Hello, and welcome to Exelon’s third quarter earnings Call. My name is Gigi, and I will be your event specialist today. All lines have been placed on mute to prevent any background noise. Please note that today’s webcast is being recorded. During the presentation, we will have a question-and-answer session. [Operator Instructions] Please note that today’s webcast is being recorded. [Operator Instructions] It is now my pleasure to turn today’s program over to Dan Eggers, Senior Vice President of Corporate Finance. The floor is yours.

Thank you, Gigi. Good morning, everyone, and thank you for joining our third quarter 2020 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 are 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 in the Investor Relations section of Exelon’s website. The earnings release and other matters, which we discuss 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 today’s material and comments made during this call. Please refer to today’s 8-K and Exelon’s other SEC filings for discussions of risk factors and other factors, including uncertainties surrounding the impacts of the COVID-19 pandemic 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. I will now turn the call over to Chris Crane, Exelon’s CEO.

Thanks, Dan. Appreciate it. And as you can see from our release, we have had strong earnings and operational performance, while continuing to focus on the health and safety of our employees and the communities. Our GAAP basis earned $0.51 per share and non-GAAP basis earned $1.04 per share. We did outperform our guidance that we had originally given at $0.80 to $0.90 per share due to some favorable weather and more cost savings coming through sooner than we anticipated Joe is going to get into the detail [indiscernible] that I want to highlight. In August, we had a tropical storm that battered the East Coast with rain and strong winds, significant impacts to ACE, Delmarva and PECO. It was PECO’s 10th largest storm on record following the 8th largest storm in June. Then a hurricane-like derecho tore through the ComEd service territory, spawning 13 tornadoes. Between the two storms, we had more than 1.5 customers lost power. We had more than 500 employees and contractors that were helping their sister utilities moving back and forth between the East and the West to try to respond to the needs of the customers. And despite the intensity, we were able to restore the power to our customers in record time due to the power of our Exelon Utilities platform. Our employees’ quick response and collaboration made the difference for our customers. So we really want to thank our employees for their great work restoring service to customers during, not just the pandemic, but a very active storm season as we have seen. As I mentioned on the last call, Exelon is committed to our values of diversity, equality and inclusion. Part of this commitment calls on our businesses and our partners to recognize these values and include women and people of…

Thank you, Chris, and good morning, everyone. Today, I will cover our third quarter results, quarterly financial updates and our hedge disclosures. I will also provide an update on our full year 2020 guidance. Turning to Slide 7. We earned $0.51 per share on a GAAP basis and $1.04 per share on a non-GAAP basis, which exceeded our guidance range of $0.80 to $0.90 per share. A key driver in our quarterly EPS performance for both the second and third quarters has been success in managing costs. As you may recall, on our first quarter call, we announced $250 million of savings across the organization to help offset the impacts of COVID. At that time, we expected our offices would reopen in late summer. Since then, we have pushed phase 1 of our reopening for remote-enabled workers until January of next year at the earliest. This change in expectations, along with the hard work of the organization, led to higher savings than originally anticipated. For the quarter, Exelon Utilities delivered a combined $0.57 per share net of holding company expenses. Utility earnings were modestly higher relative to expectations, driven primarily by favorable O&M and taxes, earlier recognition of bad debt regulatory assets and favorable summer weather in our non-decoupled jurisdictions. This was partially offset by costs related to tropical storm Isis, which hit the East Coast in August. ExGen outperformed expectations for the third quarter, earning $0.47 per share. The upside was largely driven by lower O&M, where targeted savings exceeded our original expectations and were achieved sooner than planned. Additionally, favorable weather and lower cost to serve benefited our gross margin. On Slide 8, we show our quarter-over-quarter earnings walk. The $1.04 per share in the third quarter of this year was $0.12 per share higher than the third…

Thanks, Joe. Finally, turning to Slide 15. I want to close as we do each one of these calls, with our value proposition. We are focused on growing our utilities, and now we are targeting a 7.3% rate base growth with a 6% to 8% EPS growth through 2023. We will use the free cash flow from the Genco to support the utility growth, pay down Genco debt and support the external dividend. We continue to optimize the value of Exelon Generation business by seeking fair compensation for our 0-emitting generation. And I have to say that many editorials and others call what we are asking for as a bailout. It is not a bailout. The nuclear fleet is only zero emitting fleet that does not get compensation towards value. So this is not a bailout. It is leveling the playing field. It comes across nice and political venues or editorial venues, but the last thing it is, is a bailout, it is leveling the competitive field. We will continue closing uneconomic plants, like we announced the retirement of Dresden, Byron and Mystic, monetizing these assets and maximizing the value through Constellation, retail and wholesale. We will continue to sustain investment-grade credit metrics and maintain a strong balance sheet and have grown our dividend annually at 5% through 2020. Before turning to Q&A, I want to comment on some recent news reports that Exelon is considering separating the Exelon Generation from the Utilities. As discussed recently on our last earnings call, we regularly evaluate whether our corporate structure best serves the interest of our communities, customers and our employees and also our investors. We would consider modifying that structure when we can create value and recognize those interests. The nature of our business and the landscape that it is in has been evolving over the years. In addition, you have seen a number of competitive integrated companies in our sector that have shrunk considerably. Given those circumstances, a review of our corporate structure is underway, started earlier this year, and we have the help of outside advisers. As we continue this review, we focus on creating value, taking into account, as I have mentioned, all of our stakeholders: the investors, the employees, the customers and the communities we serve. So I want to emphasize that the separation of the companies would involve addressing some complex operational, financial and regulatory issues. No decision has been made, but we continue to do the work to determine the best outcome for our stakeholders, and we will provide you an update on our progress on the next earnings call. So with that, operator, we can now open it up to questions.

[Operator Instructions] Our first question comes from the line of Stephen Byrd from Morgan Stanley. Your line is now open.

Hi, good morning. I just wanted to first talk about the strategic review. And I respect that you are at, I guess, a fairly early stage of thinking through your options. But I was just trying to think about the strategy here, and I guess maybe I wanted to start with what sort of attributes or sort of risk profile would you want to achieve for your merchant fleet for ExGen to be consistent with your strategy versus sort of what risk profile would be not consistent with your strategy? I know overall, you are trying to derisk the business and provide greater stability. How do you, at a high level, think about that?

Yes. I would wouldn’t say we are at the early stages. I would say that we are in an in-depth review of the evaluation. And some of the things we look at are the cost of capital, things like that, the degradation of the Constellation business with collateral costs. There is many aspects to it that are under review right now. But what we want to make sure is that we have two healthy companies, a utility business - if we and the Board determine this is the right thing to do, two healthy businesses that can stand on their own and provide the support needed for the balance sheets, the customers, the employees, the shareholders as we go forward. So a lot to be taken in there. But I don’t think we have pinpointed a risk profile yet that - well, I can say we haven’t pinpointed a risk profile yet that I have agreed with and the Board has agreed with.

Understood. Is it fair to say it is an objective to try to reduce the volatility and also just to improve the viability, I guess, of that business going forward, right? That seems clear that, that is part of the strategy here?

Yes. It is a free cash flow machine. And how do we optimize that to be the best that it can and produce the most on valuation side and shareholder return side. So that is kind of the focus.

Yes, that makes sense. And maybe just one last one for me. More on the tactical side, thinking about your nuclear plants. You have obviously made some shutdown decisions already. But I guess we calculate that some of your remaining nuclear plants are currently or will be negative cash flow. Would you agree with that assessment? And I guess, over what time frame are you thinking about making decisions for some of the plants that look like they are negative cash flow?

You have looked at our disclosures. We have outlined the plants that are sliding into that space. A lot depends on what we do with the capacity market or the FRR and how we treat the plants is comparable with other zero carbon-emitting plants, which they are not being treated equally right now. So the time frame, we have to watch the auction, we have to watch the legislation. If we don’t get a capacity redesign and the auctions run, you could anticipate there would be some issues coming up in the future.

Understood. Thanks so much, I appreciate it.

Thank you. Our next question comes from the line of Steve Fleishman from Wolfe Research. Your line is now open.

Great. So I guess, first, arguably, for the last year or so, you have been getting little value, if even maybe negative value for ExGen in the Exelon stock price. So the value case seems obvious, but obviously, there is probably risks and obstacles to just get through. Could you maybe just talk to what some of those are in making this decision?

Yes. I mean you can imagine, this is a complex combination of a competitive integrated. And I wouldn’t get on the path of laying out each one of those, but I will tell you that when you start to look at the corporate center, splitting out the IP, splitting out the financials, splitting out the corporate organization, has a lot of design that we have to make sure we are not creating these in-synergies dissynergies, and we do that properly. There is other considerations that we have to make for the employees, for the regulatory bodies to do that and it is not an easy one. Many of the competitive integrateds that have switched and split have not had the complex level of the integration or the size of the scale that we have. We have the most premier retail and wholesale trading organization, nobody that has split had anything like that. So there is value being created, but there is expense there too. So we have to watch how we do it, make sure we do it properly. There is a lot to be said about what we do for the consumer and the zero carbon market. You haven’t seen anybody that has a zero carbon fleet like ours split-off. You have seen coal plants, you have seen gas plants, you have seen gas infrastructure split-off. We have to make sure that when or if we do it, that we have the right compensation for the assets that are being spun-off. And that is not something that is been recognized by the regulators or the legislators or the administrations thus far. They recognize when they recognize solar, but they have not recognized nuclear. And if you look at just the state of Illinois right now, 60% of the generation is carbon-free. 90% of it is nuclear. Nuclear is the only one that is not compensated for its low carbon or zero carbon elements. So there is a lot of different avenues we have to go down to, to get this right. But as I said in the last call, the market’s changing, and we have to figure out how we change with it.

Great. Just based on the comments you just made, Chris, is it fair to say that you need to get some type of decision on Illinois law, either supporting nukes or not before making this kind of business structure decision?

I will let Bill jump in here, but I would not say that, that is going to be a gating function. Bill, I don’t know if you want to add anything to that?

Yes. No, Chris, I agree with what you said. But Steve, you have identified a big point of sensitivity here. As Chris alluded to, we have to take into account, in considering whether to do this or not, a variety of stakeholders, including the communities we serve, our customers, employees and the like. So all of that goes into the equation of not only the substance of this, but the timing of this. There is lots of ground to plow before we get to the exact decision on - before we decide whether we are doing it or not. Number one, the Board has not decided that. And number two, if so, what the timing would be. And obviously, the FRR is relevant to that, but it is hard to - I wouldn’t put it as a gating function. It is a function that is relevant to our consideration of what’s the optimal timing if we decide to do this.

The only thing I would add to that is, if the plants are not profitable, they don’t cover their cash needs or their earning requirements, we shut them down and - with or without FRR. And it is a business decision. Some people have called it a threat. It is not a threat. It is just a reality. When businesses don’t make money on assets, they shut them down. And so we have to look at the timing of all these decisions and make sure we are doing the right thing. But the legislation is important for the value, but we have to make decisions based off of current economic conditions.

Great, thanks and just Bill, great to her your voice. Thanks for the answers.

Thank you for your nice notes to me, I really appreciate it. Thank you very much.

Thanks you. Our next question comes from the line of James Thalacker from BMO Capital Markets. Your line is now open.

Thanks for the time guys and good morning. Just two real quick questions. One is, I know you previously stated you conduct reviews on a regular basis. But in your prior evaluation of the corporate structure, has this process included the retention of outside advisers to help you kind of work through the process? Or is this kind of the next level of review this time around?

No. I think we were very public. In 2017, we used outside advisers, and we did a very, very thorough evaluation. And we looked at the free cash flow coming off of Genco. And at that point, it was accretive to be able to reduce debt, be able to put equity into the Utilities and also support a reasonable dividend policy. So we have kept close advisers as we have looked through this in the past, not only on business structure but assets also. It is nothing that is been insular to the company. It is always been with advice from outside.

Okay. Great. I appreciate that. And just 1 last question, I guess, in just thinking, I guess, about cost allocation, as you undergo the review of the potential separation. Is there any initial guidance, I guess, you could give us on how you are thinking about the magnitude of shared services overall across the company and how potentially that falls into the regulated and ExGen buckets? And thoughts on how you sort of mitigate that as if you were to move forward, I guess?

It is too early to go there. I will tell you that we have to be very sensitive to what falls back on the Utilities and what the Genco can manage. And so some of the cost savings that you have seen in this quarterly update is us accelerating that type of focus. Not going too far, but the Genco’s done a lot. The business services organization is accelerating some stuff on technology and contracts and other things that would mitigate those costs when split. One thing about competitive integrated, you get to use the Massachusetts-modified model to spread the costs around. That is a revenue generated formula. We know if or when we do a split that, that goes away. And so we have to figure out how do we keep the financials, right, keep the employee benefits programs in all the databases. I mean you can go through that list of all the complex things that we have to do. But we do understand that the regulators are not going to want to see an increase in costs because we split the company. And the owners of the Genco are going to want to make sure their - the shareholders of the Genco are going to want to make sure that we are the most efficient. So we are working through that now, but we don’t have a number yet.

Okay. I appreciate that. And just on Slide 36, you talked roughly about $200 million of the $250 million on the cost savings sort of this year or coming at the ExGen level. Should we think about that as being a decent run rate going forward? Or how much of that do you think you can retain as we move into 2021 and 2022?

I will let Joe jump in on that. There is travel, there are some other smaller things that we are not doing right now. But Joe, you want to take that?

Yes. Thank you, Chris. This year, we had a goal of $250 million of O&M - or of cost savings across the enterprise. And we are going to overachieve that by about $100 million to $125 million is our expectation. We are working through that right now. To your question about how much of that is repeatable in the future, we are in the throes of analyzing that. To Chris’ point, we have learned a lot here in the last almost 8 months, where we have been working remotely. We have had savings on travel and entertainment. We have had consulting dollar savings, training savings. We have looked at almost everything. And I think there will be things that fall to the bottom line, and we are going through that now. We would expect to provide you an update on that on our fourth quarter call, but there will be things that bleed through. We are just not ready to commit to how much of that is run rate in the future.

Okay, great. I appreciate that. Thanks for the time.

Thank you. Our next question comes from the line of Jeremy Tonet from JPMorgan. Your line is now open.

Hi good morning. I just want to speak more on the strategic review. And could you speak more to the financial considerations here? And namely, would ExGen require a bunch of equity to separate from the business, if that is something you could share any details there? And how should we think about the funding needs, growth prospects at Exelon’s Utilities under an independent scenario without the support from ExGen cash flows?

Well, there is still a lot of work going on right now. I don’t think we have an anticipation of that. We are still trying to figure out what level of the ratings that we keep. But Dan, do you want to take it?

Yes. Thanks, Chris. I mean, Jeremy, I think it is a good question. Right now, I think it is probably a little early to start making calls around balance sheet and capital allocation decisions. You could imagine amongst all the factors we are considering with this review, looking at the credit metrics, working with the agencies, thinking through that is going to be an aspect. Thinking about how ExGen would use the free cash flow that is been funding the Utilities to be part of it, thinking about how the Utilities can fund their growth, both with their internally generated and retained cash flows, but also other sources of funding will all go into the decision. But a number of factors will go into our analysis over the coming months.

That is very helpful. And just wondering if you are in a position to share any feedback that you have received in Illinois with response to the retirement announcements that you put out recently?

No. There is some disappointment, as you can imagine, from the communities. There is disappointment from employees. And these are not the first nuclear plants we have had to shut down. Some will say that we make enough money already, we should not shut them down, but that is just not the way businesses work. And so you have to work through the reaction. And the two major constituents that are going to feel the pain here with us shutting these units down, because we are losing so much money, are the employees and the communities. If you look at the taxes and what we provide in the community as far as employment in commerce and - it is not easy. And so you can imagine those communities are trying to figure out what they can do to support us staying - keeping those plants open. But haven’t heard a lot from the legislative side. And I will let Kathleen and Bill jump in on that side.

Yes. Chris, I can jump in. I mean, as you know, the legislature is not in session. So there has been continued work on potential clean energy legislation through the governor’s working group and similar efforts on both the Senate side and the House side. But until the legislature is back in session, we won’t have a sense of where that is going. But I agree with you that the impact, both on the employees and the communities around the plants, as well as the sort of broader communities in Illinois are watching this because to the extent these plants shut down, what will happen is fossil plants will ramp up, and that will affect communities around the state that are already struggling with air pollution and the effects of COVID. So a lot of folks are watching it for sure.

Got it. Understood. And if I could just ask one last one here. How do you see proposed multiyear plans impacting your return to 9% to 10% ROE target and the sustainability of maintaining that range?

Yes. I will let Calvin answer that one. We have had a couple punches in the gut this year that brought us back down with storms and some other things. But Calvin, you want to cover that?

Absolutely, Chris and good morning. What I would say is that our whole process and working with our regulators in our jurisdictions around multiyear plans was geared to really create a foundation for long-term growth and also giving transparency and accountability to our customers on how this was going. So it is our commitment that we are going to remain in that 9% to 10%, but it is going to be done in a way where it is transparent to our customers and we are able to invest in our system for just to continue to operate a safe and reliable system. So that is the commitment, that is what we are discussing, and we are on course to meet that obligation, as you have heard in Maryland and now in D.C. with both of our utilities in Maryland and in D.C. And we already have very constructive environments in our other jurisdictions. So we are moving forward with that.

Got it. That is great. Thanks that is it for me.

Thank you. Our next question comes from the line of Julien Dumoulin-Smith from Bank of America. Your line is now open.

So if I can pick up where Jeremy left off a little bit, can you talk about the balance sheet, especially under any prospects of a spin here? Just want to hear clearly from you all how you are thinking about it. The rating agencies have talked these broadly about ExGen being an investment-grade entity. If I can ask you this way, how committed are you to IG metrics under a spin? I know that you have kind of alluded to this earlier in the call, but I just want to be extra clear about this. And then subsequently, it seems as if in past periods, one of the calculations here has been the implications to the retail business. Can you talk about that side of the equation under any strategic shift?

Joe and Jim, do you want to tag team that one?

Yes. I think, Chris, the answer to Julien’s question around how committed we are to investment grade, we take our strong balance sheet and our strong investment-grade ratings that we have today, obviously, very seriously. As you mentioned, we are still in the process of evaluating what the spin would look like and all the ramifications of that. And that includes impacts to all the stakeholders you mentioned, the rating agencies being one of those and how it would impact the rating of a Genco that stand alone. But at this point, it is too early to commit to anything along those lines. And with that, I will turn it over to Jim to talk about the retail business.

Yes, sure. Thanks, gentlemen. And Julien, I guess, likewise, we are working through - over the next period of time over the next few months, we are going to work with the finance team to understand and how we can continue to optimize our business. Our customer-serving business is really the large portion of our overall earnings capability that we bring to the Genco and cash flow capability that we bring to the Genco. We are committed to that. We want to keep that going, and we will work through the structures and the product structures that we need to maintain and to continue to serve those customers and then optimize the management in all the way through the spot market of managing the load and the generation output. So I think we will make sure the impacts are such a way that we can maintain that focus all on the customer and keep our products going and the growth that we see in that business.

And further kind of clarification, if it is. First, Chris, on carbon and the subject of how that might ultimately translate back to your all’s portfolio here. How do you think the election could impact that? Clearly recognizing states’ rights and a lot of these PPA programs ultimately end up - for the state, right, to implement one way or another. Given that context, how do you think about carbon today as potentially implemented in Illinois eventually?

So what we are trying to do is work at the state level. We have had little traction at the federal level, and it is very polarizing as you know. It doesn’t matter who gets elected, it is still going to be a polarizing issue. So working it through the states and then through the markets because you have got the cross-state leakages is where we have been focused. We will have to see what happens tomorrow and what happens in the House and the Senate, the legislative body where they want to go. We hope they do it as a technology-neutral approach versus what some size of the house and the Senate have gone at technologies versus outcomes. But we will have to see. We are still going to fight at the state level and the market level to make sure that we get the right valuation for our assets. We are the largest non-carbon producing entity with no remunerations for those assets. But like I said earlier, it is nice for editorial or an editor or a politician to say we are looking for a bailout. We are looking to be able to compete with the other non-carbon that people have decided to provide a payment, a valuation for that low carbon output. But when you look at the largest non-carbon emitting source in the country and the largest Non-carbon emitting company in the country and they are competing against other resources that are getting compensated for the value of that, it is just frustrating. But you will pick up the paper tomorrow and somebody will write that Exelon is looking for a bailout. We don’t care about a bailout. We just want to compete. If we don’t compete, we will shut units down.

Understood. quite clear. Thanks Chris and team.

Thanks.

Thank you. Our next question comes from the line of Durgesh Chopra from Evercore. Your line is now open.

Hey guys, thanks for including me in. Maybe just one quick one on the quarter, and then I want to go back to the strategic review. Just on the quarter, you showed this projected cash flow slide with the 2020 balance. The balance is significantly lower, like $400 million lower versus the Q2 call and your guidance is up. So just wondering what drives that.

Yes. Chris, I can take that.

Take that Joe. Yes.

Yes. So yes, there is a couple of things going on. Our free cash flow from our operations across the enterprise were up for the quarter. But we did see - because of that, number one, we had an assumption of kind of less requirement for working capital needs. And then more importantly, we had some movement in cash flow on other activity related to Exelon Generation, and there were just a number of small factors at normal-type quarter activity that moved the cash flow for the quarter, even though the earnings were up pretty materially versus the range we would given last quarter.

Okay. That is helpful. Understood. And just really quickly, Chris, you mentioned FRR not a gating factor. Maybe just to the extent that you can, could you procedurally talk about the next steps here? And if there is a time line that internally you guys are working on to get this strategic review over?

Yes. I can tell you that although the FRR and the legislation is critical for the communities and the employees, we have to make our business decisions. I think we are going through the review right now and trying to evaluate the complications of the potential separation, but we wouldn’t use that as the gating factor. So once we get through the very complicated review, we would like to provide a whole lot more color on the fourth quarter call. Not guaranteeing were done or saying we would be done by then, but that will be the view of where we think we are heading. Dan, I don’t know if you want to say anything else?

No, Chris, I think you have covered it.

Alright.

Okay guys. Thanks so much. Great quarter.

Thanks.

At this time, I’m showing no further questions, I would like to turn the call back over to Chris Crane for closing remarks.

Yes. I just want to thank everybody for joining the call. It is a busy day. Election’s going on, all kinds of concern about stability in the country. And so for us to be able to share your time, it is appreciated. I really want to thank the employees for their commitment and dedication. We have had a lot of stuff going on this year, not only the COVID, the storms, and the things that they have had to work through. And I hope that you and your families are safe and healthy. And with that, I will close the call.