Exelon Corporation

Hello, and welcome to Exelon's third quarter earnings call. My name is Justin, 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 Emily Duncan, Vice President of Investor Relations. The floor is yours.

Thank you, Justin. Good morning, everyone, and thank you for joining our third 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 this 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 the call. Please refer to today's 8 and Exelon's other SEC filings for discussions of risk factors and other factors, including uncertainties surrounding the plan 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 reconciliations between the non-GAAP measures and the nearest equivalent GAAP measures. I'll now turn the call over to Chris Crane, Exelon's CEO.

Chris Crane Thanks, Emily, and good morning, everybody. Emily, thank you for putting a hedge on everything we're about to say. We had a good quarter financially and operationally and had several very positive developments during the quarter. I'm starting on slide five. Um, we earned a dollar 23 per share on a gap basis and, uh, a dollar nine on a non gap basis. And Joe will get into those details, Illinois, passed at the last minute, a landmark clean energy legislation, which makes the states a national leader in clean energy. Illinois will achieve 100% carbon-free by 2045 by preserving the plants and adding tens of thousands of jobs. And we thank Kathleen Barone and her team and many others for the work they've done. As a result, we have reversed the retirement decision on Byron and Dresden. Our Illinois plants will continue to provide good paying jobs, economic support to the communities, and zero carbon energy to the citizens of Illinois. We've begun to fill the 650 vacant positions And we'll be investing more than $300 million in our plants over the next five years to catch up on what we pulled back from during the unknown period. The legislation also includes the provision that would transition the utilities out of the formula rates into a new multi-year performance-based rate framework. In August, we completed the put transaction and acquired EDF's portion of the CNG nuclear plants, adding 17 terawatts to our own zero, admitting nuclear generation. We did receive a grant from the U.S. Department of Energy to explore the potential benefits of on-site hydrogen production at our nine-mile point in New York. and we continue to believe that there's a very strong future for hydrogen. Hydrogen will be key in helping the nation address the climate crisis, and the nuclear plants can play a vital role in its production with its heat and capabilities. We're partnering with Neil Hydrogen and the national labs to demonstrate the integrated production storage and use of hydrogen on site to prove its commercial viability. Operations are expected to begin in 2022. On the regulatory front, Delaware PSC issued a constructive order in our Delmarva rate case. Last quarter, we announced our path to clean and our net zero goal for the utilities. So we continue to strive to meet what our customers desire and our regulators desire. Each utility is building upon existing work and supporting a path to clean that aligns to the goals that are needed for their local jurisdictions and stakeholders. An example is PECOS Climate Solution It's a five-year action plan that will fill PEPCOs that will fill with the DCPSC's request last month. This filing outlines 62 different programs to help enable the district's roadmap toward decarbonization. Another example of helping our communities to meet their goals is through our energy efficiency programs. which are some of the nation's largest. Joe will talk about them in his remarks. We're committed to serving our communities and helping to drive equity and positive change. Last week, we launched a $36 million racial equity capital fund to expand access to capital from minority-owned businesses so they can create jobs and grow their businesses and reinvest in the neighborhoods and the communities that we serve. It's the first of a kind in our sector. In addition, we partner with the UNCF to launch a $3 million Exelon fund for corporate scholarship program to provide scholarships and internships that create opportunities for students attending historically black colleges and universities that reside in the communities that we serve. Finally, we're closely watching the work in Washington on the infrastructure build back better agenda. The legislation will help us address climate change crisis through incentivizing clean technologies and infrastructure investments to make the grid more resilient and ready for clean energy technologies. It is clear from the proposal that the administration and Congress recognize the critical importance of maintaining the existing nuclear fleet to ensure that the nation can cost-effectively address climate change, and we're confident that when the legislation does pass, it will include a production tax credit for the existing nuclear. Moving on to slide six to our operations, reliability remains incredibly strong. All the utilities are delivering at top decile outage frequencies and first quartile in outage durations. BGE, PECO, and PHI were top decile for gas odor responses, which is very critical for us as we continue to defend gas as a bridge source to the future. Customer service is top notch with BGE, ComEd, PECO achieving top decile and PHI top quartile. On the generation front, fleet performed well during the quarter, even in the face of uncertainty in Illinois. Our nuclear plants produced 40.5 terawatts of zero carbon generation, avoiding approximately 21 million tons of carbon dioxide that would be generated otherwise. The fleet had a 96% capacity factor over that period of time. and we're very proud of their operations with the uncertainty they faced. On slide seven, the progress and separation, we continue to make progress on separating the businesses into two independent Fortune 200 companies. FERC approved the separation in August And in September, we received a private letter ruling from the IRS confirming the tax free nature of the separation. The process for the NRC and New York PSC approvals are moving forward as expected and remain on track. Last week, the New York PSC staff held the first meeting of settlement negotiations. This is an important step in the process. and we've asked for authorization from the Commission by December 16th on their scheduled meeting date. We have named the CEO of each company as well as their direct reports and will continue the staffing process over the course of the next few weeks and months to be ready for the close in the first quarter of next year. Joe Dominguez and I are both excited to lead our companies into the next chapter. Exelon will continue to be one of the nation's premier customer focused energy delivery companies with more than 10 million customers. Joe's the right person to lead Constellation will be America's leading clean energy company producing 12% of the nation's clean energy and nearly two times more than any other clean energy company out there. We remain focused on setting each business up to be successful for the long term. Joel, I'll turn over to you for the financial update.

Thank you, Chris, and good morning, everyone. Today I'll cover our third quarter results, our quarterly financial updates, and our hedge disclosures. I will also provide an update on our full year 2021 guidance. Turning to slide eight first, we earned $1.09 per share on a non-GAAP basis for the quarter. Exelon Utilities delivered a combined 66 cents per share net of holding company expenses, and this was primarily driven by above normal summer weather in our non-decoupled jurisdictions, along with strong operational performance and the impacts of distribution rate cases. XGen earned 44 cents per share in the third quarter. Generation and Constellation both performed well during the quarter. We continue to make progress on levers we identified to mitigate the Texas loss, and we expect it will take the full year to realize all of the savings. Realized gains in our decommissioning trust funds partially offset the unrealized losses from our Constellation technology venture investments. which are marked to market every quarter until realized. At our holding company, we benefited from expected income tax favorability in the third quarter. And as a reminder, our holding company incurred 12 cents per share drag in the first quarter associated with how consolidated full-year tax expenses are booked due to the impact of the losses incurred at XGen in Texas. The remainder of the first quarter drag is expected to reverse in the fourth quarter and is not expected to impact our full year results. Turning to guidance, we are narrowing our 2021 EPS guidance range to $2.70 to $2.90 per share from $2.60 to $3 per share previously. Our updated guidance considers reversal of the retirements of the Byron and Dresden nuclear stations, as well as execution of the EDF put and our continued disciplined approach to cost management. We are delivering on our financial commitments and are confident we will be within our revised range at year end. On slide nine, we show our quarter over quarter earnings walk. The dollar nine per share in the third quarter of this year was five cents per share higher than the third quarter of 2020. Exelon utilities inclusive of holding company earnings were $0.08 per share higher compared to last year. The earnings growth was driven primarily by higher transmission and distribution rates associated with completed rate cases relative to the third quarter of 2020 and higher treasury rates on ComEd's distribution ROE. This was partially offset by costs related to the remnants of Hurricane Ida that swept through the PICO service territory in early September. The partial reversal of the first quarter tax expense at corporate also drove favorability relative to last year's results. XGEN's earnings were down 3 cents per share compared with last year, and the decrease was due to net unrealized and realized losses on Constellation Venture Investments, lower capacity revenues primarily in PJM, and more planned nuclear outage days. This was partially offset by realized gains in our nuclear decommissioning trust funds and higher ZEC revenue due in part to increased volumes resulting from fewer planned refuel outages and ZEC pricing in New York. Moving to slide 10, looking at our utility returns on a consolidated basis, we continue to meet our consolidated 9 to 10 percent target with a 9.3% trailing 12-month ROE as of the third quarter. Earned ROEs dipped modestly by 10 basis points since last quarter. Despite higher earnings driven primarily by distribution and transmission rates, the earnings were outpaced by increased equity infusions across all four utilities to support capital investments. Looking forward, we remain focused on delivering strong earned returns at the utilities and supporting our growth targets to enable customer benefits. Turning to slide 11, there were some important developments on the regulatory front since the last call. First, on September 1st, Delmarva, Maryland filed an electric base rate case with the Maryland Public Service Commission seeking an approximately $29 million increase in electric distribution rates and reflecting an ROE of 10.1%. The case highlights Delmarva Power's strong record of reliability, reporting the second best reliability performance in Maryland in 2019 and 20 behind only PEPCO. Delmarva Power continues to make significant investments to improve reliability and customer service for our customers and communities. DPL Maryland expects to receive an order by March 30th, 2022. Second, on September 15th, Delmarva Delaware received a verbal order for its distribution electric rate case. The Delaware Commission approved approximately $14 million increase in annual base distribution rates, reflecting an ROE of 9.6%. As permitted by Delaware law, Delmarva Power implemented full allowable rates on October 6, 2020, subject to refund. We also have two rate cases pending final orders in the fourth quarter. On October 6, the administrative law judge presiding over PICO's electric distribution base rate case recommended the settlement with all parties be approved. The settlement provides for an increase of $132 million in annual electric distribution revenues, and we expect to receive an order in the fourth quarter. And then on November 2nd, the ALJ presiding over ComEd's 2021 distribution formula rate update issued a proposed order. There were no adjustments to ComEd's proposed revenue requirement increase of $45.8 million. We expect to receive a final order from the Illinois Commerce Commission by early December. We continue to have constructive regulatory relationships across our jurisdictions and are working with our regulators, states, and communities to support their clean energy and climate goals. 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 peers. More details on the rate cases can be found on slides 20 through 24 of the appendix. And as Chris mentioned, our energy efficiency programs highlighted on slide 12 is one example of how Exelon's utilities are helping their customers on the path to clean. Exelon utilities are driving customer-driven emissions reductions in our communities through some of the nation's largest energy efficiency programs and conservation efforts. These programs enable customer savings through home energy audits, lighting discounts, appliance recycling, home improvement rebates, equipment upgrade incentives, and innovative programs like smart thermostats and combined heat and power programs. In 2020, through a combination of new and prior year investments, our utilities helped customers save over 22.3 million megawatt hours of energy. This equates to 8.1 million metric tons of CO2 emissions avoided, the equivalent of nearly 932,000 homes energy use for one year, or the carbon sequestered by 10.5 million acres of U.S. forests in one year, according to EPA's greenhouse gas calculator. Each of Exelon's utilities is building upon existing work and supporting a path to clean, that aligns to the goals and needs of their local jurisdictions and stakeholders. Our approach allows jurisdictional flexibility such that each utility may respond to their unique regions and markets and employ the strategies and solutions that best address their operational footprints and customer preferences. Before discussing our gross margin update on slide 13, I want to remind you that we expect to provide 2022 hedge disclosures at analyst day, which will be held closer to the completion of the separation. However, what I can say now is that we have continued to hedge on our rateable plan for future years, and this includes the length from the Byron and Dresden retirement reversals until the carbon mitigation contracts begin and Exelon's full ownership of the CENG assets. Turning to the table, Total gross margin increased $500 million since last quarter due to the plant retirement reversals in Illinois and full ownership of the CENG assets beginning on August 7th. In 2021, open gross margin is up $1.6 billion relative to the second quarter, primarily due to higher prices in all regions and higher volumes driven by execution of the EDF put. and the decision to reverse Byron and Dresden's early retirements. Capacity and ZEC dollars are up $100 million due to full ownership of the CENG assets. Mark-to-market of hedges were down $1 billion due to our hedged position, partially offset by the execution of Power New Business. We executed $200 million of Power New Business and $50 million of non-Power New Business during the third quarter. The non-gross margin impacts of the Illinois plant reversals and the full ownership of CENG are incorporated on page 32 of the appendix. Thank you, and I'll now turn the call back to Chris for his closing remarks.

Thanks, Joe. Turning to slide 14, I'll close on our ongoing priorities and commitments. As we've said in the past and will continue, we will meet or exceed our financial commitments delivering earnings with our guidance range and maintaining a strong balance sheet. And that goes for both companies as we split. There's a commitment on both sides to do that. We'll complete the preparations to separate the businesses, including the organization, the cost structure for each company that will set each company up for long-term success at a strong investment grade. At Exelon Utilities, we are prudently and efficiently deploying $6.6 billion of capital to benefit our customers and to help meet the needs of our jurisdiction's energy policy goals. We are working with our regulators to ensure timely recovery of these investments, as Joe discussed in his talking points. We continue to advocate for clean energy and climate policies with the new administration in Congress in our states to put the country on the path to meeting the carbon and air pollution reduction goals. There's more here than just carbon. We have a city in Chicago that is the third highest with lung disease. And it's not only carbon, it's the fumes from the industrial sources. and we need to do our part to help lower that. And we're partnering and supporting our customers and the communities that we serve. So with that, I thank you for your time today, and I'll open up the call to questions.

Thank you. If you would like to ask a question, simply press the star then the 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. And again, that is star one if you'd like to ask a question. And our first question comes from Stephen Bird from Morgan Stanley. Your line is now open.

Good morning. Thanks so much for the thorough update.

Thanks, Stephen.

I wanted to step back and talk about federal legislation broadly and discuss the impacts less on nuclear. I think you all have been very clear on that side. I'm thinking more about everything from tax policy to support for transmission. Just curious, at a high level, what are you thinking in terms about the potential impact to your business if this legislation were to pass?

I'll let Kathleen Barone speak to it. We think there's a lot of positives that can be put in play here. I don't think we're looking for any handouts we'd rather make the investments ourselves. And between Kathleen and Calvin Butler, we'll bill him and egg it.

And Joe may want to jump in on the tax question, but good morning, Stephen. As you pointed out, I think we're very heartened by the support for the nuclear stations and the recognition that their continued operation is essential to meeting the climate goals. But the bill goes way beyond nuclear, as you pointed out, in terms of the extensive support for electric vehicles, both personal vehicles and electric buses in transit, transmission, as you pointed out, and then significant funding on resiliency for hardening and weatherization, all of which we think are essential for the communities that we serve, as Chris pointed out. The transmission program, that's always been a challenging issue, as you know. given that it's not just about funding, but it's also about siting. And so we do expect that to continue to be a challenging area, but obviously essential to the clean energy build-out. So I'll stop there. Let Cal jump in, or Joe, as I said, on tax.

Good morning, Steve. And I'll just add a couple of things to piggyback off of what Kathleen said. If you think about some of the specifics that the federal government is looking to partner with the states, Think about the $7.5 billion they've earmarked for charging infrastructure. The $5 billion going towards zero emission and clean buses, port electrification. When you think about port electrification for our city of Baltimore and Philadelphia, what that would mean for them. And not even talking about the different grants that they are proposing where utilities could partner to do different things and create it. And all this is good for the customers. If those monies are coming directly to the state and there's a partnership, we will continue to invest on reliability and resiliency and then take these moments. It keeps the customer build down, and that is a concern of ours, just to keep affordability at the forefront of everything we do. So that's that partnership and how we see it playing out. Joe?

Yeah, and I'll pick up, Stephen, on the tax question. And, you know, we're studying the potential implications across our business. And as you know, we obviously have very large capital plans that are utilities for the benefit of our customers, and they also help drive the local economies and help meet the climate and clean energy goals of our communities. Many of those same goals are shared by this Build Back Better plan, which I think is driving the tax question. And you've heard others in the industry say the minimum tax could increase customer bills and potentially impact investment costs. of the capital that we deploy. We are communicating with policymakers about that fact and the impacts it may have on the capital planning process, and we're continuing to work through that.

Very helpful. Thank you. And then maybe just separately, just thinking about the utility business, you already have excellent growth, so I suppose this question is going to come across as somewhat greedy, but I am thinking about sort of other areas of upside potential there. And I was just curious, maybe for Calvin and Chris, just sort of as we think about categories of growth upside beyond the excellent base plan that is resulting in above average growth, but what are some of the categories of sort of additional upside as we think about the utilities growth prospects going forward?

I'll just start off and then punt it to Calvin. There are many case studies being done on voltage requirements, on dual flow voltage requirements. What do we use to harden ourselves from an internet exposure, which would be our own wires, our own fiber? But Cal.

Chris, you captured it. It really goes around building the reliability and resiliency of our system. And I think as we lay out our multi-year plans and across our jurisdictions, it's understanding and really diving in, Stephen, in terms of what the customers want in our jurisdictions. But the hardening and the resiliency of our system is coming in the forefront in addition to fighting climate change. That's a big part of what we're doing, and along with the security-related issues that as Chris has outlined. So those are our opportunities and the areas, but it's that partnership and really understanding what the jurisdictions are wanting.

Very good. Thank you very much.

Oh, go ahead.

We can't run a system on the distribution side any longer at a 4160 voltage level. We've got to get up to 13.8, and that's going to take a significant investment to do that, and that's to support the distributed system.

generation so there's a lot more work to be done thank you very much and thank you and our next question comes from steve sleishman from wolf research your line is now open hi good morning hi so i guess two questions first on the uh the build back better infra bell

Just thoughts on the likelihood that that passes, and if for some reason it does not, how do you feel about opportunities to address nuclear PTCs and other bills if we somehow got there?

Well, Kathleen is earning her paycheck to ensure that it gets done, so I'll let her answer the question.

Good morning, Steve.

Kathleen, make it two for two.

Thanks, Steve. Yeah, I think we're still feeling very confident about the Democrats' ability to get both infrastructure and build back better across the finish line. There, as you know, a strong proposal put out by the president that had support last week around a top-line number that the group has apparently coalesced around. They have continued to work to flesh out the meat on the bones so that they can move this package quickly, and Senator Manchin has shared that he thinks that's doable. Indeed, even citing agreement with the Senate majority leader that it's possible this could get done by Thanksgiving. So, you know, I think there's broad consensus that action is needed, and in particular on the clean energy tax package, that there's sufficient support for the provisions that will get the country to a place where it can come close to meeting the 2030 carbon reduction goals. You know, if for some reason that does not occur, as you know, there's regularly action at the end of the year on a bipartisan basis to look at tax extenders. And we're, again, hopeful given the amount of support that we've seen for support for the existing fleet that the nuclear provision could be considered as part of an end of the year bipartisan package if the Democrat BBB bill doesn't get across the finish line.

Okay, my other question related to that is just, I know there's a ton of detail of this, but just high level, how does the PTC interact with your existing state commitments for the different units or subsidies or laws? and also your hedging and retail and all that as well.

I'll start off and pass it to Jim on the hedging question. But the short answer is that under the nuclear PTC as drafted, revenues from a state program are not included if the state program would adjust to reflect the existence of the federal support. And You know, almost all of our programs have some explicit reference to the fact that if there is subsequent federal support after the state program takes effect, that it will be reflected in the state calculation of the support under the program. So, you know, there clearly will need to be further proceedings to evaluate and have the state adjudicate how that federal support will be reflected, but, you know, assuming that the PTC passes, we would expect each of the states to take a look at that and for it to be reflected in the level of the state support.

Jim? Yeah, and Steve, I think on the hedging, the details of implementation are going to really matter. But for now, I think the right way to think about it is this effectively will serve as a hedge for a significant portion of our generation, right? If you take our nuclear fleet and we kind of reconcile what the PTC program will do and then kind of reflect what Kathleen just said about its impact on the state programs, the net result is you have a pretty highly hedged portfolio with the PTC. Now, we'll get into the details about then, you know, the exact settlement of it and exactly how the implementation plan will be settled all the way through the you know, the prices all the way through to the spot market. The best way I think on the retail business for us is we'll, you know, we'll be able to still win our customer business. We'll have a portfolio that's a little bit more hedged to begin with. We'll have, you know, purchases in the market to help us where we need to go make additional purchase to help us serve the load portfolio that we'll continue to serve.

Great. Thank you.

And thank you. And our next question comes from Julian DeMullen Smith from Bank of America. Your line is now open.

Hey, good morning, team. Congrats on the continued progress across all your various efforts here. So kudos again to Kathleen and team. But perhaps just to focus on one of the other topical issues of late, uranium prices have been seeing a pretty sharp uptick of late. I suspect it's not too substantive for you all, but I just want to make sure I understand how you all are thinking about that impacting sort of longer-term hedging and procurement activities and ultimately impact back to the core business.

I think we're very well hedged through this period, and it's not like we haven't seen it before, but I'll let Brian Hanson, our head of the generating company... operations of the generating company answer that.

Thanks, Chris. Good morning, Julian. We think today's market fundamentals are much improved from the last uranium bull market that we saw 2008-2010 period. Demand is lower, primary mining supply has increased, and utility inventories are higher. You know, we at Exelon, we hedge with a diverse portfolio of fuel contracts that include varying pricing mechanisms or varying horizons with a diverse group of qualified and reliable suppliers. And we maintain a strategic inventory both to ensure security supply for our reactors and to provide flexibility and purchase timing in the event of a market disruption like we're seeing today. You know, we even maintain or keep our uranium inventory in different material states such as yellow cake or uranium hexafluoride gas. So we think we're well hedged and well ready for this current bull market. We are looking in the forward part of the LRP for any opportunities, and they're all well within our expectations that we see today. That would be UFS 6? UFS 6. Very good, Chris.

There we go. Excellent. Thank you guys for affirming that. I appreciate it. And then just on the hydrogen side, I heard the comment about partnering with Nell here, scaling into commercial opportunities to the extent available in 22. Can you talk a little bit? more about what that opportunity means for you all. I mean, is this just about having a firm offtaker, or is this about having some portion of the economics over time? And I know it's early days, but I'm just curious to hear, at least as best you understand it, what that opportunity may be, especially considering the credits at hand here as well.

Yeah, I don't think we're ready to give a full business model on it right now. I think we've got a good partnership with the DOE, Exelon, like other utility companies, sees a great use for hydrogen if it's mixing it with natural gas to cut down the carbon loads or other ways. Our strategy organization is still looking at the transportation methodology, and they're doing some metallurgical research with other labs as to make sure that if we were replacing natural gas pipelines with hydrogen pipelines that the embrittlement problem doesn't become severe. So what we need to do first is perfect an efficient technology using our heat and steam to develop the hydrogen. And then from there, continue to work with other stakeholders on where we put the hydrogen. Does it go in a mixed form with natural gas at first? Does it become what was thought about 10 years ago, the hydrogen economy? And I don't think we're there yet. I think there's a lot of work to be done before we get there. But just having the grants and working with the labs and the government to start using a nuclear plant for something more than electricity because you've got all that waste heat and steam that can be redirected into the development of very efficient hydrogen and then continue to move on from there.

Got it. Sorry, just to clarify this, I imagine you wouldn't touch on the subject of capital allocation given the rise in commodity prices here and still stated equity needs. Still too early, right?

Yeah, too early.

Fair enough. We will leave it there. Thank you, guys. Best of luck here. All right, thanks. And thank you.

And our next question comes from Char Parisa from Guggenheim Partners. Your line is now open.

Hey, guys. Good morning.

Morning.

Joe, can you just maybe further unpack that? I guess the level of details and additional disclosures around the retail business that you kind of plan to talk about at the analyst day, now that it's obviously a lot more in focus. And in the interim, maybe just further elaborate and how we should think about Nigro. Think about the prom year, you know, and year two hedge profiles, just given kind of the lack of disclosures and significant moves in the curves. I mean, appear didn't obviously take as much advantage as expected. So maybe just a better sense here would help, even if it's directionally.

Yeah, let me answer the first question, Char, and good morning. And then I'll turn over the hedge question to Jim McHugh. As I've said previously, as we get closer to actual separation date, we plan to have an analyst day for both companies where we'll update all of the financial variables so you have a complete picture of both companies, and you'll get insight into, on the Exelon side, all the things that we normally provide, including earnings trajectories and rate-based growth and so on. And on the Constellation side, we'll give you the details with the updated hedge disclosures and all the other associated information that allows you to do your modeling. But that's not going to happen, obviously, until we get much more certainty and much closer to the actual execution of separation itself. And with that, Jim, I'll let you answer the hedge question.

Sure. I'll talk about hedging. The outer years where we have less hedge, we've always talked about our rateable hedge program. We're still following that, right? We're not deviating a large deal from what we've historically talked about. I think the change for 2022 has to be in relation to what we saw develop over the course of this quarter with the with the legislation, right? We had assets that we had previously said we're going to retire, and then the legislation passed, and we unretired. And what that effectively meant for 2022 is that before the contract goes into effect, it created a position that added extra generation length to our portfolio that we've been able to since then hedge. But beyond Then beyond May or June when the contract starts, effectively those megawatts are hedged through the CMC contract. So the 2022 is just a little bit in a different beginning of the year, end of year story because effectively the contracts are providing the hedge in the long run. We hedged the length that got added back to the book, largely speaking, in the beginning of the year during this price action that we saw this quarter. So that's been a generally good development. And then, you know, in the outer years, we would still, other than the contracted assets, we would still be following along our ratable hedge program. So there's, you know, the further out in time you go, the more open position there is, as we've always had historically. Got it.

That's actually a pretty interesting point. Thank you for that. And then just lastly, you know, I know you guys are still working through the details, but, you know, could we just touch on maybe just how you're thinking about this spinco capital allocation, just even briefly, right? I mean, your IPP peers have been very specific. Is this something we could see from Constellation? Just maybe some high-level thoughts on how you and the board are thinking about approaching growth versus returning capital to shareholders.

You know, we're going through that modeling right now. As Joe Dominguez takes over and he puts his financial team together, they will be evaluating the best use of capital and what the opportunities are. Having a good investment grade gives us a little bit more opportunity than maybe what somebody would call our peers, that we don't think that they are our peers because of the hedged portion of the nuclear plants. But they... We'll continue to evaluate that in the best way to create shareholder value. Joe Dominguez, do you want to add any more?

No, I don't think I really can at this point. We're looking at it pretty carefully. As Chris said, we think we have some unique opportunities in this business around co-location of assets, hydrogen, and other things that will depend on how the legislation plays out. And we've covered that. I think we'll have a lot more to say on analyst day. But at this point, we're really just studying options. Pretty excited about the opportunities in front of us.

One thing I can say is I don't see him building a new nuclear plant anytime soon.

Thank you for clarifying that, Chris. Appreciate it. All right.

And thank you. And our next question comes from Jeremy Tonant from J.P. Morgan. Your line is now open.

Hi, good morning. Hi, good morning. It's actually Ryan on for Jeremy. Just had one on the regulated business and kind of think you're understanding it's still early days, but the changes in kind of the framework at kind of Illinois and ComEd and how you're kind of thinking at this stage about kind of those two different options, the multi-year plan versus kind of the traditional rate making and you know, how that might impact kind of growth, kind of customer bill impacts, you know, as we kind of approach that date.

Hey, Ryan, this is Calvin Butler. First and foremost, the team is really looking through and analyzing all the metrics. And as you know, we're operating with the formula rate through the end of 22, and we'll make that, decide on early, mid-year, what that looks like going forward. But we're really making that determination now, so we have not decided yet. yet, whether it's going to be a four-year, multi-year plan, forward-looking test year. We're doing that analysis now.

Okay, understood. And then maybe just one on X-Gen. You know, you guys have been very successful in achieving kind of the offsets laid out beginning of the year on the offset, kind of the storm. And just kind of thinking through maybe you can put a little more color on what those offsets have been and, you know, Any kind of incremental thoughts on relative sustainability kind of going into kind of future years?

Brian, do you want to talk about what you're doing?

Yeah, on the nuclear side where a lot of the offsets came from, you know, in our capital allocation or our capital maintenance, many of those items were like big major transformer improvements, changes, change-outs. We've just simply moved those out a year or two. We bundled them the way we did because it streamlined our efficiencies and use of craft resources. We were able to skip a year or two on those. No challenges to reliability from that standpoint. And a number of the other modifications included just the material condition. Improvements were always kept in the plan, but some of the digital upgrades that we had planned for those years, we've moved those out a couple years and reassessing the economic viability of some of those improvements.

But you're just bringing back Colorado Bend from hardening for the lessons learned. Yeah.

In the Texas assets, we have done all the work that's required to address the known issues and the acute issues from winter storm Uri. We're finishing up at Colorado Bend, which is down our plant by Houston. We'll follow. We finished that work up a couple of weeks ago. as well as a number of enhancements we've made just to protect ourselves against a sustained cold weather event again in Texas, temporary improvements that we've made looking for, again, what's the long-term market signals for those plants.

Got it. I appreciate the call. I'll leave it there. Thank you.

And thank you. I would now like to turn the call back to President and CEO Chris Crane for closing remarks.

Thank you for joining the call today. As you know, we're working hard to run the business at best-in-class levels and taking steps to step up two companies, strong independent companies. And we look forward to seeing you at EEI, I think, next week. It's coming quick. And with that, we'll close the call out and tell everybody to be safe.

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