Good morning and welcome to 2019 Second Quarter Exelon Earnings Call. My name is Laura, and I will be facilitating the audio portion of today’s interactive broadcast. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I’d like to turn the show over to Dan Eggers, Exelon’s Senior Vice President of Corporate Finance. Please go ahead, sir.

Thank you, Laura. Good morning, everyone, and thank you for joining our second quarter 2019 earnings conference call. Leading the call today are Chris Crane, Exelon's President and Chief Executive Officer; and Joe Nigro, Exelon's Chief Financial Officer. They're joined by other members of Exelon's senior management team who 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 on the Investor Relations section of Exelon's website. The earnings release and other matters, which we discuss during today's call will 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 today's material and comments made during the call. Please refer to today's 8-K and Exelon's other SEC filings for discussions of risk factors and factors that may cause results to differ from management's projections, forecasts and expectations. Today's presentation also includes references to adjusted operating earnings and other non-GAAP measures. Please refer to the information contained in the appendix of our presentation and our earnings release for reconciliations between the non-GAAP measures and the nearest equivalent GAAP measures. We scheduled 45 minutes for today’s call. I'll now turn the call over to Chris Crane, Exelon's CEO.

Thanks, Dan, and good morning, everyone, and thank you for joining us today. Before I turn to the financial results for the quarter, I'm going to spend a few minutes providing some key updates on a number of positive developments in our businesses over the last three months. First, we continue to move forward on our utility regulatory strategy, filing distribution rate cases at BGE, ComEd, and Pepco, DC, reflecting our safety and reliability investments across those service territories. In DC, we filed our first multiyear rate case. The plan provides the necessary framework to align Pepco system investments with DC policy goals, including grid modernization and further improvements to customer service and reliability. Joe will discuss the details in his remark. Second, last week, Pepco and other parties filed a settlement agreement at FERC for PECO’s formula rate, transmission rate. The settlement includes a 10.35% ROE inclusive of a 50 basis point ROE adder. PECO made the original filing in 2017 and we expect the final order from FERC in 2020. Third, in June, we issued our annual corporate sustainability report, marking our performance and sustainability goals and priorities. In addition, the Benchmarking Air Emissions report that found Exelon is the largest generator of zero emissions energy in the U.S., producing 12% of the nation's clean energy. Also that we have the lowest emissions rate admitting at a rate that is 4x less than the next cleanest generator. Fourth, the New Jersey BPU approved ZEC payments for the state nuclear units including our interest in sale. We appreciate the state support for the carbon-free power produced by these units. Fifth, we are unable to get legislation done in Pennsylvania in time to reverse the decision to close TMI this fall. Since then, there have been continued discussions on a…

Thank you, Chris, and good morning, everyone. Today, I'll cover our second quarter result, our quarterly financial updates, including trailing 12-month ROEs at the utilities and our hedge disclosures. Turning to Slide 7. We earned $0.50 per share on a GAAP basis and $0.60 per share on a non-GAAP basis, which is at the midpoint of our guidance range of $0.55 to $0.65 per share. Exelon utilities delivered a combined $0.39 per share net of holding company expenses. Utility earnings were modestly higher than our plan largely due to O&M timing at ComEd, BGE and PECO, which will reverse itself over the course of the year. This was partially offset by milder weather than expected in the Philadelphia area impacting PECO by about $0.01 per share. ExGen earned $0.21 per share behind our plan. This was a result of lower load volumes that constellation due to mild weather any extended outage of Salem. These factors were partially offset by a favorable O&M, strong performance of our Generation fleet and realized gains in our nuclear decommissioning trust funds. We are reaffirming our full-year guidance for $3 to $3.30 per share and for the third quarter we are providing adjusted operating guidance, earnings guidance of $0.80 to $0.90 per share. On Slide 8, we show our quarter-over-quarter walk. The $0.60 per share in the second quarter of this year was $0.11 per share lower than the second quarter of 2018. Exelon Utilities less holdco earnings were up $0.04 per share compared with last year. This earnings growth is driven primarily by higher distribution rate associated with completed rate increases and higher transmission revenues at ComEd and PHI relative to the second quarter of 2018. This was partially offset by unfavorable weather at PECO. ExGen earnings were down $0.13 per share compared with…

Thanks Joe. Turning to Slide 14, we recognize the current power of markets are creating headwinds for us. We're prepared to meet them head on and take thorough or thoughtful action if necessary. In the meantime, we are accomplishing the things we committed to do including maintaining industry-leading operations, leading our financial commitments effectively, deploying more than $5 billion in capital across our utilities this year, and advocating for policies that support clean energy. Our strategy remains the right one and we're committed to our value proposition. We continued to grow the utilities targeting a 7.8% rate-based growth in a 6% to 8% earnings growth through 2022. We continue to use free cash flow from the Genco to fund that incremental equity needs that the utilities paydown debt and one part of the growing dividend. We will continue to optimize the value of ExGen business by seeking pair compensation or our zero-emitting Generation fleet, closing uneconomic plants like we're doing with TMI and selling assets where it makes sense to accelerating our debt reduction plans and maximizing value through the generation – through the generation to load match strategy constellation. We will sustain strong investment grade credit metrics and we will grow our dividend annually 5% through 2020. The strategy underpinning this value proposition is effective. We remain committed to optimizing the value of our businesses and earning your ongoing support of Exelon. Operator, we can now open the call up to questions.

[Operator Instructions] Your first question comes from the line of Greg Gordon of Evercore ISI.

Hey, good morning.

Hey, Greg.

So one high level question and then maybe one or two in the weed’s questions. And I don't want to ask you anything that you're maybe not comfortable delving too deeply into, but I'm going to anyway. You mentioned the concept of levers that you have full in order to stay on track to generate the free cash flow and credit metric targets that you laid out for us at the beginning of the year despite the fall on the forward curves. And you talked about how you won’t run power plants that aren't cash flow positive. And look, I've covered the stock for a long time and covered the company for a long time. We've been in this situation before, and nothing is ever as good or as bad as it looks in the moment, but can you tell us should this persist? What some of those options are in a little bit more detail please?

Yes. I'll let Joe go through the list of what we've got laid out right now. We've been talking quite a bit about it, meeting on it as we watch the markets. So Joe?

Yes. Good morning, Greg. Greg, you mentioned one of them. I think we've proven through our time with our financial discipline that we're not going to run power plants in perpetuity that are in economics. So that would be the first lever. Obviously, you've seen us continue to drive efficiencies in our business and continue to look at ways to streamline our costs and we would continue to do that and that would be across our Exelon generation business as well as at the business services company. At our disposal, I won't speculate on what at this time, but we obviously have the opportunity if necessary, to look at asset sales. We do have a small amount of growth capital in our ExGen business. We would look at that and take a hard look at that. And then there were alternative forms of financing. When you think about project financing, you know, they're saying. So I think when you look at it, this is a point in time estimate over our financials. As you said, we've seen the markets move up or down. We're comfortable, like I said; with our credit metrics through the disclosure period and we continue to allocate capital in the ways we've laid out. And if we had to, if this continued, we would look at these levers.

Yes, I'm very cognizant that some of those plants are large nuclear units in the state of Illinois. And I'm also cognizant that you're having a dialogue with legislators and other constituencies in the state around an Omnibus energy strategy that takes into account and contemplates certain actions with regard to those plants. Can you tell us how that broad that coalition is, as we get into the veto session and whether you think that the state policymakers understand the implications of the lack of necessarily market reforms in PJM and the need to take back control of the market?

As you can imagine, we have a significant communications drive with the legislative and the administration on the situation and we are prepared to present them with the coalition. I'll let Kathleen to describe who she's working with that will balance out the needs for the state, the goals that the governor set after election to get to 100% cleaned by 2030 and be able to do that in an economic way that does not harm our customers. But you want to talk about the coalition? Kathleen Barrón: Yes. Good morning, Greg. There are a number of stakeholders that are very focused on getting clean energy legislation enacted in Illinois. As you know, a number of states across the country have already set 100% clean energy targets. And it's not just states like California, New York, it's across the country. And so Illinois has a lot of emphasis on making sure that Illinois, which is already the cleanest state in the country, has an equally aggressive target. So on that question, we have folks in the environmental community have heavily focusing on environmental justice players. The renewable developers are very focused on addressing those flaws in the prior version of the states clean energy targets to make sure that they can achieve the goals that have been set previously. But also as I said, set a more ambitious new targets for renewable development in the state. The consumer advocate is heavily focused on this policy as well because the question of state having to pay twice for capacity has been very much in the forefront, and ensuring that if we're going to incentivize clean energy. We can count our capacity towards our obligations for PJM. And then finally the labor community, very focused on what these policies mean both for new construction and preservation of things clean energy resources. So that's the correlation we're focusing on putting the package together. There are a number of parties who will come together in the end to help – communicate the message that Chris mentioned that this is important for the state, but it's not going to be possible if we can't allow these resources to count as capacity and that's why the FRP is foundational to getting this policy done.

Thanks. And my final question was actually, a numbers question on the update on the mark-to-market, Joe. There was $50 million decline and how our new business to go. Is that because that moved into hedges because you executed sales or are you assuming either lower volumes or lower margins in the out years significantly retail business?

Hi Greg. Yes. This is Jim McHugh. That is just executed. That's executed business that now has moved into the mark-to-market of hedges. So when you net that all together, that numbers – those two lines would be flat from last quarter, it's just executed now.

Okay. Thank you.

Your next question comes from the line of Steve Fleishman of Wolfe Research. Your line is open.

Yes, thanks. I got -ups to both the Greg's question. So first of all, just I know in the past when prices have fallen a lot and certain times you've talked about actually how much money losing plants there are and potential offsets. Can you give any flavor on that on just, hey, if prices stay this low, if we shut certain plants or generally shut plants, what the potential offset could be?

If you're asking in market prices, we don't calculate the effect of uneconomic plants being shut down on the effect of the market. If you're asking about the effect of removing the negative free cash flow, we haven't got those numbers to be published right now. It's something that we're looking at, but we're trying to evaluate, unit by unit and then in aggregate, as we've said publicly right now, you can see a challenge in the future if this market persists between the capacity and the energy market that Dresden, Byron, and Braidwood are financially challenged. Now do you think we've got a clear path that that with good coalition to support, fixing that at some of it at the state level and we still are working very hard with PJM for FERC to continue on base-load scarcity in the capacity market reforms that should correct, and make a fair market. So, but short of those things happening, those three sites, you can look into the future and see the challenges that they have.

Okay. And then I guess that the point there is if we're just using current forwards and taking it down that we're including basically losses on plants that you would not just sit and take forever.

Right.

Correct.

That's right.

Okay.

Either we have a clear path to securing them or the units will be shut down. We will not damage the balance sheet, sitting around for years with negative free cash flow or negative earnings.

Okay. And then just specific question to the Illinois coalition, can you just give any color if possible that since this news from a few weeks ago came out about the subpoena. Has there been any – have these talks or continued and is there any kind of public process we'll be able to see kind of those talks? Or is it just going to kind of be suddenly in legislative proposal?

Steve, [indiscernible] the activity that has started and continued for a number of months on advancing the clean energy legislation among the coalition that was referenced by Kathleen and by Chris remains unchanged. We're meeting regularly, we're doing the stakeholder outreach, we're trying to craft a package and educate members of the legislature. And dependency of the grand jury and subpoenas had no impact on the level of activity or the intensity of the activity in that regard.

Okay. Thank you.

Your next question comes from the line of Chris Turner of JPMorgan. Your line is open.

Good morning. I was wondering if you could just help us with some background of your franchise agreement in Chicago, kind of when that expires, the terms of renewal, et cetera and kind of how you're thinking about that right now.

Well, I'll start. Hi, this is Ann. And Joe to make guesses here as well. But basically the expiration date is the end December of 2020. The city needs to give us an indication by the end of the year as to whether they want to maintain status quote renegotiate or terminate the franchise agreement. So we'll know by the end of the year, but we're in discussions with them, we started to have discussions around that. We understand what their priorities are and there, I think priorities are very much aligned with ours. They want to see more clean energy in the city of Chicago. They are concerned about vulnerable populations, in particular in terms of pricing. And those are all – those are both, strong strategic elements of our focus going forward at all our utilities. But that's the status right now.

Yes. And just to supplement what Ann said, we've been in the process of these negotiations for some time. We've exchange terms and have detail discussions about, how the agreement would be structured going forward. We had a slowdown in those negotiations during the transition to the new mayor. But those negotiations have resumed in full at this point.

Okay. And right now that is your set of assets and you would need to be compensated if anything changed there.

Yes, that's correct. But again, the focus here is I'm getting the franchise agreement done. Our expectation is it will be fully negotiated and Dan will address the issues that Ann talked about, to the extent municipalization is what that will come with a very hefty price tag as you know, and I don't think realistically that's a path we're going to go down.

Okay. And then I guess just more modeling here for the balance of 2019, you put out the third quarter guidance there, which was I think a little bit less than we had expected. How are you thinking about the fourth quarter right now and what I guess might look like O&M headwind at least in the back half overall?

You heard me say in my – it’s Joe, good morning, you heard me say in my prepared remarks that we reaffirmed our guidance, range of $3 to $3.30. That's inclusive of the earnings guidance. We gave you obviously for the third quarter and we're comfortable with those numbers.

Okay. Anything to think about that might be kind of one-time or non-recurring in nature for the third or fourth quarter that could help you year-over-year?

Hi. I mean you saw some of the drivers in the second quarter when we talked about the lower load volumes that constellation driven by the unfavorable weather and we continued to as Jim sits were talked about. We continue to execute our new business at constellation and we continue to manage the utility business accordingly and we're comfortable with full-year guidance.

Okay, great. Thanks Joe.

Your next question comes from the line of Michael Weinstein from Credit Suisse. Your line is open.

Hi, guys. I just one quick follow-up on the guidance. The guidance for $4.2 billion of cash flow Generation from ExGen over the next four years? What does that assume in terms of uneconomic plants and might be operating or I guess retirement is going to go where to those types of plants? What's built into that $4.2 billion number?

Good morning, Michael. It's Joe. As Chris mentioned when you just said, inclusive when you look at the three plants in Illinois that he mentioned, Byron, Braidwood and Dresden, those plants are running in those cash flow forecast. And then to the extent, these power prices continue there's obviously challenges financially with those. And as I said in my remarks, we won't continue to run those plants in perpetuity on economically. Having said that, we haven't provided the numbers specifically, but we will. We put out a forecast on our fourth quarter call for $7.8 billion of free cash flow from 2019 to 2022 coming off generation that we're still working with that number.

So I mean would it be accurate to say that there's upside either way at this point with the forward curves where they are?

We’ll give you an update at our fourth quarter call and you're getting like one side of the story here obviously, because in the numbers we provide, we're showing you the mark-to-market. You see our gross margin disclosures and they change quarter-over-quarter this quarter driven by the price drops we saw in the second quarter. I also discussed their other levers at our disposal. Those are reflected in our disclosures, but you can go back to what we've modeled on the fourth quarter call and that's what we've disclosed at this point.

Okay, great. Thanks.

Your last question comes from the line of Praful Mehta of Citigroup. Your line is open.

Thanks so much. Hi guys. So maybe just following up a little bit on the power markets, it was very helpful to get the levers that you've talked about. But just to understand from a PJM perspective, do you see more happening on the market side as in other players shutting down other plants or other form of rationalization like you also talked about regulation. Where do you see PJM going? Because if it stays this way, clearly, it's unsustainable. So wanted to understand how you thought the market would play out?

Yes. Praful, this is Jim McHugh. I'll start. I think from a market's perspective, first of all, the one thing, I want to highlight to Joe's point about this as a point in time. We've already seen the Nighthawk market move up $1 on the forward curve since the end of the quarter and the West Hub markets moved up about $0.75 since the June 30 pricing. So we've seen a pickup in prices so far. I think when it comes to what we're working on; we've talked over the last several quarters on the market reform side. Fast start pricing is willing to be enacted. There is some work being done on reserves and scarcity pricing and the ORDC curve in PJM. And then in the long run it's a little bit lower priority right now for PJM, but the focus on the baseload price formation and Entergy relaxation. Those are some of the things. I think we have new build and retirements both happening over the next four or five years as natural course of business and our fundamental analysis. So there will be a little bit of that, but I think, by and large the reforms are around price formation and then in the long run, if we're able to come up with a market solution to have carbon pricing in the market would be another thing in the long run. That would be something we would all continue working on. The one thing that's interesting to me about where we've seen these prices in that $22 area, which you look at Cal 21, Cal 22, Cal 23, that's trading down where the quarter two just cleared. Quarter two Nile just cleared $22.25 with very, very mild weather. So the entire curve is trading where a very mild quarter just traded. It's an interesting note to me and I think it gives us some insight into why we think those prices on the forward curve have already responded slightly higher in the last couple of weeks.

That's super helpful color. And maybe just one follow-up more strategic. If you do see these profiles, does that mean that you think more retail would be helpful to the business? Do you look to expand on the retail side or maybe acquire more retail businesses? Is that something that you think would work?

Yes. So I think from a retail perspective, our customer facing businesses are doing pretty well. The margins are hanging in, our win rates are strong and we're holding our market share, our retail customer facing business and our wholesale load auctions and wholesale origination businesses have performed well. I think as far as acquisitions and expanding it, we've talked for a while now about having grown really what is the best in class platform. So we will love to acquire books of business, if there is value proposition there that we can absorb it into our best in class platform and just take a retail book of business. We'll look for those opportunities and we certainly would take a hard look at them.

All right. Really helpful. Thank you, guys.

I would like to turn the call over back to speaker Chris Crane. Please go ahead, sir.

Thank you all for participating in the call today. We remain on track to meet our commitments to our customers, communities, and shareholders. With that, we'll close up the call.

This concludes today's conference call. You may now all disconnect.