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 Andrew Plenge, Vice President of Investor Relations. The floor is yours.

Thank you, Gigi, and good morning, everyone. We're pleased to have you with us for our 2023 fourth 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'd 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 is now my pleasure to turn the call over to Calvin Butler, Exelon's President and CEO.

Thank you, Andy, and good morning, everyone. We appreciate you joining us today. On Slide 4, we have laid out our key messages for today's call. First, we are pleased to share that final results for 2023 exceeded the midpoint of our narrowed guidance, delivering $2.38 per share of operating earnings, or almost 6% growth off of last year's guidance midpoint. This is the second year in our two years as a purely regulated T&D utility that we have delivered results in the top half of guidance. And that is despite historically mild weather in the Mid-Atlantic where PECO experienced its mildest year in the 50 years we have on record. We also executed exactly as expected on our financing plan, including issuing one-third of our original $425 million equity commitment. Operationally, we continue to set the bar for the industry. We closed out another year with leading performance setting records for performance at multiple utilities. As it pertains to our regulatory activity, we completed three rate cases last year and continue to make progress on the three others at Delmarva Power Delaware, Pepco Maryland and Pepco DC. We received the final order in BGE's second multiyear plan filing for rates effective 2024 to 2026. We were encouraged to receive an order that recognized the importance of investment in support of Maryland's energy goals and a thoughtful path towards decarbonization. We also reached a constructive settlement in Atlantic City Electric rate case. The increased revenue requirement will support its smart meter rollout, its EV smart program for easy and cost-efficient charger installation, and other investments to maintain safety and reliability, as well as improved service for our customers in New Jersey. Last, we received an order in ComEd's first multiyear rate plan, and it was a disappointing outcome. First, the…

Thank you, Calvin and good morning everyone. Today, I will cover our fourth quarter and full year results, key regulatory developments in Illinois and across the platform, and provide annual updates to our financial disclosures, including 2024 guidance. Starting on Slide 7. As Calvin noted, we delivered strong financial results for the second year in a row despite the historically mild weather impacting our non-decoupled jurisdictions. For the fourth quarter, Exelon earned $0.62 per share on a GAAP basis and $0.60 per share on a non-GAAP basis. For the full year 2023, we earned $2.34 per share on a GAAP basis and $2.38 per share on a non-GAAP basis, results that are at the top end of our narrowed guidance range, and represent almost 6% growth off the midpoint of the 2022 guidance range. Throughout the year, we benefited from a higher earned ROE at ComEd, primarily due to rising treasury rates, impacting ComEd's distribution ROE as well as favorable depreciation of PECO relative to expectations. Additionally, the ruling in December on BGE's reconciliation from its first multiyear plan approved recovery for over 90% of the requested 2021 and 2022 amounts and established a precedent to record a portion related to the 2023 reconciliation, which is expected to be determined in a future proceeding. These benefits, coupled with our ability to manage our plans across the platform, allowed us to mitigate nearly $140 million of weather and storm challenges relative to prior year, along with the labor strike in New Jersey that occurred late in the year, driving contracting costs up year-over-year. In a year in which we faced multiple headwinds, we delivered on our goal to achieve earnings in the top half of our guidance range. Quarter-to-date and year-to-date drivers relative to prior year are detailed in the appendix…

Thank you, Jeanne. I'd like to conclude with our priorities and commitments for this year and remind you of Exelon's unique value proposition for their jurisdictions it serves and its investors. As you'll see, they're very consistent with our focus areas for 2024, a good reminder that we aim to reliably deliver against a predictable and consistent strategy, as you'd expect from a premier utility. First, you can count on us to prioritize operational excellence and safety in service of our customers. As you may have seen, once the creation of a Chief Operating Officer position and named Mike Innocenzo, the CEO of PECO to that role. Mike will build on the top-tier performance level customers have come to expect. And in succeeding him, Dave Velazquez, will bring his wealth of experience and strong leadership to PECO. Both moves are a testament to the unparalleled bench strength that Exelon enjoys. And our Chief Human Resource Officer, Amy Best, has been instrumental in building that advantage. We wish her all the best in her next chapter and look forward to Denise Galambos' leadership as Exelon's new Head of HR. Second, we expect to deliver on the prudent financial plan that we have laid out. Spending $7.4 billion less in the grid on behalf of our customers and communities, earning a consolidated return on equity in the 9% to 10% range, consistent with the cost of investing in the grid, and delivering earnings in the range of $2.40 and $2.50 per share, while maintaining a strong balance sheet in executing our financing strategy. Next, we expect to reach collaborative and constructive outcome of the rate cases we have underway, along with the ones we expect to initiate in 2024 to ensure we can continue to deliver safe, reliable, and affordable energy to…

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

Hey guys. Good morning.

Good morning, Shar.

Hey, good morning.

Good morning. Calvin, starting with Illinois, I mean the team has had a few months now to digest the order. You're not alone in facing sort of that disorder from the ICC. I mean, both the electric and gas guys have throttled investments and they've laid off workers. I guess what did you guys miss heading into that final order? But really more importantly, why is this current distribution spend now appropriate? Is it a floor kind of positioned for upside in Jeanne's comments for 2024 kind of broad with upside and downside. So just trying to handicap the path forward with this new guidance. Thanks.

Yes. Thank you, Shar. And as both Jeanne and I expressed, disappointment with the outcome. And the disappointment, I'll frame it first, that despite the high level of engagement with stakeholders, and the administration around the state's policy and alignment. And with the passage of the Climate Equitable and Jobs Act, the work that the team put in, and I need to give credit to Joe Jonas and his team for the amount of effort that they put in. Let me take a moment to remind you of the steps that we're taking leading up to that final order, and we were tracking. Leading up January 2023 filing, Shar, we participated in 15 ICC led workshops with hundreds of participants. We responded to more than 10,000 data requests during that 11-month rate process, and we ended up with a proposed order that granted almost 80% -- 79% or so of our revenue requirement ask with only a $350 million gap in rate base or about 2% by 2027. But part of that process with all those stakeholders, the one group that we hadn't heard from was the Illinois Commerce Commission themselves. Well, now we have. And our job is to align with what they are requesting. And we jumped right back in, as Jeanne outlined, into that stakeholder process. Jill and his team are meeting on a regular basis with those stakeholders to lay it out and to meet the objectives that seizure requires and what the commissioners want. And they outlined affordability, reliability, which their common goals. Now it's just a matter of how do we get there. So to your question, what confidence do we have? We are building a plan to achieve those goals, and we will continue to talk with those stakeholders. But as Jeanne also laid out, we are ready to pivot if required. What I can tell you with assurance is that this 5% to 7% earnings growth is premised on multiple outcomes. We're taking those things into consideration, and we'll be able to make those adjustments. But we're going to put together and are putting together a plan to meet all of those objectives. But let me just be very clear. Our priorities are the following: provides safe and reliable electricity for the citizens of Illinois and maintain a healthy, financially strong company. In that partnership, we think we can achieve there. We can achieve those goals. And we don't believe those goals are any different than the Illinois Commerce Commission. We heard their voice, and now we're leaning into that discussion. Jeanne, anything you'd like to add?

Yes. I'll just update. I think I'll address Shar's second part of that question. So 2024 to your point, Shar, we've provided a guidance range with a midpoint that assumes the 12-14-2023 order. We have the rehearing process going on, which is about an interim revenue requirement while the grid plan is being approved. And then we have the grid plan process, which will kick off and we filed that on March 13. Depending on those outcomes, there could be upside to the 2024, if we get an interim revenue requirement or a grid plan move, but the midpoint assumes the December order. Now beyond 2024, we did approve the -- or sorry, we did assume that the grid plan would be approved. It is a great plan that, as Calvin mentioned, is focused on safe, reliable operations and alignment on the progress in CEJA it's lower, right? We're not going to be able to make as much progress on CEJA just given the unfavorable economics. But we do want to make progress and we will. Now there is not a set time line for the commission to opine on the grid plan. But we are, as I mentioned in my prepared remarks, we are optimistic it gets done this year. The commission stated that in their order in December that they understand the sense of urgency. And so while it does assume that the grid plan is approved, 2025 to 2027, we are prepared if we cannot get alignment to make further reductions and still deliver.

Perfect. I appreciate it. Let me leave at that. Thank you guys.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Nicholas Campanella from Barclays.

Good morning, everyone. Thanks for taking my questions. So I guess just to, kind of, clarify on the CapEx plan. I mean the plan is $3 billion can change higher, to your point. I guess your 2026 rate base does seem like it is lower, though plan-over-plan. So I guess, could you just help us clarify what's maybe driving that? I know there's probably some moving pieces in the starting point for ComEd rate base, but yes.

Yeah, it's really the difference between the distribution. So pulling back on the distribution investments and then replacing it with transmission. We talked about it in the prepared remarks. There's kind of two slices of it. There's the awards we've been talking about, the brand insurers and the ARTEP window, where, those projects will close in 2028 and at the end of 2028 for brand insurers and then 2030 for the ARTEP window. And so those will go into rate base outside of the planning period. And so as we move distribution out and layer those in, you're not seeing the 1:1 offset rate base. We do have other transmission that will close within the period, but it is back-end loaded. And as you know, transmission doesn't have, even if it's closed within that you're right, it doesn't have the same impact of distribution. So it's really just the shift that we made from D2C.

That's helpful. I appreciate that. And then, I guess, maybe you can help us understand on the financing, really not much equity to do in 2024. Just where does your balance sheet stand for 2024 relative to the agency minimums? And just what's the feedback been from the agencies on this new plan and maintaining the stable outlook? Thanks.

Yeah. Yeah, no problem. So I think the message is consistent with how we talked about it last year. So we had said over the planning period, we expect to be at 100 basis points of cushion absent CMT. And if we get the corporate alternative tax alleviated, we'd be back into the middle of that range. Obviously, a couple of things happened since we last spoken, first, the ComEd order. And with that order, we did see an impact to our balance sheet. We then mitigated that impact largely, not one-for-one, but we had a substantial mitigation through the reduction of the distribution spend as well as O&M reductions and looking at pension contributions and other things to pull all the things we could to make sure we got back up and mitigate as much as we could, a large portion of that ComEd order. The other piece was layering in the new capital. As we layered in that new capital and funding it with about 40% equity, we were able to maintain that cushion that we wanted, right, that 100 basis. Now if you think about it from a year-over-year perspective, as we've also talked about in the past, I think we expect the front-end of the plan to be a little bit lower, particularly on the Moody's side, still about the threshold. But lower in 2024 and getting better over the planning period, mostly due to some of the cash recovery regulatory mechanisms like the formula rate true-up for 2023 that will come in 2025. And then -- so that kind of -- that's why we show you that average but at the average of 13%. And then again, I would say the impact of the equity starts to sort of build on itself. And so as you get to the back end of the planning period and beyond, that is helpful in terms of continuing to bolster that cushion. But then also as those transmission projects close, the cash flows, they are also beneficial to the metrics. Yeah. Okay. Thanks, Nick.

Thank you.

Thank you. One moment for next question. Our next question comes from the line of Steve Fleishman from Wolfe Research.

Hey, Steve.

Excuse me. Hi. Good morning. So just I know you're engaging with a lot of the parties, as you said, in Illinois. Just -- is there any chance you could settle some of these issues? Or do we need to just let the commission kind of on everything? And is there any -- beyond just the order they gave, is there any opportunity to get better sense from them, the commission level, what they want, are we just going to have to kind of wait for a fine water, again?

Yes. No, thank you, Steve. I'll start with this, and then I have with me Gil Quiniones, who's the CEO of ComEd to really be in here as well. My view on this settlement, as I mentioned, Gil and his team are engaged with the stakeholders. We may read some settlement in discussions with stakeholders about what they're looking for, and we would submit it to the commission. But I think overall, a settlement in principle on the rate case, I think, is unlikely. The process will continue to play out. And the fact that, we are in the midst of a pending proceeding, we cannot speak directly nor should we, with the commissioners themselves. So our view of what they -- where they stand came in the form of their December 14 order, and we have a clear understanding. But what we can do and what we are doing is engaging with staff. Consistently talking again as we did for the last two years. We're back reengaged in that process. And what we are providing them and sharing with them and then I'll turn it over to Gil is under the tenets of the Climate and Equitable Jobs Act. The need to align policy and practice, what the law says and what we need to do to carry it out seek some alignment between the legislative body and the commission to accomplish the shared goals of all of us. And that is our conversation from day one, and that will continue to be based on the feedback that they've given. Gil, anything you want to add?

Yeah. Calvin, and Steve, what's different now is that it's very clear in the final order what they identified as things that complied with the law and things that the commission things there are gaps. So one-by-one, we are making sure that we're addressing those gaps in the final order. Second, as Calvin said, we're working very closely with staff and each of the intervenors in this case to make sure that we have alignment. In some cases, some intervenors have very specific areas that they would like for us to address. And as Calvin said, in those cases, we may have alignment where we can stipulate in our testimony that we have arrived at an agreement with those specific issues. So, we're making sure that we are addressing what the final order set, where the gaps are. We're working very closely with staff to make sure we have alignment with them. and then we're working with each of the intervenors in the case for their very specific issues that they want included in our grid plan.

Okay, great. Thank you.

Thank you, Steve.

Thank you. Our next question comes from the line of Julien Dumoulin-Smith from Bank of America.

Hey Julien.

Hey good morning team. Hey great. Appreciate it. Just wanted to follow-up real quickly on some of the Nick's cash questions real quickly. Can you guys comment a little bit? I mean, FFO looking through the four-year window here, a little bit better than the prior plan. And that's in spite of obviously some of the rate base dynamics, et cetera, but it looks like a $2 billion bump to CFO there helps the balance sheet. But can you talk about that a little bit further here? And then also maybe if you can to elaborate on some of the earlier questions, I mean, where do you guys overall within the plan? I know that you articulated here given years up and down. But overall, are you in the lower end or the midpoint, if you will, of the updated EPS?

So, let me take the last part first, and then I'll turn it over to Jeanne. So, as we talk about the 5% to 7% earnings growth, we are committed to midpoint or better. And I think Jeanne even referenced at least, right? So, this is a plan that we've put together that's very prudent and our ability to achieve it. And we've demonstrated as an organization, we can take on headwind and continue to meet the target. As I said, Julien, I'm so proud of the team and the commitments made and commitments kept, right? And we will continue to do that. You think about what we had to overcome in 2023 to deliver in excess of our midpoint to $2.38. So, that's the commitment there. And I'll let Jeanne talk about the additional equity and balance sheet and so forth.

Yes. And then Julien -- we do also continue to show you, Julien, in the year-by-year, which gets you to that midpoint or better. So, again, there will still be some years above the range, years within the range, all within the range, but some different points to get you to that mid-screen or better, as Calvin mentioned, that side continues in the deck. On the balance sheet, I guess, I would characterize a little bit different. I think we're consistent with where we were. So, we had expected to be at the 100 basis points of cushion. We expect to continue to contain that 100 basis points. We largely mitigated the ComEd order through our own internal levers. And then as we layered in the capital to maintain that cushion, we funded it in a balanced way by layering in that 40% of every new dollar of equity.

Got it. And through the plan, you're assuming consistent authorized equity ratios and returns to get to that midpoint or better?

We are assuming the authorized, yes, for each of the jurisdictions on the cap structure.

Yes, cap structure and ROE, yes, indeed. Excellent. Well, I will leave it there guys. Thank you very much.

Thank you, Julien.

Thank you. One moment for our next question. Our last question comes from the line of Ross Fowler from UBS.

Good morning, Calvin. Good morning, Jeanne. So I want to acknowledge before I ask my question, that there is upside to the unit process, but I wanted to spend a minute on, Jeanne, I think what you talked about is the downside to the forecast and the risks in Illinois versus the plan. You did a great job mitigating some of that today with the transmission CapEx to replace sort of the distribution CapEx. But that was a lot of brownfield transmission that we've been talking about for a while and even that is sort of back-end loaded in the forecast and greenfield would presumably take even longer. So maybe you can continue to do that if there's downside to distribution CapEx in that ComEd in the plan, but what are the other levers that you could pull here? Is that lower equity as CapEx declines? Is that lower O&M? How do I think about what levers you have at your disposal to sort of offset that downside risk should that be out coming Illinois?

Yes. I think I get a couple of parts there. I would say, one, for every plan that we put forth always prudently include some sort of for lack of a better word, cushion, right? So we're not -- we've got a bunch of scenarios that we're modeling and we're making sure that we can deliver regardless of where the final grid plan comes out. I would say at the low ROEs, right? It takes a lot of capital at ComEd, to make it on the distribution side to make it a meaningful impact up or down, and we're prepared to pull back if we need to. And to your point then, that could have further impacts from a financing savings and other things. Obviously, we would always look for O&M levers as well as we have done in the past. I would say we -- portion of the transmission that we added, as I mentioned in the prepared remarks, was not what we had talked about, it was new opportunities that we had on the list at ComEd related to the high-density localized low growth there on the data centers, continuing to modernize that portion of the grid. So these are needs that need to be addressed on our system. The other thing I would say is, as we talked about before, while we have the two opportunities that we mentioned, we continue to see where we operate in our jurisdiction potential for further transmission related to interconnection of offshore wind, whether it's the Maryland executive orders, the New Jersey executive orders. As those projects are built, given our footprint, we stand to be competitive for that. So I think there's other opportunities that exist. And the plan reflects the upside from continuing to execute on the grid plan, but also the ability to pull back. We also don't assume any of the performance metrics, right? I think we're going to make sure our growth plan is also set up to be able to capture some of those. Obviously, that's a metric, but we're going to do a work real hard to get some of that, and that's not included in the plan either.

Yes. And if I can just add, Ross, I think on what's critical, what Jeanne has said is that understanding Illinois is just one of our many jurisdictions in which we operate and what we continue to demonstrate in terms of the value of Exelon is our scale and size and the jurisdictions and the opportunities that exist across our platform. We always talk about the power of the platform, and you saw it flexed in 2023, and you'll see it flexed over our long-range plan from 2024 to 2027. So Illinois is a focal area. And as I shared with you, it's a priority for all of us. I know Gil and his team are fixed on it, but we have other businesses that we will continue to run and as always, manage our costs and to ensure that we do it in a very pragmatic basis. Thank you for the question.

Sure. Thanks, Calvin. Appreciate it. 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 more importantly, thank you to everyone for joining today's call. We look forward to seeing many of you in 2024 and as committed for the upcoming spring conferences, Jeanne and I and Andy, the IR team will be on the road. They promised me that we'd be doing that. So thank you, and I look forward to engaging with all of you. But more importantly, I just want to say to the 19,500 employees here at Exelon. Thank you for everything that you guys do each and every day. So proud of the performance that we delivered in 2023, and I know we're just getting started. So with that, Gigi, that concludes today's call.

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