Exelon - Q2 2024

Transcript

Operator (participant)

Hello, and welcome to Exelon's Q2 Earnings Call. My name is Gigi, and I'll 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'll have a question-and-answer session. You can ask questions by pressing star one one on your telephone keypad. If you would like to view the presentation in a full-screen view, click the full screen button by hovering your computer mouse cursor over the PowerPoint screen. Press the escape key on your keyboard to return to your original view. Finally, should you need technical assistance, as a best practice, we suggest you first refresh your browser. If 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 Andrew Plenge, Vice President of Investor Relations. The floor is yours.

Andrew Plenge (Head of Investor Relations)

Thank you, Gigi. Good morning, everyone. We're pleased to have you with us for our 2024 Q2 earnings call. Leading the call today are Calvin Butler, Exelon's President and Chief Executive Officer, and Jeanne Jones, Exelon's Chief Financial Officer. Other members of Exelon's senior management team are also with us today, and they will be available to answer your questions following our prepared remarks. Today's presentation, along with our earnings release and other financial information, can be found in the Investor Relations section of Exelon's website. We would 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 on slide 2 of today's presentation or in our SEC filings. In addition, 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. It is now my pleasure to turn the call over to Calvin Butler, Exelon's President and CEO.

Calvin Butler (CEO)

Thank you, Andrew, and good morning, everyone. We appreciate you joining us for the call and are pleased to be reporting a solid Q2 of earnings and operational performance, keeping us on track to deliver consistent and stable performance once again. We expect to deliver within our guidance range of $2.40-$2.50, with the goal of being at the midpoint or better, and we are reaffirming all of our long-term guidance. That includes investing $34.5 billion to grow rate base at 7.5%, resulting in annualized earnings growth of 5%-7%. For the quarter, we delivered $0.47 per share of adjusted operating earnings above our expectations, driven primarily by favorable weather in our non-decoupled jurisdictions, along with timing of spend and ComEd's distribution revenues.

We also performed at operationally high levels, achieving top quartile or top decile reliability performance across the board. We have also continued to make progress on the regulatory front. Our revised grid plan process in Illinois is on track, and approval by the end of the year is a top priority. Since our last earnings call, we are through two rounds of testimony from staff and interveners, and we have narrowed open issues with many interveners and staff. We will continue to work with parties to address open items in advance of the evidentiary hearings. We are encouraged that we've been able to reach agreements with key parties like the City of Chicago, the Building Owners and Management Association, and the Environmental Coalition, Joint NGOs. Each has recognized the progress made in our revised plan and its compliance with the Climate and Equitable Jobs Act, a key focus of the commission.

These affirmations are good examples of what differentiates the process this year. Approval of the plan will ensure that Northern Illinois will receive the investment needed to maintain an affordable, resilient, reliable, and clean grid for its customers and will support the state's success in attracting new business. In addition, the process for our PECO rate cases remain on track for orders by the end of the year, and Pepco DC's rate case continues, where we await a final decision in a second multi-year plan upon completion of the briefing schedule on August 30. Finally, we received an order in Pepco Maryland's second multi-year plan rate case filing, which adopted a one-year framework with the ability to refile for new rates while we await the outcome of a lessons-learned process in the state.

Now, the shortened rate plan maintains some of the positive elements of multi-year rate making, such as a reconciliation and the ability to update rates next spring, offers an opportunity to keep rates more current with costs. All stakeholders, including Exelon, are interested in making sure the investments we make keep us on track to meet the goals of Maryland's Climate Solutions Now Act, while appropriately balancing interests across stakeholders, all stakeholders, which includes customers, policymakers, and regulators. There are many ways to strike that balance, and rate-making constructs are a key tool to do that. We think multi-year plans provide a great foundation, offering unparalleled transparency, accountability, and alignment, including a reconciliation process that allows all stakeholders to understand how we performed against the approved plan.

But alignment on an agreed-upon path forward that works for everyone is critical, particularly since the need to invest in the grid is only growing, with increased electrification, diverse and sophisticated power supply and demand technologies, and the increased strain on our grid caused by severe weather. The broken investment has only accelerated as the proliferation of artificial intelligence has significantly boosted data center development, as Jeanne will discuss in her remarks. The stakes are simply too high to lack confidence that we are prioritizing the investments most important to our customers. Multi-year plans can provide that confidence and transparency to customers, and when done right, ensure alignment with all stakeholders.

We are refining our regulatory strategy to follow the lead provided in the final order, and more importantly, stand ready to engage in a lessons learned process to ensure we can find common ground on any adjustments to address stakeholders' areas of focus. In the meantime, given the deviation from the approach used by the commission since 2021, we are taking action on the current order and seeking more clarity, as Jeanne will discuss in her remarks. Now, turning to our operational performance on slide 5, you can see that our performance through the H1 of the year remained strong. ComEd and Pepco Holdings are performing at top decile levels, despite ComEd experiencing 4x the amount of storm activity in the Q2 versus last year.

I just want to pause and say how incredibly grateful I am for the committed employees that serve on the front lines during these increasingly challenging storm seasons. Just in the past few weeks, our ComEd crews headed down to the Gulf region to provide mutual assistance after Hurricane Beryl, only to come back to respond to 4 waves of back-to-back storms in Illinois, in which there were 41 confirmed tornadoes impacting 500,000 customers. ComEd experienced the most severe storm in its territory in more than 15 years, and yet, within 2 days, we had restored 80% of the impacted customers, which is a true testament to the importance of prudent grid investment and our employees' relentless dedication to our customers. We can't thank our employees and those providing mutual assistance enough for their commitment to serving all of our customers.

This operational excellence is matched on the gas side as well. Now, on the safety front, I'm pleased to report that BGE, PECO, and Pepco Holdings are all now top decile, with PECO improving from second quartile into the first quartile. Our utilities continue to leverage our new safety observation platform to take action before an incident occurs, with over 1,000 supervisors and safety professionals trained on our new tools. ComEd is continuing to build upon this focus with the goal of moving into the top quartile, and we look forward to sharing more on its progress on our next earnings call. Lastly, our customer satisfaction scores remain consistent with prior quarter, with ComEd and PECO in the top quartile, Pepco Holdings in the second quartile, and BGE in the third quartile.

Pepco Holdings and BGE have both made progress toward improving their performances, implementing actions based on the findings from their customer experience working groups and data analytics. ComEd actions to improve performance include enhanced accuracy for time to restore communications, greater self-service options for new business and interconnections, and customer assistance campaigns targeted at newer groups such as moderate-income customers. We look forward to the H2 of the year, bringing continued operational excellence and delivering industry-leading value to our customers. I'll now turn the call over to Jeanne to cover our financial and regulatory update. Jeanne?

Jeanne Jones (CFO)

Thank you, Calvin, and good morning, everyone. Today, I will cover our Q2 financial update, along with the outlook for the H2 of 2024, our progress on the rate case schedule, and highlight two projects that demonstrate the breadth of our opportunities associated with growing load and infrastructure demand. Starting on slide 6, we show our quarter-over-quarter adjusted operating earnings walk. As Calvin mentioned, Exelon earned $0.47 per share in the Q2 of 2024 versus $0.41 in the Q2 of 2023, reflecting higher results of $0.06 per share over the same period.

Earnings are higher in the Q2 relative to the same period last year, driven primarily by $0.06 of higher distribution and transmission rates associated with incremental investments and completed rate cases, net of associated depreciation, and $0.03 of favorable weather, partially offset by $0.03 of higher interest expense due to higher levels of debt at increased interest rates. As Calvin mentioned, we delivered earnings results above the guidance we provided in our prior quarter call due to favorable weather conditions, early execution of our weather and storm recovery plan, and timing of ComEd's distribution revenues. Operating earnings of $1.16 per share through the Q1 2024 reflect 47% projected full-year earnings, which is in line with how we performed through the H1 of 2023.

As we look ahead to next quarter, we expect the relative EPS contribution in the Q3 to be largely in line with prior year at approximately 27% of the midpoint of our projected full-year earnings guidance range. Our outlook for the H2 of 2024 assumes fair and reasonable outcomes for Pepco DC's multiyear plan rate case and the BGE and ComEd reconciliations, and it incorporates July weather and storm activity with assumed normal conditions for the balance of the year. On a full year basis, we remain on track for operating earnings of $2.40-$2.50 per share in 2024, and we reaffirm our long-term annualized operating earnings per share guidance range of 5%-7% through 2027, with the expectation to be at the midpoint or better of that growth range.

Turning to slide 7, as Calvin highlighted, there have been some important regulatory developments across our utilities that I will review, beginning with ComEd. Coming out of 2 rounds of staff and intervener testimony, we are encouraged by the support that ComEd's revised grid plan is compliant with the requirements of the Climate and Equitable Jobs Act, and that it represents an appropriate balance between affordability and supporting the state's clean energy goals, with our proposal representing an average annual increase to the total residential customer bill of only 1.8% through 2027 relative to December's final order. ComEd filed its rebuttal testimony with the Illinois Commerce Commission on 31 July, marking the end of written testimony and another key milestone in the procedural process.

The company and parties to the case head into evidentiary hearings in mid-August, followed by the briefing process in September and a proposed ALJ Order in mid-October. A final order is expected in December 2024 for rates that will go in effect by the start of 2025. Turning to Pennsylvania, on 16 July, PECO filed its rebuttal testimony with the Pennsylvania Public Utility Commission in support of both its electric and gas distribution rate cases ahead of the hearings in early August. The cases are following the expected schedule, with orders anticipated from the PAPUC before the end of 2024. Moving on to Pepco Holdings, on 30 July, the DC Public Service Commission held legislative-style hearings to rehear oral arguments from key stakeholders and Pepco DC on its pending multi-year rate plan filing.

We are committed to working with DC towards their goals to meet their energy transformation aspirations, having, at the Commission's direction, provided an extensive lessons learned from the first MYP and supplemental testimony detailing each of the benefits, as well as enhancements and modifications to improve the MYP framework. Based on the latest procedural schedule, which concludes with the post-hearing briefs in late August, we anticipate a final order in the Q4 of this year. I'll close by providing an update on the Pepco Maryland final order we received on June tenth, which adopted a one-year plan with a total revenue increase of $44.6 million and a 9.5% ROE. We appreciate the ability to file for new rates effective at the end of the one-year plan and the ability to reconcile eligible costs in excess of those approved.

And while we were disappointed not to receive rates over the full period requested, we remain committed to engaging with the Maryland Public Service Commission on its lessons learned process, which we anticipate will commence next year. As Calvin noted, we believe strongly in the merits of the multi-year plan framework, and we embrace the opportunity to discuss ours and other stakeholders' learnings after three and a half years operating under that contract, where we've consistently delivered above-average reliability under below-average rates. In the meantime, Pepco is requesting that the commission rehear and reconsider certain aspects of their decision, including some of the spend proposed for removal from the plan. As always, we advocate for transparency, accountability, and alignment in the ratemaking constructs in our jurisdictions and are prepared to work with each to ensure a just and equitable energy transformation for all.

More details on the rate cases can be found on slides 20 to 30 of the appendix. On slide 8, we highlight two projects that showcase the power of our footprint and platform to attract and meet a variety of load growth opportunities. This growth is driven by continued momentum around AI-driven data center demand, onshoring of energy-intensive in-industries, and overarching economic development, electrification, and decarbonization trends. In June, ComEd joined Compass Datacenters to launch one of the largest-ever Illinois data center projects, bringing over 1,000 construction jobs to the nearly 200-acre former Sears headquarters campus. The project helps ComEd further advance economic development in the area and is a great illustration of why Northern Illinois ranks within the top 5 in the nation for data centers and is a top attraction for other high-density load customers.

With ComEd having 25 years of experience working with data center customers and recognized for its best-in-nation reliability last year, companies in energy-intensive industries are drawn to the region due to strong infrastructure, ideal climate conditions, access to talent, and affordable rates for all customers, supported by our ability to deploy investment in an efficient manner. This growth in high-density load, not just in data centers, but also in solar panel production, EV battery manufacturing, hydrogen production, quantum computing, and other industries, is one of several drivers for why our transmission spend increased by 45% in our four-year plan, as discussed in the Q4 call and shown again in slide 13 of the appendix. It also drove a significant update in new business in our refiled grid plan, with final spend eligible for full reconciliation under the multi-year plan framework.

Supporting this development ensures the economic vibrancy of our communities, as last year alone, ComEd was part of securing 15 new commercial projects that are set to add over 4,000 jobs and more than $8.6 billion of local investment. Shifting the focus to Maryland, BGE is playing a crucial role in transforming the Baltimore Peninsula into the city's newest and largest mixed-use community. The area, which will benefit from multiple new or rebuilt substations, will help to relieve capacity constraints and provide grid resilience to both new and existing customers, accommodating 100 MW of load and supporting the connection of distributed solar and EV charging stations. The 235-acre project will result in new and redeveloped mixed-use and residential buildings and host the new Under Armour global headquarters, playing a central role in the revitalization of South Baltimore.

As the largest transmission and distribution utility in the country by customer count, we are an integral partner to areas like Baltimore City for revitalization and economic development, addressing aging infrastructure challenges, the need for new development and electrification, and the capacity strength constraints from increased load. As these two projects highlight, we are uniquely positioned to support our jurisdictions to meet load growth demands in an equitable manner, no matter where the load is located. We operate in 60 utilities across seven jurisdictions, including FERC, are a leader and operator in the sector and provide a world-class customer experience with bills and rates below national averages. Beyond our size, scale, and operational excellence, we have one Exelon platform to unify our utilities that allows us to support customers at a national level, identifying attractive locations to support incremental load in states with progressive clean energy policies.

The momentum around new business in our jurisdictions continues to be very strong, a testament to the power of Exelon's platform. I will conclude with a review of our balance sheet activity on slide nine. As a reminder, we continue to project to have approximately 100 basis points of cushion on average for our consolidated corporate credit metrics above the downgrade thresholds of 12% specified by S&P and Moody's, demonstrating our commitment to maintaining a strong balance sheet. And while we await specific guidance on implementation of the corporate alternative minimum tax, I'll remind you that our plan incorporates the assumption that the regulations will not allow for repairs.

If implemented in a way that mitigates the cash impact, we'd expect an increase of approximately 50 basis points to our consolidated credit metrics on average over the plan, likely putting us in the higher end of our targeted 100-200 basis points of cushion. From a financing perspective, we successfully raised $1.6 billion for ComEd and BGE in the Q2, now having completed 90% of our planned long-term debt financing needs for the year. The activity to date, along with our pre-assurance hedging program, positions us well for the balance of the year and beyond. We continue to see strong investor demand for our debt relative to the sector, which is proof of the strength of our balance sheet and our value proposition as a premier T&D utility with low-risk attributes.

There's been no change to our guidance to issue $1.6 billion of equity from 2024 to 2027 to fund our estimated $34.5 billion capital plan in a balanced manner. We continue to expect to issue approximately $150 million this year, and the balance gradually over 2025 to 2027, approximating $475 million annually. We will update you as we make progress on that plan. Thank you. I'll now turn the call back to Calvin for his closing remarks.

Calvin Butler (CEO)

Thank you, Jeanne. I'll conclude by bringing it back to our priorities this year, listed on slide 10. As always, safely achieving industry-leading operational excellence is our first priority. Keeping customers online, no matter the weather, is increasingly important. We also remain highly focused on being responsive to our customers' increasing engagement with the grid, whether it's accommodating new solar, performing efficiency audits, or supporting their transition to electric vehicles. Reaching fair and balanced rate case outcomes that allow us to invest for the benefit of our customers is another critical focus. As you heard from Jeanne, we have a number of proceedings we expect to conclude in the H2 of the year, and we're optimistic about the clarity that will bring for the next several years of our plan.

Building a reliable and modern grid requires reliable and modern rate making, and we'll continue to work with stakeholders to ensure that we are all aligned as we work to meet each state's energy goals. Next, we are focused on executing on the financial guides we laid out, including investing $7.4 billion of capital with a balanced funding strategy and earning a consolidated 9%-10% return on equity, allowing us to deliver in our earnings guidance range of $2.40-$2.50 per share. As always, we're focused on ensuring all customers are benefiting from the generational energy transformation that's just getting underway. In late June, many of you saw that we joined a FERC proceeding to raise concerns about the way co-located customers share some of the costs of the grid that they can rely on.

Exelon and AEP may have been the first to share those concerns, but many others have now echoed similar perspectives. There's no question that co-location offers a unique opportunity for our jurisdictions to attract business in an exciting, emerging industry, and we welcome supporting our customers in this work. Serving more customers than any other utility in some of the largest, most critical cities in the country, we are a leader in investing in the energy transformation and supporting economic development. As Jeanne shared, there is no shortage of work that the energy transformation requires of the grid, regardless of where the load shows up or what sort of generation serves it.

In fact, just a week ago, PsiQuantum announced a partnership with the state of Illinois, Cook County, and the City of Chicago to be the anchor tenant in the massive quantum computing development, the first of its kind in the nation, housing a utility-scale quantum computer in an operations center the size of five football fields. So we will lead in investment, but we will also lead in affordability, with rates and bills that are currently below national averages. And we're committed to continuing to do so to ensure we can maintain the service our customers expect while making the necessary progress in the energy transformation. Accordingly, you can expect us to advocate for policies that continue to support investment in a grid that we all rely on... and that ensure these investments can be made as affordably and equitably as possible.

We will continue to monitor the FERC ISA proceeding, in which action by the commission is expected by August third, and stand ready to help advance solutions to the benefit of all customers. Gigi, we are now ready for any questions from the audience.

Operator (participant)

Thank you. If you would like to ask a question, simply press star one one on your telephone keypad. Our first question comes from the line of Shar Pourreza from Guggenheim Partners.

Calvin Butler (CEO)

Good morning, Shar.

Shar Pourreza (Senior Managing Director and Senior Analyst)

Good morning. Good morning, Calvin. How are you doing?

Calvin Butler (CEO)

Good.

Shar Pourreza (Senior Managing Director and Senior Analyst)

Good morning, Jeanne. So Calvin, just coming off sort of this blowout PJM capacity print, we've heard, you know, some of your peers yesterday kind of highlighting that they're talking to their state policymakers on solving this kind of resource adequacy issue.

Calvin Butler (CEO)

Yeah.

Shar Pourreza (Senior Managing Director and Senior Analyst)

What, I guess, what conversations are you having, either in Illinois, Maryland, or Pennsylvania, on the backdrop at this point? Do you think we can see merchant new entry, or will states have to step in? Thanks.

Calvin Butler (CEO)

Thank you, Shar. And, as you know, we've had this discussion in previous settings around resource adequacy, but let me assure you that we, PJM, and a number of other stakeholders have been signaling concerns about resource adequacy for some time. Policy has continued to drive a turnover in the generation stack, as you know, with base load replaced by renewables, and in the past years brought huge advances in the power requirements with AI-driven data centers. You know, onshoring of intensive manufacturing has further contributed to the pressures. But this, of course, poses real challenges around providing reliable, resilient, and affordable power. It goes to my comments that I made, is that we have to ensure that the new rate making, this rate making systems align with the new constraints being put on the energy that's being provided for all customers.

The price signals that we saw this week clearly indicate a need for infrastructure investments in our footprint, particularly in BGE, both generation and transmission. Obviously, we're already doing that today, including the work we're doing on Brandon Shores retirement, meant to address exactly the types of price pressures that this auction showed. We're already engaged regularly in meetings, and you should be assured that we're not going to step away from this. And it's an industry-wide issue because at the end of the day, what they're going to look to utilities is for reliable reliability and a resilient grid. All the other stuff is fine, but if those lights don't come on, that's when they're going to turn to us, and we're focused on that each and every day. I'll now turn it to Jeanne to just see if you have any further input.

Jeanne Jones (CFO)

Yeah, no, I think I'd just reiterate, right, it obviously signals to your point, Shar, the need for more generation. You know, we'll see what happens on the merchant side. But there's also the need for more transmission. You know, Calvin talked about the work we're doing on the Brandon Shores. We're going to continue to lean in on that. We think there are some cost-effective solutions there. But there's also an expansion of kind of what we do today in terms of things to help our customers manage their, the affordability. So for example, energy efficiency. We've been doing energy efficiency in ComEd since 2008, and we hit a milestone this year where we marked $9 billion in customer savings since 2008. That's remarkable, right?

That work needs to continue to expand and get smarter and better as more demand comes on the grid, and we're leaning into that. We also hit a milestone date of hitting 1 gigawatt of distributed generation under our rebate program in Illinois this year. So we're going to continue, as you mentioned, having those discussions with our policymakers. What else can we do there? Good for customers, good for investment, brings down and addresses the competing demand because we want to bring that demand, right? We want that demand to come. We just need to manage the other side of it, which we're excited to do and we've done before, and we'll keep doing. And then on top of that, you know, we're going to continue to focus on what we can control, and that includes our O&M.

Continuing to manage that historically been at that 2%, projecting to be at that 2%, when you know our customers are facing, you know, power price increases well above that and then just normal inflation. So we're doing a good job there. We'll continue to lean in there. But I think, look, it's meaningful and, and I think it opens up opportunities to provide solutions, and, and we look forward to doing that.

Calvin Butler (CEO)

Shar, if I can add on to what Jean just added, the question in Jean's comments recognize that none of this operates in a silo. It's all connected. So when you see one, a lever being pulled, you can't ignore the other pieces, and which is why the rate-making process is so critical, and the transparency and the discussions have to continue and be ongoing throughout.

Shar Pourreza (Senior Managing Director and Senior Analyst)

Got it. And then, some of us have covered the space long enough to kind of remember LCAPP, MCAP, you know, 11 years ago, 12 years ago-

Calvin Butler (CEO)

Yeah.

Shar Pourreza (Senior Managing Director and Senior Analyst)

-and that obviously was struck down by the courts. Are you looking at a state mechanism to potentially own, like, peaking assets in rates? Is that what you're referring to?

Calvin Butler (CEO)

I would tell you that we're working with our commissions on all type of scenarios, that we shouldn't take anything off the table because we need to address this issue and ensure affordability and equity is at the forefront of all discussions.

Shar Pourreza (Senior Managing Director and Senior Analyst)

Okay, perfect. And then just on the Susquehanna Protest, just lastly here, it's obviously a focus. FERC is slated to act shortly. I guess, if, if assuming the amendment is not set for a paper hearing, how do you want FERC to resolve kind of the broader issue? Kick it back to the RTO, start an NOI for an eventual NOPR? Just any thoughts there, appreciate it.

Calvin Butler (CEO)

... Yeah, let me just tell you, and thank you for the question. I know this issue has gotten a lot of attention, and for some reasons, rightfully so. We're on the cusp of major new source of load, and it's a critical emerging industry that holds a lot of promise for us in the U.S. economy. But let me add a bit of additional color on my prepared remarks, though I'm mindful that we do have an open proceeding with FERC, and we should learn more by the end of this week, as you know. Our protest to the Talen ISA, it's not because we're against colocation. We've stated very clearly in the initial protest that we are not. We do believe that colocation offers some benefits and allows our jurisdictions to compete successfully for this business.

As I talked about, we have clearly proven that we're an attractive partner for data centers, as evidenced by Chicago being a top five market in this area for economic development. As evidenced by our participation in the RTEP Window three, at $850 million award we received because of data center growth in Northern Virginia. For us, Shar, this is about rate design. Users of the grid should pay their fair share. And while there may be unique opportunities to leverage land and equipment at generation plants to get data centers online quickly, they are still connected to the grid and are benefiting from a host of services that the grid provides to serve all of the load connected to it. You should expect us to continue to remain focused on economic development and, yes, affordability.

We have to do that on behalf of our customers, and that's what you should expect from a world-class utility, that we can do both and really drive growth as we're doing across our jurisdictions, but not forgo that for one customer over the other. That's why we're putting this in. Policy should not be determined on a one-off basis, and we will continue to see what FERC says and then determine next steps.

Shar Pourreza (Senior Managing Director and Senior Analyst)

Got it. All right, perfect. Thank you, guys. Much appreciated. Talk to you soon.

Calvin Butler (CEO)

Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of David Arcaro from Morgan Stanley.

Calvin Butler (CEO)

Morning, David.

David Arcaro (Executive Director and Senior Equity Research Analyst)

Oh, hey, good morning. Hey, thanks for taking my questions. Hey, wondering if you could give a broad perspective on what you're seeing in terms of state support for attracting data centers. It sounds like you had some encouraging things to say. Just are you seeing any evidence of pushback in any areas, or the opposite? You know, are there incremental signs that some of the key states, I'm thinking Illinois, Pennsylvania, continue to be supportive of bringing that industry to the state?

Calvin Butler (CEO)

Yeah, David, this is Calvin. What I'll do, it's to directly answer your question, we're seeing a lot of momentum, and matter of fact, in our states, they've passed legislation to provide tax benefits to attract data centers. And Mike Innocenzo, our COO, works across all of our jurisdictions with each of the CEOs to ensure, from an operation standpoint, we're set up to meet the demands and expectations of those customers. Mike, do you have anything you'd like to add?

Mike Innocenzo (Executive VP and COO)

Yeah, I think we've seen no shift. I think, you know, our states and across all of our jurisdictions continue to see the opportunities created by data centers for jobs, economic development, and continue to be very supportive, but also continue to be very engaged in the process to make sure that it's done in a thoughtful way where it's fair and equitable across.

David Arcaro (Executive Director and Senior Equity Research Analyst)

Okay, excellent. Appreciate that color. And then, you know, in terms of the, maybe your specific kind of pipeline of data center projects, could you give additional color on what you've been seeing in terms of that momentum? Has it been largely focused in your ComEd service territory?

Calvin Butler (CEO)

Yeah.

David Arcaro (Executive Director and Senior Equity Research Analyst)

What are you seeing in other states, at the moment?

Calvin Butler (CEO)

Well, to tell you what, I have our CEOs. What I'm gonna do is ask, because I think we see the most activity right now, as you alluded to, it happening in Illinois. I'm gonna ask Gil Quiniones, as, as ComEd's President and CEO, to provide more color. And then for Carim and/or Dave Velazquez or Tyler Anthony, if you guys have anything to add, please don't hesitate. Gil?

Gil Quiniones (CEO)

Thank you, Calvin. It's been a robust market for data centers here in Illinois. We have over five gigawatts in what we call engineering phase, where data centers have paid us to start engineering their projects. Some of them actually have made deposits so that we can order large equipment like transformers and breakers. And then behind that, we have another 13 gigawatts in what we call prospects. So they're not yet in engineering, but they are knocking on our doors, making inquiries, very interested in coming to our jurisdiction. And we're one of the states where there is a specific tax incentive passed in 2019 to support the development and location of data centers in our state.

Calvin Butler (CEO)

Any other CEOs have anything you'd like to add?

Carim Khouzami (CEO)

And Maryland, Calvin, I'll just add, we remain committed to supporting data centers as they come. To date, we have seen a number of data centers that are actually up and operational, not the hyperscale that many are talking about today, but we still remain committed to helping drive that if the data centers do come to Maryland.

Calvin Butler (CEO)

Yeah.

Tyler Anthony (CEO)

Yeah, Tyler Anthony for Pepco Holdings, the three utilities. I would say the same, whether it's Jersey, Delaware, or the District of Columbia, and our portion of Maryland with Kareem. Interest level has been significant with all the major players doing different assessments of different sites and criteria, Calvin.

Dave Velazquez (Former President and CEO)

... And Dave Velazquez for PECO in Pennsylvania. Yes, beginning to see increased interest, you know, whether they're a couple of hundred to several hundred MW, and a number of those are in engineering studies already, and probably, you know, in the next few months have a few more entering engineering studies as well.

Calvin Butler (CEO)

So, David, what you hear from the team is that we're actively engaged in that process. And to date, we continue to ensure that from an operational and reliability standpoint, we're ready to meet the expectations of those large customers.

David Arcaro (Executive Director and Senior Equity Research Analyst)

Okay, great. Yeah, thanks for the input across the board. Very helpful.

Calvin Butler (CEO)

You're welcome.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Steve Fleishman from Wolfe Research.

Calvin Butler (CEO)

Good morning, Steve.

Steve Fleishman (Managing Director, Senior Analyst, and member of the Executive Committee)

Hey, good morning. Thanks. So just on, I guess first on Illinois, you mentioned these agreements with some parties in the grid plan. Could you talk to kind of, you know, what, what parts of the grid plan they've been-

Calvin Butler (CEO)

Yeah.

Steve Fleishman (Managing Director, Senior Analyst, and member of the Executive Committee)

They've kind of agreed to? And also just, I guess the difference between what we've seen is the commission kind of, kind of ignore staff and ALJs and other things, but does it, does it make a difference if there's actually, like, settlements as opposed to just-

Calvin Butler (CEO)

Yes

Steve Fleishman (Managing Director, Senior Analyst, and member of the Executive Committee)

... views? Yeah. Thanks.

Calvin Butler (CEO)

No, Steve, I, I thank you for the question. And as you and I spoke about, and we've shared very publicly, when we got that order in December, it's important to level set. At that point in December, we had not had a, a chance to engage with these new commissioners about what their expectations were.

And as you laid out, we had been actively engaged with staff and others and stakeholders up to that point, and we thought we had, at that, about 85%-90% agreement on what we were going to do, and then the commission came in and said, "It's not what we were looking for." So since that time, the engagement with the commission, we took their feedback and went directly to those stakeholders and said, "Hey, if this is what the commission's wanting, how can we develop a plan to achieve that with the grid plan that will be recognized and also meet the expectations of you as a stakeholder?" So the difference here is that it's with commission input, with staff working in alignment with the commission and these stakeholders. Now, to your point, the commission will have the final say.

But these agreements are key because it's done in alignment with what they told us that they wanted, and it's just another marker along the way to show that we're making progress. So it's much different now when you present something to the commission because they've already given input. Gil, anything you'd like to add there?

Gil Quiniones (CEO)

No, I think that you, you've said it correctly, that these agreements signify progress towards the specific items that the commissioners cited in their final order. So there are two areas. One area is compliance and policy issues, and these agreements basically codify alignment in those policy and, and compliance issues. Now, the rate case really is more on investments and cost benefit, and we're narrowing our, our differences in that area, too, leading up to the evidentiary hearing, as Jeanne mentioned, which will be on 14-16 August.

Calvin Butler (CEO)

And Steve, I'll end with this, is that I'd much rather have an agreement than a non-agreement with them as we proceed and go forward. So to me, that's a significant step in the process.

Steve Fleishman (Managing Director, Senior Analyst, and member of the Executive Committee)

Okay. Just one clarification. So I think there's, I know there's like 11 metrics that need to be met. So could you just maybe tie in the answer of what's agreed upon to those metrics? Like, is there an agreement on the 11 metrics, or is it kind of for more of a broad... Yeah.

Jeanne Jones (CFO)

Yeah, you're talking about the, what? The commission's points, the points of compliance, Steve?

Steve Fleishman (Managing Director, Senior Analyst, and member of the Executive Committee)

Yes.

Gil Quiniones (CEO)

Yep, yep. So, you know, we actually created a very specific chapter in our refiled grid plan to make sure that each of those areas where they cited a gap or deficiency for us to explain how we're meeting each of one of those that they've cited in the final order. On top of that, we also engage each of the staff and stakeholders to make sure that what they're looking for when it comes to compliance and policy requirements are also achieved. So we, in a way, if you read our refiled grid plan, we actually previewed the chapters with all of the stakeholders before we filed it, but we rearranged it in a way so that it's easier and clearer for the commissioners to see how we address those 11 gaps or deficiencies that they have identified.

Steve Fleishman (Managing Director, Senior Analyst, and member of the Executive Committee)

Okay. And I guess one other question related to the to the I guess colocation issue. You know, some of the other distribution utilities, including PPL itself, obviously support the filing as it is, and PPL, I guess, found it in the interest of their customers, the update. So I guess I would be interested in, did you pursue, you know, kind of trying to resolve this issue directly before you made this filing?

Calvin Butler (CEO)

... Well, for us-

Steve Fleishman (Managing Director, Senior Analyst, and member of the Executive Committee)

You know, to see if there was a win-win? Yeah.

Calvin Butler (CEO)

Yeah. So for us, Steve, when we found out about the issue out in Pennsylvania, it was a matter of public policy. We didn't have anything in front of us in terms of, do you have an opportunity to enter into a ISA or so forth? What our issue came down to public policy, and that's why we intervened to understand what was going on and to give FERC an opportunity to opine. So to your point, we didn't have a specific Exelon utility contract for us to come to an agreement on. Once we've made, once we made our filing, that's when we found out other things were happening within our jurisdictions that were taking place. And we are looking to have those discussions, and like I said, we will work with anyone to get these things done.

And my piece on this is that if we can understand and fully grasp what the costs are and the benefits and how they're going to be allocated, we will have those discussions with anyone at any time. So for us, on the PPL, was about public policy and what's taking place. When you read PPL's opinion or intervening back into the process, what they said was that this wasn't the forum for Exelon AEP discussion, although they recognize significant issues need to be addressed and someone needs to address them. Colette, do you have anything you'd like to add there?

Colette Honorable (Executive VP, Public Policy and Chief External Affairs Officer)

Thank you. Colette Honorable. I'm EVP of Public Policy and Chief External Affairs Officer. Steve, I appreciate the question. I will, pardon me, add to Calvin's comments. We are very open to working with anyone on these rate-making issues, and this is what we are speaking about. We appreciate that PPL has a different perspective here. The reason we got involved was because of the broader policy implications, and we need to refer to provide that guidance through policy. That will help all of us, and most importantly, it will help us understand the impacts of these sorts of transactions on all PJM customers.

And so we look forward to the dialogue and discussion. We will continue to remain engaged at FERC with all stakeholders and most of all our customers, because as it has been demonstrated here this morning, we will continue to provide strong solutions for our large load customers, but that work has to be done in consideration of the cost impacts, the affordability impacts for all customers, and then ultimately, reliability.

Steve Fleishman (Managing Director, Senior Analyst, and member of the Executive Committee)

Okay. Thank you.

Calvin Butler (CEO)

Thank you, Steve.

Operator (participant)

Thank you. Our next question comes from the line of Paul A. Zimbardo from Jefferies.

Calvin Butler (CEO)

Morning, Paul.

Paul A. Zimbardo (Managing Director and Senior Equity Research Analyst)

Hi.

Jeanne Jones (CFO)

Hey, Paul.

Paul A. Zimbardo (Managing Director and Senior Equity Research Analyst)

Hi, good morning, team. You know, and thank you for focusing so much on affordability. I want to continue that a little bit. Just after the PJM auction, if you have a rough view on what the customer bill impacts could be across the footprint, like BGE in particular, and if you're gonna use this to advocate for acceleration of transmission procurement in the region.

Jeanne Jones (CFO)

Yeah. Hey, Paul, it's Jeanne. You know, we are still, you know, buttoning up all the calculations, but you can think of it in some of our jurisdictions, including BGE, it's gonna be double-digit increases, you know, year-over-year. It depends on our jurisdiction in terms of the current capacity constraints, in terms of other contracts that are in place, but that's, that's how we're thinking about it. It's meaningful and probably double digits in BGE and some of our other jurisdictions. But you're absolutely right. We are going to... We've already been leaning in to the affordability discussion, and I think this just accelerates the solutioning for that, which is good. We need to get to solution, whether it's more generation, whether it's more transmission, which we stand ready to do and are already proactively doing that.

And then I mentioned an expansion of the current programs that we have today that help our customers, through our investments, and connecting them to different resources in DG space, to help them manage their bills. So we look forward to that. And I think, you know, just reiterating, right, what Calvin said, policy is important. This energy transformation, we have always said from the beginning, is going to be expensive, and the ones that do it affordably will do it sustainably. And that's why we're focused on making sure, that every dollar goes as far as it can.

Paul A. Zimbardo (Managing Director and Senior Equity Research Analyst)

Okay, great. And I know everyone's focused on FERC and Susquehanna. Something that related but different topic in Maryland, like Senate Bill 1, the colocation study. Just what are your legislative priorities there? And if you could give any additional context. I know there's been some strong comments filed by parties. Thanks.

Calvin Butler (CEO)

Yeah. Hey, this is Calvin. I would say on the Senate Bill 1 issue, it's all about we will lean into the affordability discussion and what takes place and the impact on all the customers. So again, we think the process in which the General Assembly has laid out in working with and saying, we're gonna have a very public process in hearing to have all stakeholders engaged in it, is what we want. We will adhere to what the regulatory body or the General Assembly lays out. We just want all customers to have a voice in that process, because otherwise, we, as the utility, will be the ones looking back and saying: Where were you at in that discussion and representing us?

And that's important, because if you do this, Paul, you know this, if you do this in a vacuum ... Then you have to react to the things that have happened already, and it's very difficult to effectuate good policy when you're trying to recover from something that's already occurred. And that is what I think the working group in SB 1 will adhere to, and we will be involved in that process with everyone else.

Paul A. Zimbardo (Managing Director and Senior Equity Research Analyst)

Great. Now, thank you very much, and thank you for keeping us all on the edge of our seats in the dog days of the summer.

Calvin Butler (CEO)

Yeah.

Jeanne Jones (CFO)

We'll be back.

Calvin Butler (CEO)

That's right.

Paul A. Zimbardo (Managing Director and Senior Equity Research Analyst)

Thank you.

Calvin Butler (CEO)

Yeah.

Operator (participant)

Thank you. Our next question comes from the line of Anthony Crowdell from Mizuho.

Calvin Butler (CEO)

Good morning, Anthony.

Anthony Crowdell (Managing Director and Senior Analyst)

Hey, good morning, team. Just a couple quick ones. I guess, if I could follow up on Steve's question on the FERC, the ISA proceeding. And I just one is, do you have any idea if the commission wanted to hold hearings, the timing that would occur before a decision?

Colette Honorable (Executive VP, Public Policy and Chief External Affairs Officer)

Hi, Anthony. It's Colette Honorable again. FERC has a number of options in terms of how to address the issues raised, quite frankly, by a number of stakeholders in that docket. As you've mentioned, one could be to set this matter for hearing, should it find that there are outstanding issues of fact or law that should be resolved before ruling. Should it go to hearing, it could take a year. And so that would allow for an administrative law judge to hear the various perspectives of the parties that are allowed to intervene and to consider them and, and make a ruling.

Anthony Crowdell (Managing Director and Senior Analyst)

Got it. And then the filing was made in conjunction with AEP. I'm curious on how did they get or how did they sign on? Did you solicit other utilities and some decide, you know, AEP decided to sign on and others did not, or... I'm just curious. I understand that this is not about colocation, it's about rate design. It actually struck me that more utilities didn't sign on, and I guess that's the root of my question.

Jeanne Jones (CFO)

Yes. I think at the end of the day, Anthony, this, you know, there's a timeline by which you can respond, right? And so we responded quickly, because as we said, we're going to be a leader in investment, we're going to be a leader in affordability, and there's key questions here. Look, this demand is coming either way, right? Whether it's collocated or not. That's going to require investment, and our focus is making sure the investment gets done for the needs of our customers, and that everyone has a fair and equitable allocation of the cost of using the grid. And I think that's the bottom line.

Anthony Crowdell (Managing Director and Senior Analyst)

Great. And switching gears, my last question refers to slide 8, and you talk about all the opportunity in Illinois. I guess given the low ROE that you received in the last rate case, would most of your investment or all your investment be focused on transmission? Like, I guess, is there a reluctance to maybe do distribution investment in Illinois, given the lower returns that they're awarding?

Jeanne Jones (CFO)

Yeah, some of it's D and some of it's T, so there's a mix there. And the more high density ones, we're seeing more on the T side. And you saw that in our update on the Q4 call. We added a lot of transmission to accommodate that high density load. As it relates to the distribution, we have an obligation to serve those new customers. And so while it is a low ROE, we've got to manage that, get that work done. And at the end of the day, that demand coming in, right, helps from unaffordability and spreading the cost of the grid. So, you know, the only other thing I'll mention is new business on the multi-year plan is outside of the cost, the $105 cap on the distribution reconciliation.

So again, we need to get that work done, and hook up those customers. It's for the benefit of all of us. But it is a mix of D and T. And a lot more, we see more T coming.

Anthony Crowdell (Managing Director and Senior Analyst)

Great. Thanks for taking my questions.

Calvin Butler (CEO)

Thank you, Anthony.

Jeanne Jones (CFO)

Thank you, Anthony.

Operator (participant)

Thank you. At this time, I would now like to turn the conference back over to Calvin Butler for closing remarks.

Calvin Butler (CEO)

Thank you, Gigi, and as always, thank you guys for your interest and participation in our earnings call. As always, we remain open to answer any questions and just get feedback with you throughout the day or follow up to this. So I just wanted to say how much appreciation from the team at Exelon. We appreciate your interest in the company and just engaging with us. So with that, Gigi, this concludes the call.