Hello, and welcome to Exelon's Second Quarter Earnings Call. My name is Dillan, and I'll be your event specialist today. [Operator Instructions] Please note that today's webcast is being recorded. 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, Dillan. Good morning, everyone, and thank you for joining our second 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 set about 45 minutes for today’s call. I’ll now turn the call over to Chris Crane, Exelon CEO.

Thanks Jeanne. Good morning, everyone. Thanks for joining us. Before I get into the quarter, I want to spend a minute talking about the Inflation Reduction Act, a bill that's being considered in Congress. We appreciate those who have been working to position the United States as a leader in cleaner energy future and combating climate change. The bill extends tax benefits for familiar renewable technologies like solar and wind. It creates new ones for clean energy sources like nuclear and hydrogen. It also focuses on energy efficiencies, electrification and very importantly equity. These aspects of the bill will enable us transformation for customers while building a domestic clean energy sector. However, the bill also proposes a corporate minimum tax that could undermine the benefits of those incentives and slowly investment needed to make this transformation. The lower cost of clean energy technology and efficiency, their investments will be offset by higher taxes on companies making investments. With this language currently proposed, we and other utilities could face an increase in cash tax. While the bill has yet to pass in specifics could change as currently drafted, we could see an impact of incremental cash tax of approximately $300 million per year starting in 2023. The higher tax would ultimately limit our ability to invest in infrastructure needed to accommodate the clean energy our customers want in our jurisdictions of pursuing, but the situation remains very fluid. We continue to monitor the bill closely as it moves toward a vote in the Senate and beyond. In the meantime, we're working to advocate for language that better aligns incentives to achieve what we all want a cleaner, resilient, reliable and affordable grid, bridge that we are not getting [growth rate] Cleaner grid. Turning now to the quarter. Our first one since…

Thank you Chris and good morning, everyone. Today, I will cover our second quarter results, our quarterly financial updates and highlight several ways in which our utilities and power and economic health and wellbeing the diverse communities in which we serve. I'll begin on slide 6 where we show our quarter-over-quarter adjusted operating earnings waterfall. Exelon continuing operations were at $0.44 a share in Q2 this year versus $0.36 a share in Q2 of last year. As a reminder, the prior year second quarter reflects a $0.09 impact for discontinued operations adjustment for certain corporate overhead costs that were previously allocated to our generation segments that are required by accounting rules to be presented as part of Exelon’s continuing operations. As a reminder, these costs were paid for by generation and are not indicative of our corporate overheads post operation. Additional information including the full year impact of the discontinued operations adjustments on 2021 results can be found in the recast 10-K and which we filed on June 30. Excluding the $0.09 impact quarter-over-quarter of the discontinued operations accounting adjustment for service company allocations, Exelon’s second quarter results were a $1.00 lower than the second quarter of 2021. We did benefit from higher distribution rates associated with completed rate cases, including higher Treasury rates impacting Commonwealth Edison's distribution returns. But this was offset by higher depreciation and amortization, bad debt, timing of other costs utilities, and the impact of rising rates on the debt at the holding company. As Chris mentioned, we continue to reaffirm our 2022 EPS guidance range of $2.18 to $2.32 per share. Our year-to-date operating earnings results of $1.08 per share, are exactly in line with the historical percentage of full year earnings, in which we outlined at Analyst Day. Growth for the balance of the…

Thanks Joe. And turning to slide 12, I’ll close by reiterating that Exelon’s value propositions, its position in the sector, Exelon is a premier TOD only company in the nation consistent of delivery and reliability results. There are several key attributes that distinguish us. We have an unmatched size and scale leveraging a common platform across all our utilities, we consistently and reliably offer best-in-class operation performance. This drives a superior customer experience and facilitates a positive regulatory engagement in our jurisdictions. Our purpose of powering a clean, brighter future for our customers and communities is how important ESG principles are to our company. And we maintain a strong balance sheet that drives investment needed to sustain our success. The net results in our operating, our opportunity to invest the $29 billion of capital over the next four years for our customers, with an annualized 6% to 8% operating earnings growth through 2025. And we expect to pay out 60% of those operating earnings each year to our stakeholders and shareholders. Thank you for your time. Now we'll turn it over to Q&A.

[Operator Instructions] Our first question comes from the line of Shahriar Pourreza from Guggenheim Partners.

Hey, good morning, guys. Chris, just on the Inflation Reduction Act, just given your comments, any thoughts on prospects for ultimate passage? I think [senators] stance is still unclear and we may get a vote this week. And Joe if the 15% AMT passes as it stands, would you be sort of able to update to past as it stands? Would you be sort of able to update the financing plan by the EI timeframe and just remind us the multiyear plans? Would they adjust for the tax changes on the fly or would you require separate proceed in most jurisdictions? Thanks.

Yes, I'll take the first half and let Joe take the second half. We have been working with our Head of Federal Regulatory Affairs, Melissa Levinson, who's in a room here. I’ll ask her if she wants to add anything after I speak. We have done significant amount of outreach, not only as a company, but as an industry to make sure that the message is heard that there is a technical fix that there's a potential or other methods. But I don't think we all know enough. Now, it's very fluid. As you talk to the senators, they're getting up to speed as we're getting up to speed. So it came quick, it came out of the closet. And we have to continue to dive in with the EI and as company to communicate the unintended consequences of where we're at. Melissa, anything else? A – Unidentified Company Representative : I think it remains very fluid, we know that senators are working to review the bill, and understand the impacts. And expectations are that they're going to try to vote on the bill, but the end things remain fluid.

Did I misspeak on the technical fix? A – Unidentified Company Representative : I think as we look at the bill, we continue to talk with the senators about potentially unintended consequences of how the tax might be applied, and its impact on our ability to continue the robust investments that we're making. And so we are talking with them about some of the tax policy that has existed over time that enabled us to cost effectively and affordably invest in and talk about ways to look at the way that the minimum tax is currently structured and see what changes can be made.

Thanks Melissa. Joe?

Yes. And I'll pick up the second two questions, Shahriar. Good morning. The 15% passage as you mentioned, we wouldn't expect to update our financing plans by EI, our normal cadence is that we would do that on the Q4 call after the first of the year. The reason we do that is it gives us time to get through our year end budgeting process. And mark things to that point, whether it's treasuries, pension, et cetera, et cetera. And we would be very transparent at that point. As for your last question, go ahead.

No, sorry, Joe, you go, please.

Shahriar, as for your last question because of multiyear plans are just for tax changes, I think what we would say it's unclear at this point how these taxes will flow through to our customers, as this, obviously as Melissa and Chris just have talked about this situation is very fluid. As it's currently written, we've reached the threshold for the tax at the consolidated level. And so we're working through all this real time.

Got it. And then just lastly, Joe, a little bit of confusion, I guess, this morning around the language around the equity plans for ‘22. I guess what a sort of the puts and takes of doing it via the ATM versus just a pure block, I guess. What are you trying to walk through? Why not just do an ATM? Thanks.

Yes, I think there's a couple of answers to that, Shahriar. I think the first thing is if we were having this conversation, the first of the year, we might have even had a different view with that but that’s market conditions change, we have to change with it. I, the way interest rates move, for example. So what we've tried to do is be transparent that we're putting a $1 billion ATM in place between now and ‘25, which is what we told you the equity needs were, we're going to do $500 million of it this year. But I think it's important for us to maintain flexibility. And that's why we're saying that we would do it in probably the one or two ways that I mentioned.

Our next question comes from the line of Paul Zimbardo from Bank of America.

Hi, thank you. Good morning. Just following up on the IRA and minimum tax. So is the right way to think about it that you could probably absorb that reduction in cash flows just looking at that 12% trigger versus your guidance range or could we think about that as potentially increasing equity and adds.

Yes, we, as I said this is obviously a very fluid situation and we're not ready to commit to either of those. It's all gets tied up. And if this were to pass in its current form this would all get tied up in our end year planning process. What I can say, though is, on the Analyst Day, we committed to use 16% earnings CAGR through 2025. And we're still committed to that.

Okay, great. Thank you. And then you mentioned the performance base rates, we've been watching in ComEd. Do you embed any kind of benefit and not just in Illinois, but across the footprint from potential positive incentives under the performance base rates at that CAGR midpoint you mentioned?

Yes, no, in our plan, we don't embed any incremental benefits from performance.

But strategically tailwind, we are heading -- we're trying to head in that direction.

We are. So as you mentioned, we've been working with stakeholders and filed our performance based metrics outline and goal, which would add if ComEd is able, we were confident to sit back and afford reliable and electricity to the customers, as well as helped the state achieve its goals. The reliability metrics, as outlined could add 60 basis points.

And we also provided an alternative to the commission if they wanted to consider adding up to 40 basis points, but all based on ComEd rising to the standards that have been outlined in collaboration with the stakeholders.

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

Yes, thanks. Good morning. Hey, Chris, could you just give, I’ll calculator this later, but just if you have handy $300 million of cash flow potentially impacted by the IRA? What is that in terms of FFO to debt percentage?

Yes, Joe, you want to --

Yes, Steve, whatever it is, I don't think we're ready to get into that. Because what the way we look at this is not in isolation. We have to go through year end planning process and see what if, what portion of this we can offset with other actions that we can take across the enterprise. And then net of that what falls to the impact of on our metrics. And obviously, this is so fluid, we haven't gone through that detail process.

There's cost cutting, there's adjustment and project schedules, there's multiple ways to avoid any impact on our metrics. And that's what we'll be focused on when we figure out where this thing is going. What we've heard is, by the end of the week, potentially over the weekend, things could happen. And once we get the final, we'll be able to evaluate, and we can put the numbers in and start to see what we can do for mitigation. But we want to keep our capital spending plan where it's, our growth where it's at for reliability, and affordability, while we're maintaining a system that will take on the renewable. So there's a few balls in the air that we'll have to juggle, but we would rather have the fix to the bill. So we're not having to juggle this, but we'll see how we prevail as an industry as we go forward.

Okay, and then second question is just in terms of, Joe, your thought process on the equity issuance timing, and doing half of it in kind of the first year, as opposed to just spread out? Could you maybe just give some flavor? Why kind of you decided that?

Yes, I think, Steve, a couple of reasons. This is the first window we have open post separation. We had to file the updated 10-K at the end of June, which we did, and then we went into blackout. So, as we previously disclosed, we executed some short-term debt, at the time of separation that we're now planning to use the equity to pay down and that's all part of the balanced funding strategies, to continue to support the balance sheet. We went through an evaluation of the type of equity issue and as I said earlier, it’s still very fluid due to changing market conditions and we want to maintain as much flexibility as we can and that's why we're saying we're putting an ATM in place. But we do have the flexibility to do this one time only.

Our next question comes from the line of David Arcaro from Morgan Stanley.

Hi, thanks so much for taking my question. Could you maybe just speak to as you look out over the EPS growth forecast period, your current thoughts on maintaining that linearity of annual kind of cadence and achieving the growth each year through the forecast?

Yes. Thanks David for the question. And good morning, we talked about this, we're confident in that 16% growth rate that we've given you through 2025 as relates to earnings. We've said there is some variability between the years and this really driven by three factors, right. One is, ComEd’s, the distribution return through 2023 is still tied to treasuries, which obviously, we don't control that mark-to-market exercise. And that's priced on a daily average throughout the year. So it's continuing to obviously change. PECO is on a three year rate case cadence. And the way that cadence works is they're higher earnings in the early years than they are later years. And that has some variability. And then lastly, we're transitioning to different ratemaking in Illinois, 2024 and beyond. And we have to make an assumption, what that looks like. And we've done that, and we're comfortable with ranges around that, and that 16% growth rate, but that drives some variability as well.

Okay, got it. Thanks. That's helpful. And on the just the, are we, so ticked down slightly in this quarter, could you just refresh us on the confidence level of net rising in the back half of this year? And then any latest thoughts as to when you might be able to achieve something in the middle, like 9.5% ROE level as you look out in the forecast?

Yes, I think the reason you see the lower ROEs early in the year, and you saw the same trend last year is, it's tied to the equity, we're infusing into utilities, we do, a majority share of our debt offerings early in the year across the enterprise. And as such, to keep those capital structures in line, we infuse the equity, which over the course of the year takes time for ROEs to catch up. And that's really the big driver. So we're confident, we target 9% to 10%, for all of our utilities, we're confident at year end will be in that range, on average across the utilities.

The key on this is the rate cases, as Joe said, and we've seen downward pressure in other jurisdictions on that 9.5% to 10%. So we have to work through that and explain with the higher interest rate environment. We need to be able to move that back up as we're working through our rate cases. So it's reversing the trend of what we've seen in the industry to accommodate the interest rate rise and it's very quick to come down when interest rates come down. It's a crawl back when interest rates go back up. But that's what we're focusing on.

Chris, if I can add, this is Calvin, David, I would also point out, Joe alluded to ComEd earnings being tied to the Treasury. But understand ComEd is also one of the lowest in earnings of any utility that impacts that 9% to 10%, average. So as ComEd begins to transition out of the formula rate, you will see that have a greater impact on the collective of utilities. And it's also important to note, when we talk about the multiyear plans, those three year plans that we've been put in place in Maryland, as well as in the District of Columbia. That's a process that is done in collaboration with the stakeholders and commission. So when we talk about investments across the utilities, that transparency is giving stability to those ROEs and also the growth projection that Joe talks about that 6% to 8% a year. That's how we feel confident that we can come in here and tell you what that growth plan looks like because it is done in collaboration with our commissioners and all of our stakeholders.

Our last question comes from the line of Durgesh Chopra from Evercore.

Hey, guys, thank you. I'll keep it quick. Joe, I just want to go back to the $300 million per year cash impact from the alternative minimum tax, just given that your cash effective tax rate is going up each year. So I'm looking at this slide, which shows 2022, this is slide 16, in the appendix, I believe, which shows the effective gas tax rate going from like less than a 0.5% to 4% in 2023. As I'm thinking about ’24. ‘25, shouldn't that $300 million cash tax impact be actually lower given that you're going to pay some cash taxes, just by the effective tax rate going up naturally in the plan?

I think there's a lot of variables that go into that equation, or maybe we, given the size of our enterprise, and the number of operating companies we have, obviously, there's a lot of things that move around in a given year with taxes. I mean, we see that each and every year, and then quite frankly, each and every quarter. So this is very fluid, the situation we're dealing with as blow smoking. Chris alluded to here, there's still -- we still go to get to the goal line on this and see where it plays itself out. I'm not going to sit here and commit you to say it's going to do this or do that. We're giving you an indicative view what we think that impact looks like over, our planning horizon that we've disclosed.

Thank you. That concludes our Q&A session. At this time, I'd like to turn the call back over to Chris Crane, President and CEO for closing remarks.

Yes, thank you all for joining the call today. We look forward to continue to execute on a plan. And with that I'll close up the call and thank you for your continued support.

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