Exelon Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Exelon Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to one of your speakers today, Dan Eggers, Senior Vice President, Corporate Finance. Sir, please go ahead.

Thank you, Michelle. Good morning, everyone, and thank you for joining our fourth 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 and separation announcement release this morning along with The earnings and separation announcement 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 8Ks and excellent other SEC filings for discussions of risk factors and other factors, including uncertainties surrounding the plan's separation that may cause results to 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, and good morning, everybody. We have lots and allow adequate time for questions. Some of the stuff we have to talk about is bad, the recent events in Texas, and put some light on that, but we have some great other subjects to talk about. Our strong performance in 2020, the results there, and the future path for our business. I'll start with Texas. The experienced, unprecedented, sustained cold temperatures as we know, impacted the energy system in the state, along with severely impacting the people who live there. As noted in last week's 8K, we had operational issues with our plants due to the extreme weather. They only periodically were available when the prices hit and were maintained at the administrative cap of $9,000. Our preliminary estimate is and this is preliminary, of the impact of this event across our portfolio is $750 to $950 million pre-tax or $560 million to $710 million post-tax. At this point, the range is wide. It includes our best estimate for load obligations, ancillary charges, and bad debt. It will take some time to refine this estimate. The data we normally comes to us is on a lag from ERCOT. With recently PUCT actions, the data has been further delayed and continued uncertainty around any future actions the PUCT or others may take. We expect it to provide a better update no later than the first quarter earnings call. This loss is unacceptable to us. We are mitigating it through business updates, including first quarterly favorability, mostly one-time cost reductions, and deferral of non-essential maintenance, which Joe will cover in further detail. We have today found updates and offsets that are expected to reduce our net impact to $0.20 per share at the midpoint of our loss estimates, which is reflected in our earnings guidance. These mitigating efforts are expected to reduce the cash impact to $200 million. As you know, last week's events have raised many questions about Texas market design and associated risk. And this has not been a new conversation. It's been one that's been around for a while. And we hope that through this, that the proper actions can be taken on the design. As a result, we are evaluating all our options with respect to our ERCOT business. Moving on to good news, our 2020 operational and financial performance was strong. Our utilities maintained excellent operations, not only in the face of the pandemic, but in an extremely punishing storm year. Duratios, hurricanes, and one day we had 13 tornadoes in the ComEd service territory. The power of our utility platform paid off for us this year. The mutual assistance across the fleet helped achieve record restoration speeds for both ComEd and PECO. Each utility delivered excellent reliability, top This performance was reflected in our customer satisfaction scores with all utilities receiving their best on record scores in first quartile customer satisfaction. Strong operations led to constructive regulatory results as we saw in the outcome of three rate cases across our jurisdictions in 2020. In December, the Maryland PSC approved BGE's first ever multi-year plan, enabling investment in reliability. We're expecting orders for multi-year plans at both PEPCO DC and PEPCO Maryland. This is allowing for timely recovery while supporting jobs in the economy in DC and Maryland. Turning to slide seven, nuclear had another very good year. generating 150 terawatt hours of zero emitting power, avoiding 78 million metric tons of carbon dioxide. The capacity factor was 95.4, second only to last year's performance in fleet history. The nuclear group completed 12 refueling outages in fewer days planned, despite the rigorous pandemic protections. Our relationships with our retail customers continues to remain strong with a 79% customer renewal rate, average customer duration of more than six years, and power contracts of 21 months on average. Slide eight, the financial results. Excellent operations and robust cost led to our strong financial results as you see on the slide. The pandemic reduced our demand for electricity, particularly at Constellation, which created financial headwinds for us. We reduced earnings guidance on the first quarter call based on what we knew at the time, and we kept looking for ways to improve our earnings outlet throughout the year. We delivered on $400 million of savings, $150 million more than announced, which brought us well within our original earning guidance range. And then gains from the Constellation Technology Ventures portfolio brought us above the midpoint of our range guidance. We earned $2.01 on a GAAP basis and $3.22 on a non-GAAP basis. Turning to slide 10, this morning's announcement is really a With our board, we've completed or concluded the separation of our regulated utilities and the competitive businesses is the best interest of all stakeholders and are moving forward with that decision. So separation, it establishes two best in class standalone companies, a high growth, high quality, 100% regulated utility, and America's leading clean energy company producing the most clean energy paired with the best and largest customer-facing business in the country. It better positions each business within its peer set, and it will support business strategies tailored to the distinct business investment profiles and meeting unique customer needs. The same operational expertise, customer focus, and financial discipline from this management team will continue to underpin the value proposition of each company. On slide 11, the separation of the spin out of the generation business to our existing Exelon shareholders, the regulatory business, which is being termed the Remain Co., shares the traits of a high-quality, best-in-class utility, strong above earnings growth rate of 6% to 8% diversified rate-based across seven constructive jurisdictions with almost 100% of our rate-based growth covered by alternative rate recovery mechanisms. Best-in-class operations and an attractive ESG attributes provide platforms to enable a transition to a clean energy economy without owning the generations. The SpinCo, GenCo, being titled the SpinCo for this, will be America's clean energy leader. We'll continue to produce electricity that is over 90% carbon-free, provide 11% of the clean energy in the country, and with no coal-fired generation and emissions profiles, our emissions profiles are significantly below the 1.5-degree C targets. delivering solutions for our large customer-facing platform in the country, and we anticipate having an investment grade rating on that balance sheet. The transition, going to slide 12, Joe will get in more details around the strategy and the specifics of these two great companies, but let me hit on some of the key transaction considerations. The SPIN is designed to be a tax-free distribution shares to the existing shareholders of Exelon. We will work hard to close by the end of the year, which provides execution benefits around a clean calendar year transition for the split. But regulatory approvals could potentially take longer. We have several required approvals with long lead time items, being the NRC and the New York Public Service Commission. We have good plans for each of these approvals and will be making the necessary files in the very near term. We maintain an open dialogue with the three credit agencies and anticipate both businesses remaining investment grade under various scenarios. Our preliminary work on this energy gives us confidence that there will be able to at least offset them at both companies. Turning to the dividend, the board has approved the dividend at $1.53 for 2021, which is holding it flat to last year. RemainCo expects to target a 60% payout in line with best-in-class high-growth peers and will grow its dividend consistent with earnings. The SpinCo will focus on the combination of debt paydown to support our credit metrics and return capital to our shareholders and continue to invest in clean energy solutions. Resolution of the Illinois legislative session and capacity auction results in June, along with a number of other factors, will have a bearing on the allocation of this strategy. From a funding perspective, we estimate the Remain Co. will need around a billion dollars of new equity capital through 2024 investment horizon. This could change depending on variations of factors that we expect to play out over the course of the year. The EPS bands that Joe will show you for the Remain Co. already incorporate the potential future equity needs. I'm now going to turn the call over to Joe to talk more about the two business strategies and the outlook for 2021.