Q3 2026 Exelon Corporation Earnings Conference Call - PEPCO HOLDINGS INC

Financial Performance:

• Reported adjusted operating earnings of $0.87 per share for Q3 2026, up from $0.86 in Q3 2025, beating expectations.
• Narrowed full-year 2026 adjusted operating earnings guidance to $2.85–$2.91 per share (previously wider range) with a goal to deliver at the midpoint or better.
• Reaffirmed annualized adjusted operating earnings growth target of 5%–7% from 2025 through 2029, aiming for the top end.
• Quarter-over-quarter earnings increase driven by six cents from approved rates, offset by $0.07 in storm activity costs and interest/tax expenses.
• Maintained strong investment-grade credit metrics with average leverage targets of approximately 14% through 2029.
• Completed 100% of 2026 debt financing and priced 30% of 2029 equity needs via ATM program ($850M for 2026 settled by mid-December).

Guidance and Future Outlook:

• 2026 Q4 outlook assumes approved rates, normal weather/storm activity, and no one-time items from 2025.
• $41.7 billion investment plan remains diversified, driving 7.9% rate-based growth and 16% transmission growth.
• Identified significant upside runway: $12–$17 billion in additional transmission opportunities and $3–$7 billion in regulated storage investments.
• Transmission projects typically accrete earnings in 3–7 years upon construction completion; storage projects (e.g., NJ battery) expected to be operational and accretive in under 3 years.
• Outlook is grounded in base plan execution without reliance on speculative upside; upside requires secured approvals and cost recovery mechanisms.

Business Segments and Product Lines:

• Utilities (PECO, BGE, Delmarva Power, ComEd): Leading sector reliability rankings (1st, 2nd, 5th, 6th); managed 31 significant weather events with 6.6 million outages prevented; customer bills remain below national averages.
• Regulatory Progress: PECO (MD) rate case approved with $50.9M increase; BGE (MD) filing scheduled for 2027 final order; Delmarva Power on track for 2027 final order; ComEd reached $205M settlement for delivery adjustment.
• New Initiatives: Advanced 500MW battery storage project in NJ (Atlantic City Electric) with $700M+ net customer benefits and no bill impact for first 5 years; seeking to replicate in MD and DE, advocating for legislation in other states.
• Organizational Changes: Centralized engineering and project management; aligned utility CEOs directly to CEO for faster decision-making; transitioned CFO role to Rob Klosinski.

Market and Competitive Landscape:

• Grid Constraints: PJM faces an estimated 11.5 GW supply shortfall by 2030; progress on regional solutions (Reliability Backstop Auction, IRAS) described as "too slow" despite recent revisions.
• Large Load Growth: Strong engagement with hyperscalers and developers; Transmission Security Agreements (TSAs) increasingly utilized and collateral levels rising, indicating developer willingness to fund upfront capital.
• Market Share: Exelon leverages its platform to compete for utility-owned generation and transmission projects where competitive markets fail to deliver needed supply.
• ComEd Grid Plan: Proposed $15.3B investment plan expected to deliver $51.5B in customer benefits; administrative law judge recommended approval with modifications.

Risks and Challenges:

• Regulatory Delays: Continued delays in PJM regional reliability mechanisms pose risks to long-term affordability and supply adequacy.
• Supply Chain/Cost: PJM-driven supply costs remain outside of utility control; high customer bills remain a primary concern.
• Legislative Hurdles: Utility ownership of storage requires legislative approval in some jurisdictions (currently allowed in NJ, MD, DE); need to accelerate advocacy for these changes.
• Weather: Active storm season (3 major storms in ComEd territory) increased operational costs, though grid investments mitigated major outages.

Management Commentary and Tone:

• Tone: Confident, disciplined, and action-oriented; emphasized a "solutions-oriented" approach to filling supply gaps rather than waiting for regional consensus.
• Leadership: Expressed strong confidence in the team following recent organizational restructuring and executive transitions (new CFO, expanded role for Jean).
• Value Proposition: Highlighted the "Exelon Promise" of combining top-tier reliability with below-average bills; framed investment as essential to prevent future costs and support economic growth.
• Stakeholder Engagement: Active collaboration with state governors, commissions, and legislators (specifically in PA and MD) to shape rate-making frameworks.

Analyst Questions and Answers:

• Q: Accretion timeline for upside transmission/storage: Answered that transmission takes 3–7 years to build before earnings impact; storage projects (e.g., NJ battery) are faster (under 3 years) and will be rate-base accretive sooner.
• Q: Storage opportunity concentration: Clarified the 1.5–3.5 GW pipeline is across all states, but immediate projects will focus on jurisdictions with utility ownership laws (NJ, MD, DE); actively evaluating projects in other states pending legislative changes.
• Q: PJM reliability auction stance: Management supports PJM's revised proposals but calls for more urgency; continues to advocate for price caps and state-led initiatives while awaiting FERC resolution on cost allocation and credit requirements.
• Q: Pennsylvania rate case timing: Stated another rate case is expected within the planning period; currently engaging with Governor's office and rate-making working group to align on investment value.
• Q: Large load outlook and TSAs: Noted cluster study load reduced slightly (25 to 23 GW) due to standard vetting; developers remain willing to sign TSAs and provide collateral, supporting community partnership goals.
• Q: Capital allocation and financing: Majority of incremental capital expected in transmission (16% growth); financing for upside opportunities anticipated to be roughly 40% equity; battery projects increasingly pursued via Build-On-Transfer arrangements to minimize rate base exposure during construction.

Other Key Points:

• PJM reliability backstop auction delayed due to FERC concerns regarding cost allocation and customer protections.
• Management emphasized that "discipline makes growth credible," avoiding speculative upside without secured recovery paths.
• ComEd's grid plan is expected to support significant load growth and Illinois energy policy objectives.
• The company maintains a balanced financing plan to fund capital needs while protecting credit metrics.