Q3 2026 Exelon Corporation Earnings Conference Call - PEPCO HOLDINGS INC

Explicit Guidance:

• Full-Year 2026 Earnings: Narrowed guidance to $2.85 to $3.09 per share (adjusted operating earnings); management targets the midpoint or better ($2.97).
• 2026-2029 Earnings Growth: Reaffirmed expectation of annualized adjusted operating earnings growth near the top end of the 5% to 7% range.
• Q4 2026 Assumptions: Outlook assumes approved distribution/transmission rates, absence of 2025 one-time items, fair regulatory outcomes, normal weather, and reversal of timing impacts.
• Rate-Based Growth: Expects 7.9% rate-based growth for the current plan, with transmission specifically driving 16% growth.
• Credit Metrics: Average credit metrics expected at approximately 14% through 2029 (approx. 200 bps above Moody's downgrade threshold; 100 bps above S&P's).
• Equity Financing: ~30% of the $3.4 billion planned equity needs through 2029 priced via ATM; 100% of 2026 equity needs ($850M) to settle by December 15.
• Interest Rate Hedging: Pre-issuance hedging strategy limits earnings impact of a 50 basis point rate increase to approximately $0.01 per share.

Business-Segment Outlook:

• Transmission Investment: Identified $12 to $17 billion of additional transmission opportunities over the next decade beyond the base $41.7 billion plan, driven by aging infrastructure, generation mix changes, and demand growth.
• Storage Investment: Identified $3 to $7 billion of potential regulated storage investment opportunities (representing 1.5 to 3.5 GW) across jurisdictions; seeks 25-50% capture of state targets.
• Transmission Timeline: New investments expected to roll into the plan and accrete earnings over a 3 to 7-year construction timeline, depending on project type.
• Battery Storage Timeline: Projects like the 500-MW Atlantic City Electric battery (New Jersey) expected to be operational and rate-base accretive in just under three years (final order expected late Q1 2027).
• Regulatory Outcomes:
  • Maryland (PEPCO): Final order issued August 2026; $50.9 million revenue requirement increase effective August 10, 2026.
  • Maryland (BGE): Evidentiary hearings scheduled for November 2026; final order expected January 2027.
  • Delaware (Delmarva Power): Interim rates at 75% of request expected December 2026 (subject to refund); final order expected Q3 2027.
  • Illinois (ComEd): Settlement reached for $205 million delivery adjustment; final order expected by December 20, 2026. Grid Plan order expected by December 15, 2026.
  • Pennsylvania (PECO): Anticipates filing another rate case within the planning period; active discussions with Governor's Office and Commission ongoing.

Market and Competitive Outlook:

• Capacity Shortfall: PJM faces an estimated 11.5 GW shortfall by 2030; Exelon views utility-owned storage and transmission as necessary to close this gap where competitive markets are insufficient.
• PJM Reliability Backstop: Progress on regional solutions described as "too slow"; PJM recently submitted a revised proposal addressing FERC concerns on cost allocation, collateral (reduced from 50% to 40%), and exit fees.
• Large Load Demand: Approximately 11 GW of high-probability load expected; ~10% anticipated by 2028, with ~75% coming online by 2034.
• Transmission Security Agreements (TSA): Increased collateral received from developers; large load customers (hyperscalers) viewed as willing partners supporting TSAs to remove speculative load.
• Pricing Environment: Support for the PJM "cap" in the short-to-medium term to protect customers from high costs until better market processes are established.
• ComEd Grid Plan: Expected to deliver $51.5 billion in customer benefits against $15.3 billion in cost (3:1 ratio) while accommodating load growth.

Macro / Industry Outlook:

• Reliability vs. Affordability: Continued focus on maintaining reliability while keeping customer bills below the national average, despite external supply cost pressures (e.g., PJM).
• Grid Modernization: Structural shift toward increased transmission (16% growth) and storage investment to address reliability and resiliency challenges; aging infrastructure requires urgent investment.
• Supply Chain/Policy: Regulatory uncertainty regarding storage ownership in certain states; Exelon advocating for legislative changes while advancing utility-owned storage in NJ, MD, and DE where permitted.
• Economic Impact: Exelon positioned at the center of economic growth in its jurisdictions; reliable energy infrastructure deemed essential for attracting investment and creating jobs.

Strategic Initiatives:

• Organizational Restructuring: Executed changes in August to centralize engineering/design/project management and align utility CEOs directly with the CEO to accelerate decision-making and capital execution.
• Leadership Transition: Rob Klosinski assumed the CFO role; Jean expanded role leading finance and strategy; Calvin Butler remains President/CEO.
• New Jersey Battery Project: 500-MW project (with Invenergy) expected to deliver >$700 million in net customer benefits with zero bill impact for the first five years; New Jersey BPU review ongoing.
• Capital Allocation: Approximately 40% equity expected for incremental capital opportunities; battery projects increasingly pursued under "build-on-transfer" arrangements to optimize capital outlay timing.
• Diversification: Investment plan remains defensive with no single project exceeding 3% of total capital; diversified across utilities and sectors.

Risks and Headwinds to Outlook:

• Regulatory Delays: Continued delays in PJM's reliability backstop auction and rejection of IRAS proposals on jurisdictional grounds pose risks to achieving optimal customer protection and reliability solutions.
• Legislative Constraints: Storage expansion in states without utility ownership laws depends on future legislative approvals; current pipeline includes states where ownership is prohibited.
• Weather/Storm Activity: Q4 outlook assumes "normal weather and storm activity"; deviations or severe storms could impact results given the high exposure to weather-related outages.
• Construction Timelines: Transmission projects carry a 3-7 year execution horizon; storage timelines are shorter but dependent on regulatory approvals (e.g., NJ BPU final order in late Q1 2027).
• Interest Rate Volatility: While hedged for 2026, future rate volatility remains a risk, though mitigated by hedging strategies limiting impact to ~1 cent/share per 50bps move.
• Load Uncertainty: High-probability load (11 GW) is not fully reflected in the current plan until secured and deemed high-probability; timing of energization varies.

Management Tone on the Future:

• Confidence Level: Highly confident; Calvin Butler states he has "never been more confident" in the team, platform, or execution ability.
• Strategic Clarity: Emphasis on "discipline makes growth credible"; avoiding speculative upside in favor of durable, customer-justified investments.
• Urgency: Strong sense of urgency regarding the "supply crisis" and customer affordability; unwilling to wait for single regional PJM solutions.
• Forward-Looking: Describes current plan as a "durable and diversified base plan" with a "significant runway" beyond current projections; views storage/transmission as practical, near-term solutions rather than distant possibilities.

Miscellaneous:

• 2026 Q3 Performance: Reported adjusted operating earnings of $0.87 per share, beating Q3 2025 ($0.86) and prior Q2 expectations.
• Reliability Rankings: Operating companies rank 1st, 2nd, 5th, and 6th among US utility peers for electric reliability.
• Storm Resilience: Prevented an estimated 6.6 million outages year-to-date across 31 significant weather events; restored 94% of customers in <48 hours during major storms.
• Customer Affordability: Customer rates 19% below national largest cities; bills 20% below national average as % of median income.