Exelon Announces Solid Fourth Quarter 2013 Results, Provides 2014 Earnings Expectation

Exelon Corporation (NYSE: EXC) announced fourth quarter 2013 and full year consolidated earnings as follows:

“Exelon delivered another year of strong operational performance and earnings within our guidance range, despite challenging market conditions,” said Exelon President and CEO Christopher M. Crane. “On the generation side of our business, we achieved a nuclear capacity factor of greater than 94 percent in a year of record output. Each of Exelon’s three utilities had its best year in reliability and customer satisfaction.”

Fourth Quarter Operating Results

As shown in the table above, Exelon’s adjusted (non-GAAP) operating earnings decreased to $0.50 per share in the fourth quarter of 2013 from $0.64 per share in the fourth quarter of 2012. Earnings in fourth quarter 2013 primarily reflected the following negative factors:

• Lower realized energy prices for the sale of energy across all regions;
• Increased depreciation and amortization expenses, primarily from an increase in capital expenditures across the operating companies;
• Discrete favorable impacts of the Illinois Commerce Commission (ICC) October 2012 Distribution Rate Order; and
• Prior year benefits from a state tax net operating loss.

These factors were offset by:

• Increased capacity prices related to the Reliability Pricing Model (RPM) for the PJM Interconnection, LLC market (PJM);
• Merger O&M synergies;
• Increased distribution revenue:
  • At ComEd, due to higher allowed ROE and recovery of capital investment pursuant to the formula rate under the Energy Infrastructure Modernization Act (EIMA);
  • At BGE, due to the rate case orders for electric and natural gas; and
• Decreased storm-related costs at PECO and BGE due to Hurricane Sandy in the fourth quarter of 2012.

2014 Earnings Outlook

Exelon introduced a guidance range for 2014 adjusted (non-GAAP) operating earnings of $2.25 to $2.55 per share. Operating earnings guidance is based on the assumption of normal weather.

The outlook for 2014 adjusted (non-GAAP) operating earnings for Exelon and its subsidiaries excludes the following items:

• Mark-to-market adjustments from economic hedging activities;
• Unrealized gains and losses from NDT fund investments to the extent not offset by contractual accounting as described in the notes to the consolidated financial statements;
• Certain costs incurred related to the Constellation and CENG merger and integration initiatives;
• Non-cash amortization of intangible assets, net, related to commodity contracts recorded at fair value at the merger date;
• Other unusual items; and
• One-time impacts of adopting new accounting standards.

Fourth Quarter and Recent Highlights

• Nuclear Operations: Generation’s nuclear fleet, including its owned output from the Salem Generating Station, produced 35,329 gigawatt-hours (GWh) in the fourth quarter of 2013, compared with 34,882 GWh in the fourth quarter of 2012. The output data excludes the units owned by Constellation Energy Nuclear Group LLC (CENG). Excluding Salem and the units owned by CENG, the Exelon-operated nuclear plants achieved a 92.3 percent capacity factor for the fourth quarter of 2013, compared with 93.0 percent for the fourth quarter of 2012. For the full year, Exelon’s nuclear fleet produced a record 134 million net megawatt-hours of electricity and achieved a capacity factor of 94.1 percent. The number of planned refueling outage days totaled 94 in the fourth quarter of 2013, compared with 113 in the fourth quarter of 2012. There were 33 non-refueling outage days in the fourth quarter of 2013, compared with one day in the fourth quarter of 2012.
• Utility Operations: Each of Exelon’s three utilities had its best operating year. Operating performance in each utility improved over 2012 in all key metrics including safety, reliability, customer service and customer satisfaction. For all three, customer satisfaction and outage frequency are in the top quartile of similar utilities in the U.S.
• Fossil and Renewables Operations: The Dispatch Match rate for Generation’s gas/hydro fleet was 99.3 percent in the fourth quarter of 2013, compared with 95.8 percent in the fourth quarter of 2012. A higher rate of forced outages across the fleet had an impact on the performance in 2012. Energy Capture for the wind/solar fleet was 94.5 percent in the fourth quarter of 2013, compared with 92.2 percent in the fourth quarter of 2012. Energy Capture in the fourth quarter of 2013 reflects dispatch process improvements and changes to the fleet composition.
• ComEd Distribution Formula Rate Case: On Dec. 19, 2013, the ICC issued an Order approving ComEd’s 2013 annual distribution formula rate update case. The Order established the net revenue requirement used to set the rates that took effect in January 2014, with an increase to ComEd’s annual delivery services revenue requirement of approximately $341 million. The electric distribution rate increase was set using an allowed return on capital of 6.94 percent (inclusive of an allowed return on common equity of 8.72 percent).
• BGE Gas and Electric Distribution Rate Case: On Dec. 13, 2013, the Maryland Public Service Commission (MDPSC) issued Order No. 86060 related to BGE’s May 17, 2013, application for an increase in electric and gas base rates. Under the MDPSC’s Order, BGE is authorized to increase annual electric base rates by $34 million, which is approximately 41 percent of the $83 million requested in the application, and annual gas base rates by $12 million, which is approximately 52 percent of the $24 million requested. The electric distribution rate increase was set using an allowed return on equity of 9.75 percent, and the gas distribution rate increase was set using an allowed return on equity of 9.60 percent. The new electric and natural gas distribution rates took effect for services rendered on or after Dec. 13, 2013.
• Financing Activities: On Jan. 10, 2014, ComEd issued $300 million aggregate principal amount of its First Mortgage 2.15 percent Bonds, Series 115, due Jan. 15, 2019, and $350 million aggregate principal amount of its First Mortgage 4.70 percent Bonds, Series 116, due Jan. 15, 2044.
• Hedging Update: Exelon’s hedging program involves the hedging of commodity risk for Exelon’s expected generation, typically on a ratable basis over a three-year period. Expected generation represents the amount of energy estimated to be generated or purchased through owned or contracted-for capacity. The proportion of expected generation hedged as of Dec. 31, 2013, was 91 percent to 94 percent for 2014, 62 percent to 65 percent for 2015, and 30 percent to 33 percent for 2016. The primary objective of Exelon’s hedging program is to manage market risks and protect the value of its generation and its investment-grade balance sheet, while preserving its ability to participate in improving long-term market fundamentals.

Operating Company Results

Generation consists of owned and contracted electric generating facilities and wholesale and retail customer supply of electric and natural gas products and services, including renewable energy products, risk management services and natural gas exploration and production activities.

Fourth quarter 2013 GAAP net income was $269 million, compared with net income of $137 million in the fourth quarter of 2012. Adjusted (non-GAAP) operating earnings for the fourth quarter of 2013 and 2012 do not include various items (after tax) that were included in reported GAAP earnings. A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is in the table below:

Generation’s Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2013 decreased $100 million compared with the same quarter in 2012. This decrease primarily reflected:

• Lower realized energy prices for the sale of energy across all regions and
• Increased depreciation and amortization expense due to ongoing capital expenditures.

These items were partially offset by favorable capacity pricing related to RPM for the PJM market and favorable O&M expense primarily driven by merger synergies.

Generation’s average realized margin on all electric sales, including sales to affiliates and excluding trading activity, was $26.42 per megawatt-hour (MWh) in the fourth quarter of 2013, compared with $26.52 per MWh in the fourth quarter of 2012.

ComEd consists of electricity transmission and distribution operations in northern Illinois.

ComEd recorded GAAP net income of $109 million in the fourth quarter of 2013, compared with net income of $160 million in the fourth quarter of 2012. Adjusted (non-GAAP) operating earnings for the fourth quarter of 2012 and 2013 do not include various items (after tax) that were included in reported GAAP earnings. A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is in the table below:

ComEd’s Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2013 were down ($53) million from the same quarter in 2012, primarily due to the discrete impacts of the ICC October 2012 Distribution Rate Order This was partially offset by increased distribution revenue in 2013 due to higher allowed ROE and recovery of capital investment pursuant to the formula rate under EIMA and favorable weather.

For the fourth quarter of 2013, heating degree-days in the ComEd service territory were up 22.5 percent relative to the same period in 2012 and were 8.5 percent above normal. Total retail electric deliveries increased 3.7 percent in fourth quarter of 2013 compared with fourth quarter of 2012.

Weather-normalized retail electric deliveries increased 0.4 percent in the fourth quarter of 2013 relative to 2012, primarily reflecting growth in the residential sector.

For ComEd, weather had a favorable after-tax effect of $8 million on fourth quarter 2013 earnings relative to 2012 and a favorable after-tax effect of $4 million relative to normal weather.

PECO consists of electricity transmission and distribution operations and retail natural gas distribution operations in southeastern Pennsylvania.

PECO’s GAAP net income in the fourth quarter of 2013 was $102 million, compared with $79 million in the fourth quarter of 2012. Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2013 and 2012 do not include various items (after tax) that were included in reported GAAP earnings. A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is in the table below:

PECO’s Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2013 increased $22 million from the same quarter in 2012, primarily due to decreased storm related costs and favorable weather.

For the fourth quarter of 2013, heating degree-days in the PECO service territory were up 6.4 percent relative to the same period in 2012 and were 3.2 percent below normal. Total retail electric deliveries were up 2.6 percent compared with the fourth quarter of 2012. On the gas side, deliveries in the fourth quarter of 2013 were up 4.8 percent compared with the fourth quarter of 2012.

Weather-normalized retail electric deliveries decreased 0.3 percent in the fourth quarter of 2013 relative to 2012, reflecting a decrease in deliveries to both residential and large C&I customers offset by an increase in deliveries to small C&I customers. Weather-normalized gas deliveries were down 0.6 percent in the fourth quarter of 2013.

For PECO, weather had a favorable after-tax effect of $8 million on fourth quarter 2013 earnings relative to 2012 and a favorable after-tax effect of $3 million relative to normal weather.

BGE consists of electricity transmission and distribution operations and retail natural gas distribution operations in central Maryland.

BGE’s GAAP net income in the fourth quarter of 2013 was $47 million, compared with $15 million in the fourth quarter of 2012. Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2013 and 2012 do not include various items (after tax) that were included in reported GAAP earnings. A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is in the table below:

BGE’s Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2013 increased $30 million from the same quarter in 2012, primarily due to higher electric and gas distribution rates and decreased storm costs partially offset by higher depreciation and amortization expense. Due to revenue decoupling, BGE is not affected by actual weather with the exception of major storms.

Adjusted (non-GAAP) Operating Earnings

Adjusted (non-GAAP) operating earnings, which generally exclude significant one-time charges or credits that are not normally associated with ongoing operations, mark-to-market adjustments from economic hedging activities and unrealized gains and losses from NDT fund investments, are provided as a supplement to results reported in accordance with GAAP. Management uses such adjusted (non-GAAP) operating earnings measures internally to evaluate the company’s performance and manage its operations. Reconciliation of GAAP to adjusted (non-GAAP) operating earnings for historical periods is attached. Additional earnings release attachments, which include the reconciliation on page 8 are posted on Exelon’s Web site: www.exeloncorp.com and have been furnished to the Securities and Exchange Commission on Form 8-K on February 6, 2014.

Cautionary Statements Regarding Forward-Looking Information

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. The factors that could cause actual results to differ materially from the forward-looking statements made by Exelon Corporation, Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company and Exelon Generation Company, LLC (Registrants) include those factors discussed herein, as well as the items discussed in (1) Exelon’s 2012 Annual Report on Form 10-K in (a) ITEM 1A. Risk Factors, (b) ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) ITEM 8. Financial Statements and Supplementary Data: Note 19; (2) Exelon’s Third Quarter 2013 Quarterly Report on Form 10-Q in (a) Part II, Other Information, ITEM 1A. Risk Factors; (b) Part 1, Financial Information, ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) Part I, Financial Information, ITEM 1. Financial Statements: Note 18; and (3) other factors discussed in filings with the SEC by the Registrants. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this press release. None of the Registrants undertakes any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this press release.

Exelon Corporation is the nation’s leading competitive energy provider, with 2013 revenues of approximately $24.9 billion. Headquartered in Chicago, Exelon has operations and business activities in 47 states, the District of Columbia and Canada. Exelon is one of the largest competitive U.S. power generators, with approximately 35,000 megawatts of owned capacity comprising one of the nation’s cleanest and lowest-cost power generation fleets. The company’s Constellation business unit provides energy products and services to approximately 100,000 business and public sector customers and approximately 1 million residential customers. Exelon’s utilities deliver electricity and natural gas to more than 6.6 million customers in central Maryland (BGE), northern Illinois (ComEd) and southeastern Pennsylvania (PECO).