Hello, and welcome to Exelon's First Quarter Earnings Conference Call. My name is Olivia, and I'll be your event specialist today. [Operator Instructions] Please note that today's webcast is being recorded. [Operator Instructions] It is now my pleasure to turn today's program over to Jeanne Jones, Senior Vice President of Corporate Finance. The floor is yours.

Thank you, Olivia. Good morning, everyone, and thank you for joining our first quarter 2022 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 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 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. We've scheduled 45 minutes for today's call. I'll now turn the call over to Chris Crane, Exelon's CEO.

Thanks, Jeanne, and good morning to everybody and thanks for joining us. We're pleased to host our first post-separation earnings call as the nation's premier T&D utility company. We closed, as you all know, on the separation on February 1, delivering on our commitment to close within the first quarter of 2022. The transition has really unlocked significant value for our shareholders. In the time of announcing a year ago through mid-April this year, the total shareholder return was 76%, far exceeding the UTY Index and the S&P. At the same time, we continue to demonstrate our reliability focused on operational and financial excellence. We earned $0.49 per share on a GAAP basis and $0.64 a share on a non-GAAP basis -- non-GAAP basis. We also completed a successful bond deal for our holding company with attractive pricing, showing the value of our strong balance sheet even in a challenging market. Joe will cover the financial highlights in his presentation shortly. On the regulatory front, it is a quiet year, but we made progress in several jurisdictions to support our investment plans on behalf of our customers. This includes a settlement in Delmarva, Maryland in the electric case, the gas filing for Delmarva Delaware and PECO and our last distribution filing under the ComEd distribution formula rate. In addition, ComEd continues to work with the stakeholders on the CEJA, last year's landmark clean energy legislation that continues to support what our customers and our stakeholders want. It's a clear path to Illinois electric utilities to transition into a rate setting process while we're ensuring the stake and support its ambitious climate goals and its social equity goals. We feel comfortable in our process going forward. ComEd has proposed performance metrics plan before the ICC which includes 8 performance metrics and…

Thank you, Chris, and good morning, everyone. Today, I'll cover our first quarter results, as Chris mentioned, our quarterly financial updates, and as he noted, highlight several areas in which our utilities are making investments for the benefits of our customers. If I start on Slide 6, we show our quarter-over-quarter adjusted operating earnings walk. Exelon's continuing operations earned $0.64 in Q1 of 2022 versus $0.55 in Q1 of '21. Let me start by reminding you the impacts to Exelon's financials following the separation. As disclosed in our 8-K issued on February 25, beginning with the 10-Q to be filed today for the first quarter of 2022, we are presenting our former Generation segment as discontinued operations for the 1-month period in 2022 prior to the separation and for the 3 months ended March 31, 2021. Financial results for the utilities in the holding company are reported as continuing operations. As a reminder, accounting rules require that certain corporate overhead costs previously allocated to generation be presented as part of the Exelon's continuing operations. I want to note that these costs were paid for by generation and they are not indicative of our corporate overhead post separation. The impact of this business services company allocation adjustment to Exelon's continuing operations is $0.09 for the first quarter of '21 and $0.02 for the one month in 2022 on an after-tax basis. You will continue to see this adjustment for '21 as we present prior year quarters. However, this adjustment only impacts Q1 for 2022. Excluding the $0.07 quarter-over-quarter impact of the discontinued operations accounting adjustment for BFC allocations, Exelon's first quarter results were $0.02 higher than the first quarter of '21. The improvement from '21 was primarily driven by higher transmission and distribution rates associated with completed rate cases, partially offset…

Thanks, Joe. Turning to Slide 12. I'll close by reminding you all of Exelon's value proposition as the premier team, the only company in the nation. We're offering a great deal of value and scale, size and scale, which is particularly beneficial given the challenges posed in today's microeconomic environment and the storm intensity, as I mentioned earlier, over the weekend. We continue to be able to move resources and continuing to be able to procure required needs in the right environment. Our best-in-class operations that have led us to a world-class customer experience and constructive regulatory environments, which is key if your customers are not satisfied, the regulators aren't satisfied and that's a major focus of us. Our commitment to ESG principles by driving to a cleaner energy economy and advancing social equity, as Joe mentioned, and a strong balance sheet that will ensure our ability to invest on behalf of our -- all of our stakeholders, not only the customers, but those that want to see a stronger cleaner environment, all of these factors support our opportunity to invest $29 billion of capital over the next 4 years in response to our customer needs which will lead to an annualized 6% to 8% operating earnings growth through 2025. We've targeted a payout of 60% of those operating earnings each year back to the shareholders. Thank you very much for joining us, and now we'll open it up for questions that you may have.

[Operator Instructions] And our first question coming from the line of Paul Zimbardo from Bank of America.

Going to kick it off, if you could give a little bit more quantification of the net impact between the higher interest rate environment on the formula ROE in Illinois offset by the corporate cost. And it seems like a net positive mixing those 2 together. So just want to check if there's any other factors to be cognizant of as well.

Joe, you want to take that?

Yes, I will, Chris. Paul, thanks for the question. When you look at the sensitivities we've shown you in the table, a 50 basis point move in treasury rates is worth about $0.04 to ComEd which is what we saw at the end of the first quarter. And that was -- about $0.01 of that was realized the way the formula prices is over the course of the year. So we've subsequently seen those rates move higher here in the second quarter. On the flip side to that is when you look at our corporate debt, we show you a sensitivity to a 50 basis point move, it's about a $0.01 impact. And so that move, about roughly 100 basis points or so in the third year -- year-to-date is down about $0.02 and those are the 2 big drivers of each of those variables.

Okay. Great. That's helpful. Does seem positive. And then the other, I know you said no changes to the equity issuance expectations. Just if you could discuss the approach to the timing and methodology, maybe a block or ATM, just given the appreciation of just Exelon but the utility sector broadly.

Yes. I think as we've said, we're expecting to issue up to $1 billion of equity by 2025. We haven't said necessarily when we're going to issue that. And the timing will be dependent on market conditions as well as the need for the cash itself, obviously. I mean there's a lot of things changing in the macro environment when you look at interest rates and, obviously, what the equity market is doing. And we'll work with our banking partners to make a determination at the time we need the equity or the cash as to what type of product we'll use. But at this point, we haven't made that final determination.

Yes. And I think the key, Joe, on that is watching the solid balance sheet metrics and ensuring that we continue to focus on that.

Yes, that's right, Chris. I mean you and I both said in our scripts, right, we're investing $29 billion here over the next 4 years. And what we said at Analyst Day is $14 billion of that will become off of internal generated cash flows with the utilities, $14 billion at debt we raise across the enterprise and then about the need for the $1 billion, we just haven't made a determination as to when we need it.

Our next question coming from the line of Steven Fleishman from Wolfe Research.

So just want to clarify the -- some of the adjustments, not looking backward, but maybe looking more forward. The $0.64 in the quarter, I think, includes $0.02 related to that last month of Constellation. So if we look to '23 in the future, would $0.66 essentially be the right base to kind of forecast from other drivers in the future?

Yes, Steve. Thanks for the question. You're right the way -- I mean if you talking about the performance of the business in the first quarter and removing the impact of discontinued operations, it was $0.66. When you compare that to Q1 for '21, the equivalent number would be $0.64. You're also right, the impact in Q1, because we have to recast the whole quarter, was $0.09. But because we closed the separation February 1, it's in only a 1-month impact in '22. We would expect that 1 month to effectively drag into the comparisons that you see in '23 next year because of the month of January of this year.

Okay. Great. And then just the ROE improvement that you're expecting over the course of the year. Is that just kind of the normal rate relief flowing through and things like that? There's no other kind of key new drivers required to get the returns up?

It's a little lumpy. But as the rate cases go through, we expect the improvement to go within our range of 9% to 10%, and we just have to execute on the plan. So 8.9 right now should come up, Joe, within a few quarters, and we'll be within our range of desire.

That's correct, Chris. We'll be in that 9% to 10% range by year-end, Steve. We infused equity into the utilities in the first quarter. The earnings were up, but they weren't up enough to offset that equity infusion and it just takes some time to reverse that effectively.

Our next question coming from the line of Jeremy Tonet from JPMorgan.

Just want to go over to Illinois here real quick. I wonder if you could update us a bit on how the Illinois rate making process is progressing in the transition to its new multiyear framework. Any color you could share there would be helpful.

Joe, are you going to cover that?

Please repeat the question for me. I'm sorry, I didn't hear it.

Just as far as Illinois ratemaking process progressing in the transition to its new multiyear framework, any color you could share there on the progress.

Jeremy. Chris, this is Calvin. I'll take that one. ComEd -- as Chris outlined, ComEd filed its last rate case under the formula rate this year. And they are preparing a meeting with stakeholders, including the Illinois Commerce Commission, for their first filing of whether it's a traditional future test year or whether they go into a 4-year multiplan -- year plan as outlined by the new energy law. The meetings with the stakeholders is critical in that as ComEd lays out its options. And as Chris outlined, they will be making that filing the first part, January - -first quarter of 2023, with an expected ruling from the commission by the end of the year. So that, to your direct question, the transition is going smoothly. All the meetings are being done and met and the team is lining up on what is the appropriate course moving forward.

Got it. That's very helpful. And just with the new look Exelon here, just wondering how do corporate cost efforts currently stand since the separation? Are they tracking your expectations at this point? And do you have any sense for upside opportunities and potential magnitude of cost savings over time now post separation here?

Yes. I wouldn't commit to upside yet. We've got to get through this transition. There's a lot of work being done by the business services company to execute on plan, the wrong plan right now and we feel comfortable. We watch the IT transition quite closely. That's one that can't get away from us, separating the financials, separating the operational, separating the common databases is -- it's crucial to making our targets. And right now, we're on track and we hope to improve on it, but I wouldn't commit to any significant improvement at this point. We have to continue to work through the process of the separation. It's astounding how much work has got to be done and it is on track, but there's a lot of people focused on it. If you look at the financials itself, separating that, looking at the operational integration, separating that, it's quite extensive. So we have the right leadership with Bridget Reidy and we continue to focus on it. Some areas might be a little bit faster than we anticipated based on the push from Constellation and Exelon, but too early to predict an upside.

Our last question coming from the line of Durgesh Chopra with Evercore.

I have a quick clarification and then a big picture question on EVs. Just, Chris, I think you mentioned, if I heard it correctly, an order in the third quarter on the Illinois, I believe the multiyear rate framework, and I believe it -- that relates to the discussions on metrics, operational metrics that are sort of adders to the ROE. Did I hear that correctly?

I wouldn't say it's the third quarter, Calvin. It's at the end of 2023 that would be finalized, but we did put in our input for the metrics, the operational metrics to ensure the customer satisfaction. But your time line, Calvin.

Chris, you're right. We did put something in our metrics and we would expect to get -- get a response back on that in the time line that was mentioned, but not the full rate case itself.

Right. So the performance metrics, as we've outlined, as you hit, Chris, the 8 performance metrics that they're looking for and we're currently -- it's outlined by the statute, by the law, and Gil and his team are working to drive what those are and give an agreement and alignment to how we move forward. But yes, we think within that, we know within the filing, [both] will all be locked down and our filing will take place in the first quarter of 2023.

Got it. But just to be clear, the sort of the stance or the commission order as to what those metrics might look like and what those like both qualitatively and quantitatively, that comes in -- later in 2023?

9/30 this year.

Right. By 9/30 this year, we will have outlines, therefore, allowing the team to prepare for the rate case filing in the first quarter of 2023. We will know exactly what they are and how they will impact the business positively and/or negatively if those metrics aren't met.

Perfect. Guys, I appreciate you clarifying that. So in the third quarter, we'll know what those metrics are and that will dictate your filing in the first quarter of 2023.

Correct.

Correct.

Okay. And then just a quick follow-up. On EVs, thank you guys for sharing sort of the illustrative EV charging cost versus gas drilling cost, tremendously helpful. Maybe just very high level, and I appreciate this is a long-dated opportunity, is there a way to kind of think about the CapEx opportunity associated with this increase loads demand? And I appreciate it's over a sort of a 20-, 30-year period.

Yes, one of our jurisdictions have a different focus and we're trying to work through those. But we do see, and I'll let Calvin speak to it, we do see a potential upside in the demand required to support the EVs. And for us, it's the infrastructure costs that we have to put in, changing voltage levels up from 41 60 to 13 8 to ensure that you've got not only the distributed generation, but you can service the EV demand. And working in the different jurisdictions on how that is framed is important. Calvin, I don't know if you want to add anything there.

I'll just -- I'll provide you some specific numbers. When you think -- because Chris is exactly right that each of our jurisdictions has approached this some more aggressive and others are just taking a staggered approach. So let's put it in terms of this. Right now, across our territories, we have approximately 215,000 EVs on the road out of the roughly 17 million vehicle registrants. So here under current statutes, the laws that have been passed, so let me just tell you about the degrees of pace. In Maryland, they have said they want 300,000 EVs on the road by 2025. New Jersey, 330,000 by 2025 and 2 million by 2035. Illinois law requires or says 1 million by 2030. And then in Delaware, 20% of the state registered vehicles by 2025. D.C., 25% by 2030 and 100% by 2045. And Pennsylvania is looking to replace 25% of its vehicles and transitioning to EVs. That just goes to show you the opportunity. And when you look at the infrastructure that is going to be required to meet that and all of our capital plan, we see the opportunity across the Exelon utilities. So to Chris' point, all different but significant opportunity for us to be partners in building out that infrastructure and preparing the grid.

Got it. for taking time to answer my question. It sounds like a significant infrastructure opportunity for you guys as it is for the utilities and some of the states here moving faster than others in your territory.

Yes. And for the customers also, it's -- that's our major focus, is continuing to look forward to service the customer needs. But I thank you for joining the call today. We're looking forward to our continuing, consistent performance we've delivered across our utilities. And with that, Jeanne, unless there's anything else, I'll close the call.

Thanks, Chris.

Thanks, everybody. Bye.

Ladies and gentlemen, thanks to all our participants for joining us today. This concludes our presentation. You may now disconnect. Have a good day.