Q4 2019 Earnings Call
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It is now my pleasure to turn todays call them over to Dan Eggers Senior Vice President corporate finance the floor is yours. Thank you. Good morning, Samara. Good morning, everyone and thank you for joining our fourth quarter 2019 earnings conference call, we didn't call today, or Chris Crane, Exelons, President and Chief Executive Officer, and Joe Nigro, Exelons Chief financial.
Office or their joined by other members of Excellence Senior management team will be available to answer your questions. Following our prepared remarks, we issued our earnings release. This morning, along with the presentation both of which can be found in the Investor Relations section of Exelons website, the earnings release and other matters, which we discussed during today's call contain forward looking statements and.
Estimates that are subject to various risks and uncertainties actual results could differ from our forward looking statements based on factors and assumptions discussed in todays material and comments made during this call. Please refer to the days 8-K, an excellent other FCC filings for discussions of risk factors and factors that may cause results to differ from management's project.
<unk> forecast and expectations. Today's presentation also includes references to adjusted operating earnings and other non-GAAP measures. Please refer to information contained in the appendix of our presentation and our earnings release for reconciliations between non-GAAP measures and the nearest equivalent GAAP measure I'll now turn the call over to Chris Crane.
Excellent CEO.
Thank you Dan Good morning, everyone. Thank you for joining us for our 2019 fourth quarter earnings call I'm going to start on slide five on almost all accounts, we had a very good 2019 excellent utilities in generation.
<unk> focus on delivering for our customers in their communities come it had its best performance. However, the nuclear fleet had its best capacity factor and we delivered financially.
As you can read the full year GAAP earnings were three dollar and one cents per share and the non-GAAP earnings were $3.22 per share above our revised guidance range and the midpoint of our original guidance range. Joe will walk you through the financial details later in the call I want to address the.
Operation.
Operational details as we go forward.
Last year X, one utilities invested $5.5 billion and capital and 150 million, which is 150 million more than originally planned. These investments were primarily in infrastructure and technology to.
Provide a premier customer experience improved reliability and resiliency modernization of our gas system, resulting in the best ever customer satisfaction at each of our utilities.
We had a productive year on the regulatory front Pepco DC filed its first multi year rate case in Maryland, PSC is moving forward with a multiyear rate plans, we received a constructive settlement at BG in at Ace Ficos transmission Formula was approved by FERC.
<unk> comments formula rate provided the third rate decrease in five years, helping to keep the average residential customer bill flat from where it was a decade ago [laughter] excuse me on.
On the policy from the United States Supreme Court upheld the Illinois in New York Zach programs, New York State Supreme Court spare report.
From that program and the New Jersey, and New Jersey implemented there's that program in the spring Governor Wolf in Pennsylvania announced plans for Pennsylvania to join Reggie and the Pennsylvania State Senate passed legislation setting a goal for electric vehicles and deployment.
FERC approved PJM is fast start reforms PJM in PJM filed its proposal to reform the reserve market and scarcity rules.
Our commitment to grow the dividend by 5% annually through 2020 with the board raising the annual dividend to $1.53 per share in January.
Well good partners also with the communities, we serve our employees volunteer to record breaking 251000 hours in 2019, that's a 11000 more than in 2018 during national Volunteer week, we sponsored 452 events in 16 states and Uh Huh.
Third and 28 cities with 5400 employees, which is another record.
In addition, X one donated nearly 52 million to charities and organizations throughout our footprint.
We are committed to providing a diverse and inclusive environment for nearly 33000 employees.
We were once again named best company for diversity by Forbes diversity ink in the human rights campaign.
Our total diversity supplier spend exceeded $2 billion for the third straight year accounting for 27% of or overall supplier spend.
Excellent companies continue to prioritize partnerships with local based diverse businesses by offering development programs.
We also continue to be recognized for environmental stewardship and were named to the Dow Jones sustainability index for the 14th year in a row.
Focused on operating at World Class live levels delivering on our strategy in supporting clean energy policies Interstate.
The hard work and a commitment of our employees to provide safe reliable power and natural gas to our customers led way to the greatest performance. We've had we had in 2019, we delivered on our commitments to you our shareholders, but also our employees and our customers in our communities.
However, this year was not last year was not without challenges, including subpoenas, we received the U.S. Attorney's office and Northern Illinois, as we said before.
We are limited in what we can share about the investigation. However, I want you to I want to reiterate that we are fully cooperating with the U.S. Attorney's office and taking the situation very seriously.
The board appointed a special committee.
Provide oversight of the investigation led by outside counsel to determine if any changes are needed to ensure that going forward. We operated the highest possible standards.
At the end up.
Our commitments for 2020 [noise].
Turning to slide six we're committed to operating our utilities at the highest levels for our customers. Since 2016, we have deployed nearly 22 billion across the utilities and plan to invest 26 billion over the next four years these investments enhance reliability resiliency.
And modernize our electric and gas systems, we've been able to make these needed improvements while keeping the boards the bills affordable the rates and all our major cities, Baltimore, Chicago, Philadelphia, Washington, our 13% to 18% below the average for the large largest.
Cities and 2% to 7% below the National average these investments are producing tangible benefits for our customers customer satisfaction is the highest level it's ever been at each one of our utilities, reflecting a strong system performance that has come from our investments.
[noise] frequency of outages has decreased significantly down near 50% commented and 30% of P.H.I.
Outage duration is also decreased by 52%.
And 38% accommodated MPG respectively.
2019 was the best reliability performance for commented in the second best for BG E.
On the gas side Pico and BG every place more than 200 miles of cast iron and Bailey bare steel mains and nearly 30 Midcap 30000 metallic gas services in 2018. These investments will help our customers current and future needs, while reducing gas leaks in greenhouse gas emissions.
Moving to slide seven our stake our states are focused on ensuring the.
Electric and gas systems are ready to meet the changing customer needs more reliable and resilient in her prepared for renewables in electric vehicles and are ready to meet the challenges of climate change.
We're working with each state to get the right mechanisms in place to be able to make these needed investments. Our states are providing support through a range of regulatory tools, including alternate rate, making such as formula rates and multi year rate plans as well as tracker mechanisms reliability and gas infrastructure programs.
[music].
Turning to slide.
Slide eight.
Fercs recent order on PJM capacity.
The governors in Illinois, Maryland in Jersey are firmly committed to having their electricity be supply by 100% clean. These states are leading the way to clean energy economy, and we share that goal and we'll work with them to achieve.
Unfortunately, there is a clear conflict between clean energy goals of our states and not customers on one side in the resource decisions being made by PJM and FERC on the other.
Lets states take action to protect their clean energy programs versus December order on the PJM minimum offer price rule or mode.
Clean right resources.
Supported by the states being pushed out of the capacity market only to be replaced by carbon based generation. This would result in billions of dollars of additional cost for customers in threaten the progress being made and retaining and expanding our clean energy.
Our states as well as many others oppose FERC smoke for decision in are evaluating what actions may be necessary. In response, we're working with policymakers and stakeholders to protect the clean energy programs from the negative impact of for Moca Loper decision and enable the transition to 100%.
Clean.
On slide nine we show our operating performance for the year. Each utility continues to have outstanding customer operations, all achieved first quartile and performance in service level and abandoned rate and I mentioned.
We had our best ever scores on customer satisfaction index would BG commented Pico achieving top decile and ph ice performance significantly improved in the last three years missing first quartile by <unk> 0.1 points.
Reliability performance was mixed this year due to a very active minor storm season throughout the mid Atlantic for instance, ph I had 32 minor storms for 2019 compared to eight in 2018 minor storms are not excluded from these calculations.
Never commented achieved top quartile in both outage frequency and duration and BG achieved top quartile on outage duration.
Turning to generation on slide 10.
Our fleet generation fleet performed one of its best years ever a very good in 2019, providing a significant portion of the country's clean energy excellent generates 12% for one out of every nine clean megawatts in the United States are best in class nuclear Freeth fleet.
Operated very well last year, our capacity factor was 95.7, our highest ever we generated 155 million megawatt hours, avoiding 81 million metric tons of greenhouse gas emission in 2019.
Our average refueling outage duration was 21 days matching the record set in 2018 and 18.
14 days better than the industry average excellent power's gas and hydro dispatch match, 97.9% and wind energy capture at 96.3% were better than planned.
Our constellation business remains the industry leader, a vast majority of our retail businesses with Cnine customers, where we have the largest retail platform with 25% market share delivering a 154 terawatt hours of electricity.
And 67 Terawatt hours more than our nearest competitor.
Our retail operating metrics remained strong 79% customer renewal rates.
Average customer duration of more than six years and power contracts terms of 23 months on average we continue to see stable unit margins with our power customers.
Our focus is on cost and helping support operating margins constellation strength lies in its durable relationship with our customers. We work with our customers to provide them solutions to meet their energy needs well also reaching their environmental and sustainability goals, we provide our customers with much more than just.
A commodity.
Now I'll turn the call over to Joe to review the financials.
Thank you, Chris and good morning, everyone. Today I will cover our 2019 results annual updates to our financial disclosures and 2020 guidance.
Starting with slide 11, we had another strong year.
The fourth quarter, we earned 79 cents per share on a GAAP basis, and 83 cents per share on a non-GAAP basis.
For the full year, we earned $3.01 per share on a GAAP basis and $3 in 22 cents per share in a non-GAAP basis, which is above our revised guidance full year guidance of $3.05 to $3 in 20 cents per share and seven cents per share above our original midpoint.
Excellent and utilities delivered a combined $1.91 cents per share net of holding company expenses.
Utility earnings were higher relative to original guidance due to favorable or when M, including lack of major storms and favorable weather at Pico and BG any as well as higher distribution revenues have BG.
These were partially offset by the impact of lower treasury rates Oncomeds ROI.
Xtend earned $1.31 cents per share exceeding its guidance range of $1.20 cents to $1.30 cents per share.
Exchange outperformance was primarily due to favorable I wouldn't assume including incremental nuclear insurance distributions and recognition in the fourth quarter of the research and development or R&D tax benefit for the years 2010 through 2008 includes tax years.
We expected to record this benefit but it was more favorable than we'd planned. This favorability was offset by the unplanned outages at Salem Sandwich station and a contracted asset during the year.
Overall, we delivered well on our financial commitments.
Moving to slide 12.
The consolidated PHR utilities earned to 9.2% borrowings for the trailing 12 months up 90 basis points from year end 2018.
Improvement is driven by the constructive distribution rate cases across the jurisdictions as well as incremental transmission revenue and a decrease in our NIM, partially offset by an increase from depreciation.
Earned are always for the legacy Exelon utilities were above 10% slightly improving from year end 2018.
Looking at our utility returns on a consolidated basis. We earned to 10% are are we for the trailing 12 months, which compares to last year's 9.6% as a reminder, we target a 90, 10% consolidated are are we at our utilities and expect that we will move around in that band over the course.
The time.
And we remain focused on earning fair returns across all of our utility.
On slide 13, we roll forward our outlook for utility Capex in rate base, covering 2020 2023.
This year, we expect to invest nearly $6.5 billion in our utilities and a total of $26 billion over the next four years.
These investments are improving our system reliability service experience for our utility customers and preparing us for the future.
Our capital forecast reflects identified and approved projects as we move through time, we identify more investment needs across the system that will provide additional benefits to our customers in communities.
Since the initial disclosures for the 2018 to 2022 period, we have identified nearly $4.9 billion, one additional investment, including an additional 1.9 billion since last year's fourth quarter CLO.
As Chris mentioned these investments benefit our customers by helping to drive our operational excellence overall customer satisfaction and meet state resiliency and environmental priority.
Since the PHR merger in 2016, we've added more than $9 billion in rate base across the utility.
Over the next four years, we will grow our rate base, 7.3% annually to $54.2 billion, adding $13 billion to rate base by 2023.
Or the equivalent of adding utility between the size of PHR income Ed without paying a premium issuing equity or obtaining merger approval.
As a reminder, 65% of our rate base growth is covered under either formula rates are men mechanisms such as capital trackers.
The support our ability to efficiently invest in our system.
While also allowing us to earn a fair in Thailand time, we returned on our capital.
Where we do not have these mechanisms we will continue to work with stakeholders to establish more timely recovery tools.
Chris touched on this earlier, but I want to remind you all that we have been able to make these important investments, while maintaining lower customer rates compared to other larger been areas. When we look at our projected residential bills, we continue to see below inflation around or below the rate of inflation, even as we make these important.
The investments in the appendix, we provide a more detailed breakdown of the capital in rate base outlets for each utility starting on slide 23.
Turning to slide 14, we continue to forecast strong utility less holding company EPS growth of 6% to 8%.
When you consider the drop in the 30 year treasury that lowered our EPS outlook for comment by roughly a nickel compared to what we showed you last year, we've been mordant able to offset in the back end of our plan through the increased Capex program across the utilities for the benefit of our customers.
Which brings us to the durability of our industry, leading earnings growth, which reflects a combination of strong response rate base growth.
Support system made for a more digital economy and environmental goals.
Successful cost management, and a focus on customer Bill affordability.
Before discussing our gross margin update on slide 15, I want to remind you that given the lack of clarity around the outcome of legislation in Illinois.
The fact that PJM is not yet held the capacity auction for the 2020 to 2023 delivery year, we will not be providing any action disclosures beyond 2021.
So turning to the table there is no change in total gross margin in 2020 or 21 from our last disclosure.
Open gross margin declined by 400 million and 100 million in 20, 121, respectively due to declining power prices across most regions offset by our hedges during the quarter, we executed 50 million of power new business in 2020.
We remain slightly behind our right a ratable hedging program in oil years, we ended the year, 6% to 9% behind in 2020 at 3% to 6% behind in 2021, when taken cross commodity hedges into account.
We continue to see some upside in certain markets, but are not expecting a significant rebound in power prices or volatility.
Slide 16 shows our own M. and capital outlook, a generation for 22020 at 2021.
Compared to our previous the disclosure on our fourth quarter call last year, our own M is down in each year.
Updated forecast reflects so an m. cuts, we announced on last quarter call pension benefits and nuclear savings.
Return on our pension investments in 2019 significantly exceeded our planned returns, but this favorability was partially offset by the drop in the discount rate taking both into account or pension expense is about flat to plan in 2020, Andy's down by approximately 25.
Million dollars from 2021.
Turning to Capex, we expect lower cash outlays than we projected last year, we've reduced the growth capital in 2020 in 2021, given the focus of recycling next gen cash and the increased need for equity investments at the utilities given their growing capital.
Nuclear fuel costs are also lower into 2020, and hiring 22021 versus last year's disclosure, primarily due to a shift in deliveries.
Overall, we continue to continue to see a constructive outlook for the nuclear fuel costs looking out over our planning horizon.
We will continue to look for ways to be more efficient how we work in spend to improve the cash profile next gen, while maintaining the safety and reliability of our fleet.
Moving to slide 17.
We remain committed to maintaining a strong balance sheet and our investment grade credit ratings, our consolidated corporate credit metrics are consistent with our targeted ranges and above S&P thresholds.
Looking at action, we are well ahead of our debt to EBITDA target for 3.0 times for 2020, we expect to be a 2.4 times debt to EBITDA and 1.9 times debt to EBITDA when excluding non recourse debt.
This year will be active on the capital markets as we support our utility rate base growth at next Gen. We plan to retire $1.5 billion of long term debt this year, including the 1 billion dollar maturity. We paid off in January as a reminder, this is in addition to the $600 million of long term debt.
Retired in October 2019.
Finally, I will conclude with our 2020 earnings guidance on slide 18.
We are provided 2020 adjusting earnings guidance of $3 to $3 in 30 cents per share.
Growth in utility earnings is primarily driven by the continued increase in rate base as we deploy capital for the benefit of our customers as well as carry through the from the 2019 rate cases.
We will see you offset from lower treasuries Oncomeds earned our OE higher depreciation and some regulatory timing drags between investment and rate cases, most notably at Pico.
Our consolidated range in 2020 for utilities less Holdco is one dollar in 80 cents to share to $2 from 10 cents per share.
Declining or extends earnings is a combination of lower realized energy prices and capacity revenues more planned nuclear outage days and the absence of nuclear decommissioning trust gains.
These are partially offset by a full year of Zach revenues in New Jersey and increased DECT revenues in New York.
We expect first quarter operating earnings to be in the range of 80 85 cents per share to 95 cents per share.
More detail in the year over year drivers by operating company can be found in the appendix starting on slide 55.
With that I will now turn the call back to Chris for his closing remarks.
Thanks, Joe turning to slide 19, I want to discuss our key focus Sears for 2020.
We will continue to deliver operational excellence across our businesses focusing on modernizing the grid and improving the customer experience other utilities, while staying focused on safety and reliability, we will meet or exceed our financial commitments delivering earnings within the range and maintain our investment grade.
Good.
Credit ratings as Joe mentioned.
At the utilities, we will prudently and effectively deploy $6.5 billion of capital to benefit our customers and help meet the needs are.
Its energy policy goals, and we will work with our regulators to ensure timely recovery on these investments we will support the enacted and nachman of state and federal clean energy policies with major initiatives was in flight in several states.
We will.
We will partner.
Ally with the communities. We serve this is key to who we are.
Slide 20.
I will close on Exelons value proposition with highlights our strategy and commitment to shareholders. We will continue our focus on growing our utilities targeting 7.3% rate base growth and 6% to 8% earnings growth through 2023.
Rolling forward another year this.
This above group trajectory, we will use free cash flow from the X Gen to support utility growth pay down debt and support the external dividend.
We will continue to optimize the value of our agenda coal business by seeking fair compensation for our zero admitting generating fleet.
Closing on economic plants, and monetizing assets as we see value is there while maximizing their value through generation to load matching strategy at constellation.
We will sustain growth investment grade metrics.
Excuse me strong investment grade metrics, and we will grow our dividend at 5% through 2020.
The strategy underpinning this value proposition is our effective and providing.
Tangible benefits to our shareholders, we remain committed to optimizing the value of our business and earning your ongoing support at a two excellent operator, we can now open the call to question.
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Your first responses from Greg Gordon with Evercore.
Thanks, Good morning, congratulations on a on a great year and the outlook is encouraging couple of questions.
The.
Utility growth outlook is obviously improved as we go out through time, despite the headwind from cum Ed.
The the Capex is up significantly, but the rate base growth numbers look like they're not moving as much in tandem I skim through the whole deck I understand you also moved capital around the different jurisdictions as well, but can you just comment on sort of that that modest level of dissonance between capex.
Being up and rate base growth looking like it's not up as much.
Yes, Greg Good morning, it's Joe.
The issue is in solely that the incremental capex that we mentioned.
Approximately $2 billion using falling to rate base, it's about all of the Capex and what we get into is the timing of when these projects going service. So weve updated some assumptions as it relates to the schedule of when these projects are finished and then they go into service in addition to that.
We could have changes and things like depreciation that would also impact that so it's really just the movement of when we see project timing in other thing Oh, sorry, if you do see is not SEAWIP been ABDC, you're not contemplated in that those calculations then.
No they're not contemplated in that calculation, okay that that explains it. Thanks in terms of the cash flow profile I know that you you haven't given us an update but because we do have obviously significant uncertainty.
With regard to X, Jan and Illinois, but as you look at most scenarios there whether it's getting some sort of in you deserve it incremental revenue for the clean attribute to your plants or having to you self help to rectify though.
These issues under most of those scenarios do you still see the utility being funded by the cash flow of the corporation without needing equity through this forecast rate.
Yes, Greg So first thing I would say is based on the current plan as I mentioned in my prepared remarks, we don't incorporate any equity equity issuance I mean, the plan and going forward, we can meet the funding needs and maintaining investment grade credit metrics under most scenarios.
With that we look at because we do look at this it on to under a range of different possibilities.
Okay, two more questions that are quick one.
Since the Q since the deck.
Were you usually give us your update on where you think oh them in capital are driving at Nexgen things have improved on the margin can you comment can you comment can you.
Comment on.
How you've pulled forward some of those the over them and Capex trajectory.
I think the Big thing is when you look at the improvement in Nexgen earnings it's really.
Sure thing by four barrels as you could see in 20 and 21, the gross margin hasn't changed right, but what has changed as we announced Oh in EM reductions on the third quarter call. That's been a benefit property lower property taxes has been a benefit and next gen. Lower depreciation is also a benefit and then finally, we do.
I have some lower interest expense when you think about the retirement of debt. So those four variables of driven improvement to the action or Okay final question Chris.
Time flies.
It's like seems like yesterday since you made the commitment to grow the dividend, 5% through 2020 and here. We are in 2020 and you've made good on that commitment, but at what point do you go back to the board with a recommendation on on a dividend policy post 2020.
So I would anticipate the discussions with the board will be in the fall timeframe. When we have further clarity on.
What the future looks like.
If we are able to enact some of the policies in programs in the states. We're working on and it provides us with certainty that we can provide certainty to the board that maintaining the health of the balance sheet while.
Creating shareholder value.
We should have a better picture at that time so.
I would I would expect us talking to you around year end timeframe about that.
Thank you Chris take care guys. Thanks.
Thank you your next responses from Stephen Byrd with Morgan Stanley.
Good morning.
Good morning.
Had a couple of broader policy questions.
We've certainly been seen quite a bit of evidence of especially in the PJM States a movement away from fossil fuels and.
On the merchant side, I think I understand some.
Some of the moving parts there, but on the regulated utility side.
What is your sense of the degree to which states are now pushing to move away from fossil fuels and how do you think broadly about.
Pivoting and sort of reacting to that shift at the utility side of your business.
So as you know Steven our utilities do not.
Have any generation and our restricted from having generation.
In the states that we serve.
What you see in our planning years that you're looking at for the utilities. They incorporate what we believe needs to be done to support the state's needs which calls for.
Wrote more robust distribution system investments to allow two way energy flows which is going to require transmission.
Build out to take care of importing the wind from the pockets of the service areas that we.
Serve.
And that's what's anticipated right now in the capital plan that we haven't front.
We have got to keep up with the states.
Policies legislative.
Agendas or or whatever is going to change the system. So our customers can benefit from these policies that the states or an acting.
Hi.
Understood and then just shifting over to the PJM capacity process.
I wanted to just get your latest thinking on next steps procedurally I'm thinking about sort of the broader process under which PJM would.
Refine their approach and the timing under which they haven't auctions I guess I'm thinking also about the possibility is pretty significant litigation around the whatever comes out of the PJM in the FERC process here, how do you see that unfolding just wanted to get your latest thoughts there.
Hi, Stephen if it's Kathleen Brown I can take that question I'll start with the auction timing as you know, there's there's a large group of stakeholders, including clean energy advocates consumer advocates renewable developers and most importantly, the states who have asked PJM to take their time and scheduling. The next auction a there's just there's just been.
In such a fundamental change in policy here that states need time to evaluate what the impact is on their customers and to design appropriate policies to protect their customers from the the significant impact of this new policy on customer bills.
So are we on we of course agreement that perspective, and and are going to continue to urge PJM when they're developing their next filing at FERC, which as you know is in March two lot to propose an auction timing schedule that takes into account the state's needs.
In terms of litigation, you're you're right that there have been a number of request for rehearing that have been filed that would be the next snap for for a before this case could go to litigation Africa, No timeline on which to ask to act on request for rehearing, but I think the more important point is they have been developing this policy for years I mean, they laid out in an order.
And ISO new England three years ago that mobile or is there standard solution and they have carried that through to PJM I see no future, where they change their mind on that policy and I think therefore, the states are right and looking at what their alternatives are two continued participation and RPM.
Understood and just to follow up their Kathleen.
We can the auction precede it there is pretty significant litigation for multiple states sort of questioning the fundamentals of the per quarter.
Well technically it can I mean, I I think from a good governance perspective of course as I said before PJM should take into account. The fact that some of the state's need some more information to figure out what the impact is gonna be on there on their citizens and then can I need to do it in internal evaluation, but from a legal perspective.
The the FERC order is vital and once the compliance filing is submitted at approves. A then PGM will be allowed to conduct an auction unless there's some sort of.
Judicial stay imposed.
Understood. That's helpful. Thank you very much.
Thank you your niche.
This is from Steve Fleishman with Wolfe research.
Yes, hi, good morning.
Morning.
You hear me, Okay, Chris Yes, perfect Yeah, we do great great. So just on the.
Illinois process could you just maybe talk too.
I guess, an update of the legislation and just.
You know trying to make sure that.
No I think the hope it hope is that there would be more of a long term framework in place.
For treatment of nuclear renewables and just.
How much is that likely to be part of any.
Legislative activity in the state.
Well, it's definitely.
You know, there's 2.2 focuses that Exxon has and the legislation one is the conmeds side, ensuring that we have adequate recovery mechanisms.
For capital investments being made while trying to maintain.
The customer protections that we need.
By caps on Bill increases. So so that part is very critical Kathleen can address the gen copart she's been heading that up.
In.
In Springfield and around the state.
Sure Steve I can jump in on the on your point about having a longer term framework, which is which is exactly the point of the legislation that's pending in Illinois.
And so the idea of using the fixed resource requirement provision in the PJM tariff or the F. Our provision is to give states that kind of flexibility to provide for example for renewables that may want to have contracts have differing lengths exactly that flexibility for them to have those those contracts and likewise.
As for their broader clean energy goals for them to be able to differentiate when they're procuring capacity resources between clean resources and emitting resources.
And as having that ability to design their capacity procurement to meet their state policy on a longer term basis.
Is one of the key benefits of the F. our.
Strategy.
Okay, and any sense on when we'll get a kind of a more.
Kind of fully.
Full full bill with more details.
Oppose took it to get better sense on.
Just the details of potential bill.
Yeah, I think you should expect to see.
Further discussion in public hearings that out what that but the bill should look like as you know there are number of proposals that are oh lives in the in the legislature in Springfield, and so there needs to be some some discussion in public hearings have of how other states policy on all the issues that are pending we will come together and.
Comprehensive.
Approach, so I think over the course of the spring fashion those details will become more evident as you know in most legislatures. It usually takes until closer to the end of the session for all the details to be worked out, but I think you'll start to see over the coming weeks and months.
Can you tell in March.
Okay, and then a broader question just on I guess, it's a it's yes cheese slash nuclear carbon question just.
Maybe for Chris just how do you feel about.
Your ability to get.
Credit.
It seems like there's a lot of focus on he or she and renewables and not necessarily as much focus on.
The benefits of nuclear and carbon reduction as you say, 12% of the megawatt.
Hours you produced for the country last year just.
How do you feel.
That you're going to be able to get credit either Republican or Democrat for the benefits of nuclear just.
How how both sides are kind of looking at that right now.
Right.
Yeah, I think over the last two to three years, you've seen a greater recognition of the benefit of nuclear.
As it's contributing to a cleaner environment low carbon and also other admitting.
Gases so.
As we work with stakeholders, explaining electrification and the benefits of electrification and that electrification is coming from clean sources that are highly reliable like base load nuclear.
And there's been theres been quite a few environmental organizations and government.
Legislative folks that agree with that.
Log is going on on how do we keep these assets. So the states can make their goals.
And that's going to be a critical part going forward.
No. We've we've shared numbers with you before that if we shut down a couple of nuclear units in a single state we can totally destroy all the investments that we're been made in the renewables and we're just going to go backwards.
That with our carbon emission. So we have to do our job is not only as a company, but an industry and we're trying to do that nuclear energy Institute has done a very good job on.
Their.
Campaign to communicate that to greater in broader masses, and we'll continue to do it ourselves and work through things like the legislation.
That may be enacted or policies that may be enacted in states, we've seen the Zack and the recognition in New York.
So the Zac and the recognition in Illinois, we're going to have to go a little bit further to be able to save these plants and that's where we're talking about how far are.
And and it's also another part of it it's more than just environmental.
The reliability they provide the jobs they provide the economic engine for the communities that they serve is very impactful and to not have these assets or Tim to be replaced with carbon based assets will just said in the states not only financially but environmentally backwards.
Thank you.
Thank you next responses from shop, Peru residue.
From Guggenheim.
Hey, good morning, guys.
Good morning.
Just focusing a little bit on on the Genco, if we get to sort of the November veto session and find energy legislation gets pushed to 21, and we assume that there will be a PJM auction and let's say December and January and another one roughly six months. After that can you just walk us through how you be thinking about the auction parties.
Depreciation and the timing of potential closures and do you feel that the MOPR order as catalyze the stage to act on seizure.
You know.
We were not speculating right now on that we surely hope for many complicated issues that.
The states are able to an act and given time to an act of policies that they desire that will allow these plants to still operate.
Okay.
So I've said for the last four or five years on almost every earnings call that if we can't see a path to financial stability for each one of these assets.
That we will have to retire them and we were not going to speculate today on which ones are win.
But you know we've we've shut down Oyster Creek.
On into decommissioning of with the decommissioning company.
Tim Eyes off there was no path for financial stability and as I've said in the past, we must watch the balance sheet and our debt commitments and a negative cash flow assets will only sin the fleet backwards and our goals on strong investment grade.
That will allow us to maintain our commitments to operate plant safely and meet our financial commitments on retiring our debt. So.
Well, we'll work hard through this legislative session.
To convey the importance of it and we're not going to speculate until.
We have no longer have a path to profitability for the assets.
Got it and then you know if it's let's just say, Illinois does fr.
How are you thinking about maybe the potential impacts on sort of the rest of the RTL fleet like in Pennsylvania, and Maryland, especially given obviously the imm has been taken somewhat of a bearish tone on the impact.
Yes, sorry. This is Kathleen I can take that one I mean, there are number of estimates as you know out there about the impact of 1234 or five states.
Choosing the F. our option, we have not conducted an analysis of what that means for the rest of the pool, so I'm not going to speculate on.
In terms of those analyses are accurate.
We'll just say with respect to the to the market monitor and the suggestion that the mobile is going to have no impact on on a capacity clearing prices, it's and I know that that's been repeated by number of that the fossil companies yeah. It's just it.
It's a little bit concerning I mean, it's exactly the same programs that they that where the reason that that Moelfre litigation was brought by these companies recall when the first lawsuit was filed in New York When when New York adopted as that program. They said the point of the lawsuit was that that programs, where suppressing market prices by.
$15 billion over the course of that programs like the whole purpose of wolper was to raise capacity prices Commissioner GLIC estimated that it's got to raise capacity prices by $2.4 billion annually across the pool. Other independent analyses have gone there too. So it's just not credible for them to be now saying okay.
It's going to have no impact.
Got it that's helpful and congrats guys, it's very solid results.
Thank you.
Your next responses from Joseph Koski from Bank of America. Please go ahead.
Oh, the delay can you hear me.
Yeah.
Hey, Thank thank you guys, who time people quick let me, let me come back to some of the numbers that we start with Greg earlier, just in terms of the guidance I know you mentioned, the ABDC piece and the reconciliation between Capex and rate base, we talk about the Ernie.
Obviously rate base unseen EPS guide and higher ease that principally due to some of these changes in ABDC that isn't normally reflecting that rate base, but obviously as reflected in that capex or are there. Other changes obviously the cadence of the trajectory. The earnings 20, and 21 onwards has shifted a little bit as well, but just wanted to clear.
Hi that and and then also on Xtend similar dynamic around what what's causing the offset versus the open margin I think you had a little bit a quick brief commentary about basis. It sounds like you want to elaborate quickly on that as well as maybe the tax these threats and year over year.
Yes, Julie and good morning, It's Joe on your first question remember, we're giving you guidance to the combined to you in Holdco. So theres a couple of variable, even though we're investing capex in rate basis and rising.
When you look at it.
The interest rate at the interest expense at corporate is projected lower which drive dps as one variable that positive to the earnings.
We are when you look at these projects right you could still see there is additional capex growth and then we have some improvement in our we versus our prior plan as well based on some of the regulatory actions and performance. So there's a number a bear variables outside just the incremental cash.
Capex that would drive the value.
Your second question.
On the offset said at generation. It's when you look at the prices falling you know used 21 is an example, where were less than 70% hedged you see that you would have the open gross margin come down. However, that's a price at a calming trading point when you look at the values associated.
Back to where the generator bus bars are for example, those prices move every day as well and there were some offsets associated with that so got that got us down to flat.
Got it actually and then just to come back to the broader strategic points here.
Oh wait time, you can do you need to make decisions here it sounds like the latitude through the course this year and then related to that.
Are you expecting any kind of half our development. The head of these auctions themselves or would you know the outcome of the auction and the outcome of any of the resolution of how to run as often.
<unk> to be a decision point for states outside of Illinois, I'm. Just wondering has been the cadence in the then given where we stand today I know, there's a lot of moving pieces and that could be a long question, but I'll, let you respond to as you keep them.
We are definitely responding to the mope or.
And our commentary to FERC and.
PJM that they need to allow the states to an act whatever policy or legislation. They are pursuing prior to running the auctions, there's adequate capacity in within the system that we don't need to rush to secure until the rule.
Tools are clear so it would be an unfortunate.
Event, if the auctions ran before the states were able to take action, which means you'd be looking at 2024 2025.
Before you'd be able to an act.
And that's a long time with negative cash flows.
That many of the units would be facing.
At that point, so we want to work with every stakeholder we can within the states that we serve to help them an act the policies and explain.
What we Ken on the economics.
You know if the bill as we've seen it and draft.
Towards the end of last year.
Isn't acted it actually has a significant benefit to the consumer it's not.
Bill increase as being.
Communicated by summer understood by others.
It actually is Kathleen pointed out.
Good cost as much as $2.6 billion to the PJM customers and you take just Illinois alone, that's what about 15% or a little over $400 million on an annual basis on an increase to those customers. So.
Theres a customer benefit here, there's as drafted are imported previously there's a cap on the and what can be increased on both sides. The investment to support the renewables or the cost of the energy capacity in the system so well.
We need to we need to be able to.
Have the time or the state's need to be able to have the timing is this discussion in multiple states right now that they wanted to look at something differently and and we hope the PJM respects the state's needs and allows them time to an act.
The policies that they desire.
Thank you.
Thank you. Your last question comes from the line of Michael Weinstein from Crdit Suisse.
Yes, Hi, John Chris.
Hey, Mike.
Maybe.
Maybe you could explain a little bit of why the pro rata hedging program is still acts a little bit more behind ratable I guess, you do you talked about not expecting assuming again.
Our prices going forward.
But yes, I'll, let Jim Q answer that.
Hi, Michael It's Jim we have shifted our positioning in the markets through time I think a we you know this time a year 18 months ago, or even 24 months ago, we're carrying a position behind ratable primarily in the base load regions looking at the market some where they were trading.
What we've done as we've shifted some of that's a different regions. For example, one of the areas Weve with a backward data curve in ERCOT. For example, we see opportunities and different seasons in Texas with Oh, our DC pricing being more relative for the future. So there's just a we're picking and choosing our spots I would say and it's spread out across multiple region.
And it's just a smaller overall position, but I wouldn't where we're looking at where the opportunities are and then you know if not a little bit relative to your question I was just highlight too that the vast majority of our new business would not come from that type of optimization activity, but 70, 75% would come from our load sales and customer facing.
Business in retail and wholesale so we see a good strong pipeline for those activities and you saw the win rates and renewal rates at Chris spoke to during the call I'm, which is another opportunity for us to continue to make our new business targets.
Hi, it's still pretty well balanced and on the capital program. What did you fair to say that it's a that you're being conservative given the uncertainty over PJM.
And see Jeff.
The capital program actually be higher next year.
See some more resolution of course more certainty over that.
Michael I, what I would say is our capital program reflects what we think is you know the project we've identified as I said in my prepared remark at this point in time, you know I think that you've seen the uptick in what we put in in 2019 versus what we're putting in 2020.
And we'll continue to challenge ourselves for the benefit of our customers, but right now I would tell you I think what we're showing you is a fair reflection of where we are and what we expected you. Michael This is Calvin.
I would also say you when you look at 2019, we added $150 million additional capital all around gain gas main replacement and really adding to the overall customer experience and as we built out our plan, whether its transmission or distribution additional capital. It's all around meeting those customers expectations and our stakeholders in terms of reliability.
And resiliency. So we feel we have a solid plan and can execute to it.
The only thing I'd add to that is every quarter, we look at.
Total bill.
The customers and.
We're very sensitive to.
Making sure the investment is prudent it drives efficiency reliability and benefit to the customer and we also watch the affordability.
Got it Okay. One last question in Calvin.
The key shy multiyear replan filing for this year are you guys.
But at the fair to say that the our lead pick up from the low nines could go up to the high Nines, if you get that approved.
No. We anticipate we do not first right now we expect the DC Commission to come out with a ruling in the fourth quarter of this year and along the way we've adjusted our ask in terms of those multiyear plans, but we have a very solid understanding of what those are we use our so I'm comfortable with where they are right now.
Gosh I, thank you very much.
Thank you and thank you for participating today before we and I want to thank our employees for staying focused on safety and delivering another good year, both operationally and financially and with that I'll close up the call. Thank you.
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