The operator introduces the Exelon Fourth Quarter Earnings Call and turns it over to Andrew Plenge, Vice President of Investor Relations. Calvin Butler, President and CEO of Exelon, will lead the call and will be joined by other members of the senior management team. The presentation, earnings release, and other financial information can be found on Exelon's website. The presentation contains forward-looking statements and references to non-GAAP measures, which are reconciled in the appendix and earnings release. Calvin Butler then begins the call and presents the key messages for today's call.

The company exceeded their financial guidance for 2023 and achieved top industry performance despite mild weather conditions. They also successfully executed their financing plan and completed three rate cases. The final order in BGE's multiyear plan recognized the importance of investment in Maryland's energy goals, while the settlement in Atlantic City Electric's rate case will support smart meter rollout and other investments. However, the outcome of ComEd's first multiyear rate plan was disappointing as it failed to recognize the financial cost of the company's investments.

The company faced challenges with its ROE and investment plan in Illinois, but is committed to regaining momentum and resolving uncertainty in the state. They have added $3.2 billion in capital to their four-year outlook to meet customer needs and jurisdictional goals.

The brand insurer is making additional investments in transmission to address reliability issues caused by data center growth in the region. These investments will result in a 7.5% increase in rate base growth from 2023 to 2027. The company is also including incremental equity of $1.3 billion to maintain a strong balance sheet. Despite below average returns, the company expects a consolidated ROE in the 9% to 10% range. This will result in an annualized operating earnings growth target of 5% to 7% through 2027. The company made the decision to lower their earnings growth outlook in order to deploy capital in other parts of the system, particularly in transmission. The financial benefits of these investments may take longer to be realized.

The company is confident in its ability to deliver growth in the next few years, despite potential challenges in Illinois. They have announced their projected earnings and dividend for 2024 and have made significant progress in their operational and financial goals. They have also received recognition for their reliability and have invested a significant amount of capital to serve their customers.

The company had a successful year, meeting their targeted return on equity and delivering earnings in the upper range of their guidance. They also focused on maintaining a strong balance sheet, securing grants for grid resiliency and customer affordability, and maximizing value for customers through operational excellence. They also settled a rate case and made progress on other regulatory matters. However, the outcome of the ComEd rate case was disappointing and will be a top priority for the company in the future.

The company's reliability has improved, with outage frequency and duration at top quartile levels. This is due to a talented and trained workforce, as well as investment in the system. Safety performance will be a focus in 2024, with a need to improve in areas such as ergonomics and vehicle-related incidents. Customer satisfaction also improved in the fourth quarter, with ComEd rising into the first quartile.

The company is pleased with their financial progress and looks forward to continuing their success in 2024. Gas odor response remained at satisfactory levels and the company is proud of their employees. The speaker now hands over to Jeanne to discuss financial and regulatory updates. The company had strong financial results in the fourth quarter and full year of 2023, despite mild weather impacting some areas. They earned $0.62 per share on a GAAP basis and $0.60 per share on a non-GAAP basis in the fourth quarter, and $2.34 per share on a GAAP basis and $2.38 per share on a non-GAAP basis for the full year. The company's higher earned ROE at ComEd and favorable depreciation at PECO contributed to their success. The recent ruling on BGE's reconciliation also had a positive impact on their finances.

In 2024, the company expects adjusted operating earnings of $2.40 to $2.50 per share, with BGE and PEPCO entering the next cycles of their multiyear plan. However, the expected year-over-year earnings growth has been reduced due to the December 14th rate order issued by the Illinois Commerce Commission and ComEd multiyear rate plan. This has caused the company to decrease their distribution investment in Illinois and adjust their plans for the year. The company is waiting for resolution on the grid plan and has not assumed additional cost recovery or grid plan approval in their base case.

The article discusses the uncertainty surrounding ComEd's future earnings in light of the ongoing regulatory developments in Illinois. The company expects its 2024 earnings to be affected by the possibility of receiving rate relief, as well as the potential impact of the rehearing and revised grid plan processes on its revenue requirements. ComEd has already filed for a rehearing on four key issues with the final order and has also appealed to the Third District of Appellate Court.

ComEd is working to expedite the appeal process and will file a revised grid plan by March 13 to address the concerns expressed by the commission. The revised plan will reflect lower financial support and prioritize affordability. There is no set deadline for the revised grid plan, but the commission is eager to have a compliant plan in place by the end of the year. As a result of the challenging rate order, ComEd's long-term investment outlook for their distribution business has been reduced by $1.25 billion over three years. This reduction was agreed upon with stakeholders and further adjustments will be made to balance priorities.

The company has accounted for the possibility of more capital being removed from the plan, but still plans to invest $7.4 billion in 2024 and $34.5 billion over the next four years. They have reduced ComEd's distribution capital plan by 18% and will be investing $3.2 billion in additional capital, including $1.5 billion for transmission and $725 million for data centers and renewable energy. This is in response to the energy transformation and increasing demand for electricity. The company is one of the largest and best operators in the industry, serving densely populated areas and providing a reliable customer experience at competitive rates.

The additional transmission projects are largely related to two large projects awarded by PJM to address reliability challenges and the retirement of a coal plant. Most of the transmission capital will go into service after the guidance period, providing strong rate base growth in the future. The company expects to continue seeking opportunities for transmission projects, especially in high-density areas with increased renewable energy demand. The company's capital plan is expected to result in a 7.5% increase in rate base over the next four years, reaching $74 billion.

Exelon's growth in rate base is expected to add $18.5 billion from 2024 to 2027, with a shift towards transmission investments. This growth is supported by their strong track record of cost discipline and investment in grid modernization, which has increased reliability while keeping electric rates below the top 20 cities in the US. By maintaining a focus on efficiency, Exelon has been able to save customers from $400 million in potential rate increases.

In 2024, the company expects to see a higher growth rate due to significant back office and operational IT system investments. This is also driven by aligning with jurisdictions on spending programs for energy goals. The company plans to limit annualized O&M growth to 2% and maintain competitive rates for customers. They have established a team to streamline operations and have initiatives to upgrade systems for increased efficiency. They are also standardizing storm response protocols to improve performance and mitigate costs in the future.

Exelon is implementing a framework to transition to an automated condition-based maintenance strategy in their transmission operations and is using technology and streamlining processes to improve efficiency and customer service. They are committed to managing costs and delivering affordable rates for customers. Despite challenges in Illinois, they are projecting 5-7% annualized operating earnings growth through 2027, with a focus on other jurisdictions and cost management initiatives. They are confident in their earnings growth guidance, even if progress in Illinois is limited.

The company plans to maintain a 60% dividend payout ratio and expects a 5% to 7% annual growth in earnings through 2027. They also aim to maintain a strong balance sheet and have implemented cost management and reduced distribution capital spend to mitigate the impact of a rate order in Illinois. They will continue to fund new investments prudently and aim for a 13% to 14% consolidated credit metrics over time.

The company expects to generate cash from transmission investments and maintain strong credit metrics over time. They do not anticipate being impacted by the corporate alternative minimum tax. The $34.5 billion capital plan will be funded by $19 billion of internally generated cash flow, $10 billion of debt, and a modest amount of equity. They plan to issue $1.3 billion of additional equity over the next four years to fund incremental capital investments while maintaining a strong balance sheet. The company is confident in their ability to invest $35 billion of capital from 2024 to 2027 and drive earnings growth while maintaining a strong balance sheet.

Calvin Butler concludes the call by outlining Exelon's priorities and commitments for the year, which align with their focus areas for 2024. These include prioritizing operational excellence and safety, delivering on a prudent financial plan, and reaching collaborative and constructive outcomes in ongoing and future rate cases. Butler also highlights the company's strong leadership and bench strength.

In the coming years, the company will focus on making the energy transformation equitable and affordable, as demonstrated by their recent submissions for funding and efforts to streamline operations. They remain committed to finding a solution for investment in the first rate case process, while also preparing for potential changes. The company's value as a premier T&D utility is highlighted on Slide 16.

The company is responsible for leading the energy transformation in major cities and has a strong operational performance and ability to invest. They are offering investors a strong return and have made commitments for 2023. There is uncertainty following a recent order in Illinois, but the team is confident in their approach and sees potential for growth in 2024.

The speaker expresses disappointment with the outcome of the ICC's decision on the state's climate policy. Despite extensive engagement with stakeholders and the passage of the Climate Equitable and Jobs Act, the speaker credits Joe Jonas and his team for their efforts. The speaker outlines the steps taken leading up to the final order, including participating in workshops and responding to data requests. However, the ICC's input was not received until now, and the speaker's team is now working to align with their requests. They are meeting with stakeholders to achieve the objectives of affordability and reliability, and are prepared to pivot if necessary. The speaker assures that their 5-7% earnings growth is based on multiple outcomes and they are working on a plan to meet all objectives.

The speaker emphasizes that their priorities are to provide safe and reliable electricity for Illinois citizens and maintain a financially strong company. They are working with the Illinois Commerce Commission to achieve these goals and have provided a guidance range for 2024 that assumes a certain order. They are also optimistic that their grid plan will be approved this year, which will allow for progress in the future. If not, they are prepared to make further reductions.

The speaker, Nicholas Campanella, asks a question about the company's CapEx plan and its impact on the 2026 rate base. Jeanne Jones clarifies that the difference in distribution and transmission investments is responsible for the lower rate base, with certain projects closing outside of the planning period. Campanella also asks about the company's balance sheet and the feedback from credit agencies on the new plan. Jones responds that the message is consistent with last year's discussions.

The speaker discusses the company's expected cushion of 100 basis points over the planning period, which may change depending on the alleviation of the corporate alternative tax. They mention the impact of the ComEd order on the balance sheet and how it was mitigated through various measures. The speaker also mentions the impact of new capital and funding it with 40% equity. They expect the front-end of the plan to be a little lower but to improve over the planning period, with the average being 13%. They also mention the positive impact of equity and transmission projects on the company's metrics in the future.

Calvin Butler and Gil Quiniones are discussing the possibility of settling issues with stakeholders in Illinois. They may submit a settlement to the commission, but a settlement on the rate case is unlikely. They are engaging with staff and seeking alignment between the legislative body and the commission to accomplish shared goals.

The speaker, Calvin Butler, explains that the final order clearly outlines the gaps that need to be addressed in the grid plan. They are working closely with staff and intervenors to ensure alignment and address specific issues. The next question is about the cash flow outlook and where the company falls in terms of EPS compared to the updated plan. Calvin Butler responds that the FFO is looking better than the prior plan, with a $2 billion increase in CFO. The company is in the lower end or midpoint of the updated EPS plan.

Calvin Butler and Jeanne Jones discuss the company's commitment to achieving 5-7% earnings growth, with a focus on meeting the midpoint or better. They also mention their ability to overcome challenges and deliver on commitments, as demonstrated in 2023. Jeanne adds that they will continue to show this commitment in the year-by-year plan and maintain a 100 basis points cushion on the balance sheet. They also mention funding this cushion through a balanced approach and assuming consistent authorized equity ratios and returns in the plan.

Ross Fowler from UBS asks Jeanne Jones about the potential downside risks in Illinois and how the company plans to mitigate them. Jeanne explains that the company always includes a cushion in their plans and is prepared to pull back on capital expenditures if necessary. They will also look for O&M levers to offset any potential risks.

In the paragraph, the speaker discusses the opportunities for transmission that Exelon has added to their plan for the future. These opportunities include addressing high-density localized low growth and modernizing the grid. They also mention the potential for further transmission related to offshore wind projects in Maryland and New Jersey. The speaker emphasizes the importance of their scale and size in multiple jurisdictions, and how it allows them to flex their power and prioritize Illinois as a focal area.

Calvin Butler, Exelon's President and CEO, thanked everyone for joining the conference call and expressed his appreciation for the company's employees. He mentioned that they have other businesses to run and will continue to manage costs in a pragmatic manner. He also mentioned that they will be attending spring conferences and look forward to engaging with others. The call has now concluded.

This summary was generated with AI and may contain some inaccuracies.