Exelon Announces Fourth Quarter 2015 Results, Provides 2016 Earnings Expectation, Announces Plans to Raise Dividend

Exelon Adjusted (non-GAAP) Operating Earnings	$347	$0.38
Unrealized Gains Related to Nuclear Decommissioning Trust (NDT) Fund Investments	51	0.05
Long-Lived Asset Impairments	(6)	(0.01)
Merger and Integration Costs	(9)	(0.01)
Ammortization of Commodity Contract Intangibles	(10)	(0.01)
Reassessment of State Deffered Income Taxes	(41)	(0.05)
Reduction of State Income Tax Reserve	10	0.01
CENG Non-Controlling Interest	(20)	(0.02)
Exelon GAAP Net Income	$309	$0.33

The outlook for 2016 adjusted (non-GAAP) operating earnings for Exelon and its subsidiaries excludes the following items:

• Mark-to-market adjustments from economic hedging activities;
• Unrealized gains and losses from NDT fund investments to the extent not offset by contractual accounting as described in the notes to the consolidated financial statements;
• Certain costs incurred related to the PHI acquisition;
• Certain costs incurred to achieve cost management program savings;
• Other unusual items; and
• One-time impacts of adopting new accounting standards.

• Pepco Holdings, Inc. Merger:  The Hart Scott Rodino Act waiting period expired on December 2, 2015 and as such no longer precludes the completion of the merger.  On December 23, 2015, the record in the settlement proceedings before the District of Columbia Public Service Commission (PSC) closed.  The companies are currently awaiting a decision from the PSC. On January 8, 2016, a Circuit Court judge affirmed the Maryland Public Service Commission's order approving the merger and denied the petitions for judicial review filed by the Office of People's Counsel (OPC), the Sierra Club, the Chesapeake Climate Action Network (CCAN) and Public Citizen, Inc.  On January 19, 2016, the OPC filed a notice of appeal to the Maryland Court of Special Appeals, and on January 21, 2016, the Sierra Club and CCAN filed a notice of appeal.
• Nuclear Operations: Generation's nuclear fleet, including its owned output from the Salem Generating Station and 100 percent of the CENG units, produced 43,832 gigawatt-hours (GWh) in the fourth quarter of 2015, compared with 44,533 GWh in the fourth quarter of 2014. Excluding Salem, the Exelon-operated nuclear plants at ownership achieved a 93.3 percent capacity factor for the fourth quarter of 2015, compared with 94.8 percent for the fourth quarter of 2014. The number of planned refueling outage days totaled 103 in the fourth quarter of 2015, compared with 97 in the fourth quarter of 2014. There were 21 non-refueling outage days in the fourth quarter of 2015, compared with eight days in the fourth quarter of 2014.
• Fossil and Renewable Operations:  The Dispatch Match rate for Generation's gas and hydro fleet was 97.3 percent in the fourth quarter of 2015, compared with 99.1 percent in the fourth quarter of 2014. The lower performance in the quarter was primarily attributed to a forced outage at Wolf Hollow. Energy Capture for the wind and solar fleet was 95.3 percent in the fourth quarter of 2015, compared with 96.4 percent in the fourth quarter of 2014. Performance was negatively impacted due to an extended outage at one of the wind projects in Missouri.
• ComEd Distribution Formula Rate Case:  On December 9, 2015, the Illinois Commerce Commission issued its final order approving ComEd's 2015 annual distribution formula rate update. The final order resulted in a reduction to the revenue requirement of $67 million. The decrease was set using an allowed return on capital of 7.02 percent (inclusive of an allowed ROE of 9.14 percent for 2015 less a reliability performance metric penalty of 5 basis points for the 2014 reconciliation). The rates took effect in January 2016.
• PECO Electric Distribution Rate Case: On December 17, 2015, the Pennsylvania Public Utility Commission approved the settlement of PECO's electric distribution rate case. The approved electric delivery rates became effective on January 1, 2016 and will result in an increase of $127 million in annual distribution service revenue.
• BGE Electric and Gas Distribution Rate Case: On November 6, 2015, BGE filed an application with the Maryland Public Service Commission (MDPSC), ultimately requesting an increase in electric and gas distribution base rates of $121 million and $79.5 million,  respectively. BGE requested an ROE for the electric and gas distribution rate cases of 10.6 percent and 10.5 percent, respectively. The MDPSC is expected to issue a final order in June 2016. If approved, the rates would become effective at that time. BGE is also proposing to recover an annual increase of approximately $30 million for Baltimore City conduit lease fees through a surcharge. BGE cannot predict how much of the requested increase the MDPSC will approve or if it will approve BGE's request for a conduit fee surcharge.
• BGE FERC Transmission Complaint: On November 6, 2015, BGE filed a settlement with the FERC relating to two complaints on the authorized ROE for their transmission business. The settlement provides for a 10 percent base ROE, which will be augmented by the PJM incentive adder of  50 basis points, and refunds to BGE customers of $13.7 million. On December 16, 2015, the presiding Administrative Law Judge submitted a certification of the uncontested settlement to the FERC commissioners. The settlement, subject to FERC approval, also provides a moratorium on any change in the ROE until June 1, 2018.
• Financing Activities:
• On November 19, 2015, ComEd issued $450 million aggregate principal amount of its First Mortgage 4.350 percent Bonds, Series 119, due November 15, 2045. The proceeds of the sale of the bonds will be used by ComEd to repay a portion of ComEd's outstanding commercial paper obligations and for general corporate purposes.
• On December 2, 2015, Exelon completed a private offering to exchange $1.25 billion of 3.950% notes due 2025, $500 million of 4.950% notes due 2035, and  $1 billion of 5.100% notes due 2045 (Exchange Offer).  The original notes were issued in June 2015 to finance a portion of the pending acquisition of PHI.  The new notes resulting from the Exchange Offer substantially have the same terms as the outstanding notes, except the notes are subject to mandatory redemption on June 30, 2016, rather than December 31, 2015, and under certain circumstances, can be further extended to August 31, 2016.
• On November 27, 2015, Exelon issued a notice of redemption for any outstanding notes not exchanged for new notes in the Exchange Offer, at a redemption price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest. On December 2, 2015, Exelon completed the redemption of $868 million of outstanding notes not exchanged for new notes.

 

• Hedging Update: Exelon's hedging program involves the hedging of commodity risk for Exelon's expected generation, typically on a ratable basis over a three-year period. Expected generation is the volume of energy that best represents our commodity position in energy markets from owned or contracted for capacity based upon a simulated dispatch model that makes assumptions regarding future market conditions, which are calibrated to market quotes for power, fuel, load following products, and options. The proportion of expected generation hedged as of December 31, 2015, was 90 percent to 93 percent for 2016, 60 percent to 63 percent for 2017, and 28 percent to 31 percent for 2018. The primary objective of Exelon's hedging program is to manage market risks and protect the value of its generation and its investment-grade balance sheet, while preserving its ability to participate in improving long-term market fundamentals. 

Operating Company Results

Generation consists of the generation, physical delivery and marketing of power across multiple geographical regions through its customer-facing business, Constellation, which sells electricity and natural gas to both wholesale and retail customers.  Generation also sells renewable energy and other energy-related products and services.

Generation's fourth quarter 2015 GAAP net income was $154 million, compared with net loss of $91 million in the fourth quarter of 2014. Adjusted (non-GAAP) operating earnings for the fourth quarter of 2015 and 2014 do not include various items (after- tax) that were included in reported GAAP earnings. A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is presented in the table below:

Generation Adjusted (non-GAAP) Operating Earnings	$142	$231
Mark-to-Market Impact of Economic Hedging Activities	__	(71)
Unrealized Gains Related to NDT Fund Investments	51	24
Merger and Integration Costs	(2)	(9)
Amortization of Commodity Contract Intangibles	(10)	(22)
Long-Lived Asset Impairments	(6)	(338)
Plant Retirements and Divestitures	__	48
Reassessment of State Deferred Income Taxes	(11)	39
Reduction of State Income Tax Reserve	10	__
Tax Settlements	__	5
Bargain-Purchase Gain	__	28
CENG Non-Controlling Interest	(20)	(26)
Generation GAAP Net (Loss) Income	$154	$(91)

Generation's Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2015 decreased $(89) million compared with the same quarter in 2014. This decrease primarily reflected timing of nuclear projects, impacts of increased nuclear refueling outages and increased depreciation expense, partially offset by the favorable settlement of certain state income tax positions.

ComEd's fourth quarter 2015 GAAP net income was $87 million, compared with net income of $73 million in the fourth quarter of 2014. Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2014 do not include merger and integration costs that were included in reported GAAP earnings. A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is presented in the table below:

Comed Adjusted (non- GAAP) Operating Earnings	$87	$75
Merger and Integration Costs	__	(2)
Comed GAAP Net Income	$87	$73

ComEd's Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2015 increased $12 million compared with the same quarter in 2014, primarily due to higher electric distribution and transmission formula rate earnings at ComEd reflecting the impacts of increased capital investment and favorable distribution ROE, partially offset by unfavorable weather and volume.

For the fourth quarter of 2015, heating degree-days in the ComEd service territory were down 26.8 percent relative to the same period in 2014 and 25.1 percent below normal. Cooling degree days were down 66.7 percent from prior year and 90.9 percent below normal. Total retail electric deliveries decreased 4.9 percent in the fourth quarter of 2015 compared with the same period in 2014.

Weather-normalized retail electric deliveries were down 2.2 percent in the fourth quarter of 2015 relative to 2014.

PECO consists of electricity transmission and distribution operations and retail natural gas distribution operations in southeastern Pennsylvania.

PECO's fourth quarter 2015 GAAP net income was $79 million, compared with $98 million in the fourth quarter of 2014. Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2014 do not include merger and integration costs that were included in reported GAAP earnings. A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is presented in the table below:

PECO Adjusted (non-GAAP) Operating Earnings	$79	$99
Merger and Integration Costs	__	(1)
PECO GAAP Net Income	$79	$98

PECO's Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2015 decreased $20 million from the same quarter in 2014, primarily due to unfavorable weather, partially offset by a reduction in uncollectible accounts expense.

For the fourth quarter of 2015, heating degree-days in the PECO service territory were down 34.5 percent relative to the same period in 2014 and were 39.9 percent below normal. Cooling degree-days were down 16.0 percent from prior year and 8.7 percent below normal. Total retail electric deliveries were down 5.9 percent compared with the fourth quarter of 2014. Natural gas deliveries (including both retail and transportation components) in the fourth quarter of 2015 were down 22.8 percent compared with the same period in 2014.

Weather-normalized retail electric deliveries and gas deliveries increased 0.2 percent and 1.6 percent in the fourth quarter of 2015 relative to 2014, respectively. 

BGE consists of electricity transmission and distribution operations and retail natural gas distribution operations in Central Maryland.

BGE's fourth quarter 2015 GAAP net income was $74 million, compared with $52 million in the fourth quarter of 2014. Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2014 do not include merger and integration costs that were included in reported GAAP earnings. A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is presented in the table below:

BGE Adjusted (non-GAAP) Operating Earnings	$74	$53
Merger and Integration Costs	__	(1)
BGE GAAP Net Income	$74	$52

BGE's Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2015 increased $21 million from the same quarter in 2014, primarily due to increased distribution revenue pursuant to increased rates effective in December 2014 and increased transmission revenue. Due to revenue decoupling, BGE is not affected by actual weather with the exception of major storms.

Adjusted (non-GAAP) Operating Earnings

Adjusted (non-GAAP) operating earnings, which generally exclude significant one-time charges or credits that are not normally associated with ongoing operations, mark-to-market adjustments from economic hedging activities and unrealized gains and losses from NDT fund investments, are provided as a supplement to results reported in accordance with GAAP. Management uses such adjusted (non-GAAP) operating earnings measures internally to evaluate the company's performance and manage its operations. Reconciliation of GAAP to adjusted (non-GAAP) operating earnings for historical periods is attached. Additional earnings release attachments, which include the reconciliation on pages 8 and 9 are posted on Exelon's Web site: www.exeloncorp.com and have been furnished to the Securities and Exchange Commission on Form 8-K on February 3, 2016.