nihub, and New York zone a mark the market of hedges was down $100 million due to our hedge position being down $150 million offset by the execution of $50 million of power new business inside the quarter. As a reminder, the Byron and Dresden retirements are expected to be earnings and cash flow accretive. However, they are essentially flat in 2021. due to the timing of the retirements. The $150 million decrease in gross margin is offset by lower O&M, TODI, and depreciation in amortization, totaling $150 million. Additionally, we remain slightly behind our rateable hedging program in 2021 by 2% to 5% when considering cross-commodity hedges. Our hedge percentages reflect the removal of Byron and Dresden in the fall of 2021. Moving on to slide 14, our consolidated FFO to debt is projected to be 18% for 2020, consistent with last quarter. Looking at XGen, we are ahead of our debt to EBITDA target of 3.0 times. For 2020, we expect it to be at 2.3 times debt to EBITDA. and 1.9 times when excluding non-recourse debt. On the ratings front, Moody affirmed its existing ratings for Exelon Corporation and commented in the third quarter. We remain committed to maintaining a strong balance sheet and investment-grade credit ratings. Thank you, and I'll now turn the call back to Chris for his closing remarks.

Thanks, Joe. Finally, turning to slide 15, I want to close as we do each one of these calls with our value proposition. We are focused on growing our utilities, and now we're targeting a 7.3% rate-based growth with a 6 to 8% EPS growth through 2023. We will use the free cash flow from the GENCO to support the utility growth, pay down Genco debt, and support the external dividend. We continue to optimize the value of excellent generation business by seeking fair compensation for our zero emitting generation. And I have to say that many editorials and others call what we're asking for as a bailout. It's not a bailout. We're the The nuclear fleet is the only zero-emitting fleet that does not get compensation for its values. So this is not a bailout. It's leveling the playing field. It comes across nice in political venues or editorial venues, but the last thing it is is a bailout. It's leveling the competitive field. We'll continue closing non-economic plants like we announced the retirement of Dresden, Byron, and Mystic, monetizing these assets and maximizing the value through consolation, retail, and wholesale. We'll continue to sustain investment-grade credit metrics and maintain a strong balance sheet while and have grown our dividend annually at 5% through 2020. Before turning to Q&A, I want to comment on some recent news reports that Exelon is considering separating the Exelon generation from the utilities. As discussed recently on our last earnings call, we regularly evaluate whether our corporate structure best serves the interests of our communities, customers, and our employees. and also our investors. We would consider modifying that structure when we can create value and recognize those interests. The nature of our business and the landscape that it's in has been evolving over the years. In addition, you've seen a number of competitive integrated companies in our sector that have shrunk considerably. Given those circumstances, a review of our corporate structure is underway. started earlier this year, and we have the help of outside advisors. As we continue this review, we focus on creating value, taking into account, as I've mentioned, all of our stakeholders, the investors, the employees, the customers, and the communities we serve. So I want to emphasize that the separation of the companies – would involve addressing some complex operational, financial, and regulatory issues. No decision has been made, but we continue to do the work to determine the best outcome for our stakeholders, and we'll provide you an update on our progress on the next earnings call. So with that, operator, we can now open it up to questions.

If you would like to ask a question, simply... Press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Our first question comes from the line of Stephen Bird from Morgan Stanley. Your line is now open.

Hi, good morning. Hey, Stephen. I just wanted to first talk about the strategic review, and I respect that you're at, I guess, a fairly early stage of thinking through your options, but I was just trying to think about the strategy here and And I guess maybe I wanted to start with, you know, what sort of attributes or risk profile would you want to achieve for your merchant fleet for XGen to be consistent with your strategy versus sort of what risk profile would be, you know, not consistent with your strategy? I know overall you're trying to de-risk the business and provide greater stability. How do you at a high level think about that?

Yeah, I would – wouldn't say we're at the early stages. I would say that we're in an in-depth review of the evaluation. And some of the things we look at are the cost of capital, things like that, the degradation of the constellation business with collateral costs. There's many aspects to it that are under review right now. But what we want to make sure is that we have two healthy companies, a utility business, if we in the board determine this is the right thing to do, two healthy businesses that can stand on their own and provide, you know, the support needed for the balance sheets, the customers, the employees, shareholders as we go forward. So a lot to be taken in there, but I don't think we have pinpointed a risk profile yet that, or I can say we haven't pinpointed a risk profile yet that I've agreed with and the board has agreed with.

Understood. Is it fair to say it is an objective to try to reduce the the volatility and also just improve the viability, I guess, of that business going forward, right? That seems clear that that's part of the strategy here.

Yeah, it's a free cash flow machine, and how do we optimize that to be the best that it can and produce the most on valuation side and shareholder return side? So that's kind of the focus.

Yeah, that makes sense. And maybe just one last one for me. More on the tactical side, thinking about your nuclear plants, you've obviously made some shutdown decisions already. But I guess we calculate that some of your remaining nuclear plants are currently or will be negative cash flow. Would you agree with that assessment? And I guess over what timeframe are you thinking about making decisions for some of the plants that look like they're negative cash flow?

You know, you've looked at our disclosures. We've outlined the plants that are sliding into that space. A lot depends on what we do with the capacity market or the FRR and how we treat the plants is comparable with other zero-carbon-emitting plants, which they're not being treated equally right now. You know, the timeframe, we have to watch the option. We have to watch legislation. If we don't get a capacity redesign and the options run, you could anticipate there would be some issues coming up in the future.

Understood.

Thanks so much. Appreciate it.

Thank you. Our next question goes on the line of Steve Fleischman from Wolf Research. Your line is now open.

Hi, good morning. Can you hear me okay? Good morning.

Yeah, I can hear you fine.

Hey, Chris. Great. So I guess first, arguably for the last year or so, you've been getting little value, if even maybe negative value for Xgen in the Exelon stock price. The value case seems obvious, but obviously there's probably risks and obstacles to just get through. Could you maybe just talk to what some of those are in making this decision?

Yeah. I mean, you can imagine this is a complex combination of a competitive integrated, and I wouldn't get on the path of laying out each one of those. But I will tell you that when you start to look at the corporate center, splitting out the IT, splitting out the financial, splitting out the corporate organization, there's a lot of design, and we have to make sure we're not creating distance synergies and we do that properly. There's other considerations that we have to make for the employees, for the regulatory bodies to do that. And it's not an easy one. Many of the competitive integrators that have switched and split have not had the complex level of the integration or the size of the scale that we have. If you look at our, we have the most premier retail and wholesale trading organization. Nobody that is split had anything like that. So there's value being created, but there's expense there too. So we have to watch how we do it, make sure we do it properly. There's a lot to be said about what we do for the consumer in the zero carbon market. You haven't seen anybody that has a zero carbon fleet like ours split off. You've seen coal plants, you've seen gas plants, you've seen gas infrastructure split off. We have to make sure that when or if we do it, that we have the right compensation for the assets that are being spun off. And that's not something that's been recognized by the regulators or the legislators or the administrations thus far. They recognize wind, they recognize solar, but they have not recognized nuclear. And if you look at just the state of Illinois right now, 60% of the generation is carbon-free, 90% of it's nuclear. Nuclear is the only one that's not compensated for its low carbon or zero carbon elements. So there's a lot of different avenues we have to go down to get this right. But as I said in the last call, the market's changing, and we have to figure out how we change with it.

Great. Just based on the comments you just made, Chris, is it fair to say that you need to get some type of decision on Illinois law, either supporting nukes or not, before making this kind of business structure decision?

I'll let Bill jump in here, but I would not say that that is going to be a gaining function. Bill, I don't know if you want to add anything to that.

Yeah, no, Chris, I agree with what you said. But Steve, you have, you have identified, you know, a big point of sensitivity here, as Chris alluded to, we have to take into account and considering whether to do this or not, a variety of stakeholders, including the communities we serve our customers, employees and the like. So all of that goes into the equation of not only the substance of this, but the timing of this. There's lots of ground to plow before we get to the exact decision on time, before we decide whether we're doing it or not. Number one, the board has not decided that. And number two, if so, what the timing would be. And obviously, the FRR is relevant to that, but it's hard to, I wouldn't put it as a gating function. It's a function that's relevant to our consideration of what's the optimal timing if we decide to do this.

The only thing I would add to that is if the plants are not profitable, They don't cover their cash needs or their earning requirements. We'll shut them down. And with or without FRR. So, you know, it's a business decision. Some people have called it a threat. It's not a threat. It's just a reality. When businesses don't make money on assets, they shut them down. And so... We have to look at the timing of all these decisions and make sure we're doing the right thing. But the legislation is important for the value, but we have to make decisions based off of current economic conditions.

Great. Thanks. And just, Bill, great to hear your voice. Thanks for the answers.

Gene, thank you, and thank you for your nice notes to me. I really appreciate it. Thank you very much.

Thank you. Our next question comes in the line of James Staliker from BMO Capital Markets. Your line is now open.

Thanks for the time, guys, and good morning.

Good morning. I was trying to get off mute.

Okay. Just two real quick questions. One is, I know you previously stated you conduct reviews on a regular basis, but in your prior evaluation of the corporate structure, has this process included the retention of outside advisors to help you kind of work through the process, or is this kind of the next level of review this time around?

No. I think we were very public in 2017. We used outside advisors and We did a very, very thorough evaluation, and we looked at the free cash flow coming off of Genco. And at that point, it was accretive to be able to reduce debt, be able to put equity into the utilities, and also support a reasonable dividend policy. So, we've kept close advisors as we've looked through this in the past, not only on business structure, but assets also. It's nothing that's been insular to the company. It's always been with advice from outside.

Okay, great. I appreciate that. And just one last question, I guess, and just thinking, I guess, about cost allocation, you know, as you undergo the review of the potential separation, is there any initial guidance, I guess, you could give us on how you're thinking about, you know, the magnitude of shared services overall across the company and how potentially that falls into the regulated and X-gen buckets? And thoughts on how you sort of mitigate that as if you were to move forward, I guess.

It's too early to go there. Yeah. I will tell you that we have to be very sensitive to what falls back on the utilities and what the GEDCO can manage. And so some of the cost savings that you've seen in this quarterly update is us accelerating that type of focus. Not going too far, but the GEDCO has done a lot. the business services organization is accelerating some stuff on technology and contracts and other things that would mitigate those costs when split. You know, one thing about competitive integrated, you get to use a Massachusetts modified model to spread the costs around. That's a revenue-generated formula. We know if or when we do a split that that goes away. And so we have to figure out how do we keep the financials right, keep the employee benefits programs in all the databases. I mean, you can go through that list of all the complex things that we have to do. But we do understand that. that the regulators are not going to want to see an increase in costs because we split the company. And the owners of the Genco are going to want to make sure that the shareholders of the Genco are going to want to make sure that we're the most efficient. So we're working through that now, but we don't have a number yet.

Okay. I appreciate that. And just on slide 36, you talked about, luckily, about $200 million of the $250 million on the cost savings, you know, sort of this year, we're coming at the X-Gen level. Should we think about that as being a decent run rate going forward, or how much of that do you think he can retain as we move into 2021-2022?

I'll let Joe jump in on that. You know, there's travel, there's some other smaller things that we're not doing right now, but Joe, you want to take that?

Yeah, thank you, Chris, and good morning, Jim. The This year, you know, we had a goal of $250 million of cost savings across the enterprise, and we're going to overachieve that by about $100 to $125 million is our expectation. We're working through that right now to your question about how much of that is repeatable in the future. We're in the throes of analyzing that. To Chris's point, we've learned a lot here in the last, you know, almost eight months where we've been working remotely. We've had savings on travel and entertainment. We've had consultant dollar savings, training savings. We've looked at almost everything. And I think there will be things that fall to the bottom line and We're going through that now. We would expect to provide you an update on that on our fourth quarter call, but there will be things that bleed through. We're just not ready to commit to how much of that is run rate in the future.

Okay, great. I appreciate that. Thanks for the time.

Thank you. Our next question comes from the line of Jeremy Tonin from JP Morgan. Your line is now open.

Hi, good morning. I just want to speak more on the strategic review. And could you speak more to the financial considerations here? And namely, would XGen require a bunch of equity to separate from the business? If that's something to share, any details there? And how should we think about the funding needs, growth prospects at Exelon's utilities under an independent scenario without the support from XGen cash flows?

Well, there's still a lot of work going on right now. I don't think we have an anticipation of that. We're still trying to figure out what level of the ratings that we keep. But, Dan, do you want to take it?

Yeah, thanks, Chris. I mean, Jeremy, I think it's a good question. Right now it's probably a little early to start making calls around balance sheet and capital allocation decisions. You could imagine amongst all the factors we're considering with this review, looking at the credit metrics, working with the agencies, thinking through that is going to be an aspect. Thinking about how XGen would use the free cash flow that's been funding the utilities to be part of it. Thinking about how the utilities can fund their growth, both with their internally generated and retained cash flows, but also with other sources of funding will all go into the decision. But those are you know, a number of factors will go into our analysis over the coming months.

That's very helpful. Thanks. And just wondering if you're in a position to share any feedback that you've received in Illinois with response to the retirement announcement that you put out recently.

You know, there's some disappointment, as you can imagine, from the communities. There's disappointment from employees. And these are not the first nuclear plants we've had to shut down. Some will say that we make enough money already, we should not shut them down. But that's just not the way businesses work. And so you have to work through the reaction. And the two major constituents that are going to feel the pain here with us shutting these units down because we're losing so much money are the employees and the communities. If you look at the taxes and what we provide in the community as far as employment and commerce, it's not easy. And so you can imagine those communities are you know, trying to figure out what they can do to support us staying, keeping those points open. But I haven't heard a lot from the legislative side. And I'll let Kathleen or Bill jump in on that side.

Yeah, Chris, I can jump in. I mean, as you know, the legislature is not in session. So, you know, there has been continued work on potential clean energy projects. legislation through the Governor's Working Group and similar efforts on both the Senate side and the House side. But until the legislature is back in session, you know, we won't have a sense of where that's going. But I agree with you that the impact both on the employees and the communities around the plants as well as the sort of broader communities in Illinois are watching this because to the extent these plants shut down, what will happen is fossil plants will ramp up and that will affect communities around the state that are already already struggling with air pollution and the effects of COVID. So a lot of folks are watching it for sure.

Got it understood. If I could just ask one last one here. How do you see proposed multi year plans impacting your return to nine to 10% are we target in the sustainability of maintaining that range?

Yeah, I'll let Calvin answer that one. You know, we've had a couple punches in the gut this year that brought us back down with some other things, but Calvin, you want to cover that?

Absolutely, Tristan. Good morning. What I would say is that our whole process in working with our regulators and our jurisdictions around multi-year plans was geared to really create a foundation for long-term growth and also giving transparency and accountability to our customers on how this was going. So it is our commitment that we are going to remain in that 9% to 10%, but it's going to be done in a way where it's transparent to our customers and we're able to invest in our system just to continue to operate a safe and reliable system. So that is the commitment. That is what we're discussing. And we are on course to meet that obligation, as you've heard, in Maryland and now in D.C., with both of our utilities in Maryland and in DC. And we already have very constructive environments in our other jurisdictions, so we're moving forward with that. Got it.

That's great. Thanks. That's it for me.

Thank you. Our next question comes from the line of Julian Dumoulin-Smith from Bank of America. Your line is now open.

Hey, good morning, team. Thank you. If I can pick up where Jeremy left off a little bit, can you talk about the balance, especially under any prospects of a spin here? I just want to hear clearly from you all how you're thinking about it. The rating agencies have talked broadly about XGen being an investment-grade entity. If I can ask you this way, how committed are you to IG metrics under a spin? I know that you've kind of alluded to this earlier in the call, but I just want to be extra clear about this. And then subsequently, It seems as if in past periods one of the calculations here has been the implications to the retail business. Can you talk about that side of the equation under any strategic shift?

Joe and Jim, you want to tag team that one?

Yeah, I think, Chris, the answer to Julian's question around, you know, how committed we are to investment grade, we take our strong balance sheet and our strong investment grade ratings. that we have today obviously very seriously. As you mentioned, we're still in the process of evaluating what the spin would look like and all the ramifications of that. And that includes impacts to all the stakeholders you mentioned, the rating agencies being one of those, and how it would impact the rating of a GENCO that's standalone. But at this point, it's too early to commit to anything along those lines. And with that, I'll turn it over to Jim to talk about the retail business.

Yeah, sure. Thanks, Joe. And Julian, I guess, you know, likewise, we're working through the over the over the next, you know, period of time over the next few months, we want we're going to work with the finance team to understand and how we can continue to optimize our business, our customer serving businesses is really the large portion of our overall earnings capability that we bring to the Genco and cash flow capability that we bring to the Genco. We're committed to that. We want to keep that going. And we'll work through the structures and the product structures that we need to maintain and to continue to serve those customers and then optimize, you know, the management all the way through the spot market of managing the load and the generation output. So, you know, I think we'll make sure the impact – are such a way that we can maintain that focus on the customer and keep our, our, our products going and the growth that we see in that business.

Sorry. A further kind of clarification, if it is, um, Chris on, on carbon and the subject of, of how that might ultimately translate back to your all's portfolio here. How do you think the election can impact that? Um, clearly recognizing state rights and a lot of these programs ultimately end up before state regulators implement one way or another. Given that context, how do you think about carving today as potentially implemented in Illinois?

Eventually. What we're trying to do is work at the state level. We have had little traction at the federal level and it's very polarizing as you know doesn't matter who gets elected. It's still going to be a polarizing issue. So working it through the states and then through the markets, because you've got the cross-state leakages, is where we've been focused. We'll have to see what happens tomorrow and what happens, you know, in the House and Senate, the legislative body, where they want to go. We hope they do it as a technology neutral approach versus what some sides of the House and the Senate have gone at technologies versus outcomes. But we'll have to see. We're still in a fight at the state level and the market level. to make sure that we get the right valuation for our assets. We are the largest non-carbon producing entity with no remunerations for those assets. Like I said earlier, it's nice for an editorial or an editor or a politician to say we're looking for a bailout, we're looking to be able to compete with the other non-carbon that people have decided to provide a payment, you know, a valuation for that low carbon output. But when you look at the largest non-carbon emitting source in the country, and the largest non-carbon emitting company in the country, and they're competing against other resources that are getting compensated for the value of that, it's just frustrating. But you'll pick up the paper tomorrow and somebody will write that Exxon's looking for a bailout. We don't care about a bailout. We just want to compete. If we don't compete, we'll shut the units down. Understood.

Quite clear. Thanks, Chris and team. Thanks.

Thank you. Our next question comes from the line of Durgish Chopra from Evercore. Your line is now open.

Hey, guys. Thanks for including me. And maybe just one quick one on the quarter, and then I want to go back to the strategic review. Just on the quarter, you showed this projected cash flow slide with a 2020 balance. The balance is significantly lower, like 400 million lower, versus the Q2 call, and your guidance is up. So, just wondering what drives that?

Yeah, Chris, I can take that.

Take that, Joe. Yeah.

Yeah. So, good morning. There's a couple of things going on. Our free cash flow from our operations across the enterprise, we're up for the quarter. But we did see, because of that, number one, we had an assumption of kind of less requirement for working capital needs. And then more importantly, we had some movement in cash flow on other activity related to Exxon generation. And there were just a number of small factors that said normal type quarter activity that moved the cash flow for the quarter, even though the earnings were up pretty materially versus – versus the range we've given last quarter.

Okay, that's helpful. And just really quickly, Chris, you mentioned FRR not a gating factor. Maybe just to the extent that you can, could you procedurally talk about the next steps here and if there's a timeline that internally you guys are working on to get this strategic review over?

Yeah, I can tell you that Although the FRR and the legislation is critical for the communities and the employees, we have to make our business decisions. I think we're going through the review right now and trying to evaluate the complications of the potential separation, but we wouldn't use that as the gating factor. So once we get through the very complicated review, we'd like to provide a whole lot more color on the fourth order call. Not guaranteeing we're done or saying we'd be done by then, but that will be the view of where we think we're heading. Dan, I don't know if you want to say anything. Dan, I don't know if you want to say anything else. No, Chris, I think you've covered it. All right.

Okay, guys, thanks so much. Great quarter. Thanks.

Thank you. At this time, showing no further questions, I would like to turn the call back over to Chris Crane for closing remarks.

Yeah, I just want to thank everybody for joining the call. It's a busy day. Elections going on, all kinds of concern about stability in the country, and so for us to be able to share your time It's appreciated. I really want to thank the employees for the commitment and dedication. We've had a lot of stuff going on this year, not only the COVID, the storms, and the things that they've had to work through. And I hope that you and your families are safe and healthy. And with that, I'll close the call.