Good morning. My name is Tracy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Exelon Third Quarter Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Ms. JaCee Burns. Ma'am, you may begin.

Thank you, Tracy, and good morning, everyone. I'm JaCee Burns, Vice President of Investor Relations for Exelon. Welcome to Exelon Third Quarter 2012 Earnings Conference Call. Thank you for joining us today. We hope that you and your families are safe and sound, particularly for those of you on the East Coast, who have been dealing with the aftermath of Hurricane Sandy. You've really been in our thoughts a great deal. We issued our earnings release this morning. If you haven't received it, the release is available on the Exelon website. The earnings release and other matters we will discuss in today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties, as well as adjusted non-GAAP operating earnings. Please refer to today's 8-K and Exelon's other filings for a discussion of factors that may cause results to differ from management's projections, forecasts and expectations and for a reconciliation of operating to GAAP earnings. Leading the call today are Chris Crane, Exelon's President and Chief Executive Officer; and Jack Thayer, Exelon Executive Vice President and Chief Financial Officer. They are joined by other members of Exelon's executive management team who will be available to answer your questions. We have scheduled 60 minutes for this call. I will now turn the call over to Chris Crane, Exelon's CEO.

Thank you, JaCee, and good morning to everybody. Before I discuss the Exelon third quarter results, I'd like to take a moment to recognize the more than 8,000 PECO and BGE employees, contractors, mutual assistant workers, who are working around-the-clock to respond to Hurricane Sandy. This devastating storm slammed our Pennsylvania and Maryland service territories with heavy rain, high winds and is causing historic damage. Many of you know this firsthand, being in the New Jersey and New York area. We are grateful to the dedicated men and women in the field, who are repairing the damage and restoring service to our customers as quickly and safely as possible. And that's not to mention the thousands of out-of-state contract workers, including our ComEd employees, who have made their way east to assist in the service. We have today, for those of you in New York, around 50 underground technicians arriving in New York City to assist with the recovery of the underground system there, and we'll continue to keep our folks on the East Coast as long as we can to help in all regions. I'd also like to acknowledge the employees that are for -- in Mid-Atlantic nuclear plants for effectively preparing for the hurricane. And then they worked diligently to respond to the storm, particularly Oyster Creek, which was at the point where the storm came ashore, which felt the greatest impact. Because of their dedication, we are able to resume normal operations. With that, let's turn to Slide 2. The third quarter financial performance was very strong for Exelon, particularly at ExGen. We reported operating earnings per share of $0.77, which was well above the midpoint of our guidance range for the quarter. Based on our financial performance to date, we are revising our 2012 full year…

Thank you Chris, and good morning, everyone. As Chris mentioned, I'll review the second quarter financial results, and then update you on changes to our 2012 cash forecast and earnings outlook. I'll start on Slide 9. We reported third quarter 2012 non-GAAP operating earnings of $0.77 per share versus $1.12 a share in the third quarter of 2011. Beyond the impact of the merger-related share differential and the addition of earnings from the legacy Constellation business, revenue net of fuel at ExGen is the primary difference between 2012 third quarter results and the third quarter prior year. The drivers of lower RNF include lower realized market prices and lower PJM capacity revenues due to the transition to the 2012-2013 capacity auction clearing prices, which averaged about $36 per megawatt day lower than the 2011-2012 planning period. When comparing our financial results for the quarter with our expectations, we delivered solid results for the quarter and we exceeded our $0.65 to $0.75 of earnings per share expectations. We outperformed our guidance range largely due to favorable RNF at ExGen and tax benefits at PECO and favorable weather at ComEd and PECO. ExGen's $0.53 non-GAAP earnings per share this quarter reflected about $0.04 of favorable RNF. This RNF upside is the net of approximately $0.07 of revenues from effective portfolio management optimization by Ken Cornew's Constellation team, partially offset by $0.03 due to lower-than-expected nuclear volumes. Chris already spoke about the source of the portfolio optimization benefit earlier, but I will add that event-driven opportunities such as this are difficult to forecast. When they do arise, having a skilled team that can execute and capture the benefits such as ours is an asset. Moving to the utilities. ComEd's non-GAAP earnings of $0.10 per share for 2012 third quarter includes $0.01 more earnings…

Thanks, Jack. Before we move to Q&A, I just want to reiterate a few points. We've had a strong financial performance in 2012, even with the impact of the hurricane. As a result, Jack mentioned, we are increasing our earnings guidance range. While the recent market dynamics do give us concern, I'd restate we believe $3 to $6 per megawatt hour is not priced into the market, and our expectation is that we will see the upside for 2015 and beyond materialize in 2013. We've taken the right platform to take the right advantage of what we expect for the power market recovery. Investment-grade ratings and maintaining the dividend are our top priorities. We have options, we have time to maintain these objectives. To time our investments for the power market recovery in giving us some flexibility, we've repositioned our growth strategy and we deferred certain upgrade projects. We'll also, as we stated, eliminate the undesignated renewable spend. Lastly, we remain focused on protecting and creating value -- shareholder value through continued advancement of growth projects at Exelon utilities, Peach Bottom, Antelope Valley Solar Ranch and upstream gas. With that, we will open it up to questions.

[Operator Instructions] And your first question comes from Greg Gordon with ICI Group (sic) [ISI Group].

I just wanted to ask you a few questions about the numbers from sort of the -- from the Analyst Day from April 30 to present. So when we look at power pricing, power prices dipped but have -- sort of substantial to come back more or less to where they were at the Analyst Day deck, slightly higher in some regions like Zone A, New York; slightly lower in other regions like PJM -- I'm sorry, like NiHub. But you have also done things to reduce CapEx, further cut O&M and your gross margin targets are substantially the same. So is it fair to say that your credit metrics, as things look today, are still within the 25% to 27% FFO to debt that you were projecting in April?

Yes, they are.

So why would you, 6 months from now, when things aren't improving, be sort of thinking about a change in dividend policy if at the current forward curve you're still on those credit metrics? Is it that over time, you start to -- you're deferring capital expenditures but you can't -- you're sort of pushing out the decision but you can't permanently eliminate that decision unless power prices go up. Is that the right way to think about it?

Here's how I'd look at it. The capital isn't part of that decision any longer. If the markets don't come back, which we think they will, most likely we will not do those upgrades. So you've got to see the market recover and then you see the strengthening of the balance sheet, then you understand we should be back into a sustainable growth mode, optimizing our assets. Continuing to watch the markets come forward, if you look at 2012 and 2014 -- excuse me, 2013, 2014 NiHub or West Hub, those years on an ATC are back to where we were talking with you at Analyst Day, and some a little bit better. But if you look at '15 and '16, there's still a buck and change disconnect there. So we haven't seen them strengthen as much on the back end. We saw a lot of volatility in August. It was unbelievable where the numbers were going, we couldn't model them. We want to make sure that we're being very open and clear. We said we wouldn't surprise anybody. If that volatility comes back into the market, we don't see the recovery, you do not want to -- we do not want to be living on the edge, and the edge is 25%. We've been given some flexibility by the rating agencies because they think this is a stress period. But if something structurally change there and you're dealing with a 90% payout on a dividend for a long run and we have to question if we're getting value. You don't want to live on the edge. There is potential volatility, but I think we have time to watch it going into 2013.

Okay. So just to recap and make sure I'm hearing you correctly, you've sort of moved yourself back into a comfort zone for the short term with the actions you've taken, but if we don't see the back end improve, those actions sort of aren't a permanent solution?

I don't think they would be a permanent solution under these market conditions right now. And that's why we've got to see the market come back up.

Great. Just a follow-up question on that. One of the things that is sort of an obvious observation is that this is probably leading to lower prices is the anemic low growth that you're seeing in your service territories. I think that's a concern that's come up on a number of other earnings calls in a number of other regions as well. Is there anything you can point to that's leading to sort of such sluggish activity? And anything that might lead to a potential change in that perspectively?

Well, the first initiating event for the market prices is the retirement of the assets that have been stated already, and we think that tightens the reserve margins there and should be reflected in the market prices. The load growth has been flat to negative. We continue to work on saving industry and trying to attract industry in. But I don't think you can beat energy efficiency over the next couple of years. So there -- on some sides, you're seeing housing come back. You're seeing auto come back. We saved the refineries in Pennsylvania, that's the load sting or a little coming back in. On the other side of that equation, you're seeing the effects of energy efficiency come in. So the real needle mover is on the market reflecting the tightening reserve margins of the retirements.

Your next question comes from Jay Dobson with Wunderlich Securities.

Following on the last question, given the volatility in August, is there a change in your confidence in your fundamental view? Or is it simply just the volatility itself? I'm trying to understand what's causing the injection of the dividend uncertainty.

We're not injecting that today. I think we've messaged clearly that we'll never surprise anybody. We talked about the levers we had back in Analyst Day, when we were looking at tight market forwards. We've come back to that point. August had more volatility than we expected. Now there's a couple of things that came in, in August. We think there was more coming to market, then the liquidity was there. It -- other portfolios were coming into the market. We need to substantiate that in the next quarter, next couple of quarters to see -- and we believe the prices would come back. But can -- I don't think we're shaken by the volatility but we do want to confirm our assessment, right?

That's right, Chris. Obviously, Jay, we have and continue to reiterate that we see heat rate upside in this market that is not being reflected, particularly in the '15, '16 time frame. The volatility in price you've seen this summer largely was driven by a couple of things, natural gas price movements and selling behavior in the marketplace. We have seen some recovery on the back of natural gas prices, but we still have not seen the market reflect what we think is a fundamental shift in the stack based on the retirement of over 40,000 gigawatts coal plants in the '15-'16 time frame.

Okay, fair enough. And then Chris, on Illinois, can you talk just a little bit about the legislative outlook? I know you filed an 8-K and are probably getting out and talking to folks about the ICC decision. Just I know you're appealing it, but what legislative attempts might be on the horizon?

We have Anne Pramaggiore here. I'll let her speak to that.

Thanks, Chris. Our view is we've got free pass to resolving this issue, which is essentially recovering the cost of making the investment that the legislature envisions us to make over the next few years. One is the appeal path, and I think you've all seen that we filed our appeal. We also asked for an expedited appeal, and that was -- we did not -- we were not successful on that. So we're on the appeal path. The second path is to try to deal with this in the commission itself. There's a current rate case in front of the commission that is -- will be resolved by the end of December, and there's some opportunity to deal with it in that case. And then finally, obviously, there's a legislative path. So we view all those paths as options right now. We are talking to all parties and having conversations. I don't think we foreclosed any path, but we'll see what looks like the most opportune path and the one where we can get it done as quickly as possible so we can get back on track with making these investments and creating jobs in the state.

And your next question is from Jonathan Arnold with Deutsche Bank.

First question. Chris, when you were talking about just looking out into next year and recovery, I think you mentioned the dividend being one of the options that you'd have to address, maybe your fundamental view is not playing out as you hoped. What would the others be?

We would continue to look at other capital spends. Stacie Frank and treasury are looking at some things in project, financing some of our renewables we have. Now, they're not as large or meaningful, but if it's just to buy more time as we see the market come back, there are other steps that we'll be looking at.

Okay. And so those would be -- you see you have incremental sort of levers on CapEx, potentially?

Yes.

We have to be very careful about the next step. So the next step is, is this a reliability cut, and are you going to pay for it in the long run? So you look at some of the upgrade projects around digital systems at the nuclear plants or other things like that, that are addressing each of the infrastructure, which -- you really have got to be careful, but we will look at them. And if it's moving in some amount of time, months or a year and we don't think it'll be impactful, we can look at that. But again, they're not the 2.3 billion size that we are able to just pull with the actions we are taking now.

Okay. And then secondly, if I may. Like last quarter's 10-Q disclosed some pretty substantial pension contributions that you expected to have in the '16-'17 time frame. How should we -- I mean, firstly, have those numbers changed much as you update for this quarter? And how should we think about those as they fit into this plan?

Sure. We've been working on that. Jack, do you want to talk a little bit about that?

Sure, Chris. So Jonathan, as you might expect, with the declining interest rates, the liability has grown. Importantly, under Doug Brown, who heads up our investments organization under Bill, we had put in place a liability matching strategy that reduced the impact on the overall obligation. That current unfunded status, if you look at the pension, is roughly $3.9 billion. That's relative to an end of year '11 of $2.2 billion. And I would say that, that growth is despite the fact that we've seen a very strong performance on both the equity, as well as the liability matched elements of our pension assets. As we look forward, as you may know, the President has put in place a -- or is looking to put in place a policy that allows us to adjust the pension liability and how we fund that. And that would have the impact of pulling forward certain of our expenses and reducing our expenses in out years. This strategy, we'll be updating at EEI, and we'll be able to walk you through after we've issued the Q3 10-Q, the specific details of the impact of that adjustment. But it does result in further funding in the initial years but moderates that funding and reduces it in '16 and '17.

Okay. And could I just ask one sort of a related topic, is equity something you would look at as a way to bridge either the trough in the power cycle or maybe this pension funding issue as it comes -- it will arise?

So we would always look. But at this point, I believe that our equity is -- the value isn't reflected in our equity right now. So it would be unlikely that, that would be a fix. If we don't see markets recovering, something's fundamentally shifted. Issuing equity to buy time only to have to make some other decision in the future just seems more destructive than we'd be willing to take at this point. But that said, it's not totally off the table. We'll look at where we're at when -- middle of the year and see what fits best based off of the financials that we're facing.

Your next question is from Steve Fleishman with Bank of America.

Just a question with regard to the $3 to $6 and thinking about the base, you've been communicating that range for a while but the base has continued to move around. Should we think about the base being this 9/30 price stack when you think about the $3 to $6 that you're looking for?

Yes. That is right. It's the -- around the 9/30 and it's in the out years, gaining that recovery where it still has stayed flat. Jack, you got any more on that?

No, I think that's right, Chris. We have talked about, at varying times, the upside that we see in heat rate recovery. At varying times, we've said it's actually priced into the market and aggressively hedged at above ratable to lock in that value. And at this point, as of 9/30, that $3 to $6 is what we see as the fundamental upside.

Okay, great. And then just on the retail margin and disclosures, it looks like you are expecting some kind of normalization, maybe by the 2015 forecast, is that correct in terms of margins? Or are you assuming like lower end?

No, I think we do. Ken, you want to talk about that?

Yes. Steve. we do expect margins to revert back to historical, where we would think of more rational levels in 2015 timeframe. You are correct.

And when we think about rational, is that the midpoint, the $2 to $4 for low end?

Yes, commercial industrial business, it would be in the midpoint area, the $2 to $4. Obviously, much larger for gross margin on the MATS market side.

Your next question comes from Paul Ridzon with KeyBanc.

What do you know as far as the schedule of auctioning of the Illinois load?

Do you have any update on that? Yes, we'll ask Anne.

Yes. I mean, I don't know if you're asking about municipal aggregation or the Illinois Power Agency. The Illinois Power Agency typically goes out in April. But with the load shift under municipal aggregation, I think there's a question right now as to whether they actually will go out in April. If the question is on municipal aggregation, we've seen about 50% of the residential load shift year-to-date. We've got about 60 more referenda to go next week. And if they all go, we'll see about 75% of the load move off of ComEd into the market by first quarter of next year.

And when -- how soon would you act on the dividend if -- when you do your 6-month look and things haven't improved, under that scenario, would you do something immediately?

I couldn't venture to say that. We've got to see what's going on in the market. We have had a lot of conversations with the board if we got to that point, but -- and I said we wouldn't surprise anybody. We'll have many more conversations between here and there, but couldn't commit to a timeframe. As I said, we believe the market is going to come back. We believe the market has to come back. And so we're more on the side "let's get the market back" than we are "here's the date we would plan on cutting a dividend."

And your next question is from Paul Patterson with Glenrock Associates.

Just on the credit quality. I mean, you want the investment grade, but again I think of you guys as being -- you're not exactly BBB-, right? I mean, how far down would you go, I guess? Is there any particular range we should think about here? Or...

Well we are at the HoldCo BBB-, BBB at the Genco. So we're there.

I'm talking about the Genco. Isn't that where the big issue is? Or is it at the HoldCo, as well?

We wouldn't allow ourselves at any registrant to go below. Due to the constraints on the other businesses, would be too cumbersome and too costly.

Okay. And then Kewaunee, they're shutting that down, which would sort of lead me to believe that it could have been gotten for a song. I know it's not in PJM. I know that there are obviously different characteristics with their plant. I'm just wondering sort of your thoughts about that. The opportunity I'm sure you guys probably would have seen -- anything in terms of -- give us any flavor for that?

Demand has done a lot to improve that plant. There are good people there. It's sad to see a nuke come off, but there isn't a market to cover -- it's a small unit, so it's all -- and costs are a little bit higher. It's tough to compete in the PPA area for that. So the economics just don't work. We're -- across the board, we continue to look at the valuations of all the nuclear assets. And smaller, single site assets are more challenged with these power prices that are not only damaged based off of the lower commodity price but also some of the issues that we're having around excess wind generation. So we'll continue to look at plants as they come up, but it just doesn't make it.

Okay. And is there anything we should think about with respect to anybody in your fleet? Is there -- are there any Kewaunees to put it directly?

No. No, there's no Kewaunees that -- we go through our asset valuations on an annual basis. But we are looking at things to try to improve the financial performance. Our Clinton station, which is a large single-unit site, it's a high quality, newer asset, is struggling with this MISO market in the wind generation. We're looking at going to annual refueling cycles to save on our fuel costs that will help its sustainability on the grid. So we're in the mode of continuing to figure out how to help these things survive this market downturn versus the outright sell or close-type thing at this point.

Okay. And then on the positive side Sandy and the Rachel, I think, are in guidance, is that correct? And I know -- I think you said it was about $100 million for Sandy? What was the impact of the Rachel? I'm sorry, if I missed it.

Is that...

The derecho

Yes. You got that, Jack or Ken?

The derecho was roughly $0.05 -- or sorry, $50 million, $0.03.

And your next question is from Dan Eggers with Credit Suisse. Dan Eggers - Crédit Suisse AG, Research Division: Just if we can get into the retail conversation a little bit, I mean, Jack, you guys have been in this business for a long time. Is the pressure outside of Muni-Ag, are you seeing similar pressures on the C&I customer base kind of across the country? Or is this a more of Midwestern localized issue as you've seen some of the other big integrated utilities try and hedge their outlook this way?

Ken, do you want to cover that?

Yes. Dan, we've clearly seen pressure on both the Muni-Ag side and C&I space. C&I selling season is really Q4 and Q1, so we're now in the midst of what will be a 6-month run-on selling in C&I space because that's how the buyers -- this is the time here when buyers buy. So it remains to be seen whether the behavior persists. But clearly, through the summer, there have been -- there has been margin pressure in all segments of retail. Dan Eggers - Crédit Suisse AG, Research Division: Okay. And then I guess, Chris, just I don't want to belabor the dividend question. But when you and the board stepped back and kind of looked at the dividend relative to the business mix and the earnings power, how do you guys think about your coverage or payout ratios between the utility and the generation businesses as you formulate kind of comfort with a dividend at a certain level?

So what we've done in the past, we have a more traditional payout strategy for the utilities, 65% to 70%. And that resonates well as we benchmark to other regulated entities. On the growth side for the competitive part of the integrated, we have tried to benchmark more of the yield and keep track with the sector and the yield. Now since we've got a little bit more damage with the gas and our concentration in NiHub, our yield is 5.9%, last time I looked at it, where the others are probably 1% lower, if not more. So we're outpacing the yield. Now we get this $0.70 back, it's a different conversation. And we're more sensitive to the upside. And that's what -- we just got to reaffirm with -- in our policy as we look at this, is that the right thing? We think we're hitting the stress low, and we think the recovery is there. But that would be part of the conversation, how do you benchmark the yield and the payout percentage on that other side of the business?

You're next question is from Ali Agha with SunTrust.

Chris or Jack, when you look at the margin profile you laid out for us for '15, I guess you've now added that to your disclosure and you factored in cost escalation, et cetera. Should we be thinking of '15 still as flat to down year for you guys? [Technical Difficulty]

I'm sorry, we're having some technical difficulty here. [Technical Difficulty]

So you were asking about the margins that we baked into the disclosure on '15?

Yes. And my question was when you look at cost escalations and the like, are we still looking at '15 relatively flat to even down for Exelon as a whole, given those margin trends you've given us?

Are you talking in... [Technical Difficulty]

On an EPS basis.

Yes, we are giving EPS for 2015. So we're only going to focus at the first of the year on '13. We don't go out there.

Yes, I understood. Understood. I was just looking directionally not really trying to pin you down on a number. A separate question, Chris. As you look at your portfolio today, and of course you have to sell those assets as part of the merger, but are all the current assets pretty much core for Exelon? Is asset sale or divestitures the source of capital that you may revisit given market conditions?

So there are some assets on the edge, they're not big assets. There's something in Las Vegas that's historical. There's a few small assets in California that we're looking at divesting. We continue to watch what we're doing in Alberta. But the meaningful assets are all core, and we think that they are undervalued at this point. I mean, you look at our nuclear assets and the implied valuation well under $1,000 of KW. I think anybody would buy it at that price right now. So I don't think we would look at asset divestitures in this devalued state besides those small ones, which won't be meaningful to cash flows. With that, we're going to wrap up before the music starts again. We apologize for any of the background noise or any of the issues. We actually have everybody spread across all the service territory attending to storm issues. So there's only a small portion of us back in Chicago here now. We'll be at EEI, and we look forward to being able to provide additional modeling information for the company as we address your questions and talk about more of the strategic focus going forward. So we hope all of you in New York, they get you back soon and everybody stay safe, and we'll see you in Scottsdale. Thank you.

This concludes today's conference call. You may now disconnect.