Exelon Announces Q2 2016 Results

OREANDA-NEWS. Exelon Corporation (NYSE: EXC) announced second quarter 2016 consolidated earnings as follows:

Second Quarter                                      

"Our family of companies continued to perform at top levels for our customers, shareholders and communities,” said Christopher M. Crane, Exelon’s President and chief executive officer.  “Exelon achieved earnings of $0.65 per share, exceeding our guidance range for the second quarter.  For the third quarter we are providing a guidance of $0.65 - $0.75 per share and reaffirming our guidance of $2.40 to $2.70 for the full year.”

Second Quarter Operating Results

Exelon's GAAP Net Income decreased to $0.29 per share in the second quarter of 2016 from $0.74 per share in the second quarter of 2015. Exelon’s adjusted (non-GAAP) Operating Earnings increased to $0.65 per share in the second quarter of 2016 from $0.59 per share in the second quarter of 2015. Earnings in the second quarter of 2016 primarily reflect the following favorable factors:

Adjusted (non-GAAP) Operating Earnings for the second quarter of 2015 do not include the following items (after tax) that were included in reported GAAP Net Income:

Second Quarter and Recent Highlights 

• Early Retirement of Clinton and Quad Cities Nuclear Facilities: On June 2, 2016, Generation announced it will move forward to shut down the Clinton and Quad Cities nuclear plants on June 1, 2017, and June 1, 2018, respectively. As a result, Exelon and Generation recognized one-time charges in GAAP Operating and maintenance expense of $141 million related to materials and supplies inventory reserve adjustments, employee-related costs and construction work-in-progress impairments, among other items. Additionally, Exelon and Generations' second quarter 2016 GAAP operating results include an incremental $110 million of pre-tax expense primarily related to accelerated depreciation of plant assets, accelerated amortization of nuclear fuel, and additional asset retirement obligation accretion expense associated with the changes in decommissioning timing and cost assumptions. These amounts have been excluded from GAAP Net Income to arrive at Adjusted (non-GAAP) Operating Earnings. 
• BGE Electric and Natural Gas Distribution Rate Case: In the June and July 2016 rate case orders, the MDPSC authorized electric and natural gas rate increases of $44 million and $48 million, respectively, and allowed ROEs for BGE's electric and natural gas distribution businesses of 9.75 percent and 9.65 percent, respectively. The new rates took effect for service rendered on or after June 4, 2016. While the MDPSC found compelling evidence to conclude that BGE’s smart grid initiative overall was cost beneficial to customers, the final order contained several cost disallowances and adjustments precluding BGE from recovering the full amount of costs it has incurred and invested in the smart grid initiative. As a result, BGE recorded a $52 million charge to Operating and maintenance expense in the second quarter. 
• Proposed Acquisition of ConEdison Solutions: On July 27, 2016, Generation entered into an Asset Purchase Agreement with ConEdison Solutions, a subsidiary of Consolidated Edison, Inc. Pursuant to the Purchase Agreement, ConEdison Solutions agreed to sell its competitive retail electric and natural gas business to Generation for an all cash purchase price of $53 million plus estimated purchase price adjustments, including net working capital of $130 million. The transaction is expected to close in the third or fourth quarter of 2016. The closing of the transaction is subject to certain conditions, including, obtaining the termination or expiration of any applicable waiting period required under the HSR Act for the consummation of the transaction. 
• New York Clean Energy Standard: On Aug. 1, 2016, the Clean Energy Standard (CES) was approved by the NYPSC, a component of which includes creation of a Tier 3 Zero Emission Credit program targeted at preserving the environmental attributes of zero-emissions nuclear-powered generating facilities that meet the criteria demonstrating public necessity as determined by the NYPSC. Subject to the Ginna and Nine Mile Point nuclear power plants entering into satisfactory contracts with the New York State Energy Research & Development Agency, as required under the CES, and subject to any potential administrative or legal challenges, the CES will allow Ginna and Nine Mile Point to continue to operate at least through the life of the program (March 31, 2029). The duration of the program beyond April 1, 2019, is conditional upon a buyer purchasing the James A. FitzPatrick nuclear generating station and taking title prior to Sept. 1, 2018. 
• Nuclear Operations: Generation’s nuclear fleet, including its owned output from the Salem Generating Station and 100 percent of the CENG units, produced 42,453 gigawatt-hours (GWh) in the second quarter of 2016, compared with 43,805 GWh in the second quarter of 2015. Excluding Salem, the Exelon-operated nuclear plants at ownership achieved a 92.3 percent capacity factor for the second quarter of 2016, compared with 93.1 percent for the second quarter of 2015. The number of planned refueling outage days in the second quarter of 2016 totaled 87, compared with 71 in the second quarter of 2015. There were 21 non-refueling outage days in the second quarter of 2016, compared with 18 days in the second quarter of 2015. 
• Fossil and Renewables Operations: The Dispatch Match rate for Generation’s gas and hydro fleet was 97.4 percent in the second quarter of 2016, compared with 99.2 percent in the second quarter of 2015. The lower performance in the quarter was primarily due to an unplanned outage in April at Wolf Hollow, in Texas. Energy Capture for the wind and solar fleet was 95.5 percent in the second quarter of 2016, compared with 96.1 percent in the second quarter of 2015. The lower performance was attributed to minor mechanical issues across the fleet. 
• Pepco District of Columbia Electric Distribution Rate Case: On June 30, 2016, Pepco filed an application with the DCPSC requesting an increase of $86 million to its annual service revenues for electric delivery, based on a requested ROE of 10.6 percent. Any adjustments to rates approved by the DCPSC are expected to take effect in June 2017. 
• DPL Maryland Electric Distribution Rate Case: On July 20, 2016, DPL filed an application with the MDPSC requesting an increase of $66 million to its electric distribution base rates, based on a requested ROE of 10.6 percent. Any adjustments to rates approved by the MDPSC are expected to take effect in February 2017. 
• DPL Delaware Electric and Natural Gas Distribution Rate Case: On May 17, 2016, DPL filed an application with the DPSC requesting an increase of $63 million and $22 million to its electric and natural gas distribution base rates, based on a requested ROE of 10.6 percent. While the DPSC is not required to issue a decision on the application within a specified period time, Delaware law allows DPL to put into effect $2.5 million of the rate increase two months after filing the application and the entire requested rate increase seven months after filing, subject to a cap and a refund obligation based on the final DPSC order. 
• BGE Preference Stock Redemption: BGE has $190 million of cumulative preference stock that are redeemable at its option at any time for the redemption price of $100 per share, plus accrued and unpaid dividends. On July 3, 2016, BGE redeemed all 400,000 shares of its outstanding 7.125 percent Cumulative Preference Stock, 1993 Series and all 600,000 shares of its outstanding 6.99 percent Cumulative Preference Stock, 1995 Series for $100 million, plus accrued and unpaid dividends. Following these redemptions, BGE has $90 million remaining of cumulative preference stock outstanding. 
• Financing Activities: 
• On May 26, 2016, Exelon Corporate, Generation, ComEd, PECO and BGE entered into amendments to each of their respective syndicated revolving credit facilities, which extended the maturity of each of the facilities to May 26, 2021. Exelon Corporate also increased the size of its facility from $500 million to $600 million. In addition, PHI, Pepco, DPL and ACE entered into an amendment to their Second Amended and Restated Credit Agreement which extended the maturity date of the facility to May 26, 2021, removed PHI as a borrower under the facility and decreased the size of the facility from $1.5 billion to $900 million.
   
• On June 27, 2016, ComEd issued $500 million in aggregate principal amount of its First Mortgage Bonds, 2.550 percent Series due June 15, 2026, and $700 million in aggregate principal amount of its First Mortgage Bonds, 3.650 percent Series due June 15, 2046. The net proceeds from sale of the bonds will be used to refinance maturing mortgage bonds, repay a portion of ComEd's outstanding commercial paper obligations and for general corporate purposes.
• Hedging Update: Exelon’s hedging program involves the hedging of commodity risk for Exelon’s expected generation, typically on a ratable basis over a three-year period. The proportion of expected generation hedged as of June 30, 2016, is 97.0 percent to 100.0 percent for 2016, 78.0 percent to 81.0 percent for 2017, and 47.0 percent to 50.0 percent for 2018. Expected generation is the volume of energy that best represents our financial exposure through owned or contracted capacity. The primary objective of Exelon’s hedging program is to manage market risks and protect the value of its generation and its investment-grade balance sheet, while preserving its ability to participate in improving long-term market fundamentals.

Operating Company Results

ComEd consists of electricity transmission and distribution operations in Northern Illinois.

ComEd's second quarter 2016 GAAP Net Income was $145 million compared with $99 million in the second quarter of 2015. Adjusted (non-GAAP) Operating Earnings for the second quarter of 2016 and 2015 do not include merger and integration costs that were included in reported GAAP earnings. A reconciliation of GAAP Net Income to Adjusted (non-GAAP) Operating Earnings is presented in the table below:

ComEd’s Adjusted (non-GAAP) Operating Earnings in the second quarter of 2016 increased by $45 million from the same quarter in 2015, primarily due to higher electric distribution and transmission formula rate earnings and favorable weather. 

For the second quarter of 2016, heating degree-days in the ComEd service territory were up 10.1 percent relative to the same period in 2015 and were 1.3 percent below normal. Cooling degree days were up 69.6 percent relative to the same period in 2015 and were 33.0 percent above normal. Total retail deliveries increased by 4.3 percent in the second quarter of 2016 compared with the same period in 2015. 

Weather-normalized retail electric deliveries remained relatively consistent in the second quarter of 2016 compared with the same period in 2015.

PECO consists of electricity transmission and distribution operations and retail natural gas distribution operations in Southeastern Pennsylvania.

PECO’s second quarter 2016 GAAP Net Income was $100 million, compared with $70 million in the second quarter of 2015. Adjusted (non-GAAP) Operating Earnings for the second quarter of 2016 and 2015 do not include certain items (after tax) that were included in reported GAAP earnings. A reconciliation of GAAP Net Income to Adjusted (non-GAAP) Operating Earnings is presented in the table below:

PECO’s Adjusted (non-GAAP) Operating Earnings in the 

second quarter of  2016 increased by $30 million from the same quarter in 2015, primarily due to increased electric distribution revenue pursuant to a rate increase effective Jan. 1, 2016, and the impact of a cumulative tax adjustment related to an anticipated gas repairs tax return accounting method change.  

For the second quarter of 2016, heating degree-days in the PECO service territory were up 42.1 percent relative to the same period in 2015 and were 0.6 percent above normal. Cooling degree days were down 23.8 percent relative to the same period in 2015 and were 12.4 percent above normal. Total retail electric deliveries were down 1.9 percent compared with the second quarter of 2015. Natural gas deliveries (including both retail and transportation segments) in the second quarter of 2016 were up 8.9 percent compared with the same period in 2015.

Weather-normalized retail electric deliveries remained relatively consistent, while gas deliveries decreased 1.5 percent in the second quarter of 2016 compared with the same period in 2015. The decreased gas volumes were driven primarily by lower use per customer.