Hello and welcome to Exelon's Fourth Quarter Earnings Call. My name is Gigi and I'll be your event specialist today. All lines have been placed on mute to prevent any background noise. Please note that today's webcast is being recorded. During the presentation, we'll have a question-and-answer session. [Operator Instructions] It is now my pleasure to turn today's program over to Andy Plenge, Vice President of Investor Relations. The floor is yours.

Thank you, Gigi. Good morning everyone and thank you for joining our fourth quarter 2022 earnings conference call. Leading the call today are Calvin Butler, Exelon's President and Chief Executive Officer; and Jeanne Jones, 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 will 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 60 minutes for today’s call. I'll now turn the call over to Calvin Butler, Exelon's President and CEO.

Thank you, Andy, and good morning everyone. I'm excited to be with you for my first earnings call as CEO of Exelon and one that concludes a very successful year for us. When I first joined ComEd in 2008, it was one of two utilities along with PECO under the Exelon umbrella. We recognized that we had an opportunity to take advantage of the power of the Exelon platform in a meaningful way. The company was already known for building world-class operations in the generation business commonly known as our management model. Over the course of the next 14 years, we applied the same principles of best practice sharing and accountability through performance measurement to our energy delivery business. We were building a standard of excellence to deliver improvements in reliability, safety, customer satisfaction and value. I was fortunate and privileged to be part of guiding this evolution first as the lead to ensure the Constellation merger crossed the finish line in 2012, then in my role as CEO of BGE and eventually as CEO of Exelon Utilities and COO of Exelon. In those positions, the leadership teams and I were able to challenge our talented employees to take our utilities to the next level. We sustained and expanded our operational excellence, improved customer satisfaction, enhanced team diversity and improved earned ROEs from mid single digits to our 9% to 10% target first at BGE and then at PHI. And as you'll hear today, 2022 gave us a chance to showcase what we've built, an ability to execute, push continuous improvement, and achieve a balanced outcome for our customers and investors. But as proud as I am about what our team has built, I'm more excited about what lies ahead and I want to layout our vision of who we…

Thank you, Calvin, and good morning, everyone. I'll start by sharing my own excitement about closing out our first year as the new Exelon. As proud as I am of what we accomplished in 2022, I'm even more excited about our future. Our utilities serve the homes of more than 10 million customers, customers that include our employees, our families, hospitals, schools, and businesses. .: As I cover today’s updates, 2022 results, upcoming rate case activity and the roll forward of our financial disclosures, you will find that our focus on execution drives the results that customers and shareholders expect. Starting on Slide 8, we delivered strong financial results in our first year as a new company. For the fourth quarter, Exelon’s continuing operations earned $0.43 per share on a GAAP and non-GAAP basis. For the full year 2022, we earned $2.08 per share on a GAAP basis and $2.27 per share on a non-GAAP basis. Results that are in the upper half of our narrowed guidance range and represent 8.1% growth of the $2.10 per share mid-point of our Analyst Day guidance range for 2021. Throughout the year, we benefited from rising treasury rates impacting ComEd’s distribution ROE as well as favorable weather and storm conditions. These benefits, along with strong cost control in our core operations, helped to offset higher interest expense at corporate and the businesses, along with the one-time items of discontinued operations and the voluntary customer refund in Illinois. That net favorability provided flexibility to reinvest back in the business and de-risk future years while ensuring we were meeting and exceeding our financial commitments. Quarter-to-date and year-to-date drivers relative to prior year are detailed in the appendix slides 32 and 33. Moving to Slide 9. Looking at our utility returns on a consolidated basis, we…

Thank you, Jeanne. Before turning it over for questions, I will end with the focus of what’s ahead for 2023. Operations and safety continue to be foundational. Maintaining reliability for our customers, while operating safely is non-negotiable. We’ll deploy $7.2 billion of capital, ensuring we make the necessary progress to meet the reliability and technology needs of tomorrow’s grid. Indeed, as many of you saw last week, the FBI announced it had interrupted a plot to damage Maryland’s power grid. The need to enhance the physical and cybersecurity of the grid has never been greater. The industry has made it a priority. The partnership between the industry and the government is key to our defences and on behalf of our employees and our customers we greatly appreciate the vigilance and dedication by the FBI and U.S. attorney for the District of Maryland in protecting our nation’s critical infrastructure. Thank you. Despite the urgency, investing capital efficiently will ensure we are making returns on our investments in line with those allowed by our jurisdictions, earning ROEs in the 9% to 10% range. As a result, we expect to deliver on our earnings guidance for 2023, maintain our focus on a strong balance sheet and execute on a number of rate cases this year to sustain operational and financial performance in the future. As we deliver on this plan, we will continue to focus on the value we are providing our customers. This includes not only continuing to advocate for policies that keep the customers as top priority, but also continuing to evaluate our own business to find efficiencies as a more focused transmission and distribution only utility. Like 2022, we have a lot we want to accomplish in 2023. But we again, expect to be successful because that’s what we do. And we know that’s what you expect from the premier, transmission and distribution company one that’s deploying $31 billion of capital for our customers with rate-based growth and ROEs resulting in 6% to 8% earnings and dividend growth and a total shareholder return of 9% to 11%. As always, thank you for your time and support. And we’ll now take your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Nick Campanella from Credit Suisse.

Hey team. Thanks.

Good morning, Nick.

Thanks for taking my question here. Good morning. Good morning. I think in your prepared remarks, you said you’re going to include the CMAT as a deferred tax asset. And just – can you just give us more color on what’s informing your position on regulatory treatment here? And then separately, it sounds like the CMAT is not included in the FFO to debt metrics. You’re at the bottom of the 13% to 14%, but where did you kind of shake out in 2022? Thanks.

Sure, Nick. Thank you. I’ll start, and then as always, I turn to Jeanne because her team is leading this effort with treasury through the efforts of Rob with EEI. But as we continue to assume that the CMAT is implemented in a way that does not allow for repairs treatment, resulting in incremental cash taxes. As Jeanne talked about, we have fully incorporated into our guidance, including recording each utility CMAT on its balance sheet and as part of its rate base and the implied impact will move around as taxable income and book income change. That doesn’t mean that we’re not continuing to work with treasury to get those – that repairs language because we believe that is the best thing for our customers. In addition to that, Nick, as we’ve talked about, we have already taken that challenge and offset within our earnings, but we have pushed it down into the utilities where the income is earned and it will move around. But I’ll let Jeanne clarify, provide any additional information.

Yes. No, I think that’s well said. As Calvin said, we’re still working on the tax repairs deduction and without specific language in the regulations, we continue to assume the higher cash tax burden, but you do – by having the deferred tax asset at the operating companies, you do earn on that in rate base. So that provides a little bit of sort of offset over time as that rate base builds. We also, so all of the cash taxes are included in our forward-looking guidance from both an EPS and a credit metric perspective. And we continue to reaffirm the 6% to 8% on the EPS side. And then as it relates to the balance sheet, we are still expecting to be at that 13% to 14%. And so with the inclusion of the higher cash taxes or said another way, without the repairs deduction, we expect to be closer to that 13%. If we are able to include the tax repairs deduction, we’d be at the higher end of that 13% to 14%. So, we’ll continue to work with treasury on that, and we’ll continue to focus on our cost management and cash management to continue to increase that cushion.

Got it. And then, sorry if I missed the disclosure, but where did you kind of end the year out on your credit for 2022?

Yes. So we typically don’t give specific years. The rating agencies will publish that. We ended the year above our downgrade threshold. I think, as you think about credit metrics, the way we look at it and the way the agencies do is over a three-year, four-year time period because of the different moves in cash from a regulatory perspective. So, I’ll give you a couple of examples. While we’ve benefited from the higher ROEs [at ComEd] (ph) on the earnings side, we can recognize that the cash collections on that come through the reconciliation. So for example, in 2022, right, we had the higher earned ROEs, we won’t collect that until 2024. So it’s important for us to look at it on an average basis so that you capture those timing differences. The other aspect I’ll mention is, as I talked about in my prepared remarks, ComEd elected to defer some of the rate increase in 2024 to 2026. So again, looking on it over that time period is important because without it, you’re missing some of the cash timing. And that’s why we look at it on that average basis.

Thanks a lot for that. And then, I guess just, it’s nice to see that you bumped the CapEx program higher, and you’re not changing your kind of total equity needs in a five-year window here. Just of that remaining 425 equity, you guys did a block for the first piece. Just is it your intention to kind of dribble out the remaining here via an ATM or otherwise, any comments on that?

Yes, we want to retain the flexibility just given varying market conditions, but we do still have our $1 billion ATM, so we can leverage that as needed to dribble it in as you suggest.

Really appreciate it. Thank you.

Thank you, Nick.

Thank you. [Operator Instructions] Our next question comes from the line of Steve Fleishman from Wolfe Research.

Yes, good morning. Thanks for all the…

Good morning.

Good morning, Calvin. Jeanne, thanks for all the clarifications on guidances. Don’t have to ask all sorts of midpoint or median or other type questions this time.

Had to [Indiscernible].

So just on Slide 16, I guess the one thing that’s interesting is just for PECO, in the 2023 kind of second year of a rate year, it was a – it’s a down versus 2022, but in 2026 second year it’s kind of more flattish or yellow arrow. Is that just that PECO had this return to normal weather and storms and other stuff that is an issue 2023 versus 2022, and that’s pretty much it, but like otherwise would be kind of the normal course.

Yes, you’re right on point, Steve. That’s exactly the reasoning.

Okay. Okay. And then just on the topic of the – on Illinois, could you give us maybe some sense of when we’re going to get information on the process, on the recommendations and other stuff on the multiply year kind of timing?

Yes, and I do have with me Gil Quiniones, CEO of ComEd to really walk you through that process. So I’m going to turn to Gil to kind of walk you through the timing of how things are going to unfold. Gil?

Hi, Steve. So there is a tentative schedule set. And in May, we expect the testimony of the interveners to be submitted in August, evidentiary hearings will commence. And again, the – after that all the way to the required schedule is for the ICCR regulators to make their final determination before December 20 of this year.

Okay.

So that [Indiscernible] calendar, Steve, any additional questions on that?

Well, just, is there, because this is first time, is it likely that this would go through a fully litigated process or should we think there might be opportunities to settle these cases?

No, I would anticipate on this - this would be fully litigated Steve, because, as we talked about, as I talked about in my comments, it’s been a very engaged stakeholder process. And if I was the commission in this, I would make sure that we have a forum for everyone to be heard and we wouldn’t rush to the final outcome because this will put Illinois on a path to decarbonize like no other state except for maybe California. And it’s in a very aggressive approach and the legislation is comprehensive and ComEd being the largest utility in the state I think they need to make sure that all voices are heard and the stakeholders are engaged throughout.

Great. Thank you.

Thank you.

Thanks, Steve.

Thank you. One moment for our next question. Our next question comes from the line of David Arcaro from – or Morgan Stanley. Your line is now open.

Hi, good morning.

Good morning, David.

Thanks for taking my question. Good morning. Maybe just a quick follow-up on the…

Good morning.

… PECO related question. I was just wondering, so you’ve got the one year in 2023 below the low end, but really back in the six to eight or above thereafter. And I was just wondering maybe more broadly or structurally like is the business now manageable within that 6% to 8% annual growth level year-to-year, even through some of the lumpier rate cases as you look forward?

No, if I understand the question, David, PECO is a very well run utility and operating at a high level. And because they have taken the option on the three-year forward-looking test year process, it is one that the regulatory agency understands, one with the company has deemed it is the best value for our customers. And although they have the option to file an additional alternative rate mechanism, we’ve stuck with this course. And we are also looking at to your point, how can we balance the earnings over the course of the three years where it’s more linear and process and the teams continue to work on that. We continue to look at other options, but have chosen to stay the course of where we are at the present time. And Mike Innocenzo, the CEO of PECO is here with us right now. Mike, would you have anything to add with that?

Again, I would just – I would echo that. In Pennsylvania, we do have the ability for three-year [ph] rate structure. We’ve continued to review this annually and believe that it’s the current course has been the best for balance between the shareholders and fair rates for our customers.

David, I think the – so tapping off of that. On PECO, I would look you to Slide 16. So there is the second year of PECO in 2023. But to your point, beyond 2023, we expect to be within or above the range. And so, while you have PECO in 2023, there’s a couple other factors impacting 2023 that don’t carry forward. Unlike, our assumption that PECO continues on this three-year rate case cycle. There’s a couple other things that are unique to 2023 that I’ll just highlight. One is, as we’ve talked about, we’re not yet through the reconciliation processes in Maryland and D.C. for the first multi-year plans. Once we get through that, the alignment between rate-based and growth and earnings growth is strengthened. So that’s number one. The second is in 2023, we have the D.C. stay out provision. So they’re still on 2022 rates. And so as we get out of that and move towards 2024, you’re going to have new rate cases, new multi-year plans for 2024, 2025, 2026. Starting in 2024, so that starts again to strengthen the earnings power there. And then on top of that, ComEd is moving to its multiyear plan. And so as you go through 2024 you start to see again three of our four operating companies on multiyear plans with reconciliations, strengthening that alignment between rate base growth and earnings growth. And then you've got PECO with that variability that Calvin and Mike touched on. So that's why, if you look forward, 2023 is a little bit different than 2024, 2025, 2026, and I think Slide 16 really helps lay that out.

Thanks for that.

Did it answer your question, David?

Yes, absolutely. And I was just wondering on the – maybe just a quick other topic on the Chicago franchise agreement. I was wondering if you could just speak to the financial implications of the proposal that you've put forth? And your thoughts on the prospects to get that approved and when that could go into place? Thanks.

Absolutely. A couple of things. As we've been highlighting to you in our previous earnings call, we understood and have a clear understanding of what the City of Chicago was striving for. And I think the proposal that ComEd has presented in partnership with the Mayor outlines the goals of decarbonization, equity and workforce development. Within that ComEd over the course of the last couple of years as they've been negotiating this and putting this in place, understood the dollars in which they would do and what we would commit to as a company. Exelon, ComEd and alike and shareholder commitment to this effort because we value the partnership. So what has been outlined from the Mayor really is essence of all of that in terms. Gil, as I mentioned, is here to talk about some of the details, but what we have laid out is that this process goes to the Rules Committee this month with the city. And from there, it will go to a committee of jurisdiction. And we're confident that, as they begin to do an analysis of what we're proposing, it will meet the aspirations of the city and achieve those goals overall. So on the financials, I'm going to turn it over to Gil to kind of walk you through what that is.

Yes. So for the Chicago franchise agreement, there are actually two agreements. There's the franchise agreement and the energy and equity agreement. And as Calvin mentioned, our goal was to align our proposal to Chicago's Climate Action Plan and the state's Climate Equitable Jobs Act, and we achieved those goals. In terms of the financials, it is a 15-year agreement with an option to extend for another five years and the first 15 years, we have committed – proposed to commit $100 million in shareholder dollars and if extended, another $20 million.

And all of that's baked into the guidance that we've provided.

Correct.

Okay. Understood. Great. Thanks so much.

Thank you, David.

Thank you. [Operator Instructions] Our next question comes from the line of James Kennedy from Guggenheim Partners.

Hey guys. Good morning. Congrats on the outstanding quarter.

Thank you, James. Good morning.

So I guess just kind of keeping on the topic of Illinois, how are you thinking about the backdrop for transition at the commission this year, given there's a vacancy, there some expired terms and some other overhangs on several at the moment?

Yes. James, great question, but I'll be honest with you. When we look at our interactions and engagement with regulatory bodies, we anticipate turnover. And that is exactly why – although we have regular conversations about the process and what we're proposing, our real engagement happens with our stakeholders, the stakeholders, our customers, residential, commercial and industrial. As I outlined in terms of ComEd even filing, I think there were over 45 stakeholder meetings, presentations over and over 1,000 different people attended these. So although the commission turnover is something that we deal within all of our jurisdictions, if we're doing this right, and I think we are. We're meeting the policy expectations of each of our jurisdictions, aligning our filings with those policies and engaging stakeholders at the grassroot level, the commission turnover should not be that big of a deal. So that's how we approach it in not only Illinois but in each of our jurisdictions.

Got you. Got you. And then just on the expense side, '22 adjusted O&M look like it came in a little bit higher than the prior plan. I guess what were the drivers there? And how should we think about the, the future cost inflation embedded in the drivers and assumptions you guys laid out on Slide 16 that? Thanks.

Yes. Great question. So for – you’re right, so for 2021 to 2022, we did see a little bit higher O&M. We had projected at Analyst Day to be up around a $100 million year-over-year due to certain IT investments, another infrastructure, cybersecurity work that was occurring in this year. But in addition to that, there were a couple other items at the end of this year or that impacted 2022. First was we have some onetime cost associated with the implementation of the Climate and Equitable Jobs Act at ComEd. So that’s reflective there. In addition to that, as I mentioned in the prepared remarks, we did some derisking this year. So we took advantage of the opportunity from some of the tailwinds related to the ComEd ROE and favorable weather conditions to get some work done this year, including corrective maintenance and veg management, but also some customer assistance and community support initiatives. So all in all that, that sort of gets you to the higher O&M for 2022. And then you asked about how to think about it going forward. I think the, our goal is to keep O&M as low as possible. You can see 2022 to 2023 is only a 1% increase and our long-term CAGR since 2016 has been about 1.7%. So our goal is to keep that as low as possible.

Perfect. Thanks guys. I appreciate it.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Durgesh Chopra from Evercore ISI.

Hey good morning team. Thank you for taking my questions. Jeanne, just a quick clarification on the $850 million - $875 [ph] million in CapEx which is sort of in the, I guess in the 2023 or the prior four years. Is that all in Illinois? Is that Illinois distribution?

Yes, no, there was some also at BGE on the transmission side. So I think, while ComEd updated for its multiyear plan, there was also some added investment at BGE as well.

Got it. But most of it is in Illinois. And that is included in your, the multiyear rate filing?

That’s correct.

Okay, thanks. And then just, I think this is back to you, but and I appreciate this is going to be difficult, but pretty sizable increase in CapEx that is great to see, and the equity didn’t move. Can you share any thoughts as we think about, sort of when you update your CapEx plan for future years, how should we think about equity needs? I’m thinking sort of 2027 and beyond. Are those going to be modest given that, you’re kind of trending upwards in your FFO to debt metrics?

Yes, I think as you saw in the waterfall of the latest, sort of financing of the investment plan, our internal cash flows continue to strengthen as we step into new multiyear plans. And we have the roll-off of the onetime opening balance sheet adjustment in 2022. But, and as our rate base grows and depreciation, we collect that and reinvest it back in the business. As you think about, so for that period, right we’ve reaffirmed the 425 to the extent additional capital is required to help our energy, our jurisdictions with their energy transformation. You can expect us to fund it in a balanced way with a keen focus on our commitment to 6% to 8% as well as the balance sheet cushion that we talk about a 100 to 200 basis points.

That’s helpful. Thank you very much.

Thank you.

Thank you. I would now like to turn the conference back to Calvin Butler, Exelon’s President and CEO for closing remarks.

Thank you, Gigi. Let me first begin by saying thank you to each of you for joining the call and the partnership that you’ve shown and demonstrated to Jeanne and I over the last several months. It’s been really appreciated. And to our employees, thank you for all the hard work and dedication that you demonstrated in 2022. We look forward to engaging with all of you throughout 2023. And with that, that concludes this call. Have a great day.

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