Exelon Corporation

Hello and welcome to Exelon's second quarter earnings call. My name is Dani and I will 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, Danny. Good morning, everyone, and thank you for joining our second quarter 2021 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, all 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 Exelon's other SEC filings for discussions of risk factors and other factors, including uncertainties surrounding the plan's separation 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 recommendations 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, and thanks for joining us this morning. We had a good quarter financially and operationally. We made progress on our regulatory and policy objectives as we had stated our desires last quarter. We earned $0.41 per share on a GAAP basis and $0.89 per share on a non-GAAP basis, and Joe of the presentation. As you know, we've been working with our regulators and our policymakers across our six jurisdictions on regulatory mechanisms that would allow us to prudently invest in critical infrastructure to the benefit of our consumers while earning an appropriate return on that used capital. As part of those efforts, the DC Maryland PSCs approved multi-year plans for PEPCO. The New Jersey VPU approved ACE's electric rate settlement, and we received an order in the picogas rate case. It's the first in 10 years. PGM held the first capacity auction in three years. Results were disappointing. but were slightly better than we had anticipated or expected. Congress and the administration continue to work on the infrastructure package, and there is momentum building to preserve the existing nuclear fleet to meet the country's energy and climate goals. The President's budget includes support for existing nuclear plants, and Senator Cardin and Representative introduced legislation to provide $15 per megawatt hour production tax credit to existing nuclear power plants. This legislation would help ensure that the existing nuclear fleet, which provides more than 50% of the nation's carbon-free power, remains in operations and available to meet the country's energy needs while preserving and achieving climate goals. This progress is encouraging. If the PTC is included in the legislation that passes later this year, it will make an enormous difference for climate and for our nuclear plants. Unfortunately, though, that will be too late for the Byron and the Dresden nuclear facilities. Which brings me to Illinois. After many months of very able to reach agreement with the governor and his administration that would provide support to the Byron, Dresden, and Braywood facilities, allowing them continued operation, and LaSalle would also be preserved. Unfortunately, the state leaders and other stakeholders are at an impasse at this point on provisions related to the nuclear regulation nuclear issues in the legislation. There's been no progress towards enacting the legislation since the session ended, and the retirement dates for the plants are now only weeks away. We don't want to close these plants, but we cannot make decisions based off of hope of legislation being passed in the future. We've been doing that since 2016. while significant losses have been incurred. We must act on the economic facts as they exist today, where no legislation has been passed by the General Assembly or signed into law by the governor. Absent legislation, closing the plants is the right economic decision, but not an easy one. The talent, the dedicated employees that work at these plants, our colleagues and our friends, that their jobs support their families and the communities. Premature retirement of these plants is also a loss for the citizens of Illinois. The four plants at Byron, Dresden, Braywood, and LaSalle, which are eight reactors, provide 28,000 direct and indirect jobs, $3.5 billion annually to the Illinois economy, 150 million in Illinois taxes that support the school's public safety and other critical services in the communities that they reside in. Two-thirds of Illinois' carbon-free electricity is greatly at risk with these shutdowns. Once Byron and Dresden retire, it will take many years under the proposed legislation to add enough renewable energy intermittent renewable energy to get back to where Illinois is in terms of clean energy production. In the meantime, more than 100 million metric tons of additional carbon will be admitted over the next decade as a result. I remain hopeful that the outstanding differences can be resolved and a bill will be passed very soon that would allow power to the grid, but time is really running out on that becoming achievable. Moving to operations on slide six, reliability performance remains strong despite the frequent storms and the heat across our service territories. All utilities achieved first quartile operating performance in outage duration and frequency, as you can see by the charts. ComEd delivered top decile performance in outage duration and frequency, while BGE and PHI were top decile for outage duration. Customer operation metrics remained strong across the utilities. BGE, ComEd, and PECO achieved top decile performance in the customer satisfaction industry. On the generation front, our generation fleet performed well during the quarter. Our nuclear plants provided 36.6 terawatt hours of zero carbon generation to the grid, avoiding approximately 20 million metric tons of carbon dioxide. The fleet had a capacity factor of 93.7 for the quarter. Our fossil and renewable fleet operated above plan with power dispatch match at 99.5% and wind and solar energy capture at 96%. Our Texas plants are running as expected, helping to meet the summer loads. Turning to the separation on slide seven, we're making progress against our execution plan and remain on track for first quarter close. The team is working on the organizational and cost structures of each company that will set each business up for long-term success. On the regulatory front, we've received comments in each of the dockets for approval, and the process is moving forward as expected. We remain on track to get the necessary approvals. We will continue to update you on the work as it progresses. Turning to slide eight, we all are very excited at Exelon to announce that Exelon Utilities have set a goal to reduce their operations-driven admission by 50% by 2030 and reach a net zero by 2050. Since our founding, Exelon has been dedicated to be crisis and a leader in providing clean energy to the grid. We were one of the first companies in our industry to commit to reducing greenhouse gas emissions even though our emissions were already ten times lower than our peers. We have met or exceeded our previous three previous goals and Exelon Utility's new goal builds upon our long-standing commitment to to reduce our greenhouse gas emissions. We'll meet these goals through continued modernization of our gas systems, electrifying our light duty fleet, and exploring electricity and other zero carbon alternatives for medium and heavy duty fleet. A focus on energy efficiency and clean electricity for our operations is clearly part of the plan. Investing in equipment and processes to reduce our SF6 insulating gas from our large breakers from our system, exploring and piloting low-carbon fuels and new grid technologies, and advocating for affordable grid decarbonization. In addition, we remain focused on how we can help our customers and communities decarbonize in an equitable way. The utilities will continue to invest in EV infrastructure across our service territories and join the Electric Highway Coalition, which will create a seamless network of charging stations on highway systems covering most of the country. We will invest in robust energy efficiency programs at each of our utilities. This is a continuing endeavor. which will enable customers to have lower emissions profile, use less energy, and save money. In 2020 alone, these programs avoided 8.1 million metric tons of carbon emissions. Advocates for policy that will put our state, we will continue to advocate for policies that will put our states and our communities on a path to a clean energy future while ensuring equitable transitions that benefit everyone in our communities. Before I turn it over to Joe on slide nine, I want to highlight the work we are doing to help transform our communities through our workforce development programs, which you can see narrated on the slide. Diversity, equality, and inclusion is a core value at Exelon. and we are growing a diverse and inclusive, high-performing workforce. We operate in some of the most diverse cities in the country, and we have a responsibility to help address the inequities in our communities. We have more than 100 workforce development programs spanning from middle schools, high schools, and throughout colleges, as well as programs for work-ready, underemployed adults. These programs have already reached more than 22,000 participants. We recently launched the STEM Leadership Academy scholarships that are open to graduates of the program. It ensures that the graduates are debt-free and guaranteed internships with Exelon throughout their college path. I recently awarded scholarships to seven young women to see their faces on how life-changing this was for them and their families. It was quite emotional, not only for the young women, but for myself and the rest of the leadership here at Exelon. We are committed to supporting our communities by investing in education, job training programs, and giving the underserved populations opportunities to grow and succeed. I'll turn it over to Joe now to take our financial update.

Thank you, Chris, and good morning, everyone. Today I will cover our second quarter results, our quarterly financial updates, and our hedge disclosures. First turning to slide 10, we earned 89 cents per share on a non-GAAP basis for the quarter, This favorability was driven by O&M and tax timing, as well as some realized and unrealized gains we forecasted for later this year. Exelon Utilities delivered a combined 49 cents per share net of holding company expenses. This was primarily driven by strong operational performance and the impacts of distribution rate cases. Xgen earned 40 cents per share in the second quarter, and we've begun to make progress on levers we identified to mitigate the Texas loss. But as we've said before, we expect it will take a full year to realize all the savings. Additionally, unrealized and realized gains from the Constellation Technology Ventures portfolio and realized gains from our nuclear decommissioning trust funds contributed to the favorable course. At Holco, we benefited from expected income tax favorability in the second quarter. As a reminder, Holdco incurred 12 cents per share drag in the first quarter associated with how consolidated full-year tax expenses are booked due to the impacts of losses incurred at XGen in Texas during Q1. The remainder of the first quarter hit will reverse over the course of the year and not impact our full-year results. There's still a lot of work to be done this year, but we are confident we will deliver earnings within our guidance range of $2.60 to $3 per share. And you can see the details on slide 17 in the appendix. On slide 11, we show our quarter over quarter earnings block. The $0.89 per share in the second quarter of this year was $0.34 per share higher than the second quarter of 2020. Exelon Utilities' less holdco earnings were up 20 cents per share compared with last year. The increase was driven primarily by the absence of storms caused from last year's record-setting storm season at PECOS and new rates associated with our completed rate cases and the impact of higher treasury rates on ComEd's distribution ROE. The partial reversal a first quarter tax expense at corporate also drove favorability relative to last year's results. XGen's earnings were up 14 cents per share compared with last year, and the increase was due to unrealized and realized gains on our Constellation Technology venture investments, realized gains in our nuclear decommissioning trust funds, fewer planned nuclear outage days, and higher ZEC revenue from increased volumes in ZEC pricing in New York. As a reminder, the Constellation Technology venture investments will be mark-to-market every quarter, and since the quarter end, we have seen some decline in prices. Moving on to slide 12, looking at our utility returns on a consolidated basis, our trailing 12-month ROE as of the second quarter has improved to 9.6%. and is back within our 9% to 10% targeted range. The 50 basis point increase from last quarter was primarily due to higher second quarter earnings across the utilities and the roll off of the storms that I mentioned that occurred last year. Looking forward, we remain focused on delivering stronger returns at the utilities and supporting our growth targets. Now turning to slide 13. As Chris mentioned briefly in his remarks, there were some important developments on the regulatory front. Notably, we received orders in two multi-year plans at PEPCO for D.C. and Maryland. Multi-year plans provide our customers with great predictability and reduce the administrative costs caused by frequent filing of traditional rate case to recover our costs. We are pleased that we have now received orders in our first three multi-year rate plans which will provide timely and predictable recovery for capital investments for the benefit of all our customers. And now moving on to the details of the recent rate case developments. First, on June 8th, the D.C. Public Service Commission approved PEPCO's multiyear plan for the 18 months spanning the remainder of 21 through 2022 with an allowed ROE of 9.275%. A revenue increase of $108.6 million, along with the acceleration of tax benefits to partially mitigate rate impacts for customers through 2022 was approved. Additionally, the order allows for two-way reconciliation, including the ability to request recovery of costs that exceed the forecasted cost at the end of planning. The commission also approved tracking performance incentive mechanisms that are focused on the district's climate and clean energy goals, including GHG, emission reduction, energy savings, peak demand reduction, and distributed energy resources deployed. Second, on the 28th of June, the Maryland Public Service Commission approved PEPCO's three-year multi-year plan for April 1st, 2021 through March 31st, 2024. The order approved a cumulative revenue requirement of $52 million over the period, as well as a 9.55% ROE. Acceleration of tax benefits to offset customer increases were approved for the first year, with years two and three to be determined later. COVID-19 and electric vehicle regulatory assets were also approved for recovery. Third, on the 22nd of June, the Pennsylvania Public Utility Commission issued an order approving the increase in PECOS annual natural gas distribution revenues of $29 million, reflecting an ROE of 10.24%. And fourth, on July 14th, The New Jersey Board of Public Utilities unanimously approved ACES settlement in both the electric distribution rate case as well as our AMI meter and network deployment and cost recovery. The rate case settlement was for a $41 million revenue increase and a 9.6% ROE. There will be no rate impact to customers until January 1, 2022 due to approved offsets from acceleration of tax benefits. We are excited about the AMI decision that will allow us to bring the benefits of this technology to our customers in South Jersey. We've also had several rate cases still in progress, including Delmarva, Delaware's electric case where we expected provision in the third quarter, the Pico electric case in the fourth quarter, and ComEd's annual formula rate filing in December. And overall, we're very pleased with the progress in advancing progressive regulatory designs that benefit our customers while easing regulatory burden and improving visibility for our utilities. As a reminder, we expect nearly 100% of our rate-based growth will be covered by alternative mechanisms by the end of our planning period, a differentiator for our utilities when compared to our peers. And more details on the rate cases can be found on slides 21 through 28 of the appendix. And before discussing our gross margin update on slide 14, I want to remind you that we will not be providing any ex-gen disclosures beyond 2021 at this time. And given the separation, we expect to provide the 2022 edge disclosures closer to completion when we're able to give a full financial picture for the new spun-off company. Turning to the table on gross margin, there is no change to the 2021 gross margin since last quarter. In 2021, open gross margin is up $750 million relative to the first quarter, primarily due to the impact of higher prices across all regions. and the execution of $50 million of Power New Business in the New England region. Our mark-to-market of hedges were down $600 million due to our highly hedged position, partially offset by the execution of Power New Business. We executed $150 million of Power New Business in the quarter and $50 million of non-Power New Business in the quarter. I'll stop there. Thank you. And I'll now turn the call back to Chris for his closing remarks.

Thanks, Joe. Appreciate it. Turning to slide 15, I'll close on our priorities and commitments. We will meet or exceed our financial commitments delivering earnings within our guidance range and maintaining a strong balance sheet. We will complete preparations to the regulatory approvals at Exelon utilities we will prudently and effectively deploy nearly 6.6 billion of capital to the benefit of our customers and to help meet our state's energy policy goals and we will work with our regulators to ensure timely recovery recovery of these investments We will continue to advocate for clean energy and climate policies with the new administration, Congress, and our states to put the country on the path to meeting the carbon reduction goals that all desire. And we'll continue to partner and support our customers in the communities that we serve. Thank you, and I'll now open it up for questions. Before I do that, though, I have one error in my prepared reading. I said we're at impasse on the nuclear. down the path of what the hell's going on. But with that, I'll open it up for 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. The first question will be from Julianne Dumoulin-Smith of Bank of America. Your line is open. Go ahead, please.

Hey, good morning, Keen. Thanks for the opportunity. Good morning. Hey. So I'll let the legislative comment on Illinois be. I know it's dynamic and there's probably not too much more you can comment on there. But I'd love to spend a moment, if you can, talking more high level with respect to the federal efforts afoot. And perhaps outside of Illinois, can you speak a little bit to the ability to potentially tap into this CNC program specifically in other states like Maryland and Pennsylvania, as well as the ability perhaps in some of the states that have various programs to, shall we say, chew up against future pressures should those decks prove insufficient against pressures on power curves from renewables into the future? Sure.

I'm going to add a little bit more color onto Illinois and then let Kathleen talk about the federal side. You know, the governor and his administration, the leaders in the legislature, have a really tough job to do. They are bringing together coalitions that have, in cases, differing priorities, and As a member of inputting into these coalitions, we're at a point that we need to figure out how to best support our leaders so they're able to execute on legislation that supports all within the right timing, within the right economics. We're here to support, and we recognize the tough job ahead of our leaders, especially in the legislature, the committee leaders, being able to bring something to fruition. So I just want to make sure that we're clear on that point. With that, I'll turn it over to Kathleen to talk about the federal.

Sure. Good morning, Julian. So while we're certainly Very grateful for the attention in Washington to the importance of continuing the operation of the existing fleet in order to achieve climate goals. What's going on is there are a number of policy tools that are under discussion, and I'll sort of take them in order. While there, as Chris mentioned, has been a production tax credit for nuclear introduced in both the House and Senate, there are discussions of a clean energy standard potentially being developed for the reconciliation bill. And you asked about CMCs. I think what you mean is the DOE grant program that has been discussed for potential inclusion in the infrastructure bill. Those are three very different kinds of policy solutions, the first two being far more comprehensive and ones that, as you mentioned, in Maryland, Pennsylvania, and other states, potentially seeing a significant amount of support, and as Chris said, providing a real benefit to the climate. The grant program, a little bit more challenging and more limited, given the limited amount of funding that will be available under that program, at least as it's currently drafted. The real point, though, is that all of these programs are just that. They're just sort of proposed programs. Nothing has yet been enacted, as you know, and so while we're watching it very closely, and again, very grateful for the growing amount of support for preserving the nuclear fleet through federal legislation, the reality is that, as Chris said, we need to make decisions based on laws that have actually been enacted, and nothing has yet come to fruition in D.C. as of yet.

Yeah, no, I appreciate that very much. If I can pivot the business or the attention to the other side of the business a bit more, as you think about opportunities described by some of your peers on carbon-free attributes and specifically some of the new novel offtakers like miners, can you speak to the willingness with some of your counterparties, especially considering the extent of your C&I relationships already, to perhaps pay a premium and contract directly with some of your nuclear assets, if you don't mind?

I'll let Joe start, and then Jim can jump in, making sure we've got your question right here.

Yeah, Julian, if I understand your question, I think you're asking what some of these larger companies and customers are looking for. Is there an opportunity with our carbon-free generation to marry to them? And there is. I'm sorry, go ahead.

No, no, yeah, exactly.

Yes, so I think there is, and that's something that the Constellation team is looking at. And, you know, we've created some products already. When you look at renewable offtakes that we've got to third-party customers, large third-party commercial industrial customers, and we've had some success in different areas doing that, as well as some of the things you mentioned with, you know, these large mining companies, cryptocurrency-type companies, and I'll let Jim fill in the blanks on that.

Yeah, thanks, Joe. Hi, Jolene. Yeah, we've definitely had a lot of demand from our customers for multiple areas of interest, right, in order for them to hit their sustainability targets. They're interested in, you know, carbon-free energy, renewable energy, both. And we've had some success in selling emission-free energy credits and other renewable-type products to some of our larger CNI customers. They're also interested in just – you know, sustainability information and data around energy usage and how to be more efficient. So, there's kind of this burgeoning suite of different products and services that we're working through with our team and with our customers that they're very interested in. And we certainly have also seen the demand for direct off-takes and large energy purchases for both data centers and mining as well as, you know, also people that are interested in the hydrogen business. So, We have a pipeline of activity and different products and services that we're talking to our customers about, and we'll have more to come on that as that develops.

Excellent. Well, I wish you all best of luck, and we'll speak to you soon. Thanks.

The next question will be from Steven Beard of Morgan Stanley. You may ask your question.

I wanted to just focus on the Texas assets for a little bit. There's been a lot of movement in terms of market design, and a lot of those moves seem constructive. The four curves moved up a lot. I was just curious your latest thoughts in terms of how satisfied are you with the improvements in market design? I know I think it was a question in terms of whether those assets would be a fit unless there were improvements. What's your general take on the progress in Texas?

I'll let Kathleen start, and then I'll finish on the actual plants themselves and what we're doing in what we see as a potential new market design.

Good morning, Stephen. So I think that the progress is a little bit slow. The ERCOT leadership and the PECT have really been focusing on how to react to what happened in February. And there's been, as you know, a lot of work associated with that. So the changes looking forward, I think, are in some ways helpful in that we have finally seen a proposal for how to address weatherization. But on the broader questions of market design, there's a lot of discussion. But we do not yet at this point have some solid proposals that have been either filed or approved. So while there are a number of stakeholders working on ways to address changes to the OIDC curve or introducing new products into the market, in my view, there's just not enough progress yet to evaluate whether we're going to see the kinds of changes that will be necessary to prevent an event like February from happening again.

So on the plant side, which for the GenCo, has a team, technical team, working through what the design basis temperature would be that we would have to install capital to be able to reach that. The plants in Texas were never designed for the weather that we saw. and what's the most economic way to get there. And, Brian, I don't know if you want to add anything, but that team is well underway at this point.

Hey, Chris, I would just add we built the model that has some certain assumptions on temperature, wind speed, prolonged longevity of the weather event. That will calculate the engineering changes we need to make to the plants. in which case then we'll be able to price that out. And then once the weatherization standards are published and accepted in ERCOT, we can then tune that model to come up with our final outcomes and then establish the price points for those plants.

And that will definitely have to feed into what ERCOT's doing on market design. Just as we saw in PJM some years back on the reliability standards that they were looking for, there was an expense to that. We all were willing, or many of us were willing to invest into that reliability, but we have to have some assurance that we're going to get a return on that invested capital.

That's all very helpful, and it's fair that we still have to wait and see how the rules develop to figure out sort of what your stance is with those assets. So that's all very fair. I wanted to shift over to the utility. You gave a very good thorough update on the utility. I wanted to just step back and at a high level, you know, utility is already an above average grower, but I was just curious, are there, what are the biggest categories of sort of upside potential in terms of growth of the utility business that you're most excited about over really a multi-year period? Not so much in the near term, but sort of longer term.

Let me turn that over to Calvin Butler. Hey, thanks, Stephen. Good morning. I would sit back and say our opportunities is really in partnering with each of our jurisdictions to understand what their needs are and how we're really hardening the system and building resiliency throughout. As you sit back and look, I think our efforts around our path to clean, as Chris talked about and Joe talked about earlier, is really understanding where they're taking us and electrifying our entire distribution system. Also in really setting up our gas distribution system for the future. And replacing that infrastructure is also a key ingredient in several of our jurisdictions. In addition to that, around the security of the overall system as well. So when we look at where we're going, electrifying our vehicle fleet, electrification of our system, the replacement of our gas system, and also ensuring that it's secure are really our opportunities across each of our jurisdictions.

Thanks, Calvin. That's all I have. Appreciate it.

The next question will be from Steve Fleischman at Wolf Research. Your line is open. You may ask your question.

Thank you. Good morning. My questions are focused on Illinois. We have seen a decent move up in power prices recently, and particularly, I guess, in the near term, just Any sense on, is there any chance that that could be enough to wait this out longer with the plants? Yeah. I can give you the beginning, which is the end, and then Joe can fill in the blanks.

No, it doesn't give us what we need, but Joe.

Thanks, Chris, and good morning, Steve. It really isn't that simple. I think certainty, Steve, is very important. As you know, the plants face near-term financial challenges, and as Chris said in his script, absent legislation closing the plants is the right economic decision, and obviously not an easy one. I would tell you we've seen an uptick in energy prices many times before, and never have they held. When you look at it, the front end of the power curve is up more materially than the back end of the power curve in terms of price moves. In addition, we've seen capacity prices decline. You know, the stability and certainty provided by a contract better address, clearly better address the financial challenges in these plants without being exposed to all this market volatility. In addition, you know, the term of the contract helps with things like capital planning and the efficiency of that. Obviously, our workforce and personnel planning, and we just think it's a much more certain outcome and a better way to

I mean, is there any appreciation that, to the flip side, that, you know, the law as proposed at least would actually be below where current price levels are in the near term?

You know, that's something that we see today. But we've seen this stance before. Something happens in the market, the near term rises, it's flat or low in the backside. As we drift into the out years, we come right back down. And so we really have to focus on the long-term viability of the economics versus the cyclical nature of the markets, the loads, and all the variables. We're agreeing to and support a significant renewable build-out within the legislation We know that that will have a depressing factor on prices as low demand periods with excess generation will bring the prices down and that will drop not only the forwards but the back years. So there's consumer protection in the legislation that ensures we don't But to bet on the come that these forwards are going to maintain and eventually lift the out years is a gamble that we're not willing to take.

I guess my other question just on the law is, you know, it doesn't seem like anyone, as you mentioned, is debating the nuclear provisions. But the issue, as I guess the governor said, is that, you know, that as he kind of commented on the labor unions, that they're, you know, preventing potential job loss in 2045 over certain job loss in 2021. You know, just can you maybe do the union group not believe you're shutting the plants? or are they just willing to take potential benefits in 2045 over 2021?

First of all, let me make it clear. We're not engaged and involved in that negotiation as far as the shutdown of the coal and the jobs issues that go along with that. We understand... you know, what the union is asking for. We understand what the governor is asking for, and it's put on the lap of the legislative body to figure out what's the right thing to meet the state goals, continue to have adequate employment certainty. And so it's a tough situation. But I can say that it's not a fight that we're involved in. And we are very dependent on the support for our power plants to be maintained by our union partners, Building Trades and the IBEW. They're very aware of the dire situation for the nuclear plants. So I don't think that their dedication to saving the jobs at these plants are in question. They have some other priorities and other constituents within their organizations that are dealing with issues. So I would just leave it at that.

OK, thank you.

And the next question, where I meet on it at JP Morgan. Please ask your question.

Hi, good morning. Good morning. Just wanted to turn to the storm offsets for a second here, the 600 million-ish that you were targeting here from URI to offset URI. Just wondering if you could help update us as far as how that's progressing, where you see yourself versus where what you're targeting, how much is left to do at this point.

Yeah, good morning. So we did achieve more in the second quarter than when we had done our planning originally in Q1. What we would have expected to achieve, we expected most of it to show up in the back. We've achieved somewhere between 20% and 25% of the offsets that we expected, and we said they would come in a number of areas. when you look at, you know, deferral of costs and one-time cost savings opportunities, whether it's things like contracting dollars, you know, holding labor vacancies, reductions in travel and entertainment expense, deferring non-critical maintenance capital, those type of things. There were some revenue opportunities when you see the improvement in treasuries. We talked about our technology ventures investments. So we're ahead of what we expected to do at this point in the year, and we're continuing to work hard on delivering the balance of what we committed to.

Got it. That's very helpful there. And then turning towards the utility business as a whole here, given the potential moving pieces at ComEd, And then some positive outcomes, it seems like, with Maryland and D.C. with the multi-year plans, better outlooks in those jurisdictions. How should we think about both the trajectory of utility earn ROEs and how this might impact the 6% to 8% utility growth rate that you guys see?

Hey, this is Calvin. I would just sit back and tell you that we are very confident in achieving the stated financial performance for each of our utilities. And to your reference, on the multi-year plans that have gone, taken place in Maryland and in D.C. and Jill outlined in terms of the rate cases across our business, it goes to show you the partnership that we've established with our jurisdictions in understanding what their needs are and how our investments are meeting those goals. You know, we are committed to 6.6 billion annual investments in capital and recovery of real time on that capital. And the alternative rate making that has been taking place across those utilities indicate that we are recovering and returning on that capital in real time. If you think about the jurisdictions in which we operate, they have typically been some of the more difficult across the country, and we're changing that landscape. So I'm very proud of the team across each of the utilities and really building that partnership and showing that we understand the needs and we're meeting those objectives. Steve, Joe wants to add.

Yeah, I would just add one thing on top of what Calvin said, which I thought he did a very comprehensive job, basically. As you know, we target 9% to 10% ROEs in all of our utilities. And this quarter, you saw us jump 50 basis points back across the composite to 9.4%. And that factors into our 68% earnings projection.

Got it. That's very helpful. Thank you.

The next question will be for Michael Lapidus of Goldman Sachs. Go ahead, please.

Hey, guys. A couple of action questions. First of all, the offsets or the O&M savings you're trying to realize this year to help offset the winter storm year impact, how much of that do you think will remain in place as we go out into 2022 or 2023? Or should we assume there's a sizable step back up in O&M in those years?

Yeah, I think what we've said is a lot of that is one time in nature. You know, when you think about deferring some things that you ultimately need to get done. I talked about things like labor vacancies and contracting, travel and entertainment. At this point, a lot of that is one time in nature. But what I would add to that is, as you know, Michael, we've done a good job across the enterprise and as well as at XGen in really driving efficiencies and costs here in the last five or six years. And we continue to look at new ways to do that, whether it's leveraging technology or the scale of our business when you look at our supply organization doing a nice job in that area. And we'll continue to challenge ourselves. But some of these costs specifically are going to be one time in nature.

Yeah, I can tell you that each cost, as we bring it back in in 2022, will be scrutinized against What is the new workplace of the future? What's the productivity we're able to achieve with these reductions? It is not a healthy recipe to forego capital maintenance or required O&M maintenance and let the systems decay. So you can buy yourself some time on some of those decisions, but at the end of the day, reliability on the system is critical, and we'll watch that. But there are other areas that there's teams working on reentry, looking at staffing needs as we go through the design of the organizations. As we look at the split, there are savings that were not ready to announce yet, but that will be coming into play in each one of the companies in the design of the future state of two entities, strong entities, working on their own.

Meaning when you think about the two entities as separate entities, we should think that there are costs, I don't want to call them synergy, but there are cost opportunities as separate entities versus maybe having dis-synergies on the cost side?

Well, yeah, what you focus on at the start is making sure you attack dis-synergies. And that's what we're doing. And then from there, when you're attacking the dis-synergies, it will expose potential business opportunities. officer of corporate is leading a lot of that as long as along with our project management team that is daily following each one of the designs staffing expenses and will continue to report out to the senior team on where we're at on obtaining the first goal is to try to Minimize, neutralize, do away with any disenergies, and then from there, what new efficiencies can we drive into the business?

Got it. Hey, and one last one just on Byron and Dresden. Is there a scenario where you could push out the refueling outages until next year, meaning early next year, and keep them afloat or keep them operating through the end of this year? Or is that kind of physically or for safety reasons impossible to do?

Well, what happens at the end of cycle, which we're heading towards on these plants, your fuel becomes less and less effective, and the term is coast down. And so you start... power out of the reactor, the thermal megawatts out of the reactor is reduced, which compounds to the electric megawatts produced. And so you get to a point that you're running within a month or so period, you're running inefficient steam paths and inefficient operations. So You make the call as the coast downs start, and you shut the facility down. The one thing to reiterate in shutting down a nuclear plant is the goal is you shut down, you cool down, you disassemble the reactor, you offload all of the fuel into the spent fuel pool, and there is no path back from that. There's no regulatory path back and so what we do is start into the phases of the chosen decommission using the decommissioning trust fund and it comes out of our expense column. It's in the pre-funded category of the decommissioning trust. So And running a year is physically impossible. Running an extra month is very challenging on the steam supply system and maintaining adequate controls on the physics.

Got it. Thank you, Chris. Much appreciated, guys.

That concludes the Q&A session and I'll turn it back to Chris Crane.

I want to thank everybody for the time this morning for joining the call. We're working hard to run the businesses at best in class levels and taking the necessary steps to set up two strong independent companies. There's quite a focus on to update you as we go along. We appreciate your support. And with that, I'll close the call up.

Thanks to all our participants for joining us today. This concludes our presentation. You may now disconnect. Have a great day.