Exelon Corporation (EXC) Earnings Call Transcript & Summary

Hello, and welcome to Exelon's Second Quarter Earnings Call. My name is Josh, and I will 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] Should you need technical assistance as a best practice, we suggest you first refresh your browser. If that does not resolve the issue, please click on the help option in the upper right-hand corner of your screen for online troubleshooting. It is now my pleasure to turn today's program over to Ryan Brown, Vice President of Investor Relations. The floor is yours.

Great. Thank you, Josh. Good morning, everyone. Appreciate you joining us for our 2026 2nd quarter earnings call. Leading the call today are Calvin Butler, Exelon's President and Chief Executive Officer; and Gene Jones, Exelon's Chief Financial Officer. Other members of Exelon's senior management team are also with us today and 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 is now my pleasure to turn the call over to Calvin Butler, Exelon's President and CEO.

Thank you, Ryan, and good morning, everyone. We appreciate you joining us for our second quarter earnings call. Halfway through 2026, Exelon is delivering where it matters most, performing today and preparing for tomorrow. Our utilities are providing safe, reliable service, driving affordability and investing in the infrastructure that keeps our customers, communities and economies thriving. This morning, we reported adjusted operating earnings of $0.43 per share, consistent with expectations and are reaffirming our full year guidance of $2.81 to $2.91 per share. Operationally, we continue to lead the industry with all utilities projecting top quartile reliability and ComEd and PHI projected in the top decile. Those of you who are from Chicago and know that this has been quite a year for storms. So far this year, ComEd has experienced 16 major weather events, more than it's seen in over 2 decades, while Illinois has recorded more to our NATOs than any other state. Most recently, Monday, severe storms impacted approximately 530,000 customers [indiscernible] thanks to the extraordinary ethos and support teams power was restored to 90% of affected customers within 48 hours. These results reflect disciplined investment in grid resilience and is a main focus on delivering safe An annual customer interruptions have declined by nearly $2 million since 2021. And [Audio Gap] and for every $1 million Exelon invest an average of 8 jobs are created 1.7 is generated. We're proud of the indispensable role we play in supporting the communities and businesses that depend on us every day. Now turning to regulatory activity. We remain on track in the Pepco Maryland and DPL Delaware electric rate cases as well as ComEd's grid plan. Earlier this month, we also filed a rate case at BGE with the decision expected in January 2027. Gene will cover the details, but the filing reflects our approach to balancing affordability with the investments required to maintain a safe and reliable grid. To help manage customer impacts, BGE delayed its filing, deferred select projects and prioritize the maintenance and reliability work most critical to serving customers safely. The work our men and women perform every day is critical to our communities, and we cannot delay any further. If critical work is deferred for too long, customers ultimately pay the price through more outages, more costly repairs and higher long-term costs. As demand grows and weather-related stress increases, the need to maintain and strengthen the grid remains long-term affordability depends on a strong resilient system. Across Exelon, affordability and reliability are being addressed together. We manage expenses carefully, deploy capital where it creates the greatest customer value and support customers through assistance programs and energy savings initiatives. We're also taking steps to ensure growth benefits existing customers rather than burdening them. As new large load customers connect to our system, we are structuring agreements that require real financial commitments tied to the infrastructure needed to serve them. FERC's recent large load dockets reinforced that approach recognizing the need to protect existing customers while ensuring that large load customers have real commitments behind their projects. This is exactly the principle behind our transmission security agreements, which is helping to protect customers by filtering out speculative requests before significant system investments are made, creating a clear picture of actionable demand. Despite these efforts, the extreme heat and system demand in July made 1 thing very clear. Affordability cannot be solved through cost discipline alone. It also requires new supply. At the beginning of the month, PJM was pushed to its limits. Demand hit a record peak of 168 gigawatts. PJM activated emergency procedures and called on demand response resources to maintain reliability, while power prices surged tenfold from roughly $80 to $800 per megawatt hour. Now the grid held and our teams did their job, but the system should not have to operate this close to the edge. And this is not a one-off event. This pressure is further evidenced by PJM's most recent capacity auction for the third consecutive auction prices cleared at the FERC approved price cap. Even so, the market fell short on PJM's reliability requirement by approximately 6.8 gigawatts, larger than the prior 6.5 gigawatt shortfall, which is the equivalent of roughly 7 nuclear reactors of missing supply, even more telling, only about 525 megawatts of new generation on uprates cleared, indicating that even at the highest allowed price, the market is not attracting the level of new supply the system needs. Absent the FERC approved price cap of $330 per megawatt day PJM's own simulation shows prices would have cleared at approximately $555 per megawatt day across the footprint and $777 in ComEd indicating the underlying scarcity is even more severe than the headline price suggests. The July heat vent auction results and market price signals all point to the same conclusion. Demand is growing faster than supply, and the system is under increasing strain. Our customers should not pay the price of a system that has been allowed to run too thin and they should not have to wait years for solutions that are needed today. That is why Exelon is advocating for an all-of-the-above approach transmission, demand-side solutions, market resources and utility-owned generation where it makes sense. We are continuing the dialogue with our state and participating in FERC and PJM processes to advocate for policies that protect customers and help deliver energy reliably and cost effectively. This is where the Exelon platform matters. Our scale, experience and relationships across multiple states allow us to move from identifying the problems to advancing real solutions. First, transmission. Exelon continues to lead on transmission expansion because reliability starts with the ability to move power where it is needed most. Transmission helps relieve localized constraints connect new resources and strengthen the grid as demand grows. That momentum continues with the recent submission of 2 additional MISO tranche 2.1 competitive transmission bids in partnership with Invenergy. We will continue to leverage our scale, expertise and strong development partnerships to pursue transmission opportunities across and beyond our footprint. Second, utility-generated power and storage. We are proposing solutions that give states more control, more certainty and more direct customer benefits. Utility-generated power and storage can add supply, improve reliability and put downward pressure on long-term cost with the accountability and lower cost capital, utilities are uniquely positioned to provide. This is not about ideology. It is about outcomes, reliable service, lower long-term costs and greater energy security for customers. For example, during the extreme heat and record demand over the July 4 weekend, and ACE battery storage unit serving a New Jersey Beach community was dispatched to support the grid. That 1 asset helped maintain reliability during a period of system stress, demonstrating the practical customer and grid benefits these investments can deliver. We've also seen these benefits play out elsewhere. Earlier this month, PErCOT served a record peak demand of more than 91 gigawatts without emergency actions or curtailment requests. [Audio Gap] while power prices remained relatively stable at roughly $40 per megawatt hour during the peak hour. Renewables and battery storage played a significant role in meeting that demand while supporting ability and affordability. Building on that momentum, we recently announced a significant new 50-megawatt battery storage project in New Jersey, and we continue to see storage as an important tool for customers because it is fast, flexible and targeted. Our battery project has been operating during the July at our battery project been operating during the July 2 through July 5 Wave ACE customers would have realized approximately $7.5 million of energy cost savings that could have been returned to customers to help offset higher market prices. Storage solutions can provide peak capacity, improve reliability in constrained areas support affordability and help states meet their energy goals. The benefits are real measurable and already being demonstrated today. Lastly, energy efficiency and virtual power plants. Several of our utilities recently received approval for VPP programs that turn customer-sited resources into grid capacity. That helps reduce peak demand lowers pressure on the system and gives customers a direct role in the solution. Taken together, these are all practical solutions. They also are areas where Exelon can deploy capital with discipline and there's a clear customer need and strong execution visibility. We are not waiting for the market to solve this on its own. We are bringing forward actionable solutions that strengthen reliability, improve affordability and give our states more tools to shape their energy future. Now with that, I'll turn it over to Gene to walk through our financial performance and provide additional details on our rate case activity and outlook. Jeanne?

Thank you, Kelvin, and good morning, everyone. Today, I will cover our second quarter financial results and key regulatory activity discuss solutions we are advancing to support affordability and resource adequacy and conclude with an update on our balance sheet and financing progress. . Starting on Slide 5, we present our quarter-over-quarter adjusted operating earnings back. Exxon earned $0.43 per share in the second quarter of 2026 compared to $0.39 per share in the same period in 2025. Results were higher by $0.04 per share year-over-year, primarily driven by $0.04 of distribution and transmission rates, net of depreciation and AFUDC. $0.04 related to last year's customer relief fund and $0.01 of favorable weather at PECO. This was offset by $0.02 of higher credit loss expense at BGE and $0.02 of interest at Corporate and PECO. Our second quarter performance is in line with expectations we discussed on the first quarter call and continues to demonstrate the value of disciplined execution across the platform. We are delivering on customer-focused investments that support top quartile reliability while managing costs and timing items within the full year plan. Looking ahead to the third quarter, we expect earnings to be approximately 27% of the midpoint of our projected full year earnings guidance range. This expectation contemplates the impact of weather, storms and the PICO employee strike in the beginning of July as well as normal weather and storm activity through the remainder of the quarter. As with historical practice, our quarterly shaping guidance also assumes anticipated revenue shaping and timing of costs across the utilities. Combined with results for the first half of the year, we anticipate the fourth quarter to benefit from the absence of onetime 2025 distribution and transmission rates, the unwinding of timing and disciplined execution of bad debt and storm recovery efforts. We remain on track to deliver full year operating earnings of $2.81 to $2.91 per share, with the goal to be at the midpoint or better. Finally, we reaffirm our expectation to deliver annualized earnings growth near the top end of 5% to 7% from 2025 through 2029, supported by 7.9% annualized rate base growth, disciplined cost management, and a balanced financing plan that maintain strong investment-grade credit metrics. Turning to Slide 6. I will review the open base rate cases and other regulatory activity across the platform. These proceedings reflect our continued focus on recovering prudent investments that support safe, reliable service while advancing proposals that are responsive to customer affordability and the policy priorities of our jurisdictions. Starting with Pepco Maryland, where a final order is expected next month for its traditional electric base rate case. This filing seeks recovery of critical investments that support reliability, accommodate growing customer needs and strengthen the resiliency of the electric system while also reflecting the impact of higher financing costs. Projects such as the White Flint substation are tangible examples of work being done to increase capacity, reduce outage risk and support long-term growth and economic development in the communities we serve. Also in Maryland, BGE filed an electric distribution rate case on July 2, seeking $156.1 million revenue requirement increase to recover investments and costs necessary to maintain a safe and reliable grid under a historic test year. The filing also reflects revised financing and storm restoration costs and includes proposals to establish the storm recovery mechanism and provide customers with additional payment flexibility. A final order is anticipated in January of 2027. In Delaware, Delmarva Power's electric base rate case continues to progress is seeking a $45.4 million revenue requirement increase to support investments necessary to maintain safe and reliable service, including system upgrades and reliability investments across its service territory. The filing also includes proposals to sign to support affordability, including a new income base rate and a bad dot rider. As permitted by Galar Law, DPL implemented interim rates effective July 9, subject to refund. Final order is expected in the third quarter of 2027. Finally, at ComEd, the grid plan proceeding continues to move forward with staff and intermedial rebuttal testament filed earlier this month ahead of hearings in August. As a reminder, the plan proposes approximately $15.3 billion of investment from 2028 through 2031 to support reliability, accommodate significant load growth and advance the objectives of Illinois' Energy policy framework. In order is expected by December 15. Across these proceedings, our approach remains consistent. We are investing to support reliability, resiliency and customer needs while remaining focused on affordability and cost discipline. While our base regulatory filings remain focused on maintaining safe, reliable and affordable service, we continue to advance additional solutions to help address growing affordability and reliability challenges particularly in light of supply constraints highlighted by the recent PJM auction. Turning to Slide 7, practical and deployable resources such as storage and virtual power plants can provide capacity reduce conjunction and help manage price volatility while supporting each state's energy goals. Today, roughly 10 gigawatts of solar and wind across PJM goes unused on any given day. Storage can capture excess generation and shifted to peak demand periods, turning surplus clean energy into reliable, high-value supply. Unlike many traditional solutions that can take 5 to 10 years or longer to develop, battery storage is a faster scalable and modular option that can often be deployed within approximately 3 years even for large-scale batteries. In New Jersey, Atlantic City Electric partnered with Invenergy has advanced a 500-megawatt battery energy storage system using 4-hour batteries to target roughly 5 peak demand days a year in pit growth. The project will be large enough to power approximately 400,000 homes and represents the single largest battery storage installation in PJM. The Picor storage project was submitted in PJM Cycle 1 and represents approximately $1 billion in investments, not currently reflected in our plan. Combined with the anticipated PJM market revenues, all of which will be returned entirely to customers, federal tax credits, the mitigation of energy and capacity prices and deferred transmission investment, customers will see over $700 million in net benefits after the project is placed into service Importantly, without seeing any customer bill impact until at least 2035. Atlantic City Electric filed a request last week for regulatory approval on the mechanism to recover project costs with the final order anticipated in the first half of 2027. In addition, we are pursuing similar opportunities in Maryland, where BGE and Pepco have submitted battery storage projects as part of the state's distribution connected storage solicitation which are currently under commission review. Beyond storage, we are also advancing virtual power plant initiatives across our jurisdictions, which aggregate customer-sited resources to reduce peak demand support grid reliability and lower overall system cost. At ComEd, the approval to launch its first scheduled dispatch BPP program is expected to increase the amount of battery storage available across Northern Illinois, while providing compensation to participating customers. When paired with existing distributed generation rebates and incentives, the program creates a compelling customer value proposition while helping support the grid. Maryland also recently approved programs to allow a range of customer-sided assets to active grid assets, and we continue to see momentum in New Jersey and Delaware as policymakers continue advancing distributed energy resource and BPP frameworks. Together with continued transmission and distribution investments, these solutions provide practical tools to address affordability, reliability and resource adequacy needs across our jurisdictions. Turning to Slide 8. We continue to execute our financing plan in a balanced and disciplined manner, Maintaining a strong balance sheet is core to our strategy and essential to funding the investments needed to deliver safe, reliable and affordable service for our customers. To date, we have completed approximately 86% of our 2026 debt financing needs, including all expected debt issuances at the holding company, Pepco Holdings, ComEd and BGE materially reducing our remaining exposure to interest rate volatility for the year. In addition, our preissuance hedging strategy continues to provide protection against future rate movements. We have already priced approximately 37% of our planned equity needs through 2029 via forward contracts under our ATM program, having priced all of our needs for 26 and half of our needs for -- our credit metric outlook also remains strong with expected average credit metrics of approximately 14% through 2029, supporting the strategic and financial flexibility needed to advance our capital plan and capture additional customer-driven growth opportunities. We remain confident in our ability to deliver value for our customers and shareholders through disciplined execution, a strong balance sheet and investments that support reliable, resilient and affordable energy service. I'll now turn the call back to Calvin for closing remarks.

Thank you, Jeanne. I'll close on Slide 9. The story is consistent and straightforward. And as I said, we're performing today and actively preparing for tomorrow. Exelon is built for this moment. We have the scale, diversified footprint, operational excellence and financial discipline to perform in a changing environment. . In 2026, we remain focused on deploying approximately $10 billion of capital for the benefit of customers, delivering operating earnings of $2.81 to $2.91 per share earning a consolidated operating ROE of between 9% to 10% and maintaining a strong and resilient balance sheet. Just as important, we are pursuing growth where it creates real customer value, strengthens the grid and supports the communities and economies we serve. The environment is changing quickly, but our priorities are steady. We have the people, platform and experience to navigate complexity, deliver on our commitments and advance practical solutions for customers. That is why we remain confident in the path ahead. Josh, we can now open it up for any questions.

Our first question comes from Shar Purreza with Wells Fargo.

Kevin, PJM walked back from the EDC proposal that had the members committee, super majority in this recent letter. I guess do you feel like like where they landed meaningfully addresses the key issues in PJM. Do you have any plans to intervene further with FERC? I mean it doesn't seem like you're waiting for an outcome here to step in, you propose the ASP development. assuming that wasn't a one-off. So just kind of curious on the recent development

Thank you, Shar. And you captured it. We are focused on just really providing solutions, but let me first begin by applauding PJM's efforts to address resource adequacy challenges with the sense of urgency and really looking at opportunities to bring new generation onto the system because these are important steps in the right direction, and we do believe that their measures may help address near-term reliability concerns, but they're unlikely to resolve any long-term affordability challenges. . Ultimately, what we've always said and we're very consistent to really resolve long-term challenges on affordability, you need more generation to be brought online. And we will continue to advocate for several important consumer protections in this effort, and we will continue to engage with PJM. But over the long term, we believe that state should play a central role in resource planning and procurement. And utility-owned generation needs to be part of that mechanism as a cost-effective complement to market-based solutions. And as we've talked about, this is our Exelon promise in action, and we will continue to drive this, but it is going to require a partnership and more active engagement in state with the states. Jeanne, anything you'd like to add?

Yes. No, I think that covers it. And I think that to your point about Real Solutions, and you noted at Chart, the 500-megawatt battery solution. We've been working on this. We're pleased to see that we got through the filing, and we'll work with the commission there. And to your question, it's no. It's not the only one, and we're working on others. .

Okay. That's perfect. And then your data center growth slide shows combined 36 gig. That's down around 11 gigs from the 43 gigs that you've previously cited. Is that simply like a reclassification refinement of the queue, any read through there with PJM's current dysfunction, maybe causing some attrition or slower conversion in the pipeline? .

Yes. I'll take that one, Chart. So I would say -- you're right, we did update, and I think this will continue to evolve. But I would also say we've always taken, as you know, a measured approach to this data center phenomenon, whether it was our position in the colocation and ensuring fair cost allocation or the development of transmission security agreements, which, as you know, never existed in our regions, right? And so we developed those agreements and made them part of our process. In addition to that, we also, throughout this, have kept our CapEx increases consistent with historical increases and really only putting in capital that was certain and durable. And I think that this update underscores that, that was the right approach. The TSAs are doing what they should. As you go through our cluster process, we said, we're going to study the clusters, we're going to offer the customer. A sign the TSA and then importantly, put up collateral behind that. And so what this update reflects is we have now readed out speculative projects, and it gives us proactive insight into what is real. And this is what you want management to do. You want us to provide real and durable growth. And importantly, our $41 billion of capital between now and 2029 remains unchanged due to this update, because we have not put in speculative projects. And as I think about that growth, I would just say a couple of other things. What's sitting in that 11 gigawatts, we have 4 gigawatts that have signed TSAs and importantly, they are backed by $1 billion of collateral. The other 7 gigawatts in that high probability is projects that predated this TSA process but are further along, and we feel very comfortable that they will continue. And so the 1 gigawatts is significant, and we're going to continue to study the remaining '25 that's on that slide. But there is real growth and it goes back to not just being focused on what is real on the T&D growth side, but how do we provide those solutions on the supply side to support that growth. And that's our first project out the gate is the 500-megawatt battery.

Next question comes from Jeremy Tonet with JPMorgan Securities. .

This is actually Aiden Kelly on for Jeremy today. I appreciate your time. I appreciate the time. I guess maybe just going back to the regulatory front. Now a few months since the tralo of your PECO rate case. How do you think about the filing case going forward? It just seems like we continue to see a lot of constructive data points out of the PaPUC, at this point, are there any inflection points you kind of hope to see before following again, what would encourage you to file at this time.

Yes. Thank you, and I appreciate that. And I think, once again, you captured it well. Let me just begin by saying that we share Governor shippers focus on affordability and we have analyzed his letter and what his framework is, and I'll ask Mike in sino to jump in there. But let me just begin is that we've been having constructive conversations with not only the governor, but his staff since day 1. And like you said, we're seeing indicators that Pennsylvania is still a solid regulatory framework for us to operate, and they view PICO as an economic partner and job creator in the state. And we recognize also and they've said it that Pennsylvania needs financially strong, viable utilities with sustainable investments to encourage that economic growth, but understanding that we will continue to partner and we believe that investment in our system is required to maintain the reliability and growth that they expect, and we will do that over our long-term planning horizon. So I'm going to give it to Mike to see if he has any detail he wants to share about the governor's conversation.

I would say your point about that data point. Certainly, there's the data points the constructive settlements that have already occurred, constructive discussions on the active rate cases currently underway. And then -- and it's our discussions. It's discussions with key stakeholders in Harrisburg to discussions with the Governor's office. If you looked at the key points that he's looking for and everybody is looking for, it's making sure that our investments are providing customer value and customer benefits, making sure that there's transparency on the ROE and making sure that we're looking at every lever that we can to address affordability. We think we've addressed that in multiple ways under the existing process as well as others in the state are and we're continuing to work with their -- the governor's office to make sure and the PUC and the statutory intervenors like the consumer advocates office, the small Pacific stuff having discussions to make sure that when we file again, we're addressing each of their concerns, and we feel confident that we'll be back in a way that will be very productive.

Great. I appreciate the insight there. And I just want to shift to the transmission front real quick, if I could. To what extent can you tap into your identified $12 billion to $17 billion set opportunity as we kind of think about the next plan, what win rate should we be thinking about as it pertains to upcoming competitive transmission windows for you guys?

Yes. So it's Jeanne. The $12 billion to $17 billion, I'm just going to -- I'll hit on a couple of things I'm going to turn it to Cream, who's head of our transmission and development group. So of the top to $17 billion, it is not dependent on 1 sort of theme. Competitive transmission is 1 of, I would say, probably 5%, right? So what we want to do is give an insight into we're spending roughly that amount in our 4-year period today. And so we see that continuing beyond 2029, driven by existing infrastructure of our 11,000 circuit miles, new business related to the data center pipeline. State policies around additional generation coming online, old-generation retiring, the transmission needed to accommodate that. And importantly, competitive transmission. And so maybe I'll let Karim speak to kind of how we think about that. .

Yes. Thanks, Jeanne. And I agree with everything Jeanne just said, and I would add on competitive transmission. You've seen us be very active over the last 12 to 18 months in PJM and also in other RTOs such as MISO. We're going to continue to do that. And you saw recently that we filed for 2 projects in MISO to tranche 2.1 in Iowa the MARS and the EASL projects. We expect to hear back from -- from MISO in the fourth quarter. And what we would say is we think that we are very well positioned to take advantage of some of these opportunities based on our operational excellence and importantly, our experience with 765 kV lines, so high voltage lines. We're 1 of very few transmission operators that own and operate those types of lines today, and that's what increasingly more and more RTOs are seeking in their solutions. So I would say, I think we are very well positioned to continue to be successful like we were in Western Pennsylvania, this past PJM window, and you'll see us continue to be active.