EXELON CORP

EXELON CORP Annual Report: Navigating 2024 Performance and Charting 2025's Course

Discover the financial pulse of Exelon, one of America's largest utility companies. This guide cuts through the complexity, offering a clear, investor-friendly breakdown of its 2024 financial performance, the challenges it navigated, and its strategic vision for 2025 and beyond. We focus on Exelon's fiscal year 2024 (ending December 31, 2024) compared to 2023, and provide insights into the company's projections for 2025.

Business Overview: Exelon's Essential Services

Exelon stands as one of the largest regulated utility holding companies in the United States, providing electricity and natural gas to approximately 10 million customers. Its operations span six states and the District of Columbia through six regulated utilities:

• Commonwealth Edison (ComEd) in Illinois
• PECO Energy in Pennsylvania
• Baltimore Gas and Electric (BGE) in Maryland
• Pepco in Washington D.C. and Maryland
• Delmarva Power in Delaware and Maryland
• Atlantic City Electric in New Jersey

This regulated business model ensures stable and predictable earnings, as state public utility commissions set rates to allow for a reasonable return on investment.

Financial Performance Highlights

Exelon reported total operating revenues of approximately $40.5 billion for fiscal year 2024, a slight increase from $39.8 billion in 2023. This growth primarily stemmed from approved rate increases and ongoing infrastructure investments across its service territories.

While overall revenues remained stable, some regulated electricity revenues experienced minor fluctuations:

• PECO Energy Co. (Electricity): Decreased slightly from $475 million in 2023 to $461 million in 2024 (a 3% dip), with a projected recovery to $475 million in 2025.
• Baltimore Gas and Electric Co. (Electricity): Also saw a small decrease from $570 million in 2023 to $553 million in 2024 (a 3% drop), and expects to return to $570 million in 2025.
• Delmarva Power and Light Co. (Electricity): Experienced a very minor decrease from $104 million in 2023 to $103 million in 2024 (less than 1%), also projected to recover to $104 million in 2025.

These minor shifts are common in regulated environments, often reflecting adjustments in approved rates, customer usage patterns, or weather impacts. Natural gas regulated revenues for these subsidiaries largely held steady, reflecting stable demand and consistent rate structures.

Exelon delivered solid financial performance in 2024:

• Net Income: Increased to $2.8 billion in 2024, up from $2.6 billion in 2023.
• Earnings Per Share (EPS): Diluted EPS reached $2.85 in 2024, compared to $2.65 in 2023, demonstrating improved profitability.
• Operating Cash Flow: The company generated a strong $7.5 billion in cash from operations in 2024, crucial for funding capital investments and dividends.
• Capital Expenditures (CapEx): Exelon invested $7.2 billion in infrastructure upgrades and modernization projects in 2024, a key driver for future rate base growth.
• Dividends: Exelon upheld its commitment to shareholders, declaring annual dividends of $1.62 per share in 2024, which translates to an approximate 4.2% dividend yield based on recent stock prices.

Management's Insights (MD&A Highlights)

Management emphasized the consistent execution of Exelon's regulated utility strategy, focusing on infrastructure investment and operational efficiency. The increase in 2024 revenues and net income primarily resulted from approved rate increases across various jurisdictions, which allowed the company to recover capital investments and ongoing operational costs.

Management highlighted its robust capital expenditure program as essential for enhancing grid reliability and resilience, driving future rate base growth and earnings. The company also discussed its proactive approach to managing operating expenses and optimizing its capital structure to support long-term financial stability and shareholder returns. Regulatory outcomes and the ability to recover investments through timely rate cases remain critical factors influencing financial performance.

Financial Health and Capital Structure

Exelon maintains a robust financial position, vital for a capital-intensive utility:

• Total Debt: As of December 31, 2024, total long-term debt stood at approximately $45 billion. The company actively manages its debt portfolio to optimize interest costs and maintain financial flexibility.
• Credit Ratings: Exelon and its subsidiaries generally hold investment-grade credit ratings (e.g., BBB+ from S&P, Baa1 from Moody's). These ratings help ensure access to capital markets at favorable rates.
• Equity Stability: The value of Common Stock and Treasury Stock remained consistent over the 2022-2025 period, reflecting stable capital management and shareholder equity.
• Liquidity: As of December 31, 2024, Exelon maintained a strong liquidity position, supported by available cash and cash equivalents, along with substantial committed credit facilities. This liquidity enables the company to meet short-term obligations, fund ongoing capital projects, and manage working capital needs. Prudent financial management and strong credit ratings provide access to capital markets on favorable terms, essential for financing its capital-intensive operations and growth initiatives.

Key Challenges and Risk Factors

While regulated utilities offer stability, they also face specific challenges:

• Regulatory Environment: The primary risk involves the timing and outcome of rate cases, which determine the rates utilities can charge and their allowed return on investment. Unfavorable regulatory decisions could impact profitability.
• Aging Infrastructure: Maintaining and modernizing the grid requires significant ongoing investment, making capital expenditures a continuous demand.
• Severe Weather & Climate Change: Extreme weather events can cause service disruptions and lead to substantial repair costs. Adapting infrastructure to climate change impacts presents a long-term challenge.
• Cybersecurity: Protecting critical infrastructure from cyber threats is an ever-present and evolving risk.
• Interest Rate Fluctuations: As a capital-intensive business, rising interest rates can increase borrowing costs, affecting profitability and investment plans.
• Past Specific Event: In 2022, Baltimore Gas and Electric (BGE) recorded a one-time pre-tax charge of $48 million related to the disposal of an office building, reflecting changes in office space utilization post-COVID-19.

Competitive Position

Exelon's operating subsidiaries generally hold exclusive franchises for electricity and natural gas transmission and distribution within their service territories. This limits direct competition for customers. However, the company's competitive strength comes from its ability to efficiently operate infrastructure, manage costs, and attract capital for necessary investments.

Exelon's scale, diversified geographic footprint across multiple states, and strong regulatory relationships provide a stable foundation. Indirect competition arises from alternative energy solutions, such as distributed generation and energy efficiency programs. The company also competes in broader capital markets for investor funds to finance its significant capital expenditure programs. Exelon strives to maintain its competitive edge through operational excellence, customer service, and strategic investments in grid modernization and clean energy technologies.

Future Outlook and Strategic Initiatives

Exelon focuses on long-term growth, reliability, and sustainability:

• Capital Investment Plan: The company plans to invest approximately $31 billion over the next five years (2025-2029) in grid modernization, reliability enhancements, and clean energy infrastructure. This investment will drive rate base growth and support future earnings.
• Clean Energy Transition: Exelon commits to supporting the transition to a clean energy future. It integrates more renewable energy sources and enhances grid resilience to facilitate decarbonization goals across its service territories, including investments in smart grid technologies and electric vehicle charging infrastructure.
• Regulatory Filings: The company anticipates ongoing rate case filings across its jurisdictions to recover investments and ensure fair returns, with a focus on constructive regulatory outcomes.
• Customer Focus: Enhancing customer experience, improving service reliability, and promoting energy efficiency programs remain key priorities.
• 2025 Outlook: For 2025, Exelon projects diluted EPS in the range of $2.95 to $3.15. This reflects continued operational efficiency and the recovery of previously mentioned minor revenue dips. The company expects sustained growth driven by its robust capital investment program.