Q2 2023 Exelon Corporation Earnings Call
Session you can ask questions by pressing star one one on your telephone keypad. If you would like to view the presentation, a full screen view click the full screen button by Hubbard Your computer mouse cursor over the Powerpoint screen Crusty escape key on your keyboard to return to your original view and finally should you need technical assistance.
As a best practice, we suggest you first refresh your browser is that does not resolve the issue. Please click on the help option in the upper right hand corner of your screen for online troubleshooting. It is now my pleasure to turn today's program over to Andy Plunge Vice President of Investor Relations. The floor is yours.
Thank you Gigi and good morning, everyone.
Have you with us for our 2023 second quarter earnings call, leading the call today are Calvin Butler Excellence, President and Chief Executive Officer, and Jim Jones, Chief Financial Officer. Other members of the Exelon Senior management team are also with us today and they'll be available to answer your questions. Following our prepared remarks today's presentation, along with our earnings release.
Other financial information can be found in the Investor Relations section of excellence website.
We'd 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 and on slide two of today's presentation or in our SEC filings.
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. Its now my pleasure to turn the call over to Calvin Butler Excellence, President and CEO . Thank.
Thank you Andy Good morning, everyone and thank you for joining us for our second quarter earnings call. We continue delivering on our plan as expected, which is a testament to all of the work put in by our dedicated employees.
Before we get into our results and business update I'd like to first start by acknowledging a key milestone in July .
<unk> reached the end of the three year term of the deferred prosecution agreement with the department of Justice at.
At the court status here the government moved to dismiss the charge, noting the company fully complied with the GPA, which the court granted in the hearing.
We remain committed at all levels of the company to the highest standards of integrity and ethical behavior and we look forward to building on the trust of our customers as we continue to move forward in that spirit I am pleased to welcome Anna Rich to our board of directors and as the General Counsel, Chief compliance officer and corporate <unk>.
Terry for Cargill, and she brings highly complementary experience as an attorney and business leader her commitment to operational excellence and compliance will provide invaluable oversight.
Now turning to the results for the quarter as you can see on slide four we earned <unk> 34 per share on a GAAP basis, and 41 per share on a non-GAAP basis. These results are right in line with what we expected this quarter and we remain on track to earn within our guidance range of $2 30 to $2 40.
Two cents per share for 2023.
We continue performing operationally at a very high level three of our four Youtube lease had best on record performance in outage frequency and outage duration, which I will touch on more on our next slide.
We have also continued to progress through a rate case calendar with six active base rate cases underway in Illinois, Maryland, Delaware, New Jersey, and the district of Columbia.
Most recently on May 16th we filed our second multiyear plan for Pepco, Maryland, the climate ready pathway plan the.
The filing outline pepsico's near term proposal to advance the state's climate and clean energy goals, while taking steps to mitigate the impact of these efforts on customers bills.
Proposal includes over $150 million of climate solution programs to help Maryland meet its goals in the areas of transportation electrification building de carbonization beneficial electrification and distributed energy integration.
Also includes a proposed performance incentive mechanism so focus on reliability greenhouse gas emission reductions and removal of equipment closing health and environmental risk. We look forward to working through the process with stakeholders and the commission staff toward rates effective in the second quarter of 2024.
Beyond Pepco, Maryland, we have now received intervenor testimony in our <unk> and combat multiyear rate plans and filed our rebuttals and additional milestones of weight us in those cases in August along with activity for Delaware, Delmarva, Delaware and Atlantic City Electric.
The public service Commission of the district of Columbia has also said it's scheduled for the Pepco D. C. Multiyear plan you will hear more from gene about all the work underway to align with our regulatory stakeholders.
Looking past 2023, we'll also remind you of the guidance. We've previously provided on our long term outlook, we expect to be at the midpoint or better of our 2021 to 2025 and 2022 to 2026, 6% to 8% annualized earnings growth ranges and to grow the dividend in line with those earnings.
Over the next four years, we anticipate investing over $31 billion to support the energy transformation, which is what's driving that growth.
And I'll remind you that we continue finding opportunities to further support the transformation, whether it's increasing affordability for customers are strengthening the durability of our long term investment plans for instance, we've talked about our efforts pursuing grants under the infrastructure investment and jobs Act, which support the investment programs we have.
Laid out for the commissions and we recently announced winning approximately $30 million of grant funding for middle mile broadband investments at BJ and comment.
Additionally, you may have also seen that PGE PJM recently voted to proceed with transmission upgrades to address reliability challenges associated with retirement of the brand ensures coal plant in eastern Maryland with over $850 million of work assigned to our utilities.
Now while most of the incremental spend for that investment occurs beyond our current guidance window. It is a great illustration of how we continue to have opportunities to strengthen and lengthen our expected rate base growth as the largest pure T&D utility in the United States.
Our transmission upgrades ensure customers are able to buy cleaner generation and that they can depend on a reliable resilient grid to deliver that power.
Before I move on to operations I want to mention that we published our latest <unk> sustainability report in mid July . This is the 12th report in our company's history.
We are incredibly proud of the work our organization puts and to ensuring we are leading the energy transformation in an affordable and equitable manner.
Our purpose powering a cleaner and brighter future for our customers and communities really shines through that report and.
And the progress we continue to make them fulfilling that purpose is a meaningful here are a few examples.
We have connected over 200000 customers with over three gigawatts of renewable energy resources.
16% increase over 2021.
We saved close to 25 million megawatt hours in 2022, with our award winning energy efficiency programs, a 9% increase that avoided nine 5 million metric tons of greenhouse gases and save customers over $30 million and our average retail rate.
Our support for diverse suppliers is now up more than 56% from 2018 levels, having spent $2 $9 billion, which such suppliers in 2022.
Additionally.
62% of our $7 5 billion total supplier spin is with companies and the communities we serve.
Our annual sustainability report illustrates all the ways in which our more than 19000 employees ensure our communities greatly benefit from the work we're doing to support their energy transformation goals.
Turning to slide five I'll provide an update on our operating performance for the first half of the year.
As it pertains to reliability, we continue setting the bar for performance all 40 utilities operate in at least the top quartile and Comed Peco and <unk> achieved best on record outage frequency performance that makes it the second quarter in a row for kamet MPA Jive for best on record performance.
Those three utilities also happened to achieve best on record system outage duration performance and BJ continues to operate in the top quartile.
Their performance illustrates that the investments, we're making in the grid provide the footing for this operational excellence and then it is up to our employees to rise to the challenge of keeping customers online are getting them back online as quickly as possible when outages do occur now.
That job is getting harder to do with storms growing more frequent and severe but it's increasingly important to do our society depends more and more on electricity nationally, we expect to see 50% annual growth in electric cars and 12% annual growth in data centers and comment in particularly.
As already seeing sizable opportunity in data centers. The data center growth will only strengthen as industries increasingly rely on cloud services and AI.
As the nation's largest T&D company, we must rise to the challenge of meeting these incremental demands on the grid.
This operational performance was matched on the gas side with all three utilities continuing to perform at top decile levels for gas odor response.
Our customer satisfaction scores remain in line with those reported in our first quarter call. Our utilities are performing in the second quartile versus the 2021 benchmark when cost across the board, where lower pandemic relief had not yet rolled off and customers had not yet been impacted by the escalating interest rates and commodity price.
Yes.
We are working every day to ensure customers are aware of the options. They have to manage their costs and we have seen increased engagement by our customers through these efforts in fact comment announced just two weeks ago that it won several recognitions in the 20th annual best practices Awards by Chartwell.
This annual Chartwell awards recognize excellence, among electric and gas utilities with respect to customer oriented projects programs and service initiatives.
One of these awards included recognition for comments community Energy assistance Ambassador program. This program originally launched in 2020 and response to the economic impacts of the pandemic. It was designed with a community based organization to increase education and access to financial assistance options.
That can help income eligible customers pay their electric bills, while creating local employment opportunities for the same vulnerable population.
But it is a constant reminder of the importance of focusing on value for our customers as well as affordability and we are continuously seeking to reduce our own operating cost. In addition to pursuing the customer focus initiatives we have discussed.
I will conclude by discussing our safety performance, what we've lost ground at three of our four utilities and.
Ensuring our employees and contractors operate in a safe environment is of Paramount importance.
Our performance this quarter largely resulted from low impact Osha recordable like slips and falls and minor vehicle related incidents as a result, each of our operating company <unk>.
These have action plans underway to address areas of needed improvement to ensuring that we are operating at our standards. This includes revisiting our safety plans for the year to ensure they are adequately addressing the issues we have observed year to date other.
Other examples include facility reviews to enhance safety and expanding our simulation based training to offer more opportunities for employees.
We are working hard to drive safety performance to the levels that we expect I will now turn it over to gene to discuss our financial performance and provide additional color on our regulatory activity in the second quarter Jim. Thank.
Thank you Kelvin and good morning, everyone. Today, I will cover our second quarter financial update along with the outlook for the second half of 2023, our progress on the 23 rate case schedule and I'll also highlight an ongoing project that exemplifies our commitment to delivering sustainable value as the Premier T&D energy company by modernizing critical.
<unk> in the Philadelphia area.
Starting on slide six we show our quarter over quarter adjusted operating earnings as Kelvin mentioned Exxon earned <unk> 41 per share in the second quarter of 2023 versus <unk> 44 cents in the second quarter of 2022, reflecting the results of <unk> <unk> per share over the same period.
Results of 41% in the second quarter were right in line with the expectations provided on the prior earnings call, earning.
Earnings are lower in the second quarter relative to the same period last year, driven primarily by <unk> <unk> of higher interest expense due to the rise in interest rates and higher levels of debt at the holding company and at some of our utilities as.
As well as <unk> <unk> of unfavorable weather at Peco.
This was partially offset by three tenths of higher distribution and transmission rate associated with incremental investments net of depreciation as well as a penny of carrying costs related to the carbon mitigation credit bonds that comment.
We had another quarter of mild weather impacting our non decoupled jurisdictions, we delivered earnings results exactly where we thought.
Through the first half of 2023 operating earnings are $1 11 per share, reflecting 47% of the projected full year earnings.
This is in line with how we performed through the first half of 2022.
Looking ahead to next quarter, we expect the relative EPS contribution in the third quarter to be approximately 28% of the midpoint of our projected 2023 operating earnings guidance range.
Recall that Q3 2022 saw strong growth from <unk> <unk> of higher rates and in fact with Peco's electric rate case in year, one of its current rate cycle as <unk> III, a realized 30 year treasury rate uplift on comments formula rate distribution, Ari and another <unk> <unk> of distribution formula rate timing I caught that.
While the fundamentals underpinning the earnings remaining this year, we expect third quarter 'twenty three results to be lower.
Distribution and transmission growth will be offset by higher interest and we also expect some timing of O&M and taxes.
For the fourth quarter of 'twenty, three we expect year over year earnings growth to benefit from the absence of proactive derisking that occurred in the fourth quarter of 2002.
Do you expect a reversal of the O&M and tax timing and the anticipated one time impact of Bg's reconciliation for the 'twenty one 'twenty two under recovery of its first multi year plan.
As we do not receive the final order on the reconciliation for BG until December 'twenty, three we cannot record <unk> earnings associated with the reconciliation until that time.
In line with discussion on the first quarter earnings call. We expect the seven cents of unfavorable weather experience year to date to be offset with the combination of O&M levers across the platform favorable depreciation at Pico and the full year earnings impact of the carrying costs associated with the CMC regulatory asset balance.
On a full year basis, we continue to reaffirm our 2023 EPS guidance range of $2 30 to $2 42 per share.
Youre a continued increase in rate base as we deploy capital for the benefit of our customers and strong cost control across the platform. We remain on track to deliver earnings at the midpoint or better of our guidance range with several months of weather and storm exposure remaining you can expect we will manage utility of our plans to deliver earnings within expectations.
Lastly, we are reaffirming the fully regulated operating EPS compounded annual growth target of 6% to 8% from 2021, and 2022 guidance midpoint, due 2025, and 2026, respectively with the expectation to be at the midpoint or better of that growth range.
Turning to slide seven as Kelvin mentioned, there have been some important developments on the regulatory front.
The last earnings call. There was one new rate case filed so I'll provide a status update on each of the six current open proceeding starting with the most recent filing.
On may 16th Pepco, Maryland submitted its climate ready pathway three year multiyear plan application to the Maryland Public Service Commission Pepco to requesting a $213 6 million revenue increase over the April 2024 to December 2027 period inclusive of a proposed nine month extension reflecting.
And ROE of 10, 5%.
The filing outlines investments the company expects to meet.
To make to support a climate ready grid and enable cleaner energy program and then technologies that support Maryland's goal to reach net zero emissions by 2045.
As an example of the $150 million of climate solution programs. At Calvin mentioned are included in Topicals proposed plan more than half are dedicated to incentives for approximately 10000 equipment electrification conversions for customers transitioning to cleaner technologies like heat pumps in the building sector.
Another key category of spend is dedicated to enhancing reliability resiliency and grit security due to the installation of more modernized equipment that automatically detects system. The issues reinforces the great against more severe weather and protects cigarette from potential physical or cyber threat.
Overall these investments are anticipated to inject more than 142 billion into the local economy and support more than 11000 full time jobs.
For the last three years spanning 2020 to 2022 Pepco has reported the best reliability performance of any electric distribution utility in the state of Maryland, a true Testament to the company's commitment of powering a cleaner and brighter future for its customers and communities.
Equally as important as reliability pepco with focus on keeping affordability front and center for our customers.
The multiyear plan includes the acceleration of tax benefits to serve as a build off that as well as efforts to increase participation in energy assistance and energy efficiency programs, which in 2022 alone provided approximately $23 million to Pepco, Maryland customers.
An order is expected by June of 2024.
Let me also remind you of the other electric distribution rate cases in progress first Delmarva power, Delaware has revised the revenue aircrafts for $41 8 million increase based on an updated tough period in the electric rate case and as permitted by Delaware law implemented full proposed rates on July 15th subject to refund.
A decision is expected in the second quarter of 2024, similarly as revise their revenue.
Requests for $93 6 million increase based on an updated test period with the final order expected in the first quarter of 'twenty four.
Additionally, after an eight months preceding the New Jersey Board of public utilities approved a four year capital tracker at Ace called powering the future, which accelerates the portfolio projects totaling $93 million designed to enhance reliability and resiliency for our customers advanced New Jersey's energy Master plan calls and sustained economic growth in the region.
Next combat MTGE surpassed two key milestones in our multiyear plan rate cases, having received intervenor testimony and filed a rebuttal to support the key elements of the company's initial proposals earlier this year.
As discussed on prior earnings calls both plans outlined the investments needed to provide essential service to customers, while meeting the clean energy and equity goals of their respective states.
The combat and BJ multiyear plan rate cases, evidentiary hearings are scheduled to begin in late August with brief to follow before final orders are expected in December .
Lastly, pepco received the procedural schedule from the public service Commission of the district of Columbia, and its second multiyear rate plan filing.
Upcoming milestones include intervenor testimony, except to be expected to be filed by the D. C. Public Service Commission staff on October 16th and evidentiary hearings that to begin in January of 2024 with final briefs in March of 'twenty four.
Relationships across our jurisdictions remain constructive and we are working together with our regulators states and communities through every step of the process to reach our shared goals as Kelvin mentioned by next year, we expect to have resolution on all four of the ongoing multiyear rate plans in Illinois, Maryland, and D C and a clear path forward to.
Supporting their clean energy and climate goals, and affordable and equitable manner.
Details on the rate cases can be found on slides 20 through 26 of the appendix.
Moving to slide eight during the second quarter, we continued to invest capital for the benefit of our customers and are on track to meet our seven 2 billion guidance for 2023.
These investments in energy infrastructure are vital to maintaining the highest standard of service that we have in serving our customers while preparing the grid for the clean energy transformation and increasing levels of electrification.
Today I'll talk about how <unk> is partnering with the community to build a new 69, 13 kv substation in Philadelphia at the civic terminal yard and neighboring property.
<unk> commitment to building the new Civic substation began in 2019. This $130 million project includes installation of Enzo installation of insulated switch gear and modifications to 469 kv transmission lines antistatic substation that will allow for the retirement of 269 kv transmission lines currently running.
The scope of river.
The new substation is expected to increase distribution and transmission reliability through the reconfiguration of the lines and increased blood resiliency in the low lying areas surrounding the substation, where access has been restricted in the past following heavy thunderstorms. It will also enable <unk> to really look constraints supply additional capacity to the University city area.
And better serve critical customers on the west side of the river once fully energized, which is expected by the second quarter of 2000 and for specific substation will be chico's newest and most modern insulated substation, while while traditional open air substation construction would have required five to seven acres of land to upgraded electrical equipment associated.
But the incident substation allows pico to build on less than a two acre plot of land that represents a 60% to 70% reduction in required branches since.
Since project inception, Pico has partnered with its customers government agencies and other local utilities to ensure construction of the civic civic substation has a minimal impact to the city of Philadelphia, the surrounding customers and on the environment protecting them by waterway and river bank with vital customers in the areas such as the children's hospital of Philadelphia.
The University of Pennsylvania Hospital in Philadelphia Veterans Affairs Medical Center operational excellence is imperative as and Exelon utility Pico is ready to deliver it.
Turning to slide nine I will conclude with a review of our balance sheet activity. As a reminder, we continue to project 100 to 200 basis points of Christian on average over our guidance period for our consolidated corporate credit metrics above S&P and Moody's downgrade thresholds of 12% demonstrating our commitment to maintaining a strong balance sheet.
If the corporate alternative minimum tax is not mitigated through an inclusion of repairs in its calculation, we anticipate being at 100 basis points or the lower end of that range. We continue to await specific guidance on the corporate alternative minimum tax implementation and are hopeful to have resolution by year end.
In the meantime, the department of Treasury issued a notice screening deferral of estimated tax payments associated with the corporate alternative minimum tax until 2024, which points to the appreciation that more guidance as required for implementation from.
From a financing perspective, we successfully raised nearly $1 3 billion for BG and <unk> in the second quarter, which completes all of our planned debt financing needs for 2023, the strong investor demand. We continue to see for our debt offerings is supported by the strength of our balance sheet and by the low risk attributes of our platform.
In line with the last earnings call. There has been no change in our guidance issue $425 million of equity at the holding company by 'twenty five we'll continue to update you as we make progress on the plan. Thank you and I'll now turn the call back to Calvin for his closing remarks. Thank you Jamie I will once again remind the investment community of what we're working to accomplish in 2023.
Great Pride in our operational excellence, which is our employees dedicate themselves to daily.
Summer is when we see some of the most severe weather activity and our teams embraced the challenge to get customers back online quickly and safely.
As we proceed with our work of supporting the energy transformation in our ongoing rate cases, we are very focused on listening to our stakeholders. We want to ensure that we are delivering the right investment plans and the right services to support meeting their energy transformation and climate goals, and then affordable and equitable manner.
After this year much of our path forward for the next several years will be established and clear.
The team also understands it must deliver on our financial priorities and guidance.
We invested $7 $2 billion of capital and earning ROE in the 9% to 10% range will support meeting our 2023 earnings guidance range of $2 30 to $2 42 per share and keeping our balance sheet strong.
And finally, we're continuing to look for innovative ways to support our customers and communities.
Throughout our business in partnership with the Exelon Foundation, we're looking to place our next round of investments and the $20 million climate change investment initiative bonds or <unk>, an innovative way to advanced solutions to the challenges what by climate change, while improving the quality of life for residents of our cities.
For this year five companies were selected to receive investments spanning areas like software analytics to track air quality, non recyclable plastic reuse and novel EV charging solutions.
Every day, we are reminded that the energy transformation is happening and we have to be a vital role in it.
And we have a talented team that's incredibly excited to play that role.
We recently announced that Collette honorable will be joining us as our executive Vice President of public policy and Chief External Affairs officer as a renowned energy policy leader, who brings expertise in areas like clean energy transformation and equable ratemaking. She will be an invaluable addition to our team.
And she will help us build on the strong foundation, we already have in place built by the team that got us here and particularly I want to recognize executive Vice President and Chief operating officer of our business services Company Bridget Reidy, who is retiring in September and played an integral role in shaping our organizational commitment to excellence. She also.
<unk> made incredible strides in diversity equity and inclusion across the wide variety of corporate support groups that she led light and supply. Thank you Bridget for your leadership.
Our team's commitment to leading the energy transformation is what makes us the premier transmission and distribution utility.
When that list by its values supports its communities and offers a uniquely strong expected total shareholder return of 9% to 11%.
Thank you as always for your interest I'll now turn it to <unk> for your questions.
Thank you if you would like to ask a question simply press Star one one on your telephone keypad.
One moment for our first question.
Our first question comes from the line of David Arcaro from Morgan Stanley .
Hey, good morning, Thanks, so much for taking my questions.
David Good morning.
Let's see I'm wondering if you could speak to the comment and BG E rate cases, and how these have progressed so far relative to your expectations.
Just when you look at the key intervenor testimony that we've gotten so far like staff in both cases these shaped up overall in terms of the focus areas versus what you had expected.
Yes, David. Thank you. This is Calvin I would tell you that they are proceeding as planned.
And the teams have provided their responses as gene mentioned, we're going through the <unk> process, but we have with US both Joe Kiani, President and CEO of <unk>, and Green Kusama being president and CEO BJ, who can I'll ask them to just kind of take your time and walk you through some of the highlights of each and what you can expect.
Moving forward I'll start with Gil comment, yes. This is Gail from comment the ICC staff and intervenors in the aggregate did not waiver waiver from their initial positions filed in their direct testimony in may.
We maintained our position on ROE and the pension asset.
There are challenges on capital centre on certain projects are fiber and proposed private LTE communications network upgrades and systematic and programmatic spending.
The rate case process still playing out as <unk> mentioned and we will continue to make our case for those capital investments. We continue to have regular meetings with staff and intervenors to provide additional information answer any of their questions and provide clarification.
Great.
And this is karim who not only from BG.
As Kelvin mentioned the cases proceeding as expected.
The staff has come in with a.
Proposal of about 70% of our ask as expected some of the areas.
Debate surround Roe.
Investments in our gas system and some building electrification programs that BG proposed for the first time to help the state meet its climb.
Climate change goals one.
One of the things to point out as you know reconciliations for the first time it is being done in Maryland, and a multiyear plan, both staff and OTC and other intervenors in Pennsylvania parties.
Adjusted about 90% of our request so again that is proceeding well so all in all going well as Calvert and Jim mentioned, we have more hearings at the end of August early September with the final order expected in mid December and David I would just add to that.
Both plans were.
We're built on helping the states meet their environmental and climate goals as well as economic development and job creation opportunities. So.
The stakeholder process I don't want to Underrepresent, because both companies had been very engaged in that process and meeting with all stakeholders. So.
Again proceeding it's a process that will play itself out, but we expect orders for both companies by the end of the year.
That's really helpful color, thanks for all that and.
I appreciate that there are new commissioners in both states do you see an opportunity for settling.
On any issues partial settlement full settlement or.
Or is the expectation in strategy just kind of see this through.
Through kind of a fully litigated case more likely.
Great question, David we expect to see them, both fully through and recognizing that as Karim mentioned first time through the reconciliation process in Maryland and its the next three years, we will see it through and let it play out in Brazil, moving from the Formula rate to a four year multiyear plan. It's.
That everyone feels that they have had a chance to voice their opinions and thats stakeholder process is critical to that so we would see it playing out all the way to the end of the year.
Got it okay, great. Thanks very much.
Thank you.
Thank you one moment for our next question.
Our next question comes from the line of James Kennedy from Guggenheim Partners.
Good morning, guys good morning, Dan.
Good.
Let's start with the transmission announced this morning, the $878 million for Brent insurers.
The portion of that falls in the current plan purely incremental and secondly, any color on the potential quantum of other opportunities like these as we start to see other retirements and <unk>.
Thank you James first off it is.
All additive to the current plan, we do not have any of that as we've conveyed to you previously we were never going to put anything that we were striving to get into we want it. So thats important I have with US today, David <unk>, who is our EVP of operations to provide additional oversight or insight into this because David Auld.
These are transmission strategy across Exelon, So Dave yes, Thank you Calvin.
James Thanks for the question Besides the brand insures.
Transmission reinforcements that or you may be aware that PJM also has an open what they call an open window to.
To help transmission reinforcements needed for additional load growth and the Dominion territory that.
That is currently open we have submitted for different proposals.
In that open window range from I'll say smaller enhancements in the $300 million range too.
Large projects.
Help me, both short and longer term needs that are well over $1 billion.
And PJM will provide an initial readout of their recommendations committee meetings in September October time frame.
With an expected decision from the PJM Board in December of this year.
In addition to that there.
Our offshore their transmission reinforcement for offshore wind both in New Jersey.
And also in Maryland, and there is legislation in Maryland that requires the PSC.
By July 1st of next year can make a report back to the legislature and then to issue a solicitation for transmission reinforcements for offshore wind by July of 2005. So.
Not just with the brand ensures retirement, but offshore wind load growth.
And again cannot predict generation retirements, but if they occur we are ready to do what we need to do to ensure the reliability of the grid.
Thank you Dave.
Excellent.
And then just second question real quick can we get an update on the comment franchise agreement process.
Yes.
Right now it's status quo okay.
You can appreciate.
The team has been very involved in the franchise and with the new mirror coming in line. He is.
<unk> his team.
Jill and the <unk> team had been working very closely with him on several issues and really what we're talking about is that we had come to an agreement with the Lightfoot administration earlier this year as you know on that franchise.
Parameters of that proposal, we had discussed with you on previous calls, but at this time the mayor and I think the team is looking at those provisions and trying to make it his own. This administration's own deal would you have anything else you'd like to add there. The only thing I Wanna add galvin as that we have had initial conversations with them and they had it.
Informed us when when they are ready, we will engage and restart our negotiations for a new franchise.
Chicago, but in the meantime, our existing franchise agreement continues and that's very important for US and in addition, I just want to recognize that Joe has been partnering with them here. He was just recently named to the environmental Justice.
Transitions subcommittee for this mirror so the team is plugged in with the administration and more why that's important is they're understanding what their priorities are as the new administration and I think that will play directly into the new franchise agreements.
Wonderful thanks, guys.
Yes.
Thank you one moment far next question.
Our next question comes from the line of Paul Zimbardo from Bank of America.
Hey, Paul.
Hi, Good morning team. Thank you for the time.
Good morning.
First just wanted to get a little bit more clarity. If you could briefly comment on that FCC matter that you disclosed in the.
The earnings result that you just out does this fully resolve that legacy SEC investigation.
Hey, good morning cause gene. So the FCC investigation is still ongoing but we did reach a point where our loss contingency was probable. So we did book that you.
You can see it's treated similarly to how we have treated the initial DPA amount.
Non operating one time.
Nonrecurring item that that is in non operating earnings.
So it is continuing but it is related to the investigation that began in 2019 to the same original investigation.
Okay, Great. Yeah, I just wanted to clarify is that the original.
Midstream.
Okay, Great and then.
Second just as we think about the long term I know you reaffirmed the expectation midpoint or better 2023, plus interest rates keep ticking up stubbornly like 50 basis points, even since the last update could you discuss some of the areas of offsets what their cost or otherwise to kind of combat those higher costs.
Yep.
I'll start and then I'll turn it over to gene.
You alluded to is that we are seeing our customers aren't immune to the higher cost commodity.
<unk> that are going on across the country, but we have always as a company been very aggressive in managing our costs and that didn't change upon the separation.
Our first and foremost priority was ensuring that our cost didn't go up as a result of that separation, but let me tell you some of the things that we've done.
We've realigned our real estate portfolio.
Creating flexible work arrangements to rationalize our office footprint. We've automated we continue to look for ways to automate our work processes, and really becoming more efficient and nimble and responsive to our customers' needs and we've centralized our transmission operations to harness best practices on organizational efficiencies and it's important.
To note that over the course of <unk>.
Since 2016 with of course of our plan our O&M CAGR has only gone up one 7%.
And the year over Greer Grove is just over 1% in 2023, I would say that to you to say that cost continued to be a primary focus of the organization and affordability for our customers. Having said that we were not done we're just scratching the surface as a leadership team.
Really look at how we're going to operate as one epsilon as a pure transmission and distribution utility company and we continued to focus on that so that is what our focus in on day in day out gene yes.
I think that while that and all of that helps to reduce the O&M and preserve the cash which minimises. The amount also that we need to finance in terms of our investments are getting that cash and redeploying it back into the business. The only other thing I'll add is on the interest rates.
Do.
As a whole at the operating companies.
Stepping into new to start a new rate cases, so the ability to recover the incremental interest there is important but at the parent company, we do engage in pre insurance hedging and so being able to lock in with certainty ahead of time heading into a year what that interest expense is as important. So we'll continue those practices.
That helped us heading into 'twenty, three and you can expect us to do that for future issuances as well.
Okay, great. Thank you for the color I appreciate it thank.
Thank you Paul.
Thank you one moment for our next question.
Our next question comes from the line of Jeremy Tonet from Jpmorgan Securities LLC.
Hi, Good morning. This is actually eating Kelly on for Jeremy just wondering would you be able to outline your current credit metrics relative to thresholds and plan targets and how could this ultimately contribute to your 425 remaining equity.
Sure, It's gene and so on the current credit metrics I think S&P and Moody's just recently published kind of the the prior 12 months both were at 13%.
And as we show in our slides that they talked about in the script as we look at our 2003 through 2016 period, we expect to be at that average at 13% and as a reminder, our downgrade threshold is 12%.
And that 12% as is.
Afforded to us and we don't take it lightly thats why we have that cushion, but it's a reflection of our low risk platform right diversity scale forward looking rate mechanism.
<unk>, 5% decoupled revenues, so all of that put together no generation all of that results in a very low risk profile, but we like to manage at that 100 or 200 basis points above that so we're at that 13 is that right agencies. Just published we expect to be at that 13, if we get the corporate alternative minimum tax mitigated.
We'd be closer to the mid higher like that that 13 514 per Simon.
And we're hopeful to know that final regulations or at least preliminary regulations by the end of the year.
You asked how that relates to our equity.
We have no no change in plans related to the 425. So said another way if we got the corporate alternative minimum tax alleviated, we'd still do that for 25.
And so you can expect us to do that sometime between now and 2025.
Last thing I'll say is just as it relates to Moodys and S&P. There is a little bit of difference in the calculation S&P will sort of trend at that 13% over that time horizon. Moody's however, because of the calculation. There is some cash timing differences. So we expect to be sort of on the low end in 'twenty three 'twenty four and then on the higher end and the back and such that you have.
That's at 13% and that's really driven by some of the formula rate timing I commented with the truck coming.
In 2002, and 23 coming in in 'twenty, four and 'twenty five.
But but that's sort of that's why we give you the average because we want to sort of neutralize some of that cash flow timing as well.
I appreciate the color I'll leave it there thanks.
Okay.
Thank you one moment far next question.
Our next question comes from the line of Carly Davenport from Goldman Sachs.
Hey, good morning, Thanks, so much for taking the questions.
You had mentioned kind of O&M levers to offset mild weather. This year. So could you just talk a little bit about how O&M costs have been tracking relative to your expectations and then what you expect to see for the balance of the year from a rate of change perspective on O&M.
So initially we've always maintain a philosophy that we will drive O&M costs below the rate of inflation now that was over the traditional rate of inflation that we've been experiencing over the last several years keeping that around two to two 5%.
And as mentioned, we're trending strong and keeping our meeting our objectives of doing so and that has always been our benchmark. The Ceos, who are sitting around the table, we talk about keeping our O&M flat and seeing what levers are driving it to possibly go up which allows us that flexibility when you have.
Unseasonably warm winters or anything else and pico or the like because 75% of our rate base or 73 is decoupled. So a lot of the weather impacts that you're talking about really focus on Pico primarily is the largest utility.
Having said that we will continue to manage those costs, we never take our foot off the gas in doing so Jean yeah and.
As it relates to to this to the weather for 'twenty three we had a combination of assets across the platform mostly at <unk>.
Given comment has the formula rate true up on O&M, but across those three operating companies we saw.
O&M levers, whether it was taking advantage of labor vacancies.
Lower <unk> and contracting spend and then in addition to that <unk> had some favorable depreciation. So the combination of all of that was probably around <unk> of the <unk> of weather and then we have to combat carrying costs, which were a benefit this year and its a benefit this year relative to last year, because we did not have.
This large reg asset really sort of built up at the back end of last year.
The interest.
Deposit rate on that was zero per the commission. So we werent getting an interest offset even though we were incurring interest on that last year. However, now and this year, it's a benefit to last year and two guidance because we have the larger Reg asset this year and while we are still incurring the carrying cost on that the ICC reset the deposit rate at.
<unk>, 5% this year and so relative to guidance. We are now having an offset to that that wasn't baked into our plan. So thats probably about <unk> of the 70, you put all that together that's how we're offsetting the seven cents of weather into Calvin point, we just continue to focus on what else. We can do to drive down those costs and we're just starting to scratch the surface there.
Got it that's helpful. Thank you and then just on the corporate minimum tax I know you mentioned expecting to at least get kind of preliminary clarity there by the end of this year.
But is there any color that you can share maybe from your discussions around the temperature on on the tax repairs deduction and getting the gating factors to that being included.
I would just say there is.
It's probably not much else to share their ongoing discussions.
There.
Stakeholders remain receptive to the discussion and to the technical differences that the utility industry faces and being a very capital intensive utility and some of the regulatory accounting.
That that overlays that capital intensive nature of our industry. So receptive discussions ongoing and I did mention earlier in the script. We did see some guidance come out in June that basically said, Hey, if you think you're subject to that tax.
Won't be panelized, if you don't pay it this year, we understand there is more sort of guidance and interpretation needed and so that was just one other data point, but just ongoing discussions and we remain hopeful that we will have more clarity by the end of the year.
Awesome I appreciate that thank you.
Thank you.
One moment for our next question.
Our next question comes from the line of <unk> Chopra from Evercore ISI.
Hey, guys. Good morning, we're close to the hour here, Dan Thanks for giving me time.
Good morning.
Good morning, Kevin Good morning, So I just wanted to go back to the comment Rick is real quick and some of US were expecting an update from staff on the on the ROE calculation and the output itself. It seems like they're kind of using the same methodology.
We're using rates as of last year, just how do you see that progressing any thoughts there would be appreciated. Thank you.
I think as Gil mentioned still more to come we're still putting forth a strong argument around our proposed Roe.
As you mentioned they did not change their position.
You know, it's you know it.
Peers to be sorted this continuation of the Formula, which you know in CGI was clear clear that's the sunset of the formula rate what's required so.
Filing offers and are we that we feel appropriately reflects the actual cost of equity taking into account.
Current market conditions. So we will continue to work through that process.
I think there is there is that data plane and then there is the electric proxy group, which is also another data plane and the staff testimony. So we'll continue to work through that with them but.
No changes.
As of this point.
Got it okay sounds like.
We will get get an update here before the end of the year just switching gears I have a question on supply chain and Kelvin or anybody else in the room would love your views there.
We've seen several media reports on transformer shortages. So maybe broadly can you comment do you have a sizable capex plan, obviously, but just broadly can you comment on equipment shortages labor shortages and how is that tracking this year versus let's say 12 months ago.
Yes, I would tell you that one of the.
Advantages as a big of our scale and our platform is that we're able to leverage the size.
To not only access our current suppliers, but identify new once Sochi directly to your question, we have not seen a shortage in our transformers, we have not seen a shortage and workforce or any other things that are impacting us executing on this capital plan now what we do pay attention.
Two as new businesses coming online our ability to give that.
Online in the timeframe that some of our customers are looking for because that wasn't part of that initial planned work. So we stay on top of that and working with our supply organization, but to date, we are not experiencing those same issues that others may.
And I think one of the benefits of our profile rate of the $31 billion as we've talked about before not one project is greater than 1% of that spend so the ability to kind of manage that portfolio and bite sizes to the extent, we do experience any issues allows us to be able to stay on track and deliver.
Got it thanks again guys.
Thank you.
Thank you at this time I would now like to turn the conference back over to Calvin Butler, Exelon as president and CEO for closing remarks.
Thank you very much and I just want to always thank you all for joining us today from the comments made today by Jean and I and the leadership team around the table, you'll see that we're focused on delivering on plan. So as always appreciate your interest and this concludes our call.
Thanks to all our participants for joining US today. This concludes our presentation. You may now disconnect have a good day.
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