Hello and welcome to Exelon’s Second Quarter Earnings Call. My name is Danny and I will be your event specialist today. [Operator Instructions] It is now my pleasure to turn today’s program over to Dan Eggers, Senior Vice President of Corporate Finance. The floor is yours.

Thank you, Danny. Good morning, everyone and thank you for joining our second quarter 2021 earnings conference call. Leading the call today are Chris Crane, Exelon’s President and Chief Executive Officer and Joe Nigro, Exelon’s Chief Financial Officer. They are joined by other members of Exelon’s senior management team, who will be available to answer your questions following our prepared remarks. We issued our earnings release this morning, along with the presentation, all of which can be found in the Investor Relations section of Exelon’s website. The earnings release and other matters which we discuss during today’s call contain forward-looking statements and estimates that are subject to various risks and uncertainties. Actual results could differ from our forward-looking statements based on factors and assumptions discussed in today’s material and comments made during this call. Please refer to today’s 8-K and Exelon’s other SEC filings for discussions of risk factors and other factors, including uncertainties surrounding the planned 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 will now turn the call over to Chris Crane, Exelon’s CEO.

Thanks, Dan and good morning everybody and thanks for joining us this morning. We had a good quarter financially and operationally. We made progress on our regulatory and policy objectives as we had stated our desires last quarter. We earned $0.41 per share on a GAAP basis and $0.89 per share on a non-GAAP basis and Joe will go through those details when we get to his part of the presentation. As you know, we have been working with our regulators and our policymakers across our six jurisdictions on regulatory mechanisms that would allow us to prudently invest in critical infrastructure to the benefit of our consumers, while earning an appropriate return on that used capital. As part of those efforts, the DC, Maryland PSCs, approved multiyear plans for Pepco. The New Jersey BPU approved ACE’s electric rate settlement and we received an order in the PECO gas rate case. It’s the first in 10 years. PJM held a first capacity auction in 3 years. Results were disappointing, but were slightly better than we had anticipated or expected. Commerce and the administration continue to work on the infrastructure package and there is momentum building to preserve the existing nuclear fleet to meet the country’s energy and climate goals. The presence budget includes support for existing nuclear plants and Senator [indiscernible] and Representative Pascrell introduced legislation to provide $15 per megawatt hour production tax credit to existing nuclear power plants. This legislation would help ensure that the existing nuclear fleet, which provides more than 50% of the nation’s carbon-free power, remains in operations and available to meet the country’s energy needs, while preserving and achieving climate goals. This progress is encouraging. If the PTC is included in the legislation that passes later this year, it will make an enormous difference for…

Thank you, Chris and good morning everyone. Today, I will cover our second quarter results, our quarterly financial updates and our hedge disclosures. First, turning to Slide 10, we earned $0.89 per share on a non-GAAP basis for the quarter. This favorability was driven by O&M tax timing as well as some realized and unrealized gains we have forecasted for later this year. Exelon Utilities delivered a combined $0.49 per share net of holding company expenses. This was primarily driven by strong operational performance and the impacts of distribution rate cases. ExGen earned $0.40 per share in the second quarter and we have begun to make progress on levers we identified to mitigate the Texas laws. But as we have said before, we expect it will take a full year to realize all the savings. Additionally, unrealized and realized gains from the Constellation Technology Ventures portfolio and realized gains from our nuclear decommissioning trust funds contributed to the favorable course. At Holdco, we benefited from expected income tax favorability in the second quarter. As a reminder, Holdco incurred $0.12 per share drag in the first quarter associated with how consolidated full year tax expenses are booked due to the impact of losses incurred at ExGen in Texas during Q1. The remainder of the first quarter hit will reverse over the course of the year and not impact our full year results. There is still a lot of work to be done this year, but we are confident we will deliver earnings within our guidance range of $2.60 to $3 per share. And you can see the details on Slide 17 in the appendix. On Slide 11, we show our quarter-over-quarter earnings block. The $0.89 per share in the second quarter of this year was $0.34 per share higher than the…

Thanks, Joe. Appreciate it. Turning to Slide 15, I’ll close on our priorities and commitments. We will meet or exceed our financial commitments, delivering earnings within our guidance range and maintaining a strong balance sheet. We will complete preparations to separate the business, including obtaining the regulatory approvals. At Exelon Utilities, we will prudently and effectively deploy nearly $6.6 billion of capital to the benefit of our customers and to help meet our state’s energy policy goals, and we will work with our regulators to ensure timely recovery of these investments. We will continue to advocate for clean energy and climate policies with the new administration commerce in our states to put the country on the path to meeting the carbon reduction goals that all desire. And we will continue to partner and support our customers in the communities that we serve. Thank you. And I’ll now open it up for questions. Before I do that, though, I have one error in my prepared reading. I said we’re at impasse on the nuclear issues on the bill. And that’s not where the impasse is. We’ve resolved the nuclear issues. We’re working with all the constituents on other elements. So just want to make sure that my blender, there didn’t go too far down the path of what the hell is going on. But with that, I’ll open it up for questions.

[Operator Instructions] The first question will be from Julien Dumoulin-Smith of Bank of America. Your line is open. Go ahead, please.

Hi, good morning. Thanks for the opportunity.

Good morning.

So I’ll let the legislative comment on Illinois. I know it’s dynamic, and there is probably not too much more you can comment on there. But I’d love just in a moment, if you can talk more high level with respect to the federal efforts – And perhaps outside of Illinois, can you speak a little bit to the ability to potentially tap into this CNC program, specifically in other states like Maryland and Pennsylvania as well as the ability perhaps in some of the states that have various programs, so should we say, true-up against future pressures should those prove insufficient against pressures on power cures and renewables into the future?

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

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

Yes. No, I appreciate that very much. If I can give us the business or the attention to the other side of the business a bit more. As you think about opportunities describing from your peers on carbon-free attributes and specifically some of the new novel off takers like miners, can you speak to the willingness with some of your counterparties, especially considering the extent of your C&I relationships already to perhaps pay a premium and contract directly with some of your nuclear assets, if you don’t mind?

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

Yes, Julien, if I understand your question, I think you’re asking with some of the what some of these larger companies and customers are looking for, is there an opportunity with our carbon-free generation to marry to them? And there is…

Yes.

I’m sorry, go ahead.

No, no. Yes. Exactly.

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

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

Excellent. I wish you all best of luck and will speak you soon.

Thanks.

The next question will be from Stephen Byrd of Morgan Stanley. You may ask your question.

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

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

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

So, on the plant side, which should help inform what we need from the market side, Bryan Hanson, who is our Chief Operating Officer, who is on the phone for the GenCo, as the team – technical team working through what the design basis temperature would be that we would have to install capital to be able to reach that. The plants in Texas were never designed for the weather that we saw and especially the duration of the weather that we saw. So if we go to something much lower in temperature as a design basis. We have to look at what adequately would preserve the piping trace is an insulation. Is it other type of barriers and what’s the most economic way to get there? And Bryan, I don’t know if you want to add anything, but that team is well underway at this point.

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

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

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

Let me turn it over to Calvin Butler.

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

Thanks Calvin. That’s all I have. I appreciate it.

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

Thank you. Good morning. My questions are focused on Illinois. Just we have seen a decent move up in power prices recently. And particularly, I guess, in the near-term, just any sense on – is there any chance that, that could be enough to wait this out longer with the plants?

I can give you the beginning, which is the end and then Joe can fill in the blanks. No. It doesn’t give us what we need. But Joe?

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

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

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

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

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

Okay. Thank you.

And the next question will be from [Technical Difficulty] JPMorgan. Please ask your question.

Hi. Good morning.

Good morning.

Just wanted to turn to the storm offset for a second here, the $600 million-ish that you were targeting here from – to offset the rate, just wondering if you could help update us as far as how that’s progressing, where you see yourself versus what you are targeting and how much is left to do at this point?

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

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

This is Calvin. I would just sit back and tell you that we are very confident in achieving the stated financial performance for each of our utilities and to your reference on the multiyear plans that have gone taking place in Maryland and in DC and Joe outlined in terms of the rate cases across our business. It goes to show you the partnership that we have established with our jurisdictions and understanding what their needs are and how our investments are meeting those goals. We are committed to $6.6 billion annual investments in capital and recovery of real-time on that capital. And the alternative ratemaking that has been taking place across those utilities indicate that we are recovering and returning on that capital in real time. If you think about the jurisdictions in which we operate, they have typically been some of the more difficult across the country. And we are changing that landscape. So, I am very proud of the team across each of the utilities and really building that partnership and showing that we understand the needs, and we are meeting those objectives.

Joe want...

Yes, I would just add one thing on top of what Calvin said, which I thought he did a very comprehensive job should be – as you know, we target 9% to 10% ROEs in all of our utilities. And this quarter, you saw us jump 50 basis points back across the composite to 9.4% and that factors into our 6% to 8% projection.

Got it, that’s very helpful. Thank you.

The next question will be from Michael Lapides of Goldman Sachs. Go ahead please.

Hi guys. Couple of ExGen questions, first of all, the offsets or the O&M savings you are trying to realize this year to help offset the winter storm Uri year impact. How much of that do you think will remain in place as we go out into 2022 or 2023 or should we assume there was a sizable step back up in O&M in those years?

Yes. I think what we have said is a lot of that is one-time in nature. When you think about deferring some things that you, ultimately, need to get done. I talked about things like labor vacancies and contracting, travel and entertainment. At this point, a lot of that is one-time in nature. But what I would add to that is, as you know, Michael, we have done a good job across the enterprise and as well as at ExGen in really driving efficiency cost here in the last 5 years or 6 years. And we continue to look at new ways to do that, whether it’s leverage in technology or the scale of our business when you look at our supply organization doing a nice job in that area. And we will continue to challenge ourselves. But some of these costs specifically are going to be one-time in the nature.

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

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

Yes, that – what you focus on at the start is making sure you attack the synergies. And that’s what we are doing. And then from there, when you are attacking the dissynergies, it will expose potential business ships and how we perform. So, we are working through that Bridget Reidy, our Chief Operating Officer of Corporate is leading. A lot of that as long as – along with our project management team that is daily following each one of the designs, staffing, expenses and will continue to report out to the senior team on where we are at on obtaining. The first goal is to try to minimize, neutralize, do away with any dissynergies. And then from there, what new efficiencies can we drive into the business.

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

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

Got it. Thank you, Chris.

That concludes the Q&A session. And I will turn it back to Chris Crane.

I want to thank everybody for the time this morning for joining the call. We are working hard to run the businesses at best-in-class levels and taking the necessary steps to set up two strong independent companies. There is quite a focus on both of those goals, and we will continue to update you as we go along. We appreciate your support. And with that, I will close the call out.

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