Key Highlights

● Exelon narrowed full-year guidance and kept growth near the upper end of its range.

● Adjusted Earnings Per Share edged up to $0.87.

● Reported earnings fell to $0.70 on a regulatory charge and impairments.

● PECO earnings fell on storm costs while ComEd, BGE and Pepco improved.

Exelon (NASDAQ:EXC) closed out October with a third-quarter report that read as a story of two measures. On an adjusted basis, the Chicago-based owner of six regulated electric and gas utilities earned slightly more per share than in the same period a year earlier and beat the expectations of the data providers that track it. On a reported basis, earnings fell, because the company booked a sizable after-tax charge tied to regulatory matters along with smaller charges for impaired projects and a cost management program.

The company also narrowed its full-year guidance range, lifting the bottom of the band while leaving the top unchanged, and said it continues to expect growth near the upper end of its long-term range. A quarterly Dividend was declared on the last day of the month. Across the four Utility groups, results moved in different directions: ComEd, BGE and the PHI group were higher, while PECO fell sharply as storm costs and other expenses outweighed rate gains.

What did Exelon report for the third quarter?

Adjusted operating earnings, the measure the company uses to guide, came to $0.87 per share, compared with $0.86 a year earlier. In dollar terms that was roughly $900 million, a modest rise of about 2.5%. Reported earnings under generally accepted accounting principles were $0.70 per share, down from $0.86.

Operating revenue climbed to about $7.33 billion, well above the prior-year period, a gain the company and outside commentators attributed mainly to higher rates at the regulated utilities as new distribution and transmission spending flows into customer bills. Operating expenses grew faster than revenue, so operating earnings before interest fell, and interest expense also rose, reaching nearly $600 million for the quarter compared with about $540 million a year earlier. The company carries a large amount of Debt to finance its grid spending, so higher borrowing costs show up quickly in the earnings statement.

The split between the two earnings measures is the central feature of the report. The company excludes from adjusted results certain items it regards as unusual or unrelated to ongoing operations, and in this quarter those exclusions were larger than usual. The release includes a reconciliation so that readers can see each one.

Why did reported earnings fall while adjusted earnings rose for Exelon?

The largest reconciling item was a regulatory matters charge of about $0.13 per share, or $130 million after tax. The company ties it to final orders in a Maryland Base Rate proceeding for Pepco and a separate Maryland proceeding that regulators refer to as lessons learned, a review of utility conduct and performance.

Smaller items followed. Project impairments cost about $0.03 per share, and a cost management program, which covers the expense of restructuring work, cost about $0.01. Environmental costs were negligible per share. None of these items affects the adjusted figure, which is why that measure rose even as the reported one declined.

Readers should note that excluded items are not necessarily one-time in a long-term sense. Regulatory charges, in particular, can recur in a Business where rates and performance standards are set through public proceedings, and the company's treatment of them is a matter of disclosure practice rather than accounting rule.

How did each utility group perform?

ComEd, the Illinois electric utility, posted adjusted earnings of about $412 million, up roughly 10%, as a larger base of regulated distribution and transmission Assets and higher allowance for funds used during construction added to results. BGE in Maryland rose by nearly half to about $119 million on approved distribution rates and lower contracting costs.

The PHI group, which spans the District of Columbia, Maryland, Delaware and New Jersey, earned adjusted results of about $320 million, up about 10%, helped by approved distribution rates but weighed on by storm costs, Depreciation and interest.

PECO, the Pennsylvania utility, was the outlier. Its adjusted earnings dropped by about a third to about $167 million. The company cited higher storm costs, including the absence of storm cost deferrals that had helped the year before, higher taxes, and increased contracting, depreciation and interest expense. A lapse in Surcharge credits and favorable weather partly offset those pressures. Taken alone, the PECO result is the single biggest reason adjusted earnings rose by only a cent for the company as a whole, even though three of the four groups improved.

What guidance did the company change?

Exelon narrowed its range for adjusted operating earnings per share for the year to $2.85 to $2.91. The previous range began at $2.81, so the change raises the bottom of the band while leaving the top where it was. The company's chief financial officer, Rob Kleczynski, said the narrowing reflects performance through the year.

Management also reaffirmed that it expects adjusted operating earnings growth near the top of its 5 to 7% range for the period ending at the close of the decade. The company has said this growth is supported by rate base expansion at a pace of nearly 8% a year.

Narrowing a range is a routine step as a year progresses and uncertainty falls. It does not by itself change the long-term framework, and it remains contingent on weather in the final quarter, storm activity, rate decisions and financing costs.

What did the Maryland rate order change?

The Maryland Public Service Commission approved an increase of about $51 million in annual electric distribution base rates for Pepco in the state, with an authorized earnings rate on Equity of 9.4%. The new rates took effect in the second week of August, so they contributed for part of the quarter.

Rate orders determine how quickly a utility can recover the cost of grid spending, and Maryland has been one of the more closely watched states for regulatory outcomes. The final order, together with the lessons learned decision, concluded two open matters for the company.

At the same time, those decisions are the source of the largest excluded charge in the quarter, which illustrates how a rate case can bring both higher revenue going forward and a one-time accounting effect in the period of the order.

How large is the Capital plan?

According to coverage of the release, Exelon's capital plan stands at about $42 billion over the planning period. Capital spending over the first nine months was about $6.8 billion, up from about $6.1 billion a year earlier. The plan is aimed at distribution reliability, grid modernization and transmission.

Management also pointed to further spending beyond the base plan that it could pursue if regulators and market operators allow it: between roughly $12 billion and $17 billion for transmission, and between $3 billion and $7 billion for energy storage. These amounts are not in the base plan and depend on approvals.

The company said its transmission and storage efforts continue to advance. In Illinois, regulators approved a transmission project known as GRIT in Cook and DuPage counties. A headline linked to the release also referred to the company weighing about $8 billion of storage spending partly to address Supply constraints in the PJM region, though the release itself did not elaborate.

What does the Balance Sheet show for Exelon?

At the end of September, long-term debt stood at about $50.8 billion, up from about $47.4 billion at the end of last year. Short-term borrowings rose to about $934 million. Total assets reached more than $122 billion, and stock owners' equity was about $30 billion.

Cash and equivalents were about $1.5 billion, more than double the year-end level. Operating Cash Flow for the nine months was about $5.4 billion, a rise of roughly 8%, according to outside coverage of the filing.

The company completed its planned debt financings for the year. PECO issued first mortgage bonds in August, and Delmarva Power issued bonds in September. Financing costs matter because, as the quarter showed, interest expense rose and absorbed part of the benefit of higher rates.

What was said about reliability and storms?

Management emphasised reliability, saying its utilities rank first, second, fifth and sixth nationally on reliability measures. Executives credited disciplined spending and consistent performance across the utilities.

Storm costs were nonetheless a Factor in the quarter, notably at PECO and in the PHI group. Storm response expense is typically recoverable in part through rates or deferral mechanisms, but the timing of recovery can differ between periods, which produced the year-over-year gap in Pennsylvania.

Reliability performance also matters for regulation, because commissions increasingly link allowed earnings and rate decisions to measurable outcomes such as outage duration and frequency. That linkage was one of the themes behind the Maryland proceeding.

What dividend did the board declare?

The board declared a quarterly dividend of $0.42 per share on the last day of October. It is payable in mid-December to owners of record in early December. The release did not announce a change to the size of the dividend.

Dividends for regulated utilities are typically set with reference to a payout range tied to earnings, and the company describes its funding approach in its financing materials.

Payment dates and record dates are set by the board, and the company announces each quarterly declaration through a short press release and a filing with the Securities and Exchange Commission, which.

What is the company's footprint?

Exelon owns six regulated utilities. ComEd serves northern Illinois, PECO serves southeastern Pennsylvania, and BGE serves central Maryland. The PHI group adds Pepco, Delmarva Power and Atlantic City Electric, which together cover the District of Columbia and parts of Maryland, Delaware and New Jersey. Some of these utilities deliver both electricity and natural gas.

Because the utilities operate in separate states under separate regulators, results at the consolidated level reflect a patchwork of rate cases, weather conditions and storm exposure. A strong quarter in Illinois can be offset by a weak one in Pennsylvania, as the third-quarter table shows, and management reports each group separately for that reason.

The company does not own power plants in its regulated businesses, so it does not carry fuel price exposure in the way integrated utilities do. Instead, its earnings are tied to the size of its regulated asset base and the rates that regulators allow on it, along with its operating and financing costs.

Why does the PJM region matter to Exelon?

All of the company's utilities operate within the territory of PJM Interconnection, the grid operator that runs the wholesale electricity market across 13 states and the District of Columbia. Demand growth from data centers and the retirement of older plants have tightened supply in the region, and the market has drawn attention from state officials and regulators.

For a wires-only company, tight supply creates both a need for new transmission and a political challenge, since customers see capacity prices reflected in their bills even though the utility does not generate the power. The company has pointed to transmission and storage as ways to help address the shortage, which is why those categories feature in its discussion of spending beyond the base plan.

Any such spending would still require approvals from regulators and the grid operator, and the company has not committed to it in its base plan. The coverage of the release noted the range of amounts without attaching dates, so the timing remains open.

How does the report fit the wider sector?

Exelon owns only wires and pipes, without owning generation, which sets it apart from vertically integrated peers whose growth plans are built around new power plants. Its growth story therefore rests on rate base expansion, regulatory outcomes and the expansion of transmission and storage in the PJM region.

Readers following Utility Stocks will notice that the company is a pure delivery business whose results depend on the regulators in several states and the District of Columbia, and that its quarterly figures can swing between periods because of weather, storms and the timing of rate orders.

Exelon is also a member of the S&P 500 and trades on the Nasdaq.

What should readers watch next for Exelon?

The first thing is the final quarter's weather and storm activity, which will decide whether the company lands in the lower or upper half of its narrowed guidance range. The second is the next set of rate case decisions across its jurisdictions, including any that follow the Maryland proceedings.

A third is the progress of transmission and storage proposals in PJM, which are the sources of the additional spending the company has described beyond its base plan. A fourth is the cost of financing, given the size of its debt and the rise in interest expense this quarter.

The company files a Quarterly Report with the Securities and Exchange Commission that includes further detail on each of these topics, along with its discussion of regulatory and legal matters.