UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

April 30, 2014

Date of Report (Date of earliest event reported)

 

 

 

Commission File Number		Exact Name of Registrant as Specified in Its Charter; State of Incorporation; Address of Principal Executive Offices; and Telephone Number		IRS Employer Identification Number
1-16169		EXELON CORPORATION (a Pennsylvania corporation) 10 South Dearborn Street P.O. Box 805379 Chicago, Illinois 60680-5379 (312) 394-7398		23-2990190
333-85496		EXELON GENERATION COMPANY, LLC (a Pennsylvania limited liability company) 300 Exelon Way Kennett Square, Pennsylvania 19348-2473 (610) 765-5959		23-3064219
1-1839		COMMONWEALTH EDISON COMPANY (an Illinois corporation) 440 South LaSalle Street Chicago, Illinois 60605-1028 (312) 394-4321		36-0938600
000-16844		PECO ENERGY COMPANY (a Pennsylvania corporation) P.O. Box 8699 2301 Market Street Philadelphia, Pennsylvania 19101-8699 (215) 841-4000		23-0970240
1-1910		BALTIMORE GAS AND ELECTRIC COMPANY (a Maryland corporation) 2 Center Plaza 110 West Fayette Street Baltimore, Maryland 21201 (410) 234-5000		52-0280210

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Section 2 – Financial Information

Item 2.02. Results of Operations and Financial Condition.

Section 7 – Regulation FD

Item 7.01. Regulation FD Disclosure.

On April 30, 2014, Exelon Corporation (Exelon) announced via press release its results for the first quarter ended March 31, 2014. A copy of the press release and related attachments is attached hereto as Exhibit 99.1. Also attached as Exhibits 99.2 and 99.3 to this Current Report on Form 8-K are presentation slides and prepared remarks concerning the first quarter 2014 earnings. This Form 8-K and the attached exhibits are provided under Items 2.02, 7.01 and 9.01 of Form 8-K and are furnished to, but not filed with, the Securities and Exchange Commission.

Exelon has scheduled the conference call for 11:00 AM ET (10:00 AM CT) on April 30, 2014. The call will primarily address a transaction that Exelon is announcing in a Separate Current Report on Form 8-K. The call-in number in the U.S. and Canada is 800-690-3108, and the international call-in number is 973-935-8753. If requested, the conference ID number is 14743663. Media representatives are invited to participate on a listen-only basis. The call will be web-cast and archived on Exelon’s Web site: www.exeloncorp.com. (Please select the Investors page.)

Telephone replays will be available until May 14, 2014. The U.S. and Canada call-in number for replays is 800-585-8367, and the international call-in number is 404-537-3406. The conference ID number is 14743663.

Section 9 – Financial Statements and Exhibits

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit No.		Description
99.1		Press release and earnings release attachments
99.2		Earnings presentation slides
99.3		Earnings prepared remarks

* * * * *

This combined Form 8-K is being furnished separately by Exelon, Exelon Generation Company, LLC, Commonwealth Edison Company, PECO Energy Company, and Baltimore Gas and Electric Company (Registrants). Information contained herein relating to any individual Registrant has been furnished by such Registrant on its own behalf. No Registrant makes any representation as to information relating to any other Registrant.

This Current Report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. The factors that could cause actual results to differ materially from the forward-looking statements made by the Registrants include those factors discussed herein, as well as the items discussed in (1) Exelon’s 2013 Annual Report on Form 10-K in (a) ITEM 1A. Risk Factors, (b) ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) ITEM 8. Financial Statements and Supplementary Data: Note 22; (2) Exelon’s First Quarter 2014 Quarterly Report on Form 10-Q (to be filed on April 30, 2014) in (a) Part II, Other Information, ITEM 1A. Risk Factors; (b) Part 1, Financial Information, ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) Part I, Financial Information, ITEM 1. Financial Statements: Note 15; and (3) other factors discussed in filings with the SEC by the Registrants. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Current Report. None of the Registrants undertakes any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this Current Report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

April 30, 2014

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Press release and earnings release attachments
99.2		Earnings presentation slides
99.3		Earnings prepared remarks

Exhibit 99.1

 

Contact:		Ravi Ganti Investor Relations 312-394-2348   Paul Adams Corporate Communications 410-470-4167		FOR IMMEDIATE RELEASE

EXELON ANNOUNCES FIRST QUARTER 2014 RESULTS

CHICAGO (Apr. 30, 2014) — Exelon Corporation (NYSE: EXC) announced first quarter 2014 consolidated earnings as follows:

 

		First Quarter
		2014				2013
Adjusted (non-GAAP) Operating Results:
Net Income ($ millions)		$	530			$	602
Diluted Earnings per Share		$	0.62			$	0.70
GAAP Results:
Net Income (Loss) ($ millions)		$	90			$	(4	)
Diluted Earnings (Loss) per Share		$	0.10			$	(0.01	)

“Exelon delivered quarterly earnings within our guidance range despite extreme weather that caused significant challenges to operations across the business,” said Exelon President and CEO Christopher M. Crane. “Our nuclear assets in particular contributed to grid reliability during the polar vortex, while our strategy of matching generation to load allowed us to capitalize on the increasing volatility in power markets.”

First Quarter Operating Results

As shown in the table above, Exelon’s adjusted (non-GAAP) operating earnings decreased to $0.62 per share in the first quarter of 2014 from $0.70 per share in the first quarter of 2013. Earnings in the first quarter of 2014 primarily reflected the following negative factors:

 

•

Lower realized energy prices and higher procurement costs for replacement power;

 

•

Increased storm costs, primarily at PECO resulting from the February 5, 2014 ice storm; and

 

•

Decreased nuclear and fossil output during 2014 primarily due to outage days.

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These factors were offset by:

 

•

Increased capacity prices related to the Reliability Pricing Model (RPM) for the PJM Interconnection, LLC market (PJM);

 

•

Increased distribution revenue at BGE, due to the rate case orders for electric and natural gas, and at ComEd due to increased investment and allowed ROE; and

 

•

Favorable weather at PECO and ComEd related to colder than average weather.

Adjusted (non-GAAP) Operating Earnings for the first quarter of 2014 do not include the following items (after tax) that were included in reported GAAP earnings:

 

		(in millions)				(per diluted share)
Exelon Adjusted (non-GAAP) Operating Earnings		$	530			$	0.62
Mark-to-Market Impact of Economic Hedging Activities			(443	)			(0.52	)
Net Unrealized Gains Related to Nuclear Decommissioning Trust (NDT) Fund Investments			8				0.01
Merger and Integration Costs			(9	)			(0.01	)
Tax Settlements			35				0.04
Amortization of Commodity Contract Intangibles			(31	)			(0.04	)
Exelon GAAP Net Income		$	90			$	0.10

Adjusted (non-GAAP) Operating Earnings for the first quarter of 2013 do not include the following items (after tax) that were included in reported GAAP earnings:

 

		(in millions)				(per diluted share)
Exelon Adjusted (non-GAAP) Operating Earnings		$	602			$	0.70
Mark-to-Market Impact of Economic Hedging Activities			(235	)			(0.27	)
Net Unrealized Gains Related to NDT Fund Investments			35				0.04
Plant Retirements and Divestitures			13				0.02
Merger and Integration Costs			(27	)			(0.03	)
Amortization of Commodity Contract Intangibles			(117	)			(0.14	)
Amortization of the Fair Value of Certain Debt			3				—
Re-measurement of Like-Kind Exchange Tax Position			(265	)			(0.31	)
Nuclear Uprate Project Cancellation			(13	)			(0.02	)
Exelon GAAP Net Income		$	(4	)		$	(0.01	)

First Quarter and Recent Highlights

 

•

Nuclear Operations: Generation’s nuclear fleet, including its owned output from the Salem Generating Station, produced 35,261 gigawatt-hours (GWh) in the first quarter of 2014, compared with 36,031 GWh in the first quarter of 2013. The output data excludes the units owned by Constellation Energy Nuclear Group LLC (CENG). Excluding Salem and the units owned by CENG, the Exelon-operated nuclear plants achieved a 94.1 percent capacity factor for the first quarter of 2014, compared with 96.4 percent for the

 

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first quarter of 2013. The number of planned refueling outage days totaled 52 in the first quarter of 2014, compared with 49 in the first quarter of 2013. There were 20 non-refueling outage days in the first quarter of 2014, compared with six days in the first quarter of 2013.

 

•

Fossil and Renewables Operations: The Dispatch Match rate for Generation’s gas/hydro fleet was 92.9 percent in the first quarter of 2014, compared with 98.7 percent in the first quarter of 2013. The performance in 2014 was impacted by equipment issues in January during periods of very high power prices. Energy capture for the wind/solar fleet was 94.7 percent in the first quarter of 2014, compared with 94.9 percent in the first quarter of 2013.

 

•

Renewables Projects: The 50.4 MW Beebe 1B project in Gratiot, Michigan and the 40.0 MW Fourmile Ridge project in Garrett County, Maryland are both expected to begin construction in the second quarter of 2014, with commercial operation expected by the fourth quarter. The remaining two blocks of the 230 MW Antelope Valley Solar Ranch project in California, Block 1 (28 MW) and Block 2 (20 MW) are expected to begin commercial operation in the second quarter of 2014.

 

•

Utility Operations: During the first quarter, two arctic cold fronts (the Polar Vortex) and some of the coldest temperatures on record impacted each of Exelon’s three utilities. As a result of the extreme temperatures, all three utilities set new winter electric peaks in the first quarter. Back to back storms on February 3rd and February 5th impacted the PECO service territory. PECO was able to restore service to all customers impacted by the storms in six days, approximately two days quicker than the hurricane Sandy response time.

 

•

ComEd Distribution Formula Rate Case: On April 16, 2014, ComEd filed its 2014 annual distribution formula rate update, which establishes the net revenue requirement used to set rates that will take effect in January 2015 after review by the Illinois Commerce Commission. The revenue requirement requested in the filing is based on 2013 actual costs and projected 2014 capital additions, as well as an annual reconciliation of the revenue requirement in effect in 2013 to the actual costs incurred for that year. ComEd requested a total increase to the net revenue requirement of $275 million, reflecting an increase of $177 million for the initial revenue requirement for 2014 and an increase of $98 million for the annual reconciliation for 2013.

 

•

Financing Activities:

 

•

On January 10, 2014, ComEd issued $300 million aggregate principal amount of its First Mortgage 2.15 percent Bonds, Series 115, due January 15, 2019, and $350 million aggregate principal amount of its First Mortgage 4.70 percent Bonds, Series 116, due January 15, 2044.

 

•

On February 6, 2014, Exelon Generation Renewables, LLC issued $300 million aggregate principal amount of three month LIBOR plus 4.25 percent non-recourse senior secured notes, due February 6, 2021.

 

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•

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 represents the amount of energy estimated to be generated or purchased through owned or contracted-for capacity. The proportion of expected generation hedged as of March 31, 2014, was 91 percent to 94 percent for 2014, 64 percent to 67 percent for 2015, and 37 percent to 40 percent for 2016. 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 owned and contracted electric generating facilities and wholesale and retail customer supply of electric and natural gas products and services, including renewable energy products, risk management services and natural gas exploration and production activities.

The first quarter 2014 GAAP net loss was $185 million, compared with a net loss of $18 million in the first quarter of 2013. Adjusted (non-GAAP) operating earnings for the first quarter of 2014 and 2013 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 Loss is in the table below:

 

($ millions)		1Q14				1Q13
Generation Adjusted (non-GAAP) Operating Earnings		$	258			$	336
Mark-to-Market Impact of Economic Hedging Activities			(446	)			(246	)
Net Unrealized Gains Related to NDT Fund Investments			8				35
Plant Retirements and Divestitures			—				13
Merger and Integration Costs			(9	)			(29	)
Amortization of Commodity Contract Intangibles			(31	)			(117	)
Amortization of Fair Value of Certain Debt			—				3
Nuclear Uprate Project Cancellation			—				(13	)
Tax Settlements			35				—
Generation GAAP Net Loss		$	(185	)		$	(18	)

Generation’s Adjusted (non-GAAP) Operating Earnings in the first quarter of 2014 decreased $78 million compared with the same quarter in 2013. This decrease primarily reflected:

 

•

Lower realized energy prices and higher procurement costs for replacement power; and

 

•

Decreased nuclear and fossil output during 2014, primarily due to outage days.

 

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These items were partially offset by favorable capacity pricing related to RPM for the PJM market.

ComEd consists of electricity transmission and distribution operations in northern Illinois. ComEd recorded GAAP net income of $98 million in the first quarter of 2014, compared with net losses of $(81) million in the first quarter of 2013. Adjusted (non-GAAP) operating earnings for the first quarter of 2013 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 in the table below:

 

($ millions)		1Q14				1Q13
ComEd Adjusted (non-GAAP) Operating Earnings		$	98			$	89
Remeasurement of Like-Kind Exchange Tax Position			—				(170	)
ComEd GAAP Net Income (Loss)		$	98			$	(81	)

ComEd’s Adjusted (non-GAAP) Operating Earnings in the first quarter of 2014 were up $9 million from the same quarter in 2013, primarily due to favorable weather and higher distribution revenue due to increased investment and allowed ROE, partially offset by favorable tax settlement related interest recognized in first quarter 2013.

For the first quarter of 2014, heating degree-days in the ComEd service territory were up 18.9 percent relative to the same period in 2013 and were 22.4 percent above normal. Total retail electric deliveries increased 5.8 percent in first quarter of 2014 compared with first quarter of 2013.

Weather-normalized retail electric deliveries increased 1.8 percent in the first quarter of 2014 relative to 2013, primarily reflecting growth in the residential sector.

For ComEd, weather had a favorable after-tax effect of $9 million on first quarter 2014 earnings relative to 2013 and a favorable after-tax effect of $10 million relative to normal weather.

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

PECO’s GAAP net income in the first quarter of 2014 was $89 million, compared with $121 million in the first quarter of 2013. Adjusted (non-GAAP) Operating Earnings for the first quarter of 2013 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 in the table below:

 

($ millions)		1Q14				1Q13
PECO Adjusted (non-GAAP) Operating Earnings		$	89			$	123
Merger and Integration Costs			—				(2	)
PECO GAAP Net Income		$	89			$	121

 

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PECO’s Adjusted (non-GAAP) Operating Earnings in the first quarter of 2014 decreased $34 million from the same quarter in 2013, primarily due to increased storm costs related to the February 5, 2014 ice storm. This was partially offset by favorable weather.

For the first quarter of 2014, heating degree-days in the PECO service territory were up 16.6 percent relative to the same period in 2013 and were 14.9 percent above normal. Total retail electric deliveries were up 6.0 percent compared with the first quarter of 2013. Natural gas deliveries (including both retail and transportation segments) in the first quarter of 2014 were up 11.3 percent compared with the first quarter of 2013.

Weather-normalized retail electric deliveries increased 1.3 percent in the first quarter of 2014 relative to 2013, driven primarily by economic and customer growth (mainly in the large C&I and residential classes), partially offset by energy efficiency. Total weather-normalized gas deliveries (including both retail and transportation segments) were down 2.7 percent in the first quarter of 2014, primarily driven by weather-related interruptions and school closings as well as high gas prices in the transportation segment.

For PECO, weather had a favorable after-tax effect of $20 million on first quarter 2014 earnings relative to 2013 and a favorable after-tax effect of $18 million relative to normal weather.

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

BGE’s GAAP net income in the first quarter of 2014 was $85 million, compared with $77 million in the first quarter of 2013. Adjusted (non-GAAP) Operating Earnings for the first quarter of 2013 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 in the table below:

 

($ millions)		1Q14				1Q13
BGE Adjusted (non-GAAP) Operating Earnings		$	85			$	74
Merger and Integration Costs			—				3
BGE GAAP Net Income		$	85			$	77

BGE’s Adjusted (non-GAAP) Operating Earnings in the first quarter of 2014 increased $11 million from the same quarter in 2013, primarily due to higher electric and gas distribution rates partially offset by storm costs. Due to revenue decoupling, BGE is not affected by weather variations, 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

 

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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 page 8 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 April 30, 2014.

Cautionary Statements Regarding Forward-Looking Information

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. The factors that could cause actual results to differ materially from the forward-looking statements made by Exelon Corporation, Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company and Exelon Generation Company, LLC (Registrants) include those factors discussed herein, as well as the items discussed in (1) Exelon’s 2013 Annual Report on Form 10-K in (a) ITEM 1A. Risk Factors, (b) ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) ITEM 8. Financial Statements and Supplementary Data: Note 22; (2) Exelon’s First Quarter 2014 Quarterly Report on Form 10-Q (to be filed on April 30, 2014) in (a) Part II, Other Information, ITEM 1A. Risk Factors; (b) Part 1, Financial Information, ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) Part I, Financial Information, ITEM 1. Financial Statements: Note 15; and (3) other factors discussed in filings with the SEC by the Registrants. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this press release. None of the Registrants undertakes any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this press release.

# # #

Exelon Corporation (NYSE: EXC) is the nation’s leading competitive energy provider, with 2013 revenues of approximately $24.9 billion. Headquartered in Chicago, Exelon has operations and business activities in 47 states, the District of Columbia and Canada. Exelon is one of the largest competitive U.S. power generators, with more than 35,000 megawatts of owned capacity comprising one of the nation’s cleanest and lowest-cost power generation fleets. The company’s Constellation business unit provides energy products and services to approximately 100,000 business and public sector customers and approximately 1 million residential customers. Exelon’s utilities deliver electricity and natural gas to more than 6.6 million customers in central Maryland (BGE), northern Illinois (ComEd) and southeastern Pennsylvania (PECO).

 

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Earnings Release Attachments

Table of Contents

 

Consolidating Statements of Operations - Three Months Ended March 31, 2014 and 2013			1
Business Segment Comparative Statements of Operations - Generation and ComEd - Three Months Ended March 31, 2014 and 2013			2
Business Segment Comparative Statements of Operations - PECO and BGE - Three Months Ended March 31, 2014 and 2013			3
Business Segment Comparative Statements of Operations - Other - Three Months Ended March 31, 2014 and 2013			4
Consolidated Balance Sheets - March 31, 2014 and December 31, 2013			5
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2014 and 2013			6
Reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Consolidated Statements of Operations - Exelon - Three Months Ended March 31, 2014 and 2013			7
Reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Earnings By Business Segment - Three Months Ended March 31, 2014 and 2013			8
Reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Consolidated Statements of Operations - Generation - Three Months Ended March 31, 2014 and 2013			9
Reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Consolidated Statements of Operations - ComEd - Three Months Ended March 31, 2014 and 2013			10
Reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Consolidated Statements of Operations - PECO - Three Months Ended March 31, 2014 and 2013			11
Reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Consolidated Statements of Operations - BGE - Three Months Ended March 31, 2014 and 2013			12
Reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Consolidated Statements of Operations - Other - Three Months Ended March 31, 2014 and 2013			13
Exelon Generation Statistics - Three Months Ended March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013 and March 31, 2013			14
ComEd Statistics - Three Months Ended March 31, 2014 and 2013			15
PECO Statistics - Three Months Ended March 31, 2014 and 2013			16
BGE Statistics - Three Months Ended March 31, 2014 and 2013			17

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EXELON CORPORATION

Consolidating Statements of Operations

(unaudited)

(in millions)

 

		Three Months Ended March 31, 2014
		Generation				ComEd				PECO				BGE				Other (a)				Exelon Consolidated
Operating revenues		$	4,390			$	1,134			$	993			$	1,054			$	(334	)		$	7,237
Operating expenses
Purchased power and fuel			3,357				320				464				529				(330	)			4,340
Operating and maintenance			1,087				326				280				188				(23	)			1,858
Depreciation and amortization			211				173				58				108				14				564
Taxes other than income			105				77				42				60				9				293
Total operating expenses			4,760				896				844				885				(330	)			7,055
Equity in earnings of unconsolidated affiliates			(19	)			—				—				—				—				(19	)
Operating income (loss)			(389	)			238				149				169				(4	)			163
Other income and (deductions)
Interest expense			(85	)			(80	)			(28	)			(27	)			(7	)			(227	)
Other, net			90				5				2				4				2				103
Total other income and (deductions)			5				(75	)			(26	)			(23	)			(5	)			(124	)
Income (loss) before income taxes			(384	)			163				123				146				(9	)			39
Income taxes			(199	)			65				34				58				(12	)			(54	)
Net income (loss)			(185	)			98				89				88				3				93
Net income attributable to noncontrolling interests and preference stock dividends			—				—				—				3				—				3
Net income (loss) attributable to common shareholders		$	(185	)		$	98			$	89			$	85			$	3			$	90
		Three Months Ended March 31, 2013
		Generation				ComEd				PECO				BGE				Other (a)				Exelon Consolidated
Operating revenues		$	3,533			$	1,160			$	895			$	880			$	(386	)		$	6,082
Operating expenses
Purchased power and fuel			2,169				382				406				426				(402	)			2,981
Operating and maintenance			1,112				328				188				143				(7	)			1,764
Depreciation and amortization			214				167				57				93				12				543
Taxes other than income			93				74				41				55				14				277
Total operating expenses			3,588				951				692				717				(383	)			5,565
Equity in losses of unconsolidated affiliates			(9	)			—				—				—				—				(9	)
Operating income (loss)			(64	)			209				203				163				(3	)			508
Other income and (deductions)
Interest expense			(82	)			(353	)			(29	)			(33	)			(126	)			(623	)
Other, net			128				5				3				5				31				172
Total other income and (deductions)			46				(348	)			(26	)			(28	)			(95	)			(451	)
Income (loss) before income taxes			(18	)			(139	)			177				135				(98	)			57
Income taxes			(1	)			(58	)			55				55				5				56
Net income (loss)			(17	)			(81	)			122				80				(103	)			1
Net income attributable to noncontrolling interests, preferred security dividends and preference stock dividends			1				—				1				3				—				5
Net income (loss) attributable to common shareholders		$	(18	)		$	(81	)		$	121			$	77			$	(103	)		$	(4	)

 

(a)	Other primarily includes eliminating and consolidating adjustments, Exelon’s corporate operations, shared service entities and other financing and investment activities.

 

1

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EXELON CORPORATION

Business Segment Comparative Statements of Operations

(unaudited)

(in millions)

Generation

 

		Three Months Ended March 31,
		2014				2013				Variance
Operating revenues		$	4,390			$	3,533			$	857
Operating expenses
Purchased power and fuel			3,357				2,169				1,188
Operating and maintenance			1,087				1,112				(25	)
Depreciation and amortization			211				214				(3	)
Taxes other than income			105				93				12
Total operating expenses			4,760				3,588				1,172
Equity in losses of unconsolidated affiliates			(19	)			(9	)			(10	)
Operating loss			(389	)			(64	)			(325	)
Other income and (deductions)
Interest expense			(85	)			(82	)			(3	)
Other, net			90				128				(38	)
Total other income and (deductions)			5				46				(41	)
Loss before income taxes			(384	)			(18	)			(366	)
Income tax benefits			(199	)			(1	)			(198	)
Net loss			(185	)			(17	)			(168	)
Net income attributable to noncontrolling interests			—				1				(1	)
Net loss attributable to membership interest		$	(185	)		$	(18	)		$	(167	)

ComEd

 

		Three Months Ended March 31,
		2014				2013				Variance
Operating revenues		$	1,134			$	1,160			$	(26	)
Operating expenses
Purchased power			320				382				(62	)
Operating and maintenance			326				328				(2	)
Depreciation and amortization			173				167				6
Taxes other than income			77				74				3
Total operating expenses			896				951				(55	)
Operating income			238				209				29
Other income and (deductions)
Interest expense			(80	)			(353	)			273
Other, net			5				5				—
Total other income and (deductions)			(75	)			(348	)			273
Income (loss) before income taxes			163				(139	)			302
Income taxes (benefit)			65				(58	)			123
Net income (loss)		$	98			$	(81	)		$	179

 

2

---

EXELON CORPORATION

Business Segment Comparative Statements of Operations

(unaudited)

(in millions)

 

PECO

 

		Three Months Ended March 31,
		2014				2013				Variance
Operating revenues		$	993			$	895			$	98
Operating expenses
Purchased power and fuel			464				406				58
Operating and maintenance			280				188				92
Depreciation and amortization			58				57				1
Taxes other than income			42				41				1
Total operating expenses			844				692				152
Operating income			149				203				(54	)
Other income and (deductions)
Interest expense			(28	)			(29	)			1
Other, net			2				3				(1	)
Total other income and (deductions)			(26	)			(26	)			—
Income before income taxes			123				177				(54	)
Income taxes			34				55				(21	)
Net income			89				122				(33	)
Preferred security dividends and redemption			—				1				(1	)
Net income attributable to common shareholder		$	89			$	121			$	(32	)

BGE

 

		Three Months Ended March 31,
		2014				2013				Variance
Operating revenues		$	1,054			$	880			$	174
Operating expenses
Purchased power and fuel			529				426				103
Operating and maintenance			188				143				45
Depreciation and amortization			108				93				15
Taxes other than income			60				55				5
Total operating expenses			885				717				168
Operating income			169				163				6
Other income and (deductions)
Interest expense			(27	)			(33	)			6
Other, net			4				5				(1	)
Total other income and (deductions)			(23	)			(28	)			5
Income before income taxes			146				135				11
Income taxes			58				55				3
Net income			88				80				8
Preference stock dividends			3				3				—
Net income attributable to common shareholders		$	85			$	77			$	8

 

3

---

EXELON CORPORATION

Business Segment Comparative Statements of Operations

(unaudited)

(in millions)

 

Other (a) 

 

		Three Months Ended March 31,
		2014				2013				Variance
Operating revenues		$	(334	)		$	(386	)		$	52
Operating expenses
Purchased power and fuel			(330	)			(402	)			72
Operating and maintenance			(23	)			(7	)			(16	)
Depreciation and amortization			14				12				2
Taxes other than income			9				14				(5	)
Total operating expenses			(330	)			(383	)			53
Operating loss			(4	)			(3	)			(1	)
Other income and (deductions)
Interest expense			(7	)			(126	)			119
Other, net			2				31				(29	)
Total other income and (deductions)			(5	)			(95	)			90
Loss before income taxes			(9	)			(98	)			89
Income (benefit) taxes			(12	)			5				(17	)
Net income (loss)		$	3			$	(103	)		$	106

 

(a)	Other primarily includes eliminating and consolidating adjustments, Exelon’s corporate operations, shared service entities and other financing and investment activities.

 

4

---

EXELON CORPORATION

Consolidated Balance Sheets

(in millions)

 

		March 31, 2014				December 31, 2013
		(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	791			$	1,547
Cash and cash equivalents of variable interest entities			123				62
Restricted cash and investments			111				87
Restricted cash and investments of variable interest entities			96				80
Accounts receivable, net
Customer			2,997				2,721
Other			871				1,175
Accounts receivable, net, variable interest entities			458				260
Mark-to-market derivative assets			756				727
Unamortized energy contract assets			326				374
Inventories, net
Fossil fuel			180				276
Materials and supplies			843				829
Deferred income taxes			454				573
Regulatory assets			768				760
Other			901				666
Total current assets			9,675				10,137
Property, plant and equipment, net			47,742				47,330
Deferred debits and other assets
Regulatory assets			5,863				5,910
Nuclear decommissioning trust funds			8,215				8,071
Investments			825				1,165
Investments in affiliates			22				22
Investment in CENG			1,910				1,925
Goodwill			2,625				2,625
Mark-to-market derivative assets			571				607
Unamortized energy contracts assets			657				710
Pledged assets for Zion Station decommissioning			429				458
Other			934				964
Total deferred debits and other assets			22,051				22,457
Total assets		$	79,468			$	79,924
Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings		$	980			$	341
Long-term debt due within one year			292				1,424
Long-term debt due within one year of variable interest entities			81				85
Accounts payable			2,475				2,314
Accounts payable of variable interest entities			286				170
Accrued expenses			1,364				1,633
Payables to affiliates			94				116
Deferred income taxes			22				40
Regulatory liabilities			336				327
Mark-to-market derivative liabilities			251				159
Unamortized energy contract liabilities			238				261
Other			932				858
Total current liabilities			7,351				7,728
Long-term debt			18,247				17,325
Long-term debt to financing trusts			648				648
Long-term debt of variable interest entities			300				298
Deferred credits and other liabilities
Deferred income taxes and unamortized investment tax credits			12,810				12,905
Asset retirement obligations			5,261				5,194
Pension obligations			1,661				1,876
Non-pension postretirement benefit obligations			2,042				2,190
Spent nuclear fuel obligation			1,021				1,021
Regulatory liabilities			4,458				4,388
Mark-to-market derivative liabilities			287				300
Unamortized energy contract liabilities			230				266
Payable for Zion Station decommissioning			281				305
Other			2,093				2,540
Total deferred credits and other liabilities			30,144				30,985
Total liabilities			56,690				56,984
Commitments and contingencies
Shareholders’ equity
Common stock			16,751				16,741
Treasury stock, at cost			(2,327	)			(2,327	)
Retained earnings			10,180				10,358
Accumulated other comprehensive loss, net			(2,036	)			(2,040	)
Total shareholders’ equity			22,568				22,732
BGE preference stock not subject to mandatory redemption			193				193
Noncontrolling interest			17				15
Total equity			22,778				22,940
Total liabilities and shareholders’ equity		$	79,468			$	79,924

 

5

---

EXELON CORPORATION

Consolidated Statements of Cash Flows

(unaudited)

(in millions)

 

		Three Months Ended March 31,
		2014				2013
Cash flows from operating activities
Net income		$	93			$	1
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization, depletion and accretion, including nuclear fuel and energy contract amortization			908				1,017
Deferred income taxes and amortization of investment tax credits			(48	)			(610	)
Net fair value changes related to derivatives			730				388
Net realized and unrealized gains on nuclear decommissioning trust fund investments			(26	)			(66	)
Other non-cash operating activities			272				231
Changes in assets and liabilities:
Accounts receivable			(606	)			(70	)
Inventories			80				101
Accounts payable, accrued expenses and other current liabilities			157				(542	)
Option premiums received (paid), net			15				(3	)
Counterparty collateral posted, net			(677	)			(186	)
Income taxes			17				632
Pension and non-pension postretirement benefit contributions			(472	)			(267	)
Other assets and liabilities			(278	)			233
Net cash flows provided by operating activities			165				859
Cash flows from investing activities
Capital expenditures			(1,217	)			(1,447	)
Proceeds from termination of direct financing lease investment			335				—
Proceeds from nuclear decommissioning trust fund sales			1,825				677
Investment in nuclear decommissioning trust funds			(1,878	)			(729	)
Proceeds from sale of long-lived assets			18				—
Change in restricted cash			(40	)			(12	)
Other investing activities			(54	)			40
Net cash flows used in investing activities			(1,011	)			(1,471	)
Cash flows from financing activities
Changes in short-term borrowings			638				233
Issuance of long-term debt			950				149
Retirement of long-term debt			(1,150	)			(1	)
Dividends paid on common stock			(266	)			(450	)
Proceeds from employee stock plans			7				12
Other financing activities			(28	)			(45	)
Net cash flows provided by (used in) financing activities			151				(102	)
Decrease in cash and cash equivalents			(695	)			(714	)
Cash and cash equivalents at beginning of period			1,609				1,486
Cash and cash equivalents at end of period		$	914			$	772

 

6

---

EXELON CORPORATION

Reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Consolidated Statements of Operations

(unaudited)

(in millions, except per share data)

 

		Three Months Ended March 31, 2014												Three Months Ended March 31, 2013
		GAAP (a)				Adjustments				Adjusted Non-GAAP				GAAP (a)				Adjustments				Adjusted Non-GAAP
Operating revenues		$	7,237			$	850	(b),(c),(d)		$	8,087			$	6,082			$	812	(b),(c)		$	6,894
Operating expenses
Purchased power and fuel			4,340				81	(b),(c)			4,421				2,981				253	(b),(c)			3,234
Operating and maintenance			1,858				(14	) (d)			1,844				1,764				(38	) (d),(g),(h)			1,726
Depreciation and amortization			564				—				564				543				(1	) (d)			542
Taxes other than income			293				—				293				277				—				277
Total operating expenses			7,055				67				7,122				5,565				214				5,779
Equity in earnings of unconsolidated affiliates			(19	)			12	(c),(d)			(7	)			(9	)			18	(c)			9
Operating income			163				795				958				508				616				1,124
Other income and (deductions)
Interest expense			(227	)			—				(227	)			(623	)			285	(d),(h),(i),(j)			(338	)
Other, net			103				(42	) (e),(f)			61				172				(30	) (d),(e),(g),(i)			142
Total other income and (deductions)			(124	)			(42	)			(166	)			(451	)			255				(196	)
Income before income taxes			39				753				792				57				871				928
Income (benefit) taxes			(54	)			313	(b),(c),(d),(e),(f)			259				56				265	(b),(c),(d),(e),(g),(h),(i),(j)			321
Net income			93				440				533				1				606				607
Net income attributable to noncontrolling interests and preference stock dividends			3				—				3				5				—				5
Net income (loss) attributable to common shareholders		$	90			$	440			$	530			$	(4	)		$	606			$	602
Effective tax rate			-138.5	%							32.7	%			98.2	%							34.6	%
Earnings per average common share
Basic		$	0.10			$	0.52			$	0.62			$	(0.01	)		$	0.71			$	0.70
Diluted		$	0.10			$	0.52			$	0.62			$	(0.01	)		$	0.71			$	0.70
Average common shares outstanding
Basic			858								858				855								855
Diluted			861								861				855								855

Effect of adjustments on earnings per average diluted common share recorded in accordance with GAAP:

 

Mark-to-market impact of economic hedging activities (b)		$	0.52			$	0.27
Amortization of commodity contract intangibles (c)			0.04				0.14
Merger and integration costs (d)			0.01				0.03
Unrealized gains related to NDT fund investments (e)			(0.01	)			(0.04	)
Tax settlements (f)			(0.04	)			—
Plant retirements and divestitures (g)			—				(0.02	)
Nuclear uprate project cancellation (h)			—				0.02
Remeasurement of like-kind exchange tax position (i)			—				0.31
Total adjustments		$	0.52			$	0.71

 

(a)	Results reported in accordance with accounting principles generally accepted in the United States (GAAP).

(b)	Adjustment to exclude the mark-to-market impact of Exelon’s economic hedging activities, net of intercompany eliminations.

(c)	Adjustment to exclude the non-cash amortization of intangible assets, net, related to commodity contracts recorded at fair value at the merger date.

(d)

Adjustment to exclude certain costs incurred associated with the Constellation merger and at Generation the Constellation Nuclear Energy Group, LLC (CENG) transaction, including employee-related expenses (e.g. severance, retirement, relocation and retention bonuses), integration initiatives, and certain pre-acquisition contingencies.

(e)	Adjustment to exclude the unrealized gains on NDT fund investments to the extent not offset by contractual accounting as described in the notes to the consolidated financial statements.

(f)	Adjustment to exclude the benefit related to the favorable settlement in 2014 of certain income tax positions on Constellation’s 2009-2012 tax returns.

(g)	Adjustment to exclude the impacts associated with the sale or retirement of generating stations.

(h)	Adjustment to exclude a 2013 charge to earnings related to Generation’s cancellation of previously capitalized nuclear uprate projects.

(i)	Adjustment to exclude a non-cash charge to earnings resulting from the first quarter 2013 remeasurement of a like-kind exchange tax position taken on ComEd’s 1999 sale of fossil generating assets.

(j)	Adjustment to exclude the non-cash amortization of certain debt recorded at fair value at the merger date, which was retired in the second quarter of 2013.

 

7

---

EXELON CORPORATION

Reconciliation of Adjusted (non-GAAP) Operating

Earnings to GAAP Earnings (in millions)

Three Months Ended March 31, 2014 and 2013

(unaudited)

 

		Exelon Earnings per Diluted Share				Generation				ComEd				PECO				BGE				Other (a)				Exelon
2013 GAAP Earnings (Loss)		$	(0.01	)		$	(18	)		$	(81	)		$	121			$	77			$	(103	)		$	(4	)
2013 Adjusted (non-GAAP) Operating Earnings (Loss)
Adjustments:
Mark-to-Market Impact of Economic Hedging Activities			0.27				246				—				—				—				(11	)			235
Unrealized Gains Related to NDT Fund Investments (1)			(0.04	)			(35	)			—				—				—				—				(35	)
Plant Retirements and Divestitures (2)			(0.02	)			(13	)			—				—				—				—				(13	)
Merger and Integration Costs (3)			0.03				29				—				2				(3	)			(1	)			27
Amortization of Commodity Contract Intangibles (4)			0.14				117				—				—				—				—				117
Amortization of the Fair Value of Certain Debt (5)			—				(3	)			—				—				—				—				(3	)
Remeasurement of Like-Kind Exchange Tax Position (6)			0.31				—				170				—				—				95				265
Nuclear Uprate Project Cancellation (7)			0.02				13				—				—				—				—				13
2013 Adjusted (non-GAAP) Operating Earnings (Loss)			0.70				336				89				123				74				(20	)			602
Year Over Year Effects on Earnings:
Generation Energy Margins, Excluding Mark-to-Market:
Volume Impacts for Generation Revenue (9)			(0.05	)			(41	)			—				—				—				—				(41	)
Fuel Cost Impacts for Generation (10)			(0.04	)			(36	)			—				—				—				—				(36	)
Capacity Pricing (11)			0.08				70				—				—				—				—				70
Market and Portfolio Conditions (12)			(0.09	)			(79	)			—				—				—				—				(79	)
ComEd, PECO and BGE Margins:
Weather			0.04				—				9				20				—	(b)			—				29
Load			0.01				—				4				4				—	(b)			—				8
Other Energy Delivery (13)			0.06				—				10				(1	)			42				—				51
Operating and Maintenance Expense:
Labor, Contracting and Materials (14)			(0.01	)			2				(4	)			—				(9	)			—				(11	)
Planned Nuclear Refueling Outages			(0.01	)			(7	)			—				—				—				—				(7	)
Pension and Non-Pension Postretirement Benefits (15)			0.01				4				6				(1	)			—				2				11
Other Operating and Maintenance (16)			(0.07	)			1				(1	)			(53	)			(14	)			7				(60	)
Depreciation and Amortization Expense (17)			(0.01	)			1				(4	)			(1	)			(8	)			—				(12	)
Equity in Losses of Unconsolidated Affiliates (18)			(0.01	)			(9	)			—				—				—				—				(9	)
Income Taxes (19)			0.01				8				(1	)			(2	)			(1	)			4				8
Interest Expense, Net (20)			0.01				8				(8	)			—				4				8				12
Other			(0.01	)			—				(2	)			—				(3	)			(1	)			(6	)
2014 Adjusted (non-GAAP) Operating Earnings			0.62				258				98				89				85				—				530
2014 Adjusted (non-GAAP) Operating Earnings (Loss)
Adjustments:
Mark-to-Market Impact of Economic Hedging Activities			(0.52	)			(446	)			—				—				—				3				(443	)
Unrealized Gains Related to NDT Fund Investments (1)			0.01				8				—				—				—				—				8
Merger and Integration Costs (3)			(0.01	)			(9	)			—				—				—				—				(9	)
Amortization of Commodity Contract Intangibles (4)			(0.04	)			(31	)			—				—				—				—				(31	)
Tax Settlements (8)			0.04				35				—				—				—				—				35
2014 GAAP Earnings (Loss)		$	0.10			$	(185	)		$	98			$	89			$	85			$	3			$	90

Notes:

 

•

For the three months ended March 31, 2014 and 2013, the financial results represent equivalent reporting periods for the first time since the date the Constellation merger was completed. Therefore, the results of operations from 2014 and 2013 are comparable for Generation, BGE, Other and Exelon.

 

•

Effective in the fourth quarter of 2013 Exelon switched from applying a blended tax rate to applying a marginal tax rate to the drivers and exclusions presented above, resulting in minor changes when comparing to historical earnings release filings.

 

•

Effective in the first quarter of 2014, ‘Nuclear Volume’ and ‘Nuclear Fuel Costs’ were changed to ‘Volume Impacts for Generation Revenue’ and ‘Fuel Cost Impacts for Generation,’ respectively, reflecting a full Generation perspective.

 

(a)	Other primarily includes eliminating and consolidating adjustments, Exelon’s corporate operations, shared service entities and other financing and investment activities.

(b)	As approved by the Maryland PSC, BGE records a monthly adjustment to rates for residential and the majority of its commercial and industrial customers to eliminate the effect of abnormal weather and usage patterns per customer on distribution volumes.

(1)	Reflects the impact of unrealized gains on NDT fund investments to the extent not offset by contractual accounting as described in the notes to the consolidated financial statements.

(2)	Reflects the impacts associated with the sale or retirement of generating stations.

(3)

Reflects certain costs incurred associated with the Constellation merger and at Generation the Constellation Energy Nuclear Group, LLC (CENG) transaction, including employee-related expenses (e.g. severance, retirement, relocation and retention bonuses), integration initiatives and certain pre-acquisition contingencies.

(4)	Represents the non-cash amortization of intangible assets, net, related to commodity contracts recorded at fair value at the Constellation merger date.

(5)	Represents the non-cash amortization of certain debt recorded at fair value at the Constellation merger date, which was retired in the second quarter of 2013.

(6)	Represents a non-cash charge to earnings resulting from the first quarter 2013 remeasurement of a like-kind exchange tax position taken on ComEd’s 1999 sale of fossil generating stations.

(7)	Reflects a 2013 charge to earnings related to Generation’s cancellation of previously capitalized nuclear uprate projects.

(8)	Reflects a benefit related to the favorable settlement in 2014 of certain income tax positions on Constellation’s 2009-2012 tax returns.

(9)

Primarily reflects a reduction in revenue given increased nuclear and fossil generating outage days in 2014, including Salem but excluding CENG, and decreased fossil generation in New England and South as a result of optimizing favorable commodity pricing which is offset within market and portfolio conditions.

(10)	Primarily reflects the impact of higher nuclear fuel amortization, excluding CENG, and an increase in fossil fuel costs due to the extreme cold weather during the first quarter of 2014.

(11)	Primarily reflects the impact of increased capacity prices related to the Reliability Pricing Model (RPM) for the PJM Interconnection, LLC (PJM) market.

(12)	Primarily reflects the impact of lower realized energy prices and higher procurement costs for replacement power, partially offset by optimizing favorable commodity pricing in New England and South.

(13)

For ComEd, primarily reflects increased distribution revenue due to recovery of increased costs and capital investments and higher allowed ROE pursuant to ComEd’s performance-based rate formula. For BGE, includes increased distribution revenue pursuant to electric and natural gas distribution rate case orders issued by the Maryland PSC and increased cost recovery for energy efficiency and demand response programs (primarily offset in depreciation and amortization expense).

(14)	Primarily reflects inflation across all operating companies and an increase in maintenance related activities at BGE due to extreme cold temperatures, partially offset at Generation by synergies realized in 2014.

(15)	Primarily reflects the favorable impact of higher actuarially assumed discount rates for 2014.

(16)	Primarily reflects increased storm costs in the PECO and BGE service territories, including the February 5, 2014 ice storm.

(17)

Primarily reflects increased depreciation expense across the operating companies for ongoing capital expenditures, partially offset by a decrease in Generation’s asset retirement cost amortization. At BGE, reflects increased regulatory asset amortization related to higher energy efficiency and demand response program expenditures (primarily offset in other energy delivery revenue).

(18)	Primarily reflects equity in losses in CENG.

(19)	At Generation, primarily reflects the favorable settlement of certain income tax positions on Constellation’s 2009-2012 tax returns and an increase in domestic production activities deduction, partially offset by a reduction in investment tax credit benefits.

(20)

For Generation, primarily reflects a benefit recorded in 2014 related to the favorable settlement of certain income tax positions on Constellation’s 2009-2012 tax returns. For ComEd, primarily reflects a favorable adjustment recorded in the first quarter of 2013 related to the 1999-2001 IRS settlement. For Corporate, includes the impacts of a 2013 unfavorable franchise tax case settlement.

 

8

---

EXELON CORPORATION

Reconciliation of Adjusted (non-GAAP) Operating Earnings to

GAAP Consolidated Statements of Operations

(unaudited)

(in millions)

 

		Generation
		Three Months Ended March 31, 2014												Three Months Ended March 31, 2013
		GAAP (a)				Adjustments				Adjusted Non-GAAP				GAAP (a)				Adjustments				Adjusted Non-GAAP
Operating revenues		$	4,390			$	850	(b),(c),(d)		$	5,240			$	3,533			$	830	(b),(c)		$	4,363
Operating expenses
Purchased power and fuel			3,357				81	(b),(c)			3,438				2,169				253	(b),(c)			2,422
Operating and maintenance			1,087				(14	) (d)			1,073				1,112				(40	) (d),(g),(h)			1,072
Depreciation and amortization			211				—				211				214				(1	) (d)			213
Taxes other than income			105				—				105				93				—				93
Total operating expenses			4,760				67				4,827				3,588				212				3,800
Equity in (losses) earnings of unconsolidated affiliates			(19	)			12	(c),(d)			(7	)			(9	)			18	(c)			9
Operating income (loss)			(389	)			795				406				(64	)			636				572
Other income and (deductions)
Interest expense			(85	)			—				(85	)			(82	)			(2	) (d),(h),(i)			(84	)
Other, net			90				(42	) (e),(f)			48				128				(111	) (d),(e),(g)			17
Total other income and (deductions)			5				(42	)			(37	)			46				(113	)			(67	)
Income (loss) before income taxes			(384	)			753				369				(18	)			523				505
Income (benefit) taxes			(199	)			310	(b),(c),(d)(e),(f)			111				(1	)			169	(b),(c),(d),(e)(g),(h),(i)			168
Net income (loss)			(185	)			443				258				(17	)			354				337
Net loss attributable to noncontrolling interests			—				—				—				1				—				1
Net income (loss) attributable to membership interest		$	(185	)		$	443			$	258			$	(18	)		$	354			$	336

 

(a)	Results reported in accordance with GAAP.

(b)	Adjustment to exclude the mark-to-market impact of Generation’s economic hedging activities.

(c)	Adjustment to exclude the non-cash amortization of intangible assets, net, related to commodity contracts recorded at fair value at the merger date.

(d)

Adjustment to exclude certain costs incurred associated with the Constellation merger and Constellation Energy Nuclear Group, LLC (CENG) transaction, including employee-related expenses (e.g. severance, retirement, relocation and retention bonuses), integration initiatives, and certain pre-acquisition contingencies.

(e)	Adjustment to exclude the unrealized gains on NDT fund investments to the extent not offset by contractual accounting as described in the notes to the consolidated financial statements.

(f)	Adjustment to exclude a benefit related to the favorable settlement in 2014 of certain income tax positions on Constellation’s 2009-2012 tax returns.

(g)	Adjustment to exclude the impacts associated with the sale or retirement of generating stations.

(h)	Adjustment to exclude a 2013 charge to earnings related to Generation’s cancellation of previously capitalized nuclear uprate projects.

(i)	Adjustment to exclude the non-cash amortization of certain debt recorded at fair value at the merger date which was retired in the second quarter of 2013.

 

9

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EXELON CORPORATION

Reconciliation of Adjusted (non-GAAP) Operating Earnings to

GAAP Consolidated Statements of Operations

(unaudited)

(in millions)

 

		ComEd
		Three Months Ended March 31, 2014												Three Months Ended March 31, 2013
		GAAP (a)				Adjustments				Adjusted Non- GAAP				GAAP (a)				Adjustments				Adjusted Non- GAAP
Operating revenues		$	1,134			$	—			$	1,134			$	1,160			$	—			$	1,160
Operating expenses
Purchased power			320				—				320				382				—				382
Operating and maintenance			326				—				326				328				—				328
Depreciation and amortization			173				—				173				167				—				167
Taxes other than income			77				—				77				74				—				74
Total operating expenses			896				—				896				951				—				951
Operating income			238				—				238				209				—				209
Other income and (deductions)
Interest expense			(80	)			—				(80	)			(353	)			287	(b)			(66	)
Other, net			5				—				5				5				—				5
Total other income and (deductions)			(75	)			—				(75	)			(348	)			287				(61	)
Income (loss) before income taxes			163				—				163				(139	)			287				148
Income (benefit) taxes			65				—				65				(58	)			117	(b)			59
Net income (loss)		$	98			$	—			$	98			$	(81	)		$	170			$	89

 

(a)	Results reported in accordance with GAAP.

(b)	Adjustment to exclude a non-cash charge to earnings resulting from the first quarter 2013 remeasurement of a like-kind exchange tax position taken on ComEd’s 1999 sale of fossil generating assets.

 

10

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EXELON CORPORATION

Reconciliation of Adjusted (non-GAAP) Operating Earnings to

GAAP Consolidated Statements of Operations

(unaudited)

(in millions)

 

		PECO
		Three Months Ended March 31, 2014												Three Months Ended March 31, 2013
		GAAP (a)				Adjustments				Adjusted Non- GAAP				GAAP (a)				Adjustments				Adjusted Non- GAAP
Operating revenues		$	993			$	—			$	993			$	895			$	—			$	895
Operating expenses
Purchased power and fuel			464				—				464				406				—				406
Operating and maintenance			280				—				280				188				(2	) (b)			186
Depreciation and amortization			58				—				58				57				—				57
Taxes other than income			42				—				42				41				—				41
Total operating expenses			844				—				844				692				(2	)			690
Operating income			149				—				149				203				2				205
Other income and (deductions)
Interest expense			(28	)			—				(28	)			(29	)			—				(29	)
Other, net			2				—				2				3				—				3
Total other income and (deductions)			(26	)			—				(26	)			(26	)			—				(26	)
Income before income taxes			123				—				123				177				2				179
Income taxes			34				—				34				55				—	(b)			55
Net income			89				—				89				122				2				124
Preferred security dividends			—				—				—				1				—				1
Net income attributable to common shareholder		$	89			$	—			$	89			$	121			$	2			$	123

 

(a)	Results reported in accordance with GAAP.

(b)	Adjustment to exclude certain costs incurred associated with the Constellation merger, including employee-related expenses (e.g. severance, retirement, relocation and retention bonuses) and integration initiatives.

 

11

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EXELON CORPORATION

Reconciliation of Adjusted (non-GAAP) Operating Earnings to

GAAP Consolidated Statements of Operations

(unaudited)

(in millions)

 

		BGE
		Three Months Ended March 31, 2014												Three Months Ended March 31, 2013
		GAAP (a)				Adjustments				Adjusted Non-GAAP				GAAP (a)				Adjustments				Adjusted Non-GAAP
Operating revenues		$	1,054			$	—			$	1,054			$	880			$	—			$	880
Operating expenses
Purchased power and fuel			529				—				529				426				—				426
Operating and maintenance			188				—				188				143				5	(b)			148
Depreciation and amortization			108				—				108				93				—				93
Taxes other than income			60				—				60				55				—				55
Total operating expenses			885				—				885				717				5				722
Operating income			169				—				169				163				(5	)			158
Other income and (deductions)
Interest expense			(27	)			—				(27	)			(33	)			—				(33	)
Other, net			4				—				4				5				—				5
Total other income and (deductions)			(23	)			—				(23	)			(28	)			—				(28	)
Income before income taxes			146				—				146				135				(5	)			130
Income taxes			58				—				58				55				(2	) (b)			53
Net income			88				—				88				80				(3	)			77
Preference stock dividends			3				—				3				3				—				3
Net income attributable to common shareholders		$	85			$	—			$	85			$	77			$	(3	)		$	74

 

(a)	Results reported in accordance with GAAP.

(b)	Adjustment to exclude certain costs incurred associated with the Constellation merger, including transaction costs, employee-related expenses (e.g severance, retirement, relocation, and retention bonuses) and integration initiatives.

 

12

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EXELON CORPORATION

Reconciliation of Adjusted (non-GAAP) Operating Earnings to

GAAP Consolidated Statements of Operations

(unaudited)

(in millions)

 

		Other (a)
		Three Months Ended March 31, 2014												Three Months Ended March 31, 2013
		GAAP (b)				Adjustments				Adjusted Non- GAAP				GAAP (b)				Adjustments				Adjusted Non- GAAP
Operating revenues		$	(334	)		$	—			$	(334	)		$	(386	)		$	(18	) (d)		$	(404	)
Operating expenses
Purchased power and fuel			(330	)			—				(330	)			(402	)			—				(402	)
Operating and maintenance			(23	)			—				(23	)			(7	)			(1	) (e)			(8	)
Depreciation and amortization			14				—				14				12				—				12
Taxes other than income			9				—				9				14				—				14
Total operating expenses			(330	)			—				(330	)			(383	)			(1	)			(384	)
Operating loss			(4	)			—				(4	)			(3	)			(17	)			(20	)
Other income and (deductions)
Interest expense			(7	)			—				(7	)			(126	)			—				(126	)
Other, net			2				—				2				31				81	(f)			112
Total other income and (deductions)			(5	)			—				(5	)			(95	)			81				(14	)
Loss before income taxes			(9	)			—				(9	)			(98	)			64				(34	)
Income (benefit) taxes			(12	)			3	(c)			(9	)			5				(19	) (d),(e),(f)			(14	)
Net income (loss)		$	3			$	(3	)		$	—			$	(103	)		$	83			$	(20	)

 

(a)	Other primarily includes eliminating and consolidating adjustments, Exelon’s corporate operations, shared service entities and other financing and investment activities.

(b)	Results reported in accordance with GAAP.

(c)	Adjustment to exclude the unitary tax impact of Generation’s economic hedging activities.

(d)	Adjustment to exclude the intercompany mark-to-market impact of Exelon’s economic hedging activities.

(e)	Adjustment to exclude certain costs incurred associated with the Constellation merger, including employee-related expenses (e.g. severance, retirement, relocation and retention bonuses), integration initiatives, and certain pre-acquisition contingencies.

(f)	Adjustment to exclude a non-cash charge to earnings resulting from the first quarter 2013 remeasurement of a like-kind exchange tax position taken on ComEd’s 1999 sale of fossil generating assets.

 

13

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EXELON CORPORATION

Exelon Generation Statistics

 

		Three Months Ended
		Mar. 31, 2014				Dec. 31, 2013				Sep. 30, 2013				Jun. 30, 2013				Mar. 31, 2013
Supply (in GWhs)
Nuclear Generation (a)
Mid-Atlantic			12,136				11,900				12,424				11,794				12,762
Midwest			23,125				23,429				23,741				22,807				23,269
Total Nuclear Generation			35,261				35,329				36,165				34,601				36,031
Fossil and Renewables (a)
Mid-Atlantic			3,207				2,951				2,808				2,796				3,160
Midwest			417				363				217				318				581
New England			1,734				1,763				3,609				3,132				2,392
New York			1				—				—				—				—
ERCOT			1,656				1,582				2,522				1,617				733
Other (c)			1,630				1,064				1,913				1,431				2,254
Total Fossil and Renewables			8,645				7,723				11,069				9,294				9,120
Purchased Power
Mid-Atlantic (b)			3,233				3,955				4,289				2,616				3,233
Midwest			711				498				707				1,503				1,700
New England			2,070				2,605				2,178				1,365				1,507
New York (b)			2,857				3,493				3,565				3,073				3,511
ERCOT			3,440				2,792				3,803				4,269				4,199
Other (c)			3,355				2,986				3,244				4,998				3,703
Total Purchased Power			15,666				16,329				17,786				17,824				17,853
Total Supply/Sales by Region (e)
Mid-Atlantic (d)			18,576				18,806				19,521				17,206				19,155
Midwest (d)			24,253				24,290				24,665				24,628				25,550
New England			3,804				4,368				5,787				4,497				3,899
New York			2,858				3,493				3,565				3,073				3,511
ERCOT			5,096				4,374				6,325				5,886				4,932
Other (c)			4,985				4,050				5,157				6,429				5,957
Total Supply/Sales by Region			59,572				59,381				65,020				61,719				63,004
		Three Months Ended
		Mar. 31, 2014				Dec. 31, 2013				Sep. 30, 2013				Jun. 30, 2013				Mar. 31, 2013
Outage Days (f)
Refueling			52				94				43				47				49
Non-refueling			20				33				5				31				6
Total Outage Days			72				127				48				78				55

 

(a)	Includes the proportionate share of output where Generation has an undivided ownership interest in jointly-owned generating plants and does not include ownership through equity method investments (e.g. CENG).

(b)

Purchased power includes physical volumes of 2,489 GWhs, 3,226 GWhs, 3,138 GWhs, 3,114 GWhs, and 2,588 GWhs in the Mid-Atlantic and 2,857 GWhs, 3,051 GWhs, 3,147 GWhs, 2,655 GWhs, and 3,213 GWhs in New York as a result of the PPA with CENG for the three months ended March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013, and March 31, 2013 respectively.

(c)	Other Regions includes South, West and Canada, which are not considered individually significant.

(d)	Includes affiliate sales to PECO and BGE in the Mid-Atlantic region and affiliate sales to ComEd in the Midwest region.

(e)	Total sales do not include physical trading volumes of 2,494 GWhs, 2,696 GWhs, 2,499 GWhs, 1,995 GWhs, and 1,572 GWhs, for the three months ended March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013, and March 31, 2013 respectively.

(f)	Outage days exclude Salem and CENG.

 

14

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EXELON CORPORATION

ComEd Statistics

Three Months Ended March 31, 2014 and 2013

 

		Electric Deliveries (in GWhs)																Revenue (in millions)
		2014				2013				% Change				Weather- Normal % Change				2014				2013				% Change
Retail Deliveries and Sales (a)
Residential			7,411				6,876				7.8	%			1.8	%		$	508			$	584				(13.0	)%
Small Commercial & Industrial			8,331				7,873				5.8	%			2.2	%			344				308				11.7	%
Large Commercial & Industrial			7,095				6,840				3.7	%			1.2	%			115				102				12.7	%
Public Authorities & Electric Railroads			397				373				6.4	%			2.6	%			13				12				8.3	%
Total Retail			23,234				21,962				5.8	%			1.8	%			980				1,006				(2.6	)%
Other Revenue (b)																			154				154				0.0	%
Total Electric Revenue																		$	1,134			$	1,160				(2.2	)%
Purchased Power																		$	320			$	382				(16.2	)%

 

														% Change
Heating and Cooling Degree-Days		2014				2013				Normal				From 2013				From Normal
Heating Degree-Days			3,874				3,259				3,164				18.9	%			22.4	%

 

Number of Electric Customers		2014				2013
Residential			3,488,204				3,470,659
Small Commercial & Industrial			367,282				366,284
Large Commercial & Industrial			2,028				2,001
Public Authorities & Electric Railroads			4,852				4,802
Total			3,862,366				3,843,746

 

(a)

Reflects delivery volumes and revenues from customers purchasing electricity directly from ComEd and customers purchasing electricity from a competitive electric generation supplier, as all customers are assessed delivery charges. For customers purchasing electricity from ComEd, revenue also reflects the cost of energy and transmission.

(b)	Other revenue primarily includes transmission revenue from PJM. Other items include rental revenues, revenues related to late payment charges, revenues from other utilities for mutual assistance programs and recoveries of environmental costs associated with MGP sites.

 

15

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EXELON CORPORATION

PECO Statistics

Three Months Ended March 31, 2014 and 2013

 

		Electric and Gas Deliveries																Revenue (in millions)
		2014				2013				% Change				Weather- Normal % Change				2014				2013				% Change
Electric (in GWhs)
Retail Deliveries and Sales (a)
Residential			3,848				3,465				11.1	%			1.4	%		$	444			$	395				12.4	%
Small Commercial & Industrial			2,055				2,009				2.3	%			(0.5	)%			111				106				4.7	%
Large Commercial & Industrial			3,777				3,646				3.6	%			2.1	%			63				58				8.6	%
Public Authorities & Electric Railroads			259				255				1.7	%			1.7	%			8				8				0.0	%
Total Retail			9,939				9,375				6.0	%			1.3	%			626				567				10.4	%
Other Revenue (b)																			52				56				(7.1	)%
Total Electric Revenue																			678				623				8.8	%
Gas (in mmcfs)
Retail Deliveries and Sales
Retail Sales (c)			33,170				28,438				16.6	%			0.7	%			302				260				16.2	%
Transportation and Other			8,369				8,883				(5.8	)%			(7.0	)%			13				12				8.3	%
Total Gas			41,539				37,321				11.3	%			(2.7	)%			315				272				15.8	%
Total Electric and Gas Revenues																		$	993			$	895				10.9	%
Purchased Power and Fuel																		$	464			$	406				14.3	%

 

														% Change
Heating and Cooling Degree-Days		2014				2013				Normal				From 2013				From Normal
Heating Degree-Days			2,844				2,440				2,476				16.6	%			14.9	%

 

(a)

Reflects delivery volumes and revenues from customers purchasing electricity directly from PECO and customers purchasing electricity from a competitive electric generation supplier as all customers are assessed distribution charges. For customers purchasing electricity from PECO, revenue also reflects the cost of energy and transmission.

(b)	Other revenue includes transmission revenue from PJM and wholesale electric revenues.

(c)

Reflects delivery volumes and revenues from customers purchasing natural gas directly from PECO and customers purchasing natural gas from a competitive natural gas supplier as all customers are assessed distribution charges. For customers purchasing natural gas from PECO, revenue also reflects the cost of natural gas.

 

16

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EXELON CORPORATION

BGE Statistics

Three Months Ended March 31, 2014 and 2013

 

		Electric and Gas Deliveries												Revenue (in millions)
		2014				2013				% Change				2014				2013				% Change
Electric (in GWhs)
Retail Deliveries and Sales (a)
Residential			4,092				3,536				15.7	%		$	436			$	365				19.5	%
Small Commercial & Industrial			834				776				7.5	%			71				64				10.9	%
Large Commercial & Industrial			3,470				3,554				(2.4	)%			123				105				17.1	%
Public Authorities & Electric Railroads			78				82				(4.9	)%			8				8				0.8	%
Total Retail			8,474				7,948				6.6	%			638				542				17.7	%
Other Revenue (b)															71				63				12.7	%
Total Electric Revenue															709				605				17.2	%
Gas (in mmcfs)
Retail Deliveries and Sales (c)
Retail Sales			46,388				40,261				15.2	%			285				246				15.9	%
Transportation and Other (d)			6,330				5,651				12.0	%			60				29				107.0	%
Total Gas			52,718				45,912				14.8	%			345				275				25.5	%
Total Electric and Gas Revenues														$	1,054			$	880				19.8	%
Purchased Power and Fuel														$	529			$	426				24.2	%

 

														% Change
Heating and Cooling Degree-Days		2014				2013				Normal				From 2013				From Normal
Heating Degree-Days			2,861				2,451				2,387				16.7	%			19.9	%
Cooling Degree-Days			—				1				—				(100.0	)%			n.m.

 

Number of Electric Customers		2014				2013				Number of Gas Customers		2014				2013
Residential			1,124,174				1,118,824			Residential			613,469				612,065
Small Commercial & Industrial			112,623				113,051			Commercial & Industrial			44,266				44,308
Large Commercial & Industrial			11,661				11,589			Total Retail			657,735				656,373
Public Authorities & Electric Railroads			292				318			Transportation			—				—
Total			1,248,750				1,243,782			Total			657,735				656,373

 

(a)

Reflects delivery volumes and revenues from customers purchasing electricity directly from BGE and customers purchasing electricity from a competitive electric generation supplier as all customers are assessed distribution charges. For customers purchasing electricity from BGE, revenue also reflects the cost of energy and transmission.

(b)	Other revenue includes wholesale transmission revenue and late payment charges.

(c)

Reflects delivery volumes and revenues from customers purchasing natural gas directly from BGE and customers purchasing natural gas from a competitive natural gas supplier as all customers are assessed distribution charges. For customers purchasing natural gas from BGE, revenue also reflects the cost of natural gas.

(d)	Transportation and other gas revenue includes off-system revenue of 6,330 mmcfs ($53 million) and 5,650 mmcfs ($24 million) for the three months ended March 31, 2014 and 2013, respectively.

 

17

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Exhibit 99.3

Cautionary Statements Regarding Forward-Looking Information

This presentation contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. The factors that could cause actual results to differ materially from the forward-looking statements made by Exelon Corporation, Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company and Exelon Generation Company, LLC (Registrants) include those factors discussed herein, as well as the items discussed in (1) Exelon’s 2013 Annual Report on Form 10-K in (a) ITEM 1A. Risk Factors, (b) ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) ITEM 8. Financial Statements and Supplementary Data: Note 22; (2) Exelon’s First Quarter 2014 Quarterly Report on Form 10-Q (to be filed on April 30, 2014) in (a) Part II, Other Information, ITEM 1A. Risk Factors; (b) Part 1, Financial Information, ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) Part I, Financial Information, ITEM 1. Financial Statements: Note 15; and (3) other factors discussed in filings with the SEC by the Registrants. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this presentation. None of the Registrants undertakes any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this presentation.

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Exelon Corporation First Quarter 2014 Earnings

Comments from Constellation CEO Joseph Nigro and Exelon CFO Jonathan W. Thayer

 

Mr. Nigro’s Comments, as Prepared for Delivery:

My comments will address market events during the first quarter and what they mean for our commercial business going forward, some capacity market updates, our updated fundamental view and hedging strategy. In addition, I’ll cover our updated hedge disclosures.

Market Overview – Slide 3

The energy markets experienced a very volatile first quarter, driven by extremely cold weather, I’ll address some of the impacts from these events and what we could see as a result.

While some of these statistics are not new to many you, I want to set the context for just how extreme this winter was.

 

•

Of the top ten all-time winter peak load records in PJM, eight occurred in January;

 

•

Heating degree days for the quarter were higher than the 30-year normal in Philadelphia and Chicago by 15% and more than 22%, respectively;

 

•

The forced outage rate during January cold events was two to three times higher than the normal rate; and,

 

•

FERC allowed two waivers to deal with higher prices. The first allowed PJM to provide make-whole payments to generators whose costs would result in a cost-based offer that exceeded the $1,000 per megawatt hour cap due to high natural gas prices. The second allowed these cost-based offers to set the LMP price, rather than show up in ancillary charges.

We successfully managed this volatile environment, where generation availability is of utmost importance and fixed price load obligations can prove to be extremely difficult to manage. Our strategy, and one of the reasons for our merger with Constellation, is to have a balanced portfolio of generation and load. This strategy is beneficial because our baseload nuclear fleet provides a reliable source of generation through all market conditions because of its firm fuel on site, while our dispatchable fleet helps us manage our load obligations throughout peaking periods.

For instance, our approximately two gigawatts of oil or dual-fuel plants in PJM provide value during extreme peaking periods from an energy and ancillary perspective. Load is an excellent channel to market with benefits ranging from incremental margin to offsetting collateral requirements, but comes with significant risks when markets turn volatile, as they did this past quarter. Not only is there significant energy price risk, but there are ancillary cost risks as well. Key components to managing through the volatility in the first quarter are Constellation’s portfolio management team and platform, which we leveraged to effectively optimize the portfolio during these periods.

Our portfolio management team managed through this volatility extremely well, and we would have had an even more positive quarter except for outages that required us to purchase replacement power in the spot markets. Calvert Cliffs was out for five days during the first extreme cold period in January, and was followed by a few other less impactful outages. This served to highlight the importance of having a balanced and diversified portfolio in fuel type, geography and commodity. While we are best known for our PJM based operations, we have sizeable positions in both ERCOT and New England. We also are expanding our natural gas-based operations in storage and transport,

 

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which performed very well during the extreme weather. We plan to continue to expand these operations as evidenced by our ProLiance acquisition, which while small from an immediate contribution perspective, has the potential to add more value through optimization opportunities. I will discuss how these events show up in our numbers when I review the hedge disclosures.

Looking at the generation stack, existing infrastructure will be undergoing significant changes as base load coal plants retire and are replaced by some new, more variable generation and an increased reliance on imports and demand response. We have also seen comments from other companies that a significant portion of the coal plants that are expected to be retired were called upon during this period. While this winter’s volatility was driven by extremely cold weather, it served to highlight that the changing nature of the grid will likely produce greater volatility during peak winter and summer events signaling where and when new resources are needed.

As you know, forward markets tend to follow the spot markets, so I will now discuss some of the resulting impacts on the forward markets. In the first quarter, while natural gas prices remained relatively flat, power prices at West Hub and NiHub increased $4.13/MWh and $1.55/MWh in 2015, and $2.92/MWh and $1.53/MWh in 2016. We have also observed an increase in the forward market for volatility as option market prices have increased over the last quarter.

We’ve seen some positive trends in the load markets. Some of the larger wholesale load auctions, like BGS & Ohio, trended favorably in total price of cost to serve and margin, helping to set some price formation for other transactions in the market, such as in the retail space. While it is a little too early to say with any certainty that margins are trending positively in retail, we have seen some signs that indicate pricing is beginning to reflect the appropriate risk premiums. Several retail providers have recently opted to leave the retail space by selling their books of business or announcing their intention to exit. We continue to believe that volatile markets will drive consolidation in this space, which will ultimately lead to more rational pricing behaviors that include the appropriate risk premiums.

Capacity Market Developments – Slide 4

Turning to slide 4, and a discussion of some of the capacity market developments during the first quarter. We have seen capacity markets improve in New England and New York. The New England auction cleared significantly higher, as a result of a tighter supply and demand situation after the announcement of unit retirements; next year will feature a sloped demand curve for Rest of Pool while NEMA will continue to have a vertical demand curve.

Of course, the auction results that everyone is waiting to see will come next month at PJM. FERC has approved two rule changes for the upcoming auction – a cap on sub-annual demand response products, which should limit the total DR volume consistent with reliability limits, and a cap that limits imports. We also are expecting to hear from FERC on one other proposed rule change that would help curb speculation and result in more disciplined bidding behavior.

Hedging Activity and Market Fundamentals – Slide 5

Turning to slide 5, I’ll discuss what the latest market changes mean for our hedging strategy and where we now see fundamental prices.

Power prices and heat rates expanded during the first quarter as a result of the polar vortex, and perhaps recognition of the generation stack changes that have begun and will continue through 2015. As of the end of the first quarter, the market seems to be incorporating some of our fundamental upside view. This is especially true in the PJM West Hub market and more so in the winter months. While there has been an increase in power prices in the PJM NIHUB market as well, we believe there is further upside in NIHUB market prices.

 

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Given our view and the current markets, we have fallen further behind ratable and continued to use a significant amount of cross-commodity hedges, primarily in the Midwest. While a ratable approach would lead us to be approximately 75% hedged at this point in time, we are approximately 65% hedged in 2015 and only around 55% hedged when you remove our cross-commodity hedges in 2016. We will continue to evaluate the amount of upside we see in prices and carry positions that will allow us to benefit as much as possible.

Finally, I’d like to touch on the changing dynamic around natural gas basis. The past quarter showed that while natural gas surpluses in the Marcellus footprint can drive prices to be negative to Henry Hub, periods of high gas demand can cause prices to spike to extreme levels. We saw Tetco M3 prices spike to $75 per mmbtu and the average January basis spread to Henry Hub reached $16.50. We continue to believe that new infrastructure will be built and the natural gas transport market will continue to evolve to meet the changing market over the next several years. This recent quarter only served to show that, much like the power market, pricing all energy products without the appropriate risk premiums can be dangerous.

Along with appropriate seasonal pricing of delivered natural gas, we still believe that expanding LNG exports, exports to Mexico, industrial expansion and gas demand for power generation will play a role in stabilizing Mid-Atlantic basis and provide support to overall natural gas prices in the near future.

Constellation Update/Gross Margin Update – Slide 6

Turning to slide 6, I will review our updated hedge disclosure and some of the significant changes given the events of the first quarter.

Focusing on 2014, we had several very large impacts to the disclosures that have netted to a $50 million decrease in our expected gross margin, driven by generation performance. As I mentioned before, our portfolio management teams performed very well in managing both our power portfolio of generation and load, and our natural gas portfolio of transport and storage, given the volatile market. This contributed to us executing on $100 million for our power new business targets and $150 million for our non-power new business targets for the year.

As I discussed earlier, the impact from plant outages was approximately $125 million, primarily at Calvert Cliffs. With the higher spot prices experienced during the quarter, an outage for a short duration can have a significant impact. Given our portfolio management performance in the first quarter, we have largely been able to cover most, but not all, of this impact. The change of $50 million in the total gross margin line largely reflects the remaining impact that was not completely covered by our favorable first quarter performance. However, with our set-up for the balance of the year situated to take advantage of volatile events and the diversification across our portfolios, we are confident that we will execute on our remaining new business to-go targets.

For 2015, we saw prices increase across all regions – increasing as much as $4 per megawatt hour in the Mid-Atlantic and New York, and between $1-$2 per megawatt hour in the other regions. This resulted in an increase in our open gross margin of $650 million. Given our hedged position and our execution of $50 million of power new business and $50 million of non-power new business, our total change in gross margin for 2015 was an increase of $200 million.

For 2016, prices increased between $1-$3 per megawatt hour. This resulted in an increase of $600 million in our open gross margin. With a hedged position of between 30%-40% for the quarter and an execution of $50 million in power new business, our total change in gross margin was an increase of $400 million.

 

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As noted on our slides, all of this information is as of March 31, 2014. Power prices have continued to increase over the last month, with our Mid-Atlantic and Midwest regions up over $2 per megawatt hour in 2015 and 2016. A rough estimate on the increase in open gross margin from such a move would be another $400 to $500 million. Net of hedges, you should see gross margin increase by $225 million and $350 million in 2015 and 2016, respectively.

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Mr. Thayer’s Comments, as Prepared for Delivery:

I will cover Exelon’s financial results for the quarter and our second quarter guidance range, and update our cash outlook for 2014.

Key Financial Messages – Slide 7

I will start with our financial results on slide 7. Exelon delivered first quarter earnings of $0.62 per share. Our balanced generation to load strategy, as well as our geographic and commodity diversity, served us well during a challenging quarter.

Our earnings are consistent with our expectations despite the extreme weather during the quarter and operational challenges across the business, including the Calvert Cliffs outage and significant winter storms in the East – including the costliest and second largest storm in PECO’s history. Although we delivered on our financial commitments for the quarter, our earnings would have been around $0.12 higher without the outage at Calvert Cliffs and PECO ice storm.

This compares to earnings of $0.70 per share in the first quarter of 2013. The key drivers of the reduction in earnings quarter over quarter were lower gross margin at ExGen and higher storm costs at PECO. I will go into greater detail on the quarter drivers at each operating company below.

For the second quarter, we are providing guidance of $0.40 to $0.50 per share. This compares to our realized earnings of $0.53 per share in the second quarter of 2013. The main drivers of this anticipated decline are lower ExGen gross margin driven by lower energy prices, offset by higher revenue net fuel (RNF) at ComEd and BGE.

For the full year, we are reaffirming our guidance range of $2.25-$2.55 per share.

Utilities Results – Slide 8

Turning to the utilities on slide 8, they delivered combined earnings of $0.31 for the quarter. As you know, the quarter was memorable for both its frigid temperatures and severe winter storms. Heating degree days this quarter were between 15%-25% above normal across our three utilities, and all three set new winter electric peaks and a new gas peak at PECO due to the polar vortex. As I mentioned earlier, PECO and BGE faced winter storms with substantial customer outages with PECO being hit hardest by the ice storm in early February. You can find our latest full year load estimates in the appendix on slide 20.

For the first quarter ComEd earned $0.11 per share compared to $0.10 per share in the same quarter last year. The increase is primarily related to higher distribution revenue due to higher investment and higher allowed ROE, and weather.

 

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PECO’s earnings were $0.10 per share for the quarter. This is down $0.04 per share from the first quarter of 2013 as a result of the ice storm in February. We are comfortable that PECO will be able to meet its full year-guidance range, which we provided last quarter, due to the impacts of favorable weather on revenue net fuel in the first quarter, favorable tax repairs impact related to the storm, and cost management initiatives elsewhere in the business.

BGE delivered earnings of $0.10 per share in the first quarter, an increase of $0.01 from the same period in 2013, due to higher distribution revenue which was partially offset by increased storm costs.

On April 16, ComEd filed its annual formula rate update with the Illinois Commerce Commission (ICC). ComEd requested a total increase to the net revenue requirement of $275 million. We expect a decision from the ICC in December and the new rates to go into effect in January 2015. More information about the filing can be found in the appendix on slide 21.

ExGen Results – Slide 9

Slide 9 covers Exelon Generation’s financial results for the first quarter. ExGen’s earnings were $0.09 per share lower than the same quarter in 2013. The quarter over quarter decrease is related to lower gross margin primarily from the Calvert Cliffs unplanned outage which resulted in higher replacement power costs and lower realized energy prices. These were partially offset by higher capacity prices. However, ExGen remains on plan for the year despite the operational challenges some plants faced in the first quarter.

Turning briefly to the nuclear waste fee issue. We do not believe that Congress will act to reinstate the fee, and indications are that it will be set to zero in mid-May consistent with the Circuit Court’s decision. As a reminder, our current earnings guidance assumes that the fee would not expire, so we will benefit once the fee expires. A full year benefit would be about $150 million per year.

Cash Flow Summary – Slide 10

Slide 10 provides an update of our cash flow expectations for this year. We project cash from operations of $6.2B. This compares to $6.1B last quarter.

I would like to point out a few changes to the projected sources and uses of cash we made as a result of the consolidation of CENG into Exelon. Last quarter, we showed 100% of CENG cash flows (net of distributions) reflected in the cash from operations line, and the CENG distribution to EDF in the Other line. Starting this quarter, we have kept the CENG distribution to EDF in Other, however we have now included 50% of CENG’s capex in investing, while leaving all other CENG cash flows (net of distributions) in cash from operations. The reclassification of CENG’s capex drives the quarter over quarter variance in cash from operations.

As a reminder, the appendix includes several schedules that will help you in your modeling efforts.

 

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