Exelon Corporation (NASDAQ:EXC) Q3 2024 Earnings Call Transcript

Exelon Corporation (NASDAQ:EXC) Q3 2024 Earnings Call Transcript October 30, 2024

Exelon Corporation beats earnings expectations. Reported EPS is $0.71, expectations were $0.67.

Operator: Hello and welcome to Exelon’s Third 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 Andrew Plenge, Vice President of Investor Relations. The floor is yours.

Andrew Plenge: Thank you, Gigi. Good morning, everyone. We’re pleased to have you with us for our 2024 third 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’s 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 is now my pleasure to turn the call over to Calvin Butler, Exelon’s President and CEO.

Calvin Butler: Thank you, Andrew and good morning everyone. We appreciate you joining us for the call and are pleased to be reporting a solid quarter of earnings and operational performance, keeping us on track for another year of consistent and stable performance. We reported GAAP earnings of $0.70 per share and operating earnings of $0.71 per share, above the expectations shared on our second quarter call. We delivered another strong quarter of operations despite significant storm activity in July, with top quartile or better outage performance across the board. We have also made considerable progress on our 2024 regulatory calendar since the second quarter call. First, ComEd has now received its proposed order and its refiled multiyear rate plan.

The order serves as another positive data point that ComEd has filed a compliant plan that appropriately balances the state’s desire to continue to deliver reliable and affordable power while making progress on its ambitious energy goals. We now await the commission’s final order and we look forward to regaining the momentum in establishing Illinois as a clear leader in the energy transition. We also reached settlements with key parties in our PECO gas and electric rate cases, which were recommended for approval by the administrative law judges presiding over this case. We appreciate the party’s interest in advancing the critical investments needed to maintain and improve safe and reliable service for PECO’s customers, playing a key role in the state’s economic development efforts.

In the District of Columbia, we continue to anticipate an order by the end of the year, laying the groundwork for continued investment to support a climate-ready grid and the district’s clean energy goals. Finally, in September, Maryland initiated a lessons learned proceeding on multiyear plans, completing its hearings earlier this month. In those hearings, each of our Maryland utilities provided an extensive record of the ways in which multiyear rate plans are able to address the demands of a 21st century grid. And we are appreciative that a number of stakeholders, including large customers, chambers of commerce and contractors filed their support of the construct. But we also acknowledge ways in which we can address certain stakeholder concerns with the goal of continuously improving on the foundation of transparency and accountability on which the framework is built.

A grid of the future cannot rely on the rate making of the past and ensuring we have alignment and transparency around our investment plans is critical to meeting our state’s energy goals, allowing us to execute as efficiently and effectively as possible on behalf of all of our customers. We remain optimistic that we’ll find alignment on a solution that can give us all the confidence to keep Maryland moving forward. Let me now turn to our operating highlights for the quarter. On Slide 5, you can see that we are achieving first quartile performance across most of our key indicators for safety, reliability and customer satisfaction. In both outage frequency and outage duration, ComEd and Pepco Holdings continued to perform at top decile levels.

And that’s despite the powerful storms that swept the Chicago area in July and the significant mutual assistance extended throughout the quarter for Hurricanes Beryl and Helene with Hurricane Milton following directly afterwards. The storms that hit Illinois were record-breaking by a variety of measures. In just 2 days, the Chicago land area experienced double the number of tornadoes that it sees in an average year. And then some of those same crews, along with those at BGE, PECO and our Pepco Holdings utilities were part of more than 500 field and support personnel to aid in restoring service to customers in Florida, Georgia and West Virginia after a very challenging hurricane season. I do want to take a moment to personally thank our employees for their continued focus and dedication.

The ability of our utilities to keep pace with the increasing severity and frequency of extreme weather events can only happen with the dedication of some of the best in the business and with the support of our jurisdictions, for the critical investments needed to maintain reliability and resiliency. As it pertains to safety, after three quarters of benchmarking against serious injury performance we now have all 4 utility operating companies in top quartile. The safety of our employees, contractors and customers is always our highest priority. Finally, on customer satisfaction, performance has improved since last quarter, with BGE now operating in second quartile alongside Pepco Holdings. Both utilities remain focused on initiatives to further improve performance, including enhancing customer communications, streamlining new business processes and additional customer service representative trainings.

Now it’s my pleasure to turn the call over to Jeanne to cover our financial and regulatory update. Jeanne?

Jeanne Jones: Thank you, Calvin and good morning everyone. Today, I will cover our third quarter financial update along with our financial and regulatory outlook for the remainder of 2024. I will also spend some time highlighting a transmission project at Delmarva Power, which is helping to modernize the grid and accelerate an opportunity to save money for our customers. Starting on Slide 6, we present our quarter-over-quarter adjusted operating earnings block. For the third quarter of 2024, Exelon earned $0.71 per share compared to $0.67 per share in the third quarter of 2023 reflecting higher results of $0.04 per share over the same period. Earnings are higher in the third quarter relative to the same period last year, driven primarily by $0.04 of timing at ComEd on its distribution earnings.

After removing the timing at ComEd across Exelon, we earned $0.03 of higher distribution and transmission rates net of associated depreciation, which was offset by $0.03 of higher interest expense. After accounting for the timing of ComEd driven in part by expensive mutual assistance provided to non-Exelon utilities, we delivered earnings results in line with the guidance we provided in our prior quarter call. Our year-to-date performance underscores our ability to deliver strong financial results despite mild weather and heightened storm activity throughout the year. As we close out the year in the fourth quarter, we remain on track to achieve operating earnings of $2.40 to $2.50 per share. Our fourth quarter guidance assumes a reversal of common distribution earnings timing, fair and reasonable outcomes for Pepco DC’s multiyear rate case as well as the BGE and ComEd reconciliations and normal weather and storm activity.

In addition, we reaffirm our long-term annualized operating earnings per share guidance range of 5% to 7% through 2027 with the expectation to be at the midpoint or better of that growth range. Turning to Slide 7. As Calvin highlighted, we have made meaningful progress in our distribution rate cases across our jurisdictions, approaching the final milestones for ComEd’s, PECO’s and Pepco DCs open rate cases. We also filed a historical test year gas distribution rate case in Delaware. I’ll begin my remarks by providing an update on this most recent filing followed by status updates on the remaining rate cases anticipated to reach resolution this year. On September 20, Delmarva Power filed its gas distribution rate case seeking approval of a proposed $35.6 million revenue increase, exclusive of the transfer of $6.4 million of the distribution system improvement charges.

The filing represents Delmarva Power’s work since its last gas rate adjustment filing in 2022 and reflects investments that help ensure customer reliability and improve service and safety, including work to inspect and proactively maintain natural gas mains, replacing aging cast iron and bare steel pipe and replace and upgrade equipment at our Wilmington LNG facility. The filing also requests the adoption of a weather normalization rider, which will offer customers more bill predictability as seasonal temperatures grow increasingly volatile. Continuing with Pepco Holdings on August 30, Pepco and other parties filed final brief on Pepco’s climate ready pathway DC multiyear plan, which outlays the investments we will make to support a climate-ready grid and enable cleaner energy programs and technologies.

The plan also enhances the reliability, resiliency, and security of the local energy grid and expands affordability assistance for Pepco’s customers across the District of Columbia. We now await the DC Public Service Commission’s final order, which we anticipate before the end of the year and look forward to continuing the important work needed to enhance customer reliability, advancing economic and work development and further supporting the district goals to be carbon neutral by 2045. Turning to Pennsylvania. Administrative law judges have issued recommended decisions in the PECO gas and electric rate cases and we are pleased with the recommendation that the Pennsylvania Public Utility Commission accept both settlements filed in August.

The proposal for PECO’s electric rate case allows for a $354 million revenue requirement increase, excluding a one-time credit of $64 million in 2025. On the gas side, the ALJ proposed a $78 million revenue requirement increase in 2025. While the ALJ has ruled against the addition of a weather normalization adjustment, we have filed an exception to address the adjustment, which will now go for commission review and consideration. The adjustment, which has been approved for all other major Pennsylvania gas utilities, is intended to reduce the inherent volatility in customer bills and PECO’s recovery of distribution revenue. We expect the commission to issue its final orders by the end of December. Lastly, at ComEd, on October 18, the administrative law judge presiding over the case issued a proposed order on the revised grid plan for which we expect a final order from the Illinois Commerce Commission in December.

The proposed order recommends the commission approved the revised grid plan and associated adjusted revenue requirements for 2024 through 2027 with a $637 million revenue requirement increase and a $3.9 billion rate base increase with the new rates in effect in January 2025. As a reminder, this construct allows for the recovery of prudently incurred investments up to 105% of the approved revenue requirement and provides that certain investment categories such as storms and new business are excluded from the 105% threshold. We are appreciative of the hard work put in by all parties to craft a compliant and balanced credit plan, which has resulted in strong alignment up through the proposed order and we look forward to the commission setting the path for the next 3 years of investments during a critical time in the industry.

With final orders anticipated to be issued for ComEd, PECO and Pepco DC by year-end, approximately 90% of our rate base will have established rates for known rate mechanisms in place through 2026 or 2027, allowing us to focus on planned execution and the strategic discussions required to support growing electrification needs and the necessary expansion of clean, reliable generation in our states. As always, additional details on the rate cases can be found on Slides 20 to 30 of the appendix. That brings me to Slide 8, where I want to take a moment to highlight an example of the work we’ve been doing to modernize the transmission system. Earlier this year, Delmarva Power began work to rebuild the Vienna to Nelson 138 kV transmission line, a 14-mile circuit that extends from the Vienna substation in Dorchester County, Maryland to the Nelson substation in Sussex County, Delaware.

The project replaces over 100 wooden 60-year-old structures with steel poles and upgrades our equipment to 230 kV standards. The new infrastructure will also be able to withstand wins over 110 miles per hour, is constructed above flood zones and includes an underground transmission lead-in, enhancing overall system resilience. Currently, the project is on track to be placed in service nearly 2 years ahead of schedule in December. Completion of the project will enable the Indian River 410-megawatt coal vile generating unit to retire, eliminating the collection of the RMR and saving nearly $100 million across 551,000 customers in that 2 years, which is over 1.5x greater than the installed cost of the project that will be collected over decades.

Alongside lower bills, these customers will also experience better system reliability and resiliency from the elimination of capacity constraints. The project also emphasizes our commitment to workforce development with $13.5 million of the spend on the project with diverse suppliers, supporting local economic growth and partnership with the jurisdiction we serve. These efforts highlight our dedication to enhancing customer value while fostering local economic growth and they are a testament to our strategic efforts to maximize the impact of our investments, modernizing the energy grid, while mitigating resource adequacy constraints and supporting state goals to decarbonize, the project also highlights the power of our platform to efficiently execute on capital plans for the benefit of our customers.

This is just one example of the $9.7 billion we have in our capital plan for electric transmission investment through 2027, and it highlights why transmission will continue to be an area of significant opportunity to support our customers going forward. Finally, I will conclude with updates on our financing activity on Slide 10. We continue to project a cushion of approximately 100 basis points on average over the planning period for our consolidated corporate credit metrics above the downgrade threshold of 12% specified by S&P and Moody’s, demonstrating our commitment to maintaining a strong balance sheet. And while we continue to advocate for language that incorporates – the corporate alternative minimum tax and the final treasury regulations, recall that our plan incorporates the assumption that the final regulations will not allow for repairs, consistent with the proposed guidance released in September.

It’s implemented in a way that mitigates the cash impact we’d expect an increase of approximately 50 basis points to our consolidated metrics on average over the plan, putting us at the higher end of our targeted 100 to 200 basis points of cushion over the planning period. From a financing perspective, we have successfully completed all of our planned long-term debt financing needs for the year with PECO raising $575 million in the third quarter. The strong investor demand we continue to see for our debt offerings is supported by the strength of our balance sheet, combined the lowest attributes of our platform. Investor confidence in our offerings, along with our pre-issuance hedging program positions us well as we continue to seek out the most efficient ways to finance the energy transformation for our customers and investors.

We’ve also successfully completed our planned $150 million of equity issuances for 2024 via our ATM. There has been no change in our guidance to issue a total of $1.6 billion of equity from 2024 to 2027 to fund our current $34.5 billion capital plan with the remaining balance expected to be issued ratably from 2025 to 2027, approximating $475 million on an annual basis. Thank you. And I’ll now turn the call back to Calvin for his closing remarks.

Calvin Butler: Thank you, Jeanne. As you can see, we’ve come a long way toward delivering on our priorities and commitments for 2024 with the team highly focused on continued execution and operational excellence as we approach the final months of the year. We have maintained top quartile performance despite a tremendous amount of storm activity this year. The bar keeps getting set higher and we keep meeting it. We are approaching final orders for ComEd and PECO with path towards reasonable supportive outcomes in both covering approximately 50% of our rate base with another approximately 40% covered by known or established ratemaking processes as far out as 2027. And we appreciate Maryland acting quickly to address its lessons learned process so that we can agree on an approach that allows all stakeholders input into how customer dollar should be invested to meet the state’s energy goals.

We are on track to invest $7.4 billion of capital in 2024 for the benefit of our customers and earn a fair return on equity in our targeted 9% to 10% range, with our planned financings for the year already complete. This will allow us to deliver in the $2.40 and $2.50 operating earnings guidance range that we laid out at the beginning of the year. And most importantly, we have maintained our steadfast commitment to customer affordability both through cost and vigilance in developing and adopting cost-saving measures as well as in our legislative and regulatory efficacy during a very dynamic time in the industry. As the largest utility by customer count, serving some of the largest cities in this country, our primary mission is to provide reliable, resilient and affordable power to everyone equitably.

The ability to invest in the grid is integral to that mission. It, of course, supports reliability, where demands continue to increase due to more severe weather, increased electrification and an evolving generation supply mix. And those demands have only been amplified by the growth of artificial intelligence. At the beginning of the year, we indicated that we had 6-gigawatts of high-probability data center load in our territories. That’s now at 11-gigawatts, which is indicative of the incredible opportunity this sector has ahead. But investing in the grid can also contribute to affordability as well. The transmission project that Jeanne highlighted is just one example of many where our grid investments can create savings for our customers.

The importance of the grid reinforces the value of coordinated, thoughtful and efficient investment and thus, the benefit of transparent, forward-looking planning and rate making. It also underpins our policy advocacy. It has driven our focus to ensure co-located load arrangements do not compromise reliability or avoid the cost of relying on the grid. And it’s why we are actively engaging with peers and policymakers on how our state and PJM can ensure generation continues to be as reliable and as affordable as possible. All of our actions are focused on enabling the necessary investment in a grid that we all rely on and that is indispensable to the economic vitality of our jurisdictions and the impact of that partnership is clear. In September, Site Selection Magazine named ComEd and PECO who are the top 20 utilities in economic development in the country, their 10th and 14th time, receiving that award respectively.

Two weeks ago, the District of Columbia’s Chamber of Commerce named Pepco its business of the year. And Exelon Utilities were just named as recipient of three more awards under the DOE’s grid resilience and innovation partnership program, bringing our total direct funding under that program to $330 million. Again, we have the honor and the privilege to serve over 10.5 million customers and they are counting on us to dependently deliver safe, resilient and affordable power during this energy transformation. Gigi, we are now ready for any questions from the audience.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Nick Campanella from Barclays.

Nick Campanella: Hey, good morning. Thanks for taking my questions.

Calvin Butler: Good morning, Nick.

Nick Campanella: I just wanted to address upfront because I know we’ve gotten some questions. Just you previously said midpoint or above for ‘24. Is that kind of still the case today? And how should we kind of think about that?

Jeanne Jones: Yes, Nick, good question. So we started that language as part of our long-term guidance when we were trying to show 5 to 7 and the combination of the years may be different, and we give you where we end up in the year. But that – over that time period, right, as always, we aim for midpoint or better. And I would say for the current year, that also continues to be our goal, right? When we give you a guidance range, our goal is always to be at the midpoint or better. And so I just – yes, that’s how we’re still thinking about it and what we’re still working towards the last 2 years, that’s what we’ve done and we’re working hard to make sure that we continue that trend.

Nick Campanella: Okay, great. Thanks for that clarification. So it’s been a few months since we’ve had the PJM auction. I’m sure you’ve had some more kind of time to digest it. There has been kind of discussion potentially in the legislative arena to address solutions for new generation. So as you kind of flip the script into ‘25, I heard your comments on focusing more on strategic initiatives. Just how does this kind of play out in your mind? What will you be kind of advocating for specifically to fix the bill issue that’s kind of growing at PJM? Thank you.

Calvin Butler: Hi, Nick. Thank you. This is Calvin. Let me just – I’ll approach this a couple of ways, Nick. And you – make sure you let me know if I get directly to your question. First off, I do believe – we believe that PJM’s request to delay the capacity option does reinforce the concerns over whether increasing prices are efficiently addressing our electricity demand needs and sends a clear message that reform is definitely needed. So that was the first step and an acknowledgment that something has to be different. And I do appreciate PJM’s leadership to put forward interconnection and various capacity and market reforms. And it’s just another example that the PJM stakeholder process is just not working. And we will continue to support them as well as other federal and regional agencies to get that done.

So that’s first and foremost. It would not surprise you that as a Tandy only company not owning generation, our voice is unique in this discussion. And we’ve been working with all of our governors and regulatory bodies on how to address this issue and what needs to be done. And I think you’ve seen the magnification of this issue, Nick, with the letter that the governors most recently fit to page PJM statin, that something needs to be done not tomorrow but today. And we want to be part of that solution, and we will be part of that solution. And one of the things we are always focused on and I think we start with this, Nick, it’s all about reliable, resilient and affordable energy. What can we do to be part of that mix to ensure that takes place, and as I said in my opening remarks, everything we do is about providing that in an equitable manner to all of our customers across the footprint.

And we will continue to work with that and I think you’re seeing that momentum going. Now people are talking about whether we’re regulating generation and so forth. If that’s part of the solution, we’ll be at the table figuring how that happens, but we’re not advocating for that. What we’re advocating for is reliable and affordable energy. And that’s our foundation of what we’re talking about.

Nick Campanella: I certainly appreciate that. And I think that’s just the direction that we all want to see it going. But I guess people just – I think we all acknowledge it takes a long time to facilitate this new build that could potentially supplement this higher demand outlook. And I guess, just as you look at the build trajectory, do you still kind of feel comfortable with the rate base growth that you’ve outlined across your jurisdictions specifically in some of those ones like BGE and otherwise? Thank you.

Calvin Butler: I do. I do. Because if you want to accomplish that goal of what we were just talking about, reliable resilient and affordable, you can’t do without investing in the grid. A matter of fact, Nick, I would tell you that there’s a cost of not making these investments because all of our jurisdictions have a clean decarbonization goal to it. And, you can’t get there without investing smartly in transmission. And you’ve seen the weather conditions that all of our jurisdictions are facing. I talked about Illinois with a number of tornadoes. If you even take a look at what James transmission project that she highlighted. It’s the conversion of wind pools to steel poles because of the wind pressures that all of our systems under.

So you can’t get there without the investment. What we have to do is make sure it’s smart investment because I believe the cost of not doing it is far outweighs the cost of just systematically doing it. But that goes into how we work with those regulatory bodies and ensuring that the conversations are happening upfront and not after the fact. And that’s why I’m leaning into the multiyear plans because whether you like them or not, if you not having thoughtful and proactive conversations, it becomes more expensive on the back end. So to your direct question, yes, the grid investments are needed. And yes, they will need to continue. We just have to work with everyone to make sure we’re doing it in the right way. Colette, do you have anything you’d like to add to this?

Colette Honorable: Thank you, Calvin and Nick, good morning, Colette Honorable on EVP of Public Policy and Chief External Affairs Officer. I would add to Calvin’s comments that – and you heard him allude to the fact that we are unique. We are the nation’s largest utility. We are a pure transmission and distribution energy delivery company, and that gives us a lot of optionality. It gives us the ability to be strong partners with policymakers, with members of the legislature, with our regulators to help find and support the solutions that our customers need. So while we will continue to be focused on the fundamentals: reliability, affordability, resilience and being a leader in the clean energy transformation, we also are leaning into PJM, for instance, on fashioning solutions that help us do this work more efficiently and more quickly.

For instance, PJM has been focused on ways to find reform to help us either get more generation, more transmission. We support a shovel-ready construct where we are looking at how we can move these projects through the queue more quickly to help with the addition of new generation. We will also continue to be a leader in the PJM stakeholder process on a number of pricing reforms. So we applied the effort of the governors in elevating the capacity action issue as one that needs attention from everyone right now, and we’ll continue to be a leader in that regard.

Calvin Butler: Thank you, Colette. And I think, Nick, to your direct question on how we’re engaged with PJM Today, all of our CEOs of our operating companies are participating in the PJM meeting that’s taking place right now. And they’re engaged in that because we know that their voice matters, and they’re sitting there representing their jurisdictions in a very proactive way.

Nick Campanella: Hey, thanks for all those thoughts and we’ll see you in Florida here shortly. Thank you again.

Calvin Butler: We’re looking forward to it.

Colette Honorable: Thank you, Nick.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Julien Dumoulin-Smith from Jefferies LLC.

Calvin Butler: Julien, good morning.

Julien Dumoulin-Smith: Hey, good morning. Thank you too. Thank you, operator. Appreciate it. So a couple of things real quickly here. First off, starting with Maryland here. I mean I know you gave some commentaries in the prepared remarks, but just at the end of the day, even if you didn’t have an additional multiyear plan as it’s structured today, I mean, how would that change your plan, right? I mean, it just ultimately falls back to more discrete spending plans, but does that change anything in aggregate, if you will?

Calvin Butler: Yes. Let me jump in there first, Julien and then I’ll turn it over to Jeanne. Let me just be very clear. The multiyear plan was only implemented, I think, in 2020. So we’ve been operating in Maryland with traditional rate making well beyond before then. And the organization was doing well when I was CEO of BGE, we were filing annual rate cases and we were being effective in getting it done. What we have shared, and I continue to share is that the MYP is the best way to go because the transparency and the affordability piece because what we do we effectively build things and keep things in line and working with the stakeholder process in a collaborative manner allows that to happen and ensures everyone’s goals are met.

So to your direct question, we will continue to advocate for it, but we know how to move forward on traditional rate making, if that’s what they require. It would not be something that we would ever say is the best thing for that state to do. But it is something that we’re prepared to do. And we will reallocate our capital when it comes to other jurisdictions because we have to continue moving forward. So we’re not going to miss a beat, but it will require us to reassess where we go and how we invest capital across our systems. We’ve demonstrated that we know how to do that. When you look at what happened in Illinois in 30 days, we’ve reallocated capital to other parts of the system. And we’ll continue to look at those issues. Jeanne?

Jeanne Jones: Yes. So I think that’s right. I mean I think if you look at all of these proceedings coming to a conclusion here in the fourth quarter, whether it’s ComEd’s print plan, the Maryland lessons learned. We’re getting our DC order. That’s the benefit of having the size and scale, right? We get to then reflect kind of the new investments related to those orders, but then also layering capital where we know we need to invest. When you saw our last 4-year update, we went up $3 billion over a 4-year period. I think 90% of that was transmission. There’s a lot of transmission work we need to do. So we’ll manage all of that. We’ll manage the portfolio and we’ll meet our jurisdictions where they are.

Julien Dumoulin-Smith: Yes, absolutely. Thank you guys so much for the detail there. Appreciate it. And Calvin, can you speak a little bit to the transmission backdrop? I mean, you referenced in the remarks again, this 9 7 number. But as I look at it, clearly, it seems like there’s a number of leading indicators that would suggest that number could go materially higher, right? We’ve seen some sense of the PGM thus far related. We’ve also got MISO really pushing a much more expensive program conceivably that can weave into your plan as well, Pennsylvania also. Do you want to speak a little bit on each one of those and just how that fits against what you have at least currently stated as last updated at 9 7?

Jeanne Jones: Yes. I think at a high level, right, you’re going to see that trend continue, the increasing need for more transmission investment. I think there’s at least 3-themes there, probably several more, but there is just core work across our jurisdictions that we need to do for reliability, resiliency. We talked about and Calvin reiterated, right, that even in the Delmarva project we just talked about, the system needs to be modernized against the increasingly volatile weather. So whether it’s wood to steel poles, elevating substations for flooding, making sure they can withstand hurricane Category four winds, all of that. Security is becoming increasingly important for substations. So that’s just or work across our four operating companies, we know we have to do.

And that’s continuing to increase. I would say a second key theme is the changing generation mix. You’ve got retirements. We talked about the Indian River RMR today. That transmission was to replace that and save our customers’ money. Brand insurers is another one. And so you’ve got retiring generation, which needs to have investment in transmission to accommodate that. But then you’ve got new generation. When you look at the Mid-Atlantic, right, Maryland, New Jersey, Delaware, you add up the goals in the states there, you’re looking at maybe 20-gigawatts of offshore wind. We’re not going to build that offshore wind, but we will build the transmission to support that new generation and we’re excited about that, right? We all know we need more generation, and we need all types of generation.

So that’s another key theme, the changing generation mix and then, of course, right, the theme of new load. When we updated that capital plan that I mentioned, the $3 billion, 90% of it was transmission, $700 million was in ComEd, right? And ComEd is where we are increasingly seeing that data center growth. You heard Calvin talk about going from 6-gigawatts of high probability to 11-gigawatts just this year alone. The work we need to do to accommodate that high-density load continues, not only in ComEd, but across PJM, right? Last year, we talked about the $1 billion for the ARTECH window three, are related to Northern Virginia data centers. So I think that increasingly becomes a trend. What’s not in our plan, you mentioned PJM’s window one this year.

We think there’s opportunity there, probably more in the couple of hundred million size. But then outside of PJM, MISO is doing its tranche two. That is another potential opportunity for us that’s not in the plan. There are pieces of the solutions that cross in our territory, and MISO has indicated willingness to work with PJM operators. So I think no shortage of opportunities, a lot of strong themes, which just kind of continue to build that momentum for more investments. And what we love about them is often those investments help save our customer money when you think about the alternatives.

Julien Dumoulin-Smith: Completely appreciate it guys. Thank you so much.

Calvin Butler: Thank you, Julien.

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

Calvin Butler: Good morning, Shar.

Shar Pourreza: Good morning.

Jeanne Jones: Hey, Shar.

Shar Pourreza: Morning. So Calvin, you guys made a series of 205 filings in late August sort of seeking to clarify the tariff treatment of network load. Can you just talk a little bit more to what specifically drove those filings within your service territories and what you see as kind of the pathway forward? Procedurally, what are the pathways?

Calvin Butler: Yes, absolutely. So, let me just be very concise, try to anyway, because there has been a lot of activity and to frame it on the why and the what, right. So, first off, as you know, the regulatory conversation was initiated when AEP and ourselves really jumped in and protest the Talen ISA, which is in its most recent amendment was the first time deceleration that the co-located load was not network low, which implies that it will bear no share of the cost of service associated with be part of the grid. Now, we are happy that FERC stepped in and really initiated a technical conference with the Commissioner. So, as you know, Shar, which will begin on November 1st. And so that’s a big step because we do not believe that policy should be determined by one-off contracts.

And therefore, our voice, even though it was not in our service territory, we saw some things beginning and we needed to say, we have questions and we need to get clarity. We filed our 205s for each of our utilities with the goal of having guidance from FERC by early December so that the rules of the road going forward are clear. And we needed that because we were being asked to do things that were contrary to the support and the reliability of the grid. And we cannot have the cost, the potential cost shifting to other customers. So, what we were doing in those 205s are saying, hey, give us clarity, answer the questions sooner rather than later, so we know how to proceed. And that was the purpose of them, and that’s why we did them. And Colette, please.

Colette Honorable: Thank you. And Shar, to your question about the 205, so following the intervention and the Talen ISA docket and now that FERC has set the technical conference, as Calvin said, we certainly applied that. It’s a welcome development. But the upcoming and timing of the process is still uncertain. So, we don’t know what will happen as a result of the technical conference, and we still need clarity as we engage with a number of our large load customers and to be clear, as Calvin mentioned, comment in PECO in particular. At two of the site selection utilities, we are seeing a lot of activity. And so we need clarity sooner rather than later that will aid us and moving ahead with confidence, and so that all of the parties know the rules of the road. So, we filed those 205s in each – for each of our utilities with the goal of having guidance from FERC early December.

Calvin Butler: And as you know – thank you, Colette. As you know, in the technical conference, Shar, FERC did not have a timeline in which they must act. So, this asking for the some ruling by December, early December was really the catalyst to say, look, let’s get that clarity, so we can all move forward.

Shar Pourreza: Got it. Yes, you press it a little bit. Okay. Got it. And then just any work in Illinois regarding the CMC roll off. The curves have come off a bit, which is good. But I guess is the ITA kind of taking the lead here?

Calvin Butler: So, I will turn it over to Jeanne, is the former CFO of ComEd, and because she is intimately involved with this. Jeanne?

Jeanne Jones: I mean I would just bucket it in the same way I think about all of our jurisdictions, right. The sooner we can get to solutions around securing reliable generation at affordable prices, the better. And so I think what’s been while the affordability issues from the capacity auction are a bad thing, right, the good thing is that the conversations are starting earlier because of that, right. There is a recognition across all of our states including Illinois that we need to come up with solutions to address that. So, we have those through ‘27, as you mentioned, but those conversations are starting now to make sure that customers have safe, reliable and affordable generation in the State of Illinois.

Shar Pourreza: Got it. And just a real quick one is just on the resource adequacy side, Calvin. I mean all the wireless companies are kind of highlighting this consensus that there is resource adequacy issues. But I don’t know if there is a lot of alignment on how to solve it. Your peers – I mean your one peer just a minute ago, talked about jet regulated generation. Your other Pennsylvania peers talking about regulated generation. They have been talking about it for months, but you are not advocating for it. So, I guess timing is kind of tight to get something solved. It doesn’t appear there is a lot of alignment. I guess are you aligned with the other wireless companies, or is there different pathways?

Calvin Butler: No. Great question, Shar, and I would tell you, there is alignment around reliability and resiliency and affordability. So, resource adequacy, in my view is a subset of that, because what we are all focused on, we wouldn’t be having this conversation if we weren’t concerned about the reliability of the grid overall, because when you have a breakdown and enough generation to provide power on the cold states [ph] and the hottest state that is the reliable of the system and what we talk about in terms of the buyer companies is that, we are going to be the ones that our regulators and our legislatures come to and say, what’s going on. So, we are happy to answer that question. So therefore, when you look at potential solutions, as I stated earlier, is that a possibility, sure it is.

But we are having those conversations. And I am not saying that that’s – I don’t believe that’s the only solution. And we will work with our stakeholders to figure out what the options are and what can we do sooner rather than later to ensure that the system uphold its obligations performing at the peak demands that is required, and that’s how we are approaching. So, we are aligned, that it’s an issue, there is multiple scenarios in which you could play out, but we are part of that discussion as an industry, and we are approaching it with all of our stakeholders. And just to let you know, at ADI, we have created a working group to really address this issue across the country, because of different jurisdictions, it’s different.

And I can even look at our six jurisdictions, they all have different needs and I can’t pretend that one solution will solve all of their needs. But we have to be at the table and we are.

Shar Pourreza: Got it. Perfect. Thanks guys. I will see you in a little bit. Appreciate it.

Calvin Butler: Thank you.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Steve Fleishman from Wolfe.

Calvin Butler: Hi Steve. Good morning.

Steve Fleishman: Yes. Hi. Good morning. Thanks. So, just – I guess just kind of following-up on a little bit of the co-location debate. So, the Governor of Pennsylvania seems pretty proud of both the Three Mile Island and the co-location deal with Susquehanna when they filed – highlighted that when they filed the letter at the FERC. And so I guess just do you have a sense where the Governor of Pennsylvania is on the issue? And I guess bringing up governors kind of Illinois too on this issue and where they lay out and what happens once we get an outcome?

Calvin Butler: Okay. I will jump in here, Steve. Thank you. And then I have Mike Innocenzo, who is our Chief Operating Officer, is former CEO of PECO, if Mike once willing as well. I will never pretend to speak for either of our governors, Governor Shapiro, Governor Pritzker, but I can’t tell you the conversations that have been had. I think both of them go into reliability and affordability is the utmost concern they have for their states, that’s one. Two, when you look at the three months, should be proud of that. We are bringing new generation into the mix to serve within PJM. And I think that is a wonderful example of how we can move forward and looking at data center load, bringing that online, bringing new generation online is a wonderful mix.

But he is also – I have heard him say is that, he is very excited about the economic development and the jobs that will be created from the Susquehanna deal. Is he concerned about the cost shifting and the affordability piece for everyone else, absolutely. And what he is saying and what I have conveyed to him, and I have shared with you is that, we are not against co-location. We just believe everyone should pay their fair share of utilizing the grid. And therefore, we believe it’s not that they shouldn’t do it, it’s how they do it, that matters. And that is where our conversations was leaning in with each of our governors. But I do know what the premise of them. They want economic development. They want reliable power and they want affordable power for everyone.

So, now we get into the details and that’s what we have committed to working with everyone to ensure that it happens. Mike, anything you would like to add?

Mike Innocenzo: I think you said it well. I would just – there is nothing in our position that is close to where our commentary is on that. I think everything that we have done with our position on co-location, our investment in the grid is supported where he is on safety, reliability and economic development.

Steve Fleishman: Okay. Thank you. One other question just on the PJM transmission, Jeanne, I think you mentioned maybe a couple of hundred million incremental opportunities from the pending, I guess the filings recently made. Is it – was that…

Jeanne Jones: Yes, we are talking about the…

Steve Fleishman: Yes. Is it – and there were – there was a group of utilities that made filings together. I mean obviously you have a huge footprint, so maybe that is not really needed given your scale. But just did you consider that as well?

Jeanne Jones: Yes, sure. We always do, right. We are always looking at what is the best way, right. You go back to the pinnacles that Calvin talked about reliable, resilient, affordable. If there is a way to partner with other utilities to do that for our customers, we are always open to that, so.

Steve Fleishman: Okay. Thank you.

Calvin Butler: Thank you, Steve.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Ross Fowler from Bank of America.

Calvin Butler: Good morning Ross.

Ross Fowler: Good morning Calvin. Good morning Jeanne. Just a couple for me, not to beat the dead horse here, but to go back to PJM capacity for a second. Obviously, a lot of stakeholder discussions are happening now. PJM, presumably, they have asked to away the auction until next June. We will see what FERC says to that. Is there enough discussion going on right now? I mean a lot of the solutions that are being talked about would require legislative change in various states within PJM. Should we – or are we at the point – I mean from my perspective, time is of the essence, but are we at the point in those discussions where we should see legislative efforts push forward in the 2025 legislative sessions, or are we not quite there yet?

Calvin Butler: I think the governor’s letters identify what’s the sense of urgency that needs to take place. And I think this, the call today and what happens, I think from now to the end of the year, will be a key indicator of what the states may take on for the 2025 legislative session. I don’t think – I think it’s too early to say to what and how. But I do believe fire has been lit. And I do believe these discussions over the next 60 days are going to be key as to how these governors continue to lean in on this very important issue.

Ross Fowler: Thank you for that Calvin. And then back to the ISA, obviously, now we are going to process at FERC. We will see what they say as you move this forward to the 205s. But I guess the way I see it, there is two issues, right? One is cost allocation, which I think you have been pretty clear about in your filings. The other is reliability. So, as you said, you don’t – you are not protesting the ability to do it. It’s just how and where and why like to put the mechanics of it. So, maybe give us a little color on what those mechanics look like. Is that – is cost allocation really just about paying for grid upgrades around substations and other things to actually co-locate something somewhere, or is it more an argument that they really are on the grid and they need to pay some sort of ancillary services to the grid?

And then the second one, part of the question is for PJM, they don’t – in my mind, they don’t really do a reliability study, right? They do a capacity study to make sure that if you co-locate something somewhere, the average in voltage of the grids can stay up, so it still works, but that’s not the same thing as reliability. So, is there a push in these discussions from your perspective to add something around reliability because if we keep taking plants off the grid one, two, three, four, five, there is a reliability issue that is out there somewhere as we continue to do this. So, maybe contextualize that for us.

Calvin Butler: Yes. So, let me just say this, Ross. I think you said it well. But I am going to turn it over to Mike Innocenzo, our Chief Operating Officer, and then he and Jeanne will answer to some more depth for you.

Mike Innocenzo: Yes. I think you captured it really well. I mean it really falls in three buckets. It’s reliability, that’s resource adequacy and it’s rate design. These investments, whether you put them before the meter or you put them behind the meter, you are going to have an impact on the grid. They are going to take ancillary services off the grid. They are going to potentially require upgrades for the existing facility. And they are certainly going to have an impact on – as they take power off the grid, they are going to certainly put themselves in a situation where it may require future upgrades to the grid. Our whole position has just been – if they can co-locate, if they can get in there quick and get in there doing what they want to do, w e support that.

We just want to make sure that it has the appropriate transparency on what they are doing. We want to make sure that we have the appropriate studies done to make sure that we are addressing resource and reliability and adequacy currently, and we also want appropriate rate design to be able to cover for those costs, either now or in the future.

Jeanne Jones: I mean I would just reiterate that. And this is what we have laid out, right. We laid it out in the proceedings, our position hasn’t changed. We have never been against co-location. We are excited about the opportunity for all of this growth in our sector. It’s reliability, should be studied the same way any other large loads are or loss of generation, right. All of that gets studied for reliability of the grid. Rate design, we have already laid out the cost associated. It’s not zero, right. It’s not zero, so that’s clear. And so getting clarity at FERC, working with our states, we have riders today we could use, for high-density load that could be used tomorrow. So – and then the third is resource adequacy, which again, it doesn’t matter where it’s located, right.

We all know we need more generation, and we need more transmission to accommodate all this new load. But we are ready to move forward. We have processes today that address all of those three buckets. Let’s use those processes, let’s move forward and that continue to grow this economy and grow jobs and let’s move forward. That’s what we are looking to do.

Calvin Butler: And Ross, it’s important to note that we have conversations on a daily, if not weekly basis with all the largest data center developers. And to a T [ph], they have said it’s been very important to work with our utilities across the country, to put mechanisms in place to ensure reliability and resiliency of the grid. No one has said anything about that. And I just wanted to let you know and others know that we are continuing to have those conversations and work to remove barriers to ensure the economic development in our jurisdictions occur. And the fact that we have been recognized for that, and we have 6 gigawatts now, potentially 11 gigawatts in Illinois and across our jurisdiction [ph] – is an indicator that we are on the forefront of making this a reality. So, I appreciate the question.

Ross Fowler: I appreciate that, Calvin. And then just maybe one on the sort of jurisdictional stuff here. Clearly, FERC has a just and reasonable rates mandate, which gets into the cost allocation discussion. But we have gotten a lot of questions around reliability is ultimately PJM’s responsibility. So, how does that interplay of reliability work between FERC and PJM as we walk through the ISA filings?

Calvin Butler: Yes. Colette, please.

Colette Honorable: Thank you. And Ross, thanks for the question. And forgive me if I am going to sound like a lawyer and technical person here. Under the Federal Power Act, FERC has the mandate to oversee the reliability of the grid. And we think about PJM, they are like the air traffic controller for this region. Yes, they oversee that reliability function. But reliability, we are frontline on reliability and that’s why you have seen us really owning our duty here and stepping into lead on these critical issues of policy. We are in an unprecedented time in this sector. So, FERC has a duty in particular, as it relates to wholesale matters, transmission matters and FERC has the sole jurisdiction over generation interconnection service agreement.

So, what’s interesting about our framework in the U.S. is there are some aspects of this work and reliability that resides with the Federal Government and some of that reside with the State. So, we need this policy setting from FERC. And then as you heard Jeanne mention, where this is going to play out, is at the retail level. Generation is actually regulated at the State level, and when Jeanne referenced riders that we have, we already are using those with large load customers. We already have riders that are utilized for large industrial and commercial customers to take into account their uniqueness and how they utilize the services of the grid. But to Jeanne’s point, they are not paying zero because they are connected to the grid and rely on the grid.

I hope that wasn’t too much in the weeds for you.

Ross Fowler: No, that’s fine. So, basically, we are dealing with three layers here for test to set sort of a overall policy position. PJM has to sort out what that means in context and then we are going down to redesign at the State level to finally sort it out, if that makes sense.

Colette Honorable: Exactly.

Ross Fowler: Perfect. Okay. Thank you.

Calvin Butler: Appreciate your answer.

Operator: Thank you. At this time, I would now like to turn the conference back to Calvin Butler for closing remarks.

Calvin Butler: Thank you, Gigi. And just let me begin by just thanking everyone for all of your questions and your interest in Exelon and also your support. I can’t recall a more exciting time in this sector. And I am just pleased to say that the Exelon team is leading the way, investing capital in a way that meets all of our stakeholders shared interest, including yours as investors. We look forward to seeing all of you and just many of you at EEI in a couple of weeks and look forward to having more in-depth discussions on where we are going and why we are taking the positions we are and how we are leading this energy transformation. Gigi, with that, that concludes the call.

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