Earnings Call Transcript - EXC Q3 2021

Operator, Operator

Hello, and welcome to Exelon's Third Quarter Earnings Call. My name is Justin and I will be your event specialist today. All lines have been placed on mute to prevent any background noise. Please note that today's webcast is being recorded. During the presentation, we'll have a question-and-answer session. If you intend to call systems as a best practice, we suggest you first refresh your browser. If that does not resolve the issue, please click on the help option in the upper right-hand corner of your screen for online troubleshooting. It is now my pleasure to turn today's program over to Emily Duncan, Vice President of Investor Relations. The floor is yours.

Emily Duncan, Vice President of Investor Relations

Thank you, Justin. Good morning, everyone, and thank you for joining our third quarter 2021 earnings conference call. Leading the call today are Chris Crane, Exelon's President and Chief Executive Officer, and Joe Nigro, Exelon's Chief Financial Officer. They're joined by other members of Exelon's senior management team, who will be available to answer your questions following our prepared remarks. We issued our earnings release this morning along with this presentation, all of which can be found in the Investor Relations section of Exelon's website. The earnings release and other matters which we discussed during today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. Actual results could differ from our forward-looking statements, based on factors and assumptions discussed in today's material and comments made during the call. Please refer to today's 8-K and Exelon's other SEC filings for discussions of risk factors and other factors, including uncertainties surrounding the planned separation that may cause results to differ from management's projections, forecasts, and expectations. Today's presentation also includes references to adjusted operating earnings and other non-GAAP measures. Please refer to the information contained in the appendix of our presentation and our earnings release for reconciliations between the non-GAAP measures and the nearest equivalent GAAP measures. I will now turn the call over to Chris Crane, Exelon's CEO.

Chris Crane, CEO

Thanks, Emily. And good morning, everybody. Emily, thank you for putting a hedge on everything we're about to say. We had a good quarter financially and operationally and had several very positive developments during the quarter. I'm starting on Slide 5, we earned $1.23 per share on a GAAP basis and $1.09 on a non-GAAP basis. And Joe will get into those details. Illinois passed, at the last minute, a landmark clean energy legislation, which makes the state a national leader in clean energy. Illinois will achieve 100% carbon-free by 2045 by preserving and adding thousands of jobs. And we thank Kathleen Barone and her team and many others for the work they've done. As a result, we have reversed the retirement decision on Byron and Dresden. Our Illinois plants will continue to provide good-paying jobs, economic support to the communities, and zero carbon energy to the citizens of Illinois. We've begun to fill the 650 vacant positions and we'll be investing more than $300 million in our plants over the next 5 years to catch up on what we've pulled back during the unknown period. The legislation also includes provisions that would transition us out of the formula rates into a new multi-year performance-based rate framework. In August, we completed the PUCT transaction and acquired EDF's portion of the CNG nuclear plants, adding 17 terawatts to our own zero-carbon nuclear generation. We did receive a grant from the U.S. Department of Energy to explore the potential benefits of on-site hydrogen production at our Nine Mile Point in New York. We continue to believe that there is a very strong future for hydrogen. Hydrogen will be key in helping the nation address the climate crisis, and the nuclear plants can play a vital role in its production with their heat and capabilities. We're partnering with Nel Hydrogen and the national labs to demonstrate the integrated production, storage, and use of hydrogen onsite to prove its commercial viability. Operations are expected to begin in 2022. On the regulatory front, Delaware PSC issued a constructive order in our Delmarva operations. Last quarter we announced our path to clean and our net-zero goal for the utilities. So we continue to strive to meet what our customers and regulators desire. Each utility is building upon existing work and supporting a path to clean that aligns with the goals necessary for their local jurisdictions and stakeholders. An example is PECO's Climate Solution, which is a 5-year action plan that will fulfill the DCPSC's request from last month. This filing outlines 62 different programs to help enable the district's roadmap toward decarbonization. Another example of helping our communities to meet their goals is through our energy efficiency programs, which are among the largest in the nation. Joe will talk about them in his remarks. We're committed to serving our communities and helping to drive equity and positive change. Last week, we launched a $36 million racial equity capital fund to expand access to capital for minority-owned businesses, so they can create jobs, grow their businesses, and reinvest in the neighborhoods and communities that we serve. It's the first of its kind in our sector. In addition, we partnered with the UNCF to launch a $3 million Exelon fund for a corporate scholarship program to provide scholarships and internships that create opportunities for students attending historically black colleges and universities that reside in the communities we serve. Finally, we're closely watching the work in Washington on the infrastructure and Build Back Better agenda. This legislation will help us address climate change by incentivizing clean technologies and infrastructure investments to make the grid more resilient and ready for clean energy technologies. It is clear from the proposal that the Administration and Congress recognize the critical importance of maintaining the existing nuclear fleet to ensure that the nation can cost-effectively address climate change, and we're confident that when the legislation does pass, it will include a production tax credit for the existing nuclear. Moving on to Slide 6, our operations' reliability remains incredibly strong. All the utilities are delivering top decile outage frequencies and first quartile in outage durations. BGE, PECO, and PHI were top decile for gas odor responses, which is critical for us as we continue to defend gas as a bridging source for the future. Customer services remain top-notch with BGE, ComEd, and PECO achieving top decile and PHI top quartile. Our generation fleet performed well during the quarter, even in the face of uncertainty in Illinois. Our nuclear plants produced 40.5 terawatts of zero-carbon generation, avoiding approximately 21 million tons of carbon dioxide that would have been generated otherwise. The fleet had a 96% capacity factor over that period of time, and we're very proud of their operations amid the uncertainty they've faced. On Slide 7, the progress in separation. We continue to make progress on separating the businesses into two independent Fortune 200 companies. FERC approved the separation in August, and in September, we received a private letter ruling from the IRS confirming the tax-free nature of the separation. The process for the NRC and New York PSC approvals are moving forward as expected and remain on track. Last week, the New York PSC staff held the first meeting of settlement negotiations. This is an important step in the process, and we've asked for authorization from the commission by December 16th on their scheduled meeting date. We have named the CEO of each company, as well as their direct reports, and we will continue the staffing preparation process over the coming weeks and months to be ready for the close in the first quarter of next year. Joe Dominguez and I are both excited to lead our companies into the next chapter. Exelon will continue to be one of the nation's premier customer-focused energy delivery companies with more than 10 million customers. Joe is the right person to lead Constellation. We'll be America's leading clean energy company, producing 12% of the nation's clean energy, nearly twice as much as any other clean energy company out there. We remain focused on setting each business up for long-term success. Joe, I'll turn over to you for the financial update.

Joe Nigro, CFO

Thank you, Chris. And good morning, everyone. Today I will cover our third quarter results, our quarterly financial updates, and our hedge disclosures. I will also provide an update on our full-year 2021 guidance. Turning to Slide 8 first, we earned $1.09 per share on a non-GAAP basis for the quarter. Exelon Utilities delivered a combined $0.66 per share net of holding company expenses; this was primarily driven by above-normal summer weather in our non-decoupled jurisdictions, along with strong operational performance and the impacts of distribution rate cases. ExGen earned $0.44 per share in the third quarter. Generation and Constellation both performed well during the quarter. We continue to make progress on levers we identified to mitigate the Texas loss, and we expect it will take the full year to realize all of the savings. Realized gains in our decommissioning trust funds partially offset the unrealized losses from our Constellation technology venture investments, which are mark-to-market in every quarter until realized. At our holding company, we benefited from expected income tax favorability in the third quarter. As a reminder, our holding company incurred a $0.12 per share drag in the first quarter, associated with how consolidated full-year tax expenses are booked due to the impact of the losses incurred at ExGen in Texas. The remainder of the first quarter drag is expected to reverse in the fourth quarter, and is not expected to impact our full-year results. Turning to guidance, we are narrowing our 2021 EPS guidance range to $2.70 to $2.90 per share, from $2.60 to $3 per share previously. Our updated guidance considers the reversal of the retirements of the Byron and Dresden nuclear stations, as well as execution of the EDF put, and our continued disciplined approach to cost management. We are delivering on our financial commitments and are confident we will be within our revised range at year-end. On Slide 9, we show our quarter-over-quarter earnings walk. The dollar per share in the third quarter of this year was $0.05 per share higher than the third quarter of 2020. Exelon Utilities inclusive of holding company earnings were $0.08 per share higher compared to last year. The earnings growth was driven primarily by higher transmission and distribution rates associated with completed rate cases relative to the third quarter of 2020 and higher treasury rates on ComEd's distribution ROE. This was partially offset by costs related to the remnants of Hurricane Ida that swept through PECO's service territory in early September. The partial reversal of the first-quarter tax expense at corporate also drove favorability relative to last year's results. ExGen's earnings were down $0.03 per share compared with last year, and the decrease was due to net unrealized and realized losses on Constellation venture investments, lower capacity revenues primarily in PJM, and more planned nuclear outage days. This was partially offset by realized gains in our nuclear decommissioning trust funds and higher ZEC revenue due in part to increased volumes resulting from fewer planned refueling outages, and ZEC pricing in New York. Moving to Slide 10, looking at our utility returns on a consolidated basis, we continue to meet our consolidated 9% to 10% target with a 9.3% trailing 12-month ROE as of the third quarter. Earned ROE dipped modestly by 10 basis points since last quarter. Despite higher earnings driven primarily by distribution and transmission rates, the earnings were outpaced by increased equity infusions across all our utilities to support capital investments. Looking forward, we remain focused on delivering stronger returns at the utilities and supporting our growth targets to enable customer benefits. Turning to Slide 11, there were some important developments on the regulatory front since the last call. First, on September 1st, Delmarva, Maryland filed an electric base rate case with the Maryland Public Service Commission, seeking an approximately $29 million increase in electric distance rates and reflecting an ROE of 10.1%. The case highlights Delmarva Power's strong record of reliability, reporting the second-best reliability performance in Maryland in 2019 and 2020 alongside Pepco. Delmarva Power continues to make significant investments to improve reliability and customer service for our customers and communities. DPL Maryland expects to receive an order by March 30th, 2022. Second, on September 15th, Delmarva Delaware received a verbal order for its distribution electric rate case. The Delaware Commission approved an approximately $14 million increase in annual base distribution rates reflecting an ROE of 9.6%. As permitted by Delaware law, Delmarva Power implemented full allowable rates on October 6th, 2020, subject to refund. We also have two rate cases pending final orders in the fourth quarter. On October 6, the administrative law judge presiding over PECO's electric distribution base rate case recommended that the settlement with all parties be approved. The settlement provides for an increase of $132 million in annual electric distribution revenues. We expect to receive an order in the fourth quarter. On November 2, the administrative law judge presiding over ComEd's 2021 distribution formula rate update issued a proposed order. There were no adjustments to ComEd's proposed revenue requirement increase of $45.8 million. We expect to receive a final order from the Illinois Commerce Commission by early December. We continue to have constructive regulatory relationships across our jurisdictions and are working with our regulators, states, and communities to support their clean energy and climate goals. As a reminder, we expect nearly 100% of our rate base growth will be covered by alternative mechanisms by the end of our planning period, which differentiates our utilities when compared to peers. More details on the rate cases can be found on slides 20 through 24 of the appendix. As Chris mentioned, our energy efficiency programs highlighted on Slide 12 is one example of how Exelon's utilities are helping their customers on the path to clean. Exelon Utilities are driving customer-driven emissions reductions in our communities through some of the nation's largest energy efficiency programs and conservation efforts. These programs enable customer savings through home energy audits, lighting discounts, appliance recycling, home improvement rebates, equipment upgrade incentives, and innovative programs like smart thermostats and combined heat and power programs. In 2020, through a combination of new and prior-year investments, our utilities helped customers save over 22.3 million megawatt hours of energy. This equates to 8.1 million metric tons of CO2 emissions avoided, the equivalent of nearly 932,000 homes' energy use for one year, or the carbon sequestered by 10.5 million acres of U.S. forest in one year, according to EPA's Greenhouse Gas calculator. Each of Exelon's Utilities is building upon existing work and supporting a path to clean that aligns with the goals and needs of their local jurisdictions and stakeholders. But before discussing our gross margin update on Slide 13, I want to remind you that we expect to provide 2022 hedge disclosures at Analyst Day, which will be held closer to the completion of the separation. However, what I can say now is that we have continued to hedge on our ratables plan for future years. This includes the length from the Byron and Dresden retirement reversals until the carbon mitigation contracts begin and Exelon's full ownership of the CENG assets. Turning to the table, total gross margin increased $500 million since last quarter due to the plant retirement reversals in Illinois and full ownership of the CENG assets beginning on August 7th. In 2021, open gross margin is up $1.6 billion relative to the second quarter, primarily due to higher prices in all regions and higher volumes driven by execution of the EDF PUCT and the decision to reverse Byron and Dresden's early retirements. Capacity and ZEC dollars are up $100 million due to full ownership of the CENG assets. Mark-to-market of hedges were down $1 billion due to our hedged position, partially offset by the execution of power new business. We executed $200 million of power new business and $50 million of non-power new business during the third quarter. The non-gross margin impacts of the Illinois plant reversals and the full ownership of CENG are incorporated on page 32 of the appendix. Thank you. And I'll now turn the call back to Chris for his closing remarks.

Chris Crane, CEO

Thanks, Joe. Turning to Slide 14, I'll close on our ongoing priorities and commitments. As we've said in the past and will continue, we will meet or exceed our financial commitments, delivering earnings within our guidance range and maintaining a strong balance sheet. And that goes for both companies as we split, there's a commitment on both sides to do that. We'll complete the preparations to separate the businesses, including the organization and cost structure for each company that will set each company up for long-term success with a strong investment grade. At Exelon Utilities, we are prudently and efficiently deploying $6.6 billion of capital to benefit our customers and help meet the needs of our jurisdictions' energy policy goals. We are working with our regulators to ensure timely recovery of these investments, as Joe discussed in his remarks. We continue to advocate for clean energy and climate policies with the new administration and Congress in our states to put the country on the path to meeting carbon and air pollution reduction goals. There's more here than just carbon. We have a city in Chicago that ranks third highest in lung disease, and it’s not only carbon; it’s the fumes from industrial sources, and we need to do our part to help lower that. We're partnering and supporting our customers in the communities that we serve. So with that, I thank you for your time today, and I'll open up the call to questions.

Operator, Operator

Thank you. Our first question comes from Stephen Byrd from Morgan Stanley. Your line is now open.

Stephen Byrd, Analyst

Good morning. Thanks so much for the thorough update.

Chris Crane, CEO

Thanks, Steve.

Stephen Byrd, Analyst

I wanted to step back and talk about federal legislation broadly, and discuss the impacts, less on nuclear, I think you all have been very clear on that side. I'm thinking more about everything from tax policy to support for transmission. Just curious at a high level, what are you thinking in terms of the potential impacts to your business if this legislation were to pass?

Chris Crane, CEO

I'll let Kathleen Barron speak to it. We think there's a lot of positives that can be put in play here. I don't think we're looking for any handouts. We'd rather make the investments ourselves. And between Kathleen and Calvin Butler, they'll address it.

Kathleen Barron, Executive

And Joe may want to jump in on the tax question, but good morning, Stephen. As you pointed out, I think we're very heartened by the support for the nuclear stations and the recognition that their continued operation is essential to meeting the climate goals. But the bill goes way beyond nuclear as you pointed out, in terms of the extensive support for electric vehicles, both personal vehicles and electric buses, and significant funding on resilience for hardening and weatherization, all of which we think are essential for the communities that we service as Chris pointed out. The transmission program, that's always been a challenging issue, as you know, given that it's not just about funding, but it's also about siting. And so we do expect that to continue to be a challenging area, but it's obviously essential to the Clean Energy build-out. So I'll stop there, let Cal jump in or Joe, as I said, on tax.

Calvin Butler, Executive

Good morning, Steve. And I will just add a couple of things to piggyback off what Kathleen said. If you think about some of the specifics that the federal government is looking to partner with the states, think about the $7.5 billion they've earmarked for a charging infrastructure, $5 billion going toward zero-emission and clean buses, and port electrification. When you think about port electrification for our cities of Baltimore and Philadelphia, what that would mean for them, not even talking about the different grants that they're proposing where utilities could partner to do different things creatively. All this is good for the customers. If those funds are coming directly to the state and there's a partnership, we will continue to invest in reliability and resiliency and then take these opportunities to keep customer bills down. And that is a concern of ours, just to keep affordability at the forefront of everything we do.

Joe Nigro, CFO

And I will pick up on the tax question, Stephen, and we're studying the potential implications across our business. As you know, we obviously have a very large capital plans at our utilities for the benefit of our customers. And they also help drive the local economies and meet the climate and clean energy goals of our communities. Many of those same goals are shared by this Build Back Better plan, which I think is driving the tax question. You've heard others in the industry say the minimum tax could increase customer bills and potentially impact the investment of the capital that we deploy. We are communicating with policymakers about that fact and the impacts it may have on the capital planning process, and we're continuing to work through that.

Stephen Byrd, Analyst

Very helpful, thank you. And then maybe just separately, just thinking about the utility business. You already have excellent growth, so I suppose this question is going to come across as somewhat greedy, but I am thinking about other areas of upside potential there. I was just curious, maybe for Calvin and Chris. As we think about categories of growth upside beyond the excellent base plan that is resulting in above-average growth. What are some of the categories of additional upside as we think about the utilities growth prospects going forward?

Chris Crane, CEO

I'll start off and then pass it to Calvin. There are many case studies being done on voltage requirements, particularly on dual flow voltage requirements. What measures do we take to protect ourselves from internet exposure, specifically using our own wires and fiber?

Calvin Butler, Executive

Chris, you captured it. It really goes around building the reliability and the resiliency of our system. And I think as we lay out our multi-year plans across our jurisdictions, it's understanding, and really diving in, Stephen, in terms of what the customers want in our jurisdictions, but the hardening and the resiliency of our system are coming to the forefront. Along with fighting climate change, that's a big part of what we're doing, alongside security-related issues, as Chris outlined. Those are opportunities in the areas, but it's that partnership and really understanding what the jurisdictions are wanting.

Chris Crane, CEO

We can't run a system on the distribution side any longer at a 4,160-voltage level; we have to get up to 138, and that's going to take a significant investment to do that. And that's to support distributed generation. So there's a lot more work to be done.

Stephen Byrd, Analyst

Thank you very much. Go ahead.

Operator, Operator

Thank you. And our next question comes from Steve Fleishman from Wolfe Research. Your line is now open.

Steve Fleishman, Analyst

Hi, good morning.

Chris Crane, CEO

Hi, Steve.

Steve Fleishman, Analyst

So I guess two questions. First, on the Build Back Better Bill. Just thoughts on the likelihood that that passes. And if for some reason it does not, how do you feel about opportunities to address nuclear PTCs and other bills if we somehow get there?

Chris Crane, CEO

Well, Kathleen is earning her paycheck to ensure that it gets done. So I'll let her answer the question.

Kathleen Barron, Executive

Good morning, Steve. I think we're still feeling very confident about the Democrats' ability to get both infrastructure and Build Back Better across the finish line. There's been a strong proposal put out by the president that had support last week around a top-line number that the group has apparently coalesced around. They have continued to work to flesh out the details so that they can move this package quickly, and others have assured that they think that it is doable, even signing an agreement with the Senate Majority Leader that it could get done by Thanksgiving. So I think there is a broad consensus that action is needed, and in particular, on the clean energy tax package, that there's sufficient support for the provisions that will get the country to a place where it can come close to meeting the 2030 carbon reduction goals. If for some reason that does not occur, as you know, there is regular bipartisan action at the end of the year on tax extenders, and we're again hopeful given the amount of support we have seen for the existing fleet, that the nuclear provisions could be considered as part of an end-of-the-year bipartisan package, if the Build Back Better bill doesn't get across the finish line.

Steve Fleishman, Analyst

Okay. My other question related to that is, I know there's a ton of detail in this, but just high level. How does the PTC interact with your existing state commitments for the different units, or subsidies or laws. Also, you’re hedging and retail and all that, as well.

Chris Crane, CEO

I want to start anew.

Kathleen Barron, Executive

Yes, I'll start off and pass it to Jim on the hedging question. But the short answer is that under the nuclear PTC as drafted, revenues from a state program are not included, and the state program would adjust or reflect the existence of the federal support. Almost all of our programs have some explicit reference to the fact that if there is subsequent federal support after the state program takes effect, that it will be reflected in the state calculation of the support under the program. There will clearly need to be further proceedings to evaluate and have the state adjudicate how that federal support will be reflected, but assuming that the PTC passes, we would expect each of the states to take a look at that and for it to be reflected in the level of the state's supports. Jim?

Jim McHugh, Executive

Yeah. And Steve, I think on the hedging, the details of the implementation really matter. But for now, I think the right way to think about it is this effectively will serve as a hedge for a significant portion of our generation. If you take our nuclear fleet and we kind of reconcile what the PTC program will do, then reflect upon what Kathleen just said about its impact on the state programs. The net result is you have a pretty highly hedged portfolio with the PTC. We'll get into the details later on. The exact settlement of it and how the implementation plan will be settled all the way through the prices and down to the spot market will be critical. The best way I think on the retail business for us is we'll be able to still win our customer business. We'll have a portfolio that's a little bit more hedged to begin with, and will allow purchases in the market to help us serve the load portfolio continuously.

Stephen Byrd, Analyst

Great. Thank you.

Operator, Operator

Thank you. And our next question comes from Julien Dumoulin-Smith from Bank of America. Your line is now open.

Julien Dumoulin-Smith, Analyst

Good morning, team. Congratulations on the continued progress across your various efforts. Kudos to Kathleen and the team. I want to focus on a recent issue. Uranium prices have been rising sharply lately. I believe this is significant for you, and I want to understand how you view its impact on long-term hedging and procurement activities, as well as how it ultimately affects the core business.

Chris Crane, CEO

I think we're very well hedged through this period, and it's not like we haven't seen it before, but I'll let Bryan Hanson, our head of the Generating Company Operations, answer that.

Bryan Hanson, Head of Generating Operations

Thanks, Chris. Good morning, Julien. We think today's market fundamentals are much improved from the last uranium bull market that we saw in the 2008-2010 period. Demand is lower, primary mining supply has increased, and utility inventories are higher. We at Exelon hedge with a diverse portfolio of fuel contracts that include varying pricing mechanisms and varying horizons with a diverse group of qualified and reliable suppliers. We maintain a strategic inventory both to ensure security of supply for our reactors and to provide flexibility and purchase timing in the event of a market disruption like we're seeing today. We even maintain our uranium inventory in different material states, such as yellow cake or uranium hexafluoride gas. So we think we're well hedged and well ready for this current bull market. We're looking in the forward part of the LRP for any opportunities, and they're all well within our expectations that we see today.

Chris Crane, CEO

That would be a good point.

Bryan Hanson, Head of Generating Operations

Very good, Chris.

Julien Dumoulin-Smith, Analyst

Thank you all for confirming that, I appreciate it. Regarding the Hydrogen aspect, I heard the mention of partnering with Nel to explore and scale commercial opportunities as they arise in 2022. Could you share more about what that opportunity entails? Is it primarily about securing a firm uptake or does it also involve a portion of the economics over time? I understand it's still early in the process, but I’m curious to learn more about the potential of this opportunity, particularly in light of the credits available.

Chris Crane, CEO

Yeah. I don't think we're ready to give a full business model on it right now. I think we've got a good partnership with the DOE. Exelon, like other utility companies, sees a great use for hydrogen, whether it’s mixing it with natural gas to cut down the carbon loads or other means. Our strategy organization is still looking at transportation methodologies and doing some metallurgical research with other labs to ensure that if we were to replace natural gas pipelines with hydrogen pipelines, the embrittlement problem doesn’t become severe. So what we need to do first is perfect an efficient technology using our heat and steam to develop hydrogen. Then from there, we can continue to work with other stakeholders on where we put the hydrogen. Does it go in a mixed form with natural gas initially? Does it become, what was thought about ten years ago, the hydrogen economy? I don’t think we’re there yet. I think there's a lot of work to be done before we get there, but just having the grants and working with the labs and the government to start using a nuclear plant for something more than electricity because you've got all that waste heat and steam that can be redirected into developing very efficient hydrogen is key, and we will continue to explore from there.

Julien Dumoulin-Smith, Analyst

Got it. Just to clarify this, I imagine you wouldn't touch on the subject of capital allocation given the rise in commodity prices here. And when still stated equity needs. Still too early, right?

Chris Crane, CEO

Yes. Too early.

Julien Dumoulin-Smith, Analyst

Fair enough. We will leave it there. Thank you, guys. Best of luck here.

Chris Crane, CEO

Alright. Thanks.

Operator, Operator

Thank you. And our next question comes from Shar Pourreza from Guggenheim Partners. Your line is now open.

Shar Pourreza, Analyst

Hey guys, good morning.

Chris Crane, CEO

Morning.

Joe Nigro, CFO

Joe, can you just maybe further unpack, I guess the level of details and additional disclosures around the retail business that you plan to talk about at the Analyst Day, now that it's obviously a lot more in focus? And then in the interim, maybe just further elaborate in how we should think about the hedge profiles just given the lack of disclosures and significant moves in the curves. I mean, we appeared to not have been able to take as much advantage as expected, so maybe just a better sense here would help, even if it's directionally. Let me address the first question, Shar, and good morning. As I mentioned earlier, as we approach the separation date, we intend to hold an Analyst Day for both companies where we will provide updates on all financial details so you have a complete understanding of both entities. On the Exelon side, we will share our usual insights, including earnings trajectories and rate-based growth among other updates. For Constellation, we will offer details on the updated hedge disclosures and all other relevant information necessary for your modeling. However, these updates will not occur until we have more certainty and are closer to the actual separation execution. With that, Jim, I'll turn it over to you to answer the question.

Jim McHugh, Executive

Sure, I'll discuss hedging. In the outer years where we have less hedge, we've consistently mentioned our ratable hedge program, and we're still adhering to that. We're not significantly deviating from what we've historically communicated. The changes for 2022 are related to developments over the past quarter with legislation. We had previously indicated that certain assets would be retired, but after the legislation passed, we decided to reverse that retirement. This decision meant that for 2022, prior to the contract taking effect, we created a position that added extra generation to our portfolio, which we've managed to hedge since then. In the longer term, once the contract begins, those megawatts will be hedged through the CMC contracts. Thus, 2022 has a slightly different narrative at the start and end of the year because the contracts are ensuring long-term hedging. We hedged the additional length that was added back to our portfolio largely during this quarter's price movements, which has generally been a positive development. Moving into the outer years, aside from the contracted assets, we will continue to follow our traditional ratable hedge programs. As we look further into the future, we will tend to have more open position areas, as has been our historical approach.

Shar Pourreza, Analyst

Got it. That's actually a pretty interesting point. Thank you for that. And then just lastly, I know you guys are still working through the details, but can we just touch on how you're thinking about the SpinCo capital allocation? Just even briefly, right? I mean, your IPP peers have been very specific. Is this something we should expect to see from Constellation? Just maybe some high-level thoughts on how you and the board are thinking about approaching growth versus returning capital to shareholders.

Chris Crane, CEO

You know what? We're going through that modeling right now. As Joe Dominguez takes over and he puts his financial team together, they will be evaluating the best use of capital and what the opportunities are. Having a good investment-grade gives us a little bit more opportunity compared to what someone would call our peers, but we don't think that they are our peers because of the hedged portion of the nuclear plants. They will continue to evaluate that in the best way to create shareholder value, and Joe Dominguez, do you want to add any more?

Joe Dominguez, Executive

I don't think I can add much more at this point. We're looking at it carefully. As Chris said, we think we have some unique opportunities in this business around co-location of assets, hydrogen, and other things. That will depend on how the legislation plays out, and we've covered that. I think we'll have a lot more to say on that on Analyst Day, but at this point, we're really just studying options. I'm pretty excited about the opportunities in front of us.

Chris Crane, CEO

One thing I can say is, I don't see him building a new nuclear plant anytime soon.

Shar Pourreza, Analyst

Thank you for clarifying that, Chris. Appreciate it guys, and congrats.

Operator, Operator

And thank you. And our next question comes from Jeremy Tonet from JPMorgan. Your line is now open.

Unidentified Analyst, Analyst

Hi, good morning. It's actually Ryan on for Jeremy. Just had one on the regulated business and kind of understanding it's still early days, but the changes are the framework in Illinois and ComEd, and how you think at this stage about those two different options: that multi-year plan versus the traditional rate-making and how that might impact growth of customer bill impacts as we approach that date?

Calvin Butler, Executive

Hey, Ryan, this is Calvin Butler. First and foremost, the team is really looking through and analyzing all the metrics. And as you know, we're operating with the formula rate through the end of '22, and we'll decide early mid-year what that looks like going forward. But we're really making that determination now. We have not decided yet whether it's going to be a four-year multiyear plan or a forward-looking test year. We're doing that analysis now.

Unidentified Analyst, Analyst

Okay. Understood. And then just maybe one on ExGen, and I know you guys are going to be very successful in achieving on the assets laid out at the beginning of the year on the offset, kind of storm. And just thinking through, maybe you can provide more color on what those assets have been and any kind of incremental thoughts on relative sustainability going into future years?

Chris Crane, CEO

Bryan, you want to talk about what you're doing?

Bryan Hanson, Head of Generating Operations

Yeah, on the nuclear side where a lot of the offsets came from, in our capital allocation, our capital maintenance, many of those items were big, major transformer improvements, change-outs. We've simply moved those on a year or two. We bundled them the way we did because it streamlined our efficiencies and use of craft resources. We're able to skip a year or two on those, without challenges to reliability from that standpoint. Several of the other modifications included just material condition improvements that were always kept in the plan, but some of the digital upgrades we had planned for those years, we've moved those out a couple of years and are reassessing the economic viability of some of those improvements.

Chris Crane, CEO

Would you just bring them back Colorado Ben from hardening for the lessons learned.

Bryan Hanson, Head of Generating Operations

In our Texas operations, we have completed all necessary work to resolve the known and urgent issues resulting from Winter Storm Uri. We are wrapping up work at Colorado Ben, which is finished; our plant near Houston will follow, as we completed that work a couple of weeks ago, along with several enhancements aimed at protecting against future severe cold weather in Texas. We have made temporary improvements and are looking ahead to the long-term market signals for these facilities.

Unidentified Analyst, Analyst

Got it. I appreciate the color. I'll leave it there. Thank you.

Operator, Operator

Thank you for joining the call today. As you know, we're working hard to run the business at best-in-class levels and taking steps to ensure that we step up to become strong independent companies. We look forward to seeing you at EEI, I think, next week. It's coming quickly. With that, we'll close the call out and tell everybody to be safe. Thanks to all participants for joining us today. This concludes our presentation; you may now disconnect. Have a great day.