Exelon Corporation

Hello and welcome to Exelon's fourth quarter earnings call. My name is Gigi and I'll be your event specialist today. All lines have been placed on mute to prevent any background noise. Please note that today's webcast is being recorded. During the presentation, we'll have a question and answer session. You can ask questions by pressing star 1 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 Andrew Plenge. Vice President of Investor Relations, the floor is yours.

Thank you, Gigi, and good morning, everyone. We're pleased to have you with us for our 2023 fourth quarter earnings call. Leading the call today are Calvin Butler, Exelon's President and Chief Executive Officer, and Gene Jones, Exelon's Chief Financial Officer. Other members of Exelon's senior management team are also with us today, and they will be available to answer your questions following our prepared remarks. Today's presentation, along with our earnings release and other financial information, can be found in the investor relations section of Exelon's website. We'd also like to remind you that today's presentation and the associated earnings release materials contain forward-looking statements which are subject to risks and uncertainties. You can find the cautionary statements on these risks on slide two of today's presentation or in our SEC filings. In addition, today's presentation includes references to adjusted operating earnings and other non-GAAP measures. Reconciliations between these measures and the nearest equivalent gap measures can be found in the appendix of our presentation and in our earnings release. It is now my pleasure to turn the call over to Calvin Butler, Excellence President and CEO. Thank you, Andy, and good morning, everyone.

We appreciate you joining us today. On slide four, we have laid out our key messages for today's call. First, we are pleased to share that final results for 2023 exceeded the midpoint of our narrowed guidance. delivering $2.38 per share of operating earnings, or almost 6% growth off of last year's guidance midpoint. This is the second year in our two years as a purely regulated T&D utility that we have delivered results in the top half of guidance. And that is despite historically mild weather in the Mid-Atlantic, where PECO experienced its mildest year in the 50 years we have on record. We also executed exactly as expected on our financing plan, including issuing one-third of our original $425 million equity commitment. Operationally, we continued to set the bar for the industry. We closed out another year with leading performance, setting records for performance at multiple utilities. As it pertains to our regulatory activity, we completed three rate cases last year and continued to make progress on the three others at Delmarva Power Delaware, PEPCO Maryland, and PEPCO DC. We received a final order in VGE's second multi-year plan filing for rates effective 2024 to 2026. We were encouraged to receive an order that recognized the importance of investment in support of Maryland's energy goals and a thoughtful path towards decarbonization. We also reached a constructive settlement in Atlantic City Electric's rate case. The increased revenue requirement will support its smart meter rollout, its EV smart program for easy and cost-efficient charger installation, and other investments to maintain safety and reliability, as well as improve service for our customers in New Jersey. Last, we received an order in ComEd's first multi-year rate plan, and it was a disappointing outcome. the order failed to recognize the financial cost of ComEd's investment, despite nation-leading reliability and low customer rates. It adopted a significantly below-average ROE, refused to reflect in rates the prudent share of equity, and removed any return on our pension asset despite that asset delivering over $1 billion in customer benefits and counting. But more importantly, it rejected our grid plan which was carefully developed over almost two years through dozens of stakeholder workshops and presentations reaching over 1,000 people and bolstered by voluminous support in the rate case process. Support for the investment plan was very strong up through the administrative law judge's proposed order. It's important to all of us that are working to meet our state's goals and serving our customers that we have a stable and certain regulatory environment. And we'll work with all of our stakeholders to achieve such an environment and ensure that Illinois is a state that investors are comfortable committing to. As such, a key focus of this team for 2024 will be regaining momentum in Illinois and resolving some of this uncertainty. It is in no one's interest, particularly those in the Illinois communities we serve and live in, for the state to lose further ground in its opportunity to lead the energy transformation and forego significant economic opportunity. We will be working diligently with stakeholders to get it back on track. Jean will cover more of the detail around Illinois shortly, and additional details on other rate cases can be found in the appendix. Our last key message pertains to our projected outlook. Consistent with past practice, We have rolled forward our disclosures after adding a year to our guidance window, with our guidance running from 2024 through 2027. You'll see that we have added $3.2 billion of capital to our four-year outlook, growing from $31.3 billion over the 2023 to 2026 guidance period to $34.5 billion over 2024 to 2027, an increase of over 10%. This reflects a number of updates across the platform to meet customer needs and jurisdictional goals, including the addition of transmission investments assigned from the Brandon Shores retirement and awarded in PJM's third RTEP reliability window to resolve reliability issues from data center growth in the region. These additions are partially offset by the reduction of approximately $1.25 billion in ComEd distribution spend. While we are working to finalize the revised grid plan for our March filing, we believe our plan appropriately accounts for the uncertain regulatory outlook while ensuring customers continue to receive safe and adequate service, and we meet the basic requirements laid out under the Climate and Equitable Jobs Act. This increase in capital expenditures results in rate-based growth of 7.5% from 2023 to 2027. And as a result of the significant increase in investment, we have included in our four year projections, incremental equity of 1.3 billion, which represents approximately 40% of the net incremental capital and ensures we maintain a strong balance sheet as we lead the energy transformation. In addition, despite below average returns we are receiving at ComEd, we continue to expect to realize a consolidated ROE in the nine to 10% range. The result of the plan is an annualized operating earnings growth target of 5% to 7% through 2027 from our 2023 guidance midpoint of $2.36 per share. Now, lowering our earnings growth outlook is not a change we took lightly, particularly given the amount of investment needed for this multi-decade energy transformation and our unique scale and platform to lead that work. Reducing investment in ComMed as a result of the final order lowered our expected rate-based growth, but it also provided us an additional opportunity to deploy capital in other parts of the system across our seven jurisdictions to serve our customers, particularly in transmission. I'll note that the financial benefits of these investments do take longer to play out. Given the larger scale and scope of transmission projects, they require more time to generate cash and earnings, relative to the distribution investments they are replacing. But we are confident that we can deliver at the midpoint or better of our annualized growth rate change of 5 to 7 percent over the 2023 to 2027 horizon and beyond, even after accounting for the potential that the uncertain process in Illinois may require significant further adjustments. And once again, Gene will speak more to these updates to our long-term outlook shortly. Lastly, for 2024, we are initiating our projected operating earnings guidance at $2.40 to $2.50 per share. This range gives us confidence that we can accommodate a variety of outcomes through the ComEd rehearing and grid plan processes, along with our typical risk and opportunities we see across our platform. We have also announced an annualized dividend of $1.52 per share in 2024. reflecting 5.5% growth off of our $1.44 dividend per share in 2023 in line with our long-term earning growth and approximately 60% payout ratio. Moving to slide five, I will review the 2023 commitments and priorities that we initiated on last year's fourth quarter call and recognize the significant progress we made across all of the areas that we prioritize as a pure play transmission and distribution utility, which is leading the energy transformation. First, it was another tremendous year operationally. You can see this not only in our scorecard, but the industry recognizes it as well. As we mentioned in our last call, ComEd won PA Consulting's Reliability I Award as the country's most reliable utility. The best ever performance at ComEd and Pepco Holdings speaks to the high quality of our workforce and our efforts to attract, engage, and retain talent. We also met all of our financial goals. We invested $7.3 billion of capital to serve our customers. We earned a 9.3% return on equity, well within the targeted range of 9% to 10% that we target earning on a consolidated basis. And as I mentioned, we delivered earnings in the upper half of our guidance range. We executed as promised on our strategy to maintain a healthy and strong balance sheet. We issued a third of our existing equity commitment, raised debt at attractive interest rates at both our operating companies and holding company, and we took advantage of a variety of hedging instruments. We were very active and extremely successful in securing grants enabled by the Infrastructure Investment and Jobs Act. securing close to $200 million in awards to support grid resiliency and modernization at BGE, PECO, and ComEd that will make our jurisdiction's progress on their energy goals more affordable and equitable. And further, to the focus on customer affordability, we again helped secure $550 million of federal, state, and local support for low-income customers that need assistance and paying their energy bills. We also made significant progress in our efforts to maximize value for our customers, institutionalizing a permanent team to discover and execute on opportunities to deliver industry-leading operational excellence for our customers at lower cost, which you'll hear more about from Gene. Lastly, we executed on a busy regulatory calendar, settling a rate case at ACE concluding another successful multi-year plan for BGE's electric and gas customers that aligns on an appropriate investment strategy for the next three years, and making substantial progress in our Delmarva power electric rate case and PEPCO multi-year plans. As we talked about, while we completed our ComEd rate case, it was a disappointing outcome for all parties. But we've already begun to establish and execute on a path forward, and that's become our top priority in 2024. I will now turn to slide six to review how we closed out 2023 from an operational perspective. Starting first with reliability, we again kept outage frequency and duration at top quartile levels or above. ComEd and PEPCO holdings operated at best on record levels in both categories. Performance like this is not something that can be turned on and off overnight. It takes a talented and trained workforce, as I mentioned earlier, and we thank the teams that show up each and every day, no matter the conditions, to keep the lights on and the gas flowing, as they did during the severe storms and brutal cold snap that struck in January. Across ComEd, PECO, and PHI, over 500,000 customers were impacted. And it takes investment. The demands placed on our system by more severe weather, by an increasingly distributed and non-dispatchable generation fleet, and by an economy that's more and more reliant on electricity, they all require investment. That's why it's so important to us to have stable and certain regulatory environments. It gives us the confidence to execute on forward-looking planning to manage the pace of investment for the energy transformation and ensure the reliability that all customers deserve and rightly expect. On safety, performance will continue to be a critical area of attention for us in 2024. Our OSHA performance was lacking in 2023, and we remain highly focused on understanding and correcting drivers of underperformance at each of our utility operating companies. The biggest drivers across all of our utilities continue to remain in the day-to-day basics like ergonomics and vehicle-related incidents, not the high energy events that truly differentiate utility work and demand particular focus. But this substandard performance, even in the lower impact areas, is not acceptable. And I expect us to do better in 2024. Customer satisfaction almost universally improved in the fourth quarter, with ComEd rising into the first quartile. We are pleased that our efforts to ensure our customers see value in the service we provide are paying off, and we look forward to continuing this progress well into 2024. And finally, gas odor response remained at stellar levels. And we continue to deliver on what we have here and I'm so proud of the BGE, PECO, and Delmarva teams. There was a lot for our employees to be proud of in 2023. We know we have what it takes to be a premier utility, and we execute it like one. I will now turn it over to Jean to speak more about our financial and regulatory update. With that, Jean.