Hello and welcome to Exelon’s Second Quarter Earnings Call. My name is Gigi and I’ll be your event specialist today. [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 and good morning everyone. We are pleased to have you with us for our 2023 second quarter earnings call. Leading the call today are Calvin Butler, Exelon’s President and Chief Executive Officer and Jeanne Jones, Exelon’s Chief Financial Officer. Other members of Exelon senior management team are also with us today and they will be available to answer your questions following our prepared remarks. Today’s presentation, along with our earnings release and other financial information can be found in the Investor Relations section of Exelon’s website. We would also like to remind you that today’s presentation and the associated earnings release materials contain forward-looking statements, which are subject to risks and uncertainties. You can find the cautionary statements on these risks on Slide 2 of today’s presentation or in our SEC filings. In addition, today’s presentation includes references to adjusted operating earnings and other non-GAAP measures. Reconciliations between these measures and the nearest equivalent GAAP measures can be found in the appendix of our presentation and in our earnings release. It’s now my pleasure to turn the call over to Calvin Butler, Exelon’s President and CEO.

Thank you, Andy. Good morning, everyone and thank you for joining us for our second quarter earnings call. We continue delivering on our plan as expected, which is a testament of all of the work put in by our dedicated employees. But before we get into our results and business updates, I’d like to first start by acknowledging a key milestone. In July, ComEd reached the end of the 3-year term of the deferred prosecution agreement with the Department of Justice. At the court status hearing, the government moved to dismiss the charge, noting the company fully complied with the DPA, which the court granted in the hearing. We remain committed at all levels of the company to the highest standards of integrity and ethical behavior and we look forward to building on the trust of our customers as we continue to move forward. In that spirit, I am pleased to welcome Anna Richo to our Board of Directors. Anna is the General Counsel, Chief Compliance Officer and Corporate Secretary for Cargill and she brings highly complementary experience as an attorney and business leader. Her commitment to operational excellence and compliance will provide invaluable oversight. Now turning to the results for the quarter. As you can see on Slide 4, we earned $0.34 per share on a GAAP basis and $0.41 per share on a non-GAAP basis. These results are right in line with what we expected this quarter, and we remain on track to earn within our guidance range of $2.30 to $2.42 per share for 2023. We continue performing operationally at a very high level. Three of our four utilities had best on-record performance in outage frequency and outage duration, which I will touch on more on our next slide. We have also continued to progress through our…

Thank you, Calvin, and good morning, everyone. Today, I will cover our second quarter financial update along with the outlook for the second half of 2023, our progress on the 23 rate case schedule, and I’ll also highlight an ongoing project that exemplifies our commitment to delivering sustainable value as the premier T&D energy company by modernizing critical infrastructure in the Philadelphia area. Starting on Slide 6, we show our quarter-over-quarter adjusted operating earnings. As Calvin mentioned, Exelon earned $0.41 per share in the second quarter of 2023 versus $0.44 in the second quarter of 2022, reflecting lower results of $0.03 per share over the same period. Results of $0.41 in the second quarter were right in line with the expectations provided in the prior earnings call. Earnings are lower in the second quarter relative to the same period last year, driven primarily by $0.04 of higher interest expense due to the rise in interest rates and higher levels of debt at the holding company and at some of our utilities as well as $0.03 of unfavorable weather at PECO. This was partially offset by $0.03 of higher distribution and transmission rates associated with incremental investments net of depreciation as well as a $0.01 of carrying costs related to the carbon mitigation credit balance at ComEd. Despite another quarter of mild weather impacting our non-decoupled jurisdictions, we delivered earnings results exactly where we said. Through the first half of 2023, operating earnings are $1.11 per share, reflecting 47% of the projected full year earnings. This is in line with how we performed through the first half of 2022. Looking ahead to next quarter, we expect a relative EPS contribution in the third quarter to be approximately 28% of the midpoint of our projected 2023 operating earnings guidance range. Recall that…

Thank you, Jeanne. I will once again remind the investment community of what we’re working to accomplish in 2023. We take great pride in our operational excellence, which our employees dedicate themselves to daily. Summer is when we see some of the most severe weather activity, and our teams embrace the challenge to get customers back online quickly and safely. As we proceed with our work of supporting the energy transformation in our ongoing rate cases, we are very focused on listening to our stakeholders. We want to ensure that we are delivering the right investment plans and the right services to support meeting their energy transformation and climate goals in an affordable and equitable manner. After this year, much of our path forward for the next several years will be established and clear. The team also understands it must deliver on our financial priorities and guidance. Efficiently investing $7.2 billion of capital and earning ROEs in the 9% to 10% range will support meeting our 2023 earnings guidance range of $2.30 to $2.42 per share and keeping our balance sheet strong. And finally, we’re continuing to look for innovative ways to support our customers and communities end-to-end throughout our business. In partnership with the Exelon Foundation, we are looking to place our next round of investments in the $20 million climate change investment initiative fund or 2c2i, an innovative way to advance solutions to the challenges brought by climate change, while improving the quality of life for residents of our cities. For this year, five companies were selected to receive investments, spanning areas like software analytics to track air quality, non-recyclable plastic reuse and novel EV charging solutions. Every day, we’re reminded that the energy transformation is happening, and we have to be a vital role in it. And…

Thank you. [Operator Instructions] Our first question comes from the line of David Arcaro from Morgan Stanley.

Hey, good morning. Thanks so much for taking my questions.

David, good morning.

Let’s see, wondering if you could speak to the comment and BGE rate cases and how these have progressed so far relative to your expectations? Just when you look at the key intervener testimony that we’ve gotten so far, like staff in both cases, how have these shaped up overall in terms of the focus areas versus what you had expected?

Yes, David, thank you. This is Calvin. I would tell you that they are proceeding as planned. And the teams have provided their responses, and as Jeanne mentioned, we’re going through the process. But we have with us both Gil Quiniones, President and CEO of ComEd; and Carim Khouzami, President and CEO of BGE, who can – I will ask them to just kind of take your time and walk you through some of the highlights of each and what you can expect moving forward. I’ll start with Gil of ComEd.

Yes. This is Gil from ComEd. The ICC staff and interveners in the aggregate did not waver from their initial positions filed in their direct testimony in May. They maintained their position in ROE and the pension asset. Their challenges on capital center on certain IT projects, our fiber and proposed private LTE communications network upgrades and systematic and programmatic spending. The rate case process still playing out, as Calvin mentioned, and we will continue to make our case for those capital investments. We continue to have regular meetings with staff and interveners to provide additional information, answer any of their questions and provide clarification.

Carim?

Good morning. This is Carim Khouzami from BGE. As Calvin mentioned, the case is proceeding as expected. The staff has come in with a proposal of about 70% of our ask. As expected, some of the areas of debate surround ROE investments in our gas system and some building electrification programs that BG proposed for the first time to help the state meet its climate change goals. One of the things to point out, as you know, reconciliations of the first time it is being done in Maryland in a multiyear plan. Both staff and OPC and other intervening parties suggested about 90% of our requests. So again, that is proceeding well. So all in all, going well. As Calvin and Jeanne mentioned, we have more hearings at the end of August, early September with the final order expected in mid-December.

And David, I would just add to that, both plans were built on helping the states meet their environmental and climate goals as well as economic development and job creation opportunities. So the stakeholder process, I don’t want to underrepresent because both companies have been very engaged in that process and meeting with all stakeholders. So again, proceeding, it’s a process that will play itself out. But we expect orders for both companies by the end of the year.

That’s really helpful color. Thanks for all that. And appreciating that there are new commissioners in both states, do you see an opportunity for settling on any issues, partial settlement, full settlement? Or is the expectation and strategy just kind of see this through kind of a fully litigated case more likely?

No, great question, David. We expect to see them both fully through and recognizing that, as Carim mentioned, first time for the reconciliation process in Maryland. And it’s the next 3 years, we will see it through and let it play out. And for Gil, moving from the formula rate to a 4-year multiyear plan, it’s important that everyone feels that they have had a chance to voice their opinions and that stakeholder process is critical to that. So we do see it playing out all the way to the end of the year.

Got it. Okay, great. Thanks very much.

Thank you.

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

Good morning, James.

Hi, guys. Good morning. How it going?

Good.

So I guess I’ll start with the transmission announcement this morning, the $870 million for brand insurers. Is the portion that falls in the current plan, purely incremental? And secondly, any color on the potential quantum of other opportunities like these as we start to see other retirements in CMC and BGE?

Thank you, James. First off, it is all additive to the current plan. We do not have any of that, as we’ve conveyed to you previously, we were never going to put anything that we were striving to get until we want it. So that’s important. I have with us today David Velazquez, our EVP of Operations, to provide additional oversight or insight into this because David oversees our transmission strategy across Exelon. So David?

Yes. Thank you, Calvin. And James, thanks for the question. Besides the brands insurers transmission reinforcements that are needed, you may be aware that PJM also has an open – what they call an open window to help transmission reinforcements needed for additional load growth in the Dominion territory. That is currently open. We have submitted four different proposals in that open window range from, I will say, smaller enhancements in the $300 million range to large projects that helped meet both short and longer term needs that are well over $1 billion. And PJM will provide an initial readout of their recommendations committee meetings in September-October timeframe with an expected decision from the PJM Board in December of this year. In addition to that, there are offshore – their transmission reinforcements needed for offshore wind, both in New Jersey and also in Maryland. And there is legislation in Maryland that requires the PSC by July 1st of next year to make a report back to the legislature and then to issue a solicitation for transmission reinforcements for offshore wind by July of ‘25. So, not just with the brand insurers retirement, but offshore wind, load growth, and again, cannot predict generation retirements, but if they occur, we are ready to do what we need to do to ensure the reliability of the grid.

Thank you, David.

Excellent. And then just second question real quick. Can we get an update on the ComEd franchise agreement process?

Yes. Right now, it’s status quo. You can appreciate the team has been very involved in the franchise. And with the new Mayor coming in line, he is assembling his team. Gil and the ComEd team have been working very closely with him on several issues. And really, what we are talking about is that we had come to an agreement with the livelihood [ph] administration earlier this year, as you know, on that franchise. And the parameters of that proposal, we have discussed with you on previous calls. But at this time, the Mayor and I think the team is looking at those provisions and trying to make it his own, this administration’s own. Gil, would you have anything else you would like to add there?

The only thing I want to add, Calvin, is that we have had initial conversations with them, and they had informed us when they are ready, we will engage and restart our negotiations for a new franchise in Chicago. But in the meantime, our existing franchise agreement continues.

And that’s very important for us. And in addition, I just want to recognize that Gil has been partnering with them. He was just recently named to the Environmental Justice Transition Subcommittee for this Mayor. So, the team has plugged in with the administration, and more of why that’s important is they are understanding what their priorities are as a new administration. And I think that will play directly into the new franchise agreement.

Wonderful. Thanks guys.

Thank you. [Operator Instructions] Our next question comes from the line of Paul Zimbardo from Bank of America.

Hi Paul.

Hi. Good morning team. Thank you for the time.

Good morning.

First, I just wanted to get a little bit more clarity. If you could briefly comment on that SEC matter that you disclosed in the earnings results that you just out, does this fully resolve that legacy SEC investigation?

Hey, good morning Paul, it’s Jeanne. So, the SEC investigation is still ongoing, but we did reach a point where a loss contingency was probable. So, we did book that. You can see it’s treated similarly to how we had treated the initial DPA amount. It’s a non-operating one-time nonrecurring item that is in non-operating earnings. So, it’s continuing, but it is related to the investigation that began in 2019, so the same original investigation.

Okay. Great. Yes. I just wanted to clarify that’s original stream.

Yes.

Okay. Great. And then second, just as we think about the long-term, I know you reaffirmed that expectation midpoint or better 2023 plus, just interest rates keep ticking up stubbornly like 50 basis points even since the last update. Could you discuss some of the areas of offsets, whether cost or otherwise, to kind of combat those higher parent costs? Thanks.

Yes. Well, I will start and then I will turn it over to Jeanne. As you have alluded to is that we are seeing – our customers aren’t immune to the higher-cost commodity prices that are going on across the country. But we have always, as a company, been very aggressive in managing our costs, and that didn’t change upon the separation. Our first and foremost priority was ensuring that our costs didn’t go up as a result of that separation. But let me tell you some of the things that we have done. We have realigned our real estate portfolio, creating flexible work arrangements to rationalize our office footprint. We have automated – we continue to look for ways to automate our work processes and really becoming more efficient and nimble in response to our customers’ needs. And we have centralized our transmission operations to harness best practices on organizational efficiencies. And it’s important to note that over the course of our – since 2016 with the course of our plan, our O&M CAGR has only gone up 1.7%. And the year-over growth is just over 1% in 2023. I say that to you to say that costs continue to be a primary focus of the organization and affordability for our customers. Having said that, we are not done. We are just scratching the surface as a leadership team to really look at how we are going to operate as one Exelon, as a pure transmission and distribution utility company. And we continue to focus on that. So, that is what our focus is on day-in and day-out. Jeanne?

Yes, I think that’s well said and all of that helps to reduce the O&M and preserve the cash, which minimizes the amount also that we need to finance in terms of our investments, so getting that cash and redeploying it back into the business. The only other thing I will add is on the interest rates, how we do as a whole – at the operating companies, we are stepping into new – sort of new rate cases, so the ability to recover the incremental interest there is important. But at the parent company, we do engage in reinsurance hedging and so being able to lock in with certainty ahead of time heading into a year what that interest expense is, is important. So, we will continue those practices that helped us heading into ‘23, and you can expect us to do that for future issuances as well.

Okay. Great. Thank you for the color team. I appreciate it.

Thank you, Paul.

Thank you. [Operator Instructions] Our next question comes from the line of Jeremy Tonet from JPMorgan Securities, LLC.

Hi. Good morning. This is actually David Kelly [ph] on for Jeremy. Just wondering, would you be able to outline your current credit metrics relative to thresholds and plan targets? And how could this ultimately contribute to your 425 remaining equity?

Sure. It’s Jeanne. So, on the current credit metrics, I think S&P and Moody’s just recently published kind of the prior 12 months, those were at 13%. And as we show in our slides and as I talked about in the script, as we look at our ‘23 through ‘26 time period, we expect to be at that average of 13%. And as a reminder, our downgrade threshold is 12%. And that 12% is afforded to us and we don’t take it lightly, that’s why we have that cushion. But it’s a reflection of our low-risk platform, right, diversity, scale, forward-looking rate mechanisms, 75% decoupled revenues. So, all of that put together, no generation, all of that results in a very low risk profile. But we like to manage at that 100 basis points or 200 basis points above that. So, at the 13%, as the rate agencies just published, we expect to be at that 13%. If we get the corporate alternative minimum tax mitigated, we would be closer the mid-higher, like that 13.5%, 14%. And we are hopeful to know that final regulations or at least preliminary regulations by the end of the year. You asked how that relates to our equity. We have no change in plans related to the 425. So, said another way, if we got the corporate alternative minimum tax alleviated, we would still do that 425. And so you can expect us to do that sometime between now and 2025. The last thing I will say is just as it relates to Moody’s and S&P, there is a little bit of difference in the calculation. S&P will sort of trend at that 13% over that time horizon. Moody’s, however, because of the calculation, there is some cash timing differences. So, we expect to be sort of on the low end in ‘23, ‘24 and then on the higher end in the back end, such that you average 13%. And that’s really driven by some of the formula rate timing at ComEd with the true-up coming for ‘22 and ‘23 coming in, in ‘24 and ‘25. But that’s sort of – that’s why we give you the average because we want to sort of neutralize some of that cash flow timing as well.

Appreciate the color. I will leave it there. Thanks.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Carly Davenport from Goldman Sachs.

Hey. Good morning.

Good morning.

Thanks so much for taking the questions. You had mentioned kind of O&M levers to offset mild weather this year. So could you just talk a little bit about how O&M costs have been tracking relative to your expectations? And then what you expect to see for the balance of the year from a rate of change perspective on O&M?

So initially, we have always maintained a philosophy that we will drive O&M costs below the rate of inflation. Now that was over the traditional rate of inflation that we have been experiencing over the last several years, keeping that around 2% to 2.5%. And as I mentioned, we are trending strong and keeping or meeting our objectives of doing so. And that has always been our benchmark. The CEOs who are sitting around the table, we talk about keeping our O&M flat and seeing what levers are driving it to possibly go up, which allows us that flexibility when you have unseasonally warm winters or anything else in PECO or the like, we got 75% of our rate base, our 73% is decoupled. So, a lot of the weather impacts that you are talking about really focus on PECO primarily as the largest utility that’s done. Having said that, we will continue to manage those costs. We never take our foot off the gas in doing so. Jeanne?

Yes. And as it relates to the weather for ‘23, we had a combination of offsets across the platform, mostly at PECO, BGE and PHI given ComEd has the formula rate true-up on O&M. But across those three operating companies, we saw O&M levers, whether it was taking advantage of labor vacancies, lower T&E and contracting spend. And then in addition to that, PECO had some favorable depreciation. So, the combination of all that was probably around $0.04 of the $0.07 of weather, and then we had the ComEd carrying costs, which were a benefit this year. And it’s a benefit this year relative to last year because we did not have this large reg asset really sort of was built up at the back end of last year. And the interest deposit rate on that was zero for the commission. So, we weren’t getting an interest offset, even though we were incurring interest on that last year. However, now in this year is a benefit both to last year and to guidance because we have the larger reg asset this year. And while we are still incurring the carrying cost on that, the ICC reset the deposit rate at 5% this year. And so relative to guidance, we are now having an offset to that, that wasn’t baked into our plan. So, that’s probably about $0.03 of the $0.07. So, you put all that together, that’s how we are offsetting the $0.07 of weather. And to Calvin’s point, we just continue to focus on what else we can do to drive down those costs. And we are just starting to scratch the surface there.

Got it. That’s helpful. Thank you. And then just on the corporate minimum tax. I know you mentioned expecting to at least get kind of preliminary clarity there by the end of this year. But is there any color that you can share maybe from your discussions around the temperature on the tax repairs deduction and getting the gating factors to that being included?

I would just say there is – it’s probably not much else to share. There are ongoing discussions. Their stakeholders remain receptive to the discussion and to the technical differences that the utility industry faces in being a very capital-intensive utility and some of the regulatory accounting that will release that capital-intensive nature of our industry. So, receptive discussions ongoing. And I did mention earlier in the script, we did see some guidance come out in June that basically said, hey, if you think you are subject to this tax, you won’t be penalized if you don’t pay it this year. We understand there is more sort of guidance and interpretation needed. And so that was just one other data point. But just ongoing discussions and we remain hopeful that we will have more clarity by the end of the year.

Awesome. Appreciate that. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Durgesh Chopra from Evercore ISI.

Hey guys. Good morning. We are close to the hour here. Thanks for giving me time.

Good morning.

Good morning.

Good morning Calvin. Good morning Jeanne. So, I just want to go back to the ComEd rate case real quick. And some of us were expecting an update from staff on the ROE calculation and the output itself. It seems like they are kind of using the same methodology and using rates as of last year. Just how do you see that progressing? Any thoughts there would be appreciated. Thank you.

Yes. I think as Gil mentioned, still more to come. We are still putting forth a strong argument around our proposed ROE. As you mentioned, they did not change their position. It appears to be sort of this continuation of the formula, which [indiscernible] was clear that the sunset of the formula rate was required. So, our filing offers an ROE that we feel appropriately reflects the actual cost of equity, taking into account the current market conditions. So, we will continue to work through that process. I think there is that data point and then there is the Electric Proxy Group, which is also another data point in the staff testimony. So, we will continue to work through that with them, but no changes as of this point.

Got it. Okay. It sounds like we will get an update here before the end of the year. Just switching gears, I have a question on supply chain, and Calvin or anybody else in the room, would love your views there. Just we have seen several media reports on transformer shortages. So, maybe broadly, can you comment, you have a sizable CapEx plan, obviously. But just broadly, can you comment on equipment shortages, labor shortages? And how is that tracking this year versus, let’s say, 12 months ago?

Yes. I would tell you that one of the, I would say, advantage is of being of our scale and our platform is that we are able to leverage the size to not only access our current suppliers, but identify new ones. So, directly to your question, we have not seen a shortage in our transformers. We have not seen a shortage in workforce or any other things that are impacting us executing on this capital plan. Now, what we do pay attention to, as new businesses coming online, our ability to give that online in the timeframe that some of our customers are looking for because that wasn’t part of that initial planned work. So, we stay on top of that and working with our supply organization. But to-date, we are not experiencing those same issues that others made.

And I think one of the benefits of our profile rate of the $31 billion, as we have talked about before, not one project is greater than 1% of that spend. So, the ability to kind of manage that portfolio in bite sizes to the extent we do experience any issues allows us to be able to stay on track and deliver.

Got it. Thanks again guys.

Thank you.

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

Gigi, thank you very much. And I just want to always thank you all for joining us today. From the comments made today by Jeanne and I and the leadership team around the table, you see that we are focused on delivering on plan. So, as always, appreciate your interest, and this concludes our call.

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