EXC Exelon Corp

Exelon Corporation (NYSE:EXC) announced fourth quarter 2016 consolidated earnings as follows:

           

Full Year

 

Fourth Quarter

   

2016

 

2015

 

2016

 

2015

GAAP Results:

   

Net Income ($ millions)

$1,134

$2,269

$204

$309

Diluted Earnings per Share

 

$1.22

 

$2.54

 

$0.22

 

$0.33

Adjusted (non-GAAP) Operating Results:

Net Income ($ millions)

$2,488

$2,227

$410

$347

Diluted Earnings per Share

 

$2.68

 

$2.49

 

$0.44

 

$0.38

 

“2016 was a monumental year for Exelon. We made great progress in the ongoing transformation of our company, with a focus on meeting our commitments to stakeholders via the PHI merger and the creation of the ZEC programs in both New York and Illinois that compensate our nuclear plants for their carbon-free attributes,” said Christopher M. Crane, Exelon President and CEO. “In addition, each of our operating companies turned in best-ever performance in a range of key metrics, which would not have been possible without the remarkable contributions of our 34,000 employees that work hard every day to keep the power and gas flowing for our customers.”

Fourth Quarter Operating Results

Exelon’s GAAP Net Income decreased to $0.22 per share in the fourth quarter of 2016 from $0.33 per share in the fourth quarter of 2015. Exelon's Adjusted (non-GAAP) Operating Earnings increased to $0.44 per share in the fourth quarter of 2016 from $0.38 per share in the fourth quarter of 2015.

Fourth quarter 2016 operating results include $0.05 per share of Pepco Holdings, LLC (PHI) Adjusted (non-GAAP) Operating Earnings, which was partially offset by incremental debt and equity costs incurred in connection with the merger. Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2016 also reflect the following favorable factors:

• Favorable impacts of decreased nuclear outage days at Generation;
• Favorable weather conditions at ComEd and PECO; and
• Higher utility earnings due to regulatory rate increases.

These factors were partially offset by:

• Lower capacity prices at Generation;
• Lower realized energy prices at Generation; and
• Increased depreciation and amortization expenses, primarily from an increase in capital expenditures across the operating companies.

Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2016 do not include the following items (after-tax) that were included in reported GAAP Net Income:

              (in millions)   (per diluted share)

Exelon GAAP Net Income

 

$204

 

$0.22

Mark-to-Market Impact of Economic Hedging Activities (44) (0.05) Unrealized Losses Related to Nuclear Decommissioning Trust (NDT) Fund Investments 9 0.01 Amortization of Commodity Contract Intangibles 26 0.03 Merger and Integration Costs 23 0.02 Reassessment of State Deferred Income Taxes 10 0.01 Asset Retirement Obligation (75) (0.08) Merger Commitments 38 0.04 Plant Retirements and Divestitures(1) 94 0.10 Cost Management Program 8 0.01 Curtailment of Generation Growth and Development Activities 57 0.06 Long-Lived Asset Impairments (1) — CENG Noncontrolling Interest   61   0.07

Exelon Adjusted (non-GAAP) Operating Earnings

 

$410

 

$0.44

(1) Includes after-tax $154 million of incremental accelerated depreciation from June 2, 2016 through December 6, 2016, pursuant to the second quarter decision to early retire the Clinton and Quad Cities nuclear generating facilities, which decision was reversed in December 2016.

 

Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2015 do not include the following items (after-tax) that were included in reported GAAP Net Income:

              (in millions)   (per diluted share)

Exelon GAAP Net Income

 

$309

 

$0.33

Unrealized Gains Related to NDT Fund Investments (51) (0.05) Amortization of Commodity Contract Intangibles 10 0.01 Merger and Integration Costs 9 0.01 Long-Lived Asset Impairments 6 0.01 Reassessment of State Deferred Income Taxes 41 0.05 Reduction in State Income Tax Reserve (10) (0.01) PHI Merger Related Redeemable Debt Exchange 13 0.01 CENG Noncontrolling Interest   20   0.02

Exelon Adjusted (non-GAAP) Operating Earnings

 

$347

 

$0.38

 

2017 Earnings Outlook

Exelon introduced a guidance range for 2017 Adjusted (non-GAAP) Operating Earnings of $2.50 to $2.80 per share. Operating Earnings guidance is based on the assumption of normal weather, which is determined based on historical average heating and cooling degree days for a 30-year period in the respective utilities' service territories, except at PHI, where a 20-year period is used.

The outlook for 2017 Adjusted (non-GAAP) Operating Earnings for Exelon and its subsidiaries excludes the following items:

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

Fourth Quarter and Recent Highlights

• Reversal of Decision to Early Retire Clinton and Quad Cities Nuclear Facilities: On Dec. 7, 2016, the Future Energy Jobs Act was signed into law by the Governor of Illinois and included a Zero Emission Standard (ZES) providing compensation in the form of a Zero Emission Credit (ZEC). The Illinois ZES will have a 10-year duration extending from June 1, 2017, through May 31, 2027. With the passage of the Illinois ZES, Generation has reversed its decision to permanently cease generation operations at the Clinton and Quad Cities nuclear generating plants, subject to prevailing over any potential administrative or legal challenges. Pursuant to this development, in December 2016 Exelon and Generation reversed approximately $120 million of the one-time charges initially recorded in June 2016 associated with the early retirements, primarily for employee-related costs and a materials and supplies inventory reserve adjustment, and adjusted the expected economic useful life for both facilities to 2027 for Clinton, commensurate with the end of the Illinois ZES, and to 2032 for Quad Cities, the end of its operating license.
• Nuclear Operations: Generation’s nuclear fleet, including its owned output from the Salem Generating Station and 100 percent of the Constellation Energy Group (CENG) units, produced 44,834 gigawatt-hours (GWh) in the fourth quarter of 2016, compared with 43,832 GWh in the fourth quarter of 2015. Excluding Salem, the Exelon-operated nuclear plants at ownership achieved a 94.2 percent capacity factor for the fourth quarter of 2016, compared with 93.3 percent for the fourth quarter of 2015. The number of planned refueling outage days totaled 71 in the fourth quarter of 2016, compared with 103 in the fourth quarter of 2015. There were 32 non-refueling outage days in the fourth quarter of 2016, compared with 21 days in the fourth quarter of 2015.
• Fossil and Renewable Operations: The Dispatch Match rate for Generation’s gas and hydro fleet was 99.7 percent in the fourth quarter of 2016, compared with 97.3 percent in the fourth quarter of 2015. Energy Capture for the wind and solar fleet was 95.7 percent in the fourth quarter of 2016, compared with 95.3 percent in the fourth quarter of 2015.
• ComEd Electric Distribution Rate Case: On Dec. 6, 2016, the Illinois Commerce Commission issued its final order approving ComEd's 2016 annual distribution formula rate update. The final order resulted in an increase to the revenue requirement of $127 million. The increase was set using an allowed return on capital of 6.69 percent (inclusive of an allowed ROE of 8.64 percent for 2016 less a reliability performance metric penalty of 5 basis points for the 2015 reconciliation). The rates took effect in January 2017.
• Pepco Maryland Electric Distribution Rate Case: On Nov. 15, 2016, the Maryland Public Service Commission approved an electric rate increase of $53 million based on an allowed ROE of 9.55 percent. The approved electric delivery rates became effective for services rendered on or after Nov. 15, 2016.
• Settlement of Baltimore City Conduit Fee Dispute: On Nov. 30, 2016, the Baltimore City Board of Estimates approved a favorable settlement agreement entered into between BGE and the City of Baltimore to resolve certain disputes and pending litigation related to BGE's use of the city-owned underground conduit system, resulting in a credit to expense in the fourth quarter.
• Financing Activities: On Dec. 12, 2016, DPL issued $175 million aggregate principal amount of its 4.15 percent First Mortgage Bonds, due May 15, 2045. The proceeds of the sale of the bonds were used by DPL to refinance maturing mortgage bonds, repay commercial paper and for general corporate purposes.
• Hedging Update: Exelon’s hedging program involves the hedging of commodity risk for Exelon’s expected generation, typically on a ratable basis over a three-year period. Expected generation is the volume of energy that best represents our commodity position in energy markets from owned or contracted generating facilities upon a simulated dispatch model that makes assumptions regarding future market conditions, which are calibrated to market quotes for power, fuel, load following products, and options. The proportion of expected generation hedged as of Dec. 31, 2016, was 91 percent to 94 percent for 2017, 56 percent to 59 percent for 2018, and 28 percent to 31 percent for 2019. 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

ComEd consists of electricity transmission and distribution operations in northern Illinois.

ComEd's fourth quarter 2016 GAAP Net Income was $80 million, compared with net income of $87 million in the fourth quarter of 2015. Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2016 do not include merger and integration costs that were included in reported GAAP earnings. A reconciliation of Adjusted (non-GAAP) Operating Earnings to GAAP Net Income is presented in the table below:

          ($ millions)  

4Q16

  4Q15

ComEd GAAP Net Income

 

$80

 

$87

Merger and Integration Costs   1   —

ComEd Adjusted (non-GAAP) Operating Earnings

 

$81

 

$87

 

ComEd’s Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2016 decreased $6 million compared with the same quarter in 2015, primarily due to the impacts of certain one-time ordered and proposed adjustments to ComEd's 2015 and 2016 electric distribution formula revenues.

For the fourth quarter of 2016, heating degree-days in the ComEd service territory were up 18.6 percent relative to the same period in 2015 and 11.2 percent below normal. Total retail electric deliveries increased 3.3 percent in the fourth quarter of 2016 compared with the same period in 2015.

Weather-normalized retail electric deliveries remained relatively consistent in the fourth quarter of 2016 relative to 2015.

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

PECO’s fourth quarter 2016 GAAP Net Income was $92 million, compared with $79 million in the fourth quarter of 2015. Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2016 do not include merger and integration costs and cost management program costs that were included in reported GAAP earnings. A reconciliation of GAAP Net Income to Adjusted (non-GAAP) Operating Earnings is presented in the table below:

          ($ millions)   4Q16   4Q15

PECO GAAP Net Income

 

$92

 

$79

Merger and Integration Costs 1 — Cost Management Program   1   —

PECO Adjusted (non-GAAP) Operating Earnings

 

$94

 

$79

 

PECO’s Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2016 increased $15 million from the same quarter in 2015, primarily due to favorable weather and increased electric distribution revenue pursuant to increased rates effective January 2016, partially offset by an increase in uncollectible accounts expense.

For the fourth quarter of 2016, heating degree-days in the PECO service territory were up 45.3 percent relative to the same period in 2015 and were 12.7 percent below normal. Cooling degree-days were up 100.0 percent from prior year and 82.6 percent above normal. Total retail electric deliveries were up 4.6 percent compared with the fourth quarter of 2015. Natural gas deliveries (including both retail and transportation components) in the fourth quarter of 2016 were up 26.1 percent compared with the same period in 2015.

Weather-normalized retail electric deliveries decreased 1.3 percent in the fourth quarter of 2016 compared with the same period in 2015, while gas deliveries remained relatively consistent.

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

BGE’s fourth quarter 2016 GAAP Net Income was $103 million, compared with $74 million in the fourth quarter of 2015. Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2016 do not include merger and integration costs and cost management program costs that were included in reported GAAP earnings. A reconciliation of GAAP Net Income to Adjusted (non-GAAP) Operating Earnings is presented in the table below:

          ($ millions)   4Q16   4Q15

BGE GAAP Net Income

 

$103

 

$74

Merger and Integration Costs 1 — Cost Management Program   1   —

BGE Adjusted (non-GAAP) Operating Earnings

 

$105

 

$74

 

BGE’s Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2016 increased $31 million from the same quarter in 2015, primarily due to increased distribution revenue pursuant to increased rates effective June 2016, decreased uncollectible accounts expense and the settlement of the Baltimore City conduit fee dispute, partially offset by increased amortization due to the initiation of cost recovery of the AMI programs. Due to revenue decoupling, BGE is not affected by actual weather with the exception of major storms.

PHI consists of electricity transmission and distribution operations in the District of Columbia and portions of Maryland, Delaware, and New Jersey and retail natural gas distribution operations in northern Delaware.

PHI’s fourth quarter 2016 GAAP Net Income was $30 million. Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2016 do not include merger and integration costs and merger commitments that were included in reported GAAP Net Income. A reconciliation of GAAP Net Income to Adjusted (non-GAAP) Operating Earnings is presented in the table below:

      ($ millions)   4Q16

PHI GAAP Net Income

 

$30

Merger and Integration Costs 4 Merger Commitments   8

PHI Adjusted (non-GAAP) Operating Earnings

 

$42

 

PHI's Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2016 includes the impact from approved rate case orders in 2016.

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 and risk management services.

Generation's fourth quarter 2016 GAAP Net Loss was $41 million, compared with Net Income of $154 million in the fourth quarter of 2015. Adjusted (non-GAAP) Operating Earnings for the fourth quarter of 2016 and 2015 do not include various items (after- tax) that were included in reported GAAP earnings. A reconciliation of GAAP Net (Loss) Income to Adjusted (non-GAAP) Operating Earnings is presented in the table below:

          ($ millions)   4Q16   4Q15

Generation GAAP Net (Loss) Income

 

$(41)

 

$154

Mark-to-Market Impact of Economic Hedging Activities (44) — Unrealized Losses (Gains) Related to NDT Fund Investments 9 (51) Amortization of Commodity Contract Intangibles 26 10 Merger and Integration Costs 15 2 Reassessment of State Deferred Income Taxes 14 11 Asset Retirement Obligation (75) — Merger Commitments 40 — Plant Retirements and Divestitures(1) 94 — Cost Management Program 6 — Curtailment of Generation Growth and Development Activities 57 — Long-Lived Asset Impairments — 6 Reduction in State Income Tax Reserve — (10) CENG Noncontrolling Interest   61   20

Generation Adjusted (non-GAAP) Operating Earnings

 

$162

 

$142

(1) Includes after-tax $154 million of incremental accelerated depreciation from June 2, 2016 through December 6, 2016, pursuant to the second quarter decision to early retire the Clinton and Quad Cities nuclear generating facilities, which decision was reversed in December 2016.

 

Generation’s Adjusted (non-GAAP) Operating Earnings in the fourth quarter of 2016 increased $20 million compared with the same quarter in 2015, primarily due to decreased nuclear outage days, the impacts of Generation's gas portfolio, the impact of the Ginna Reliability Support Services Agreement and the inclusion of ConEdison Solutions results in 2016, partially offset by lower realized energy prices, decreased capacity prices and increased depreciation expense.

Non-GAAP Financial Measures

In addition to net income as determined under generally accepted accounting principles in the United States (GAAP), Exelon evaluates its operating performance using the measure of Adjusted (non-GAAP) Operating Earnings because management believes it represents earnings directly related to the ongoing operations of the business. Adjusted (non-GAAP) Operating Earnings exclude certain costs, expenses, gains and losses and other specified items. This measure is intended to enhance an investor’s overall understanding of period over period operating results and provide an indication of Exelon’s baseline operating performance excluding items that are considered by management to be not directly related to the ongoing operations of the business. In addition, this measure is among the primary indicators management uses as a basis for evaluating performance, allocating resources, setting incentive compensation targets and planning and forecasting of future periods. Adjusted (non-GAAP) Operating Earnings is not a presentation defined under GAAP and may not be comparable to other companies’ presentation. The Company has provided the non-GAAP financial measure as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. Adjusted (non-GAAP) Operating Earnings should not be deemed more useful than, a substitute for, or an alternative to the most comparable GAAP measures provided in this earnings release and attachments. This press release and earnings release attachments provide reconciliations of adjusted (non-GAAP) Operating Earnings to the most directly comparable financial measures calculated and presented in accordance with GAAP, are posted on Exelon’s website: www.exeloncorp.com, and have been furnished to the Securities and Exchange Commission on Form 8-K on February 8, 2017.

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, Exelon Generation Company, LLC, Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company, Pepco Holdings LLC (PHI), Potomac Electric Power Company, Delmarva Power & Light Company, and Atlantic City Electric Company (Registrants) include those factors discussed herein, as well as the items discussed in (1) Exelon’s 2015 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 23; (2) PHI’s 2015 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 16; (3) Exelon’s Third Quarter 2016 Quarterly Report on Form 10-Q 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 18 and (4) 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 a Fortune 100 energy company with the largest number of utility customers in the U.S. Exelon does business in 48 states, the District of Columbia and Canada and had 2016 revenue of $31.4 billion. Exelon’s six utilities deliver electricity and natural gas to approximately 10 million customers in Delaware, the District of Columbia, Illinois, Maryland, New Jersey and Pennsylvania through its Atlantic City Electric, BGE, ComEd, Delmarva Power, PECO and Pepco subsidiaries. Exelon is one of the largest competitive U.S. power generators, with more than 32,700 megawatts of nuclear, gas, wind, solar and hydroelectric generating 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 2.5 million residential, public sector and business customers, including more than two-thirds of the Fortune 100. Follow Exelon on Twitter @Exelon.

   

EXELON CORPORATION

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

(unaudited)

(in millions, except per share data)

  Three Months Ended December 31, 2016 Three Months Ended December 31, 2015       Adjusted       Adjusted GAAP (a) Adjustments Non-GAAP GAAP (a) Adjustments Non-GAAP Operating revenues $ 7,875 $ 177 (b),(d) $ 8,052 $ 6,702 $ (20 ) (b),(d) $ 6,682 Operating expenses Purchased power and fuel 3,178 184

 

(b),(d),(i) 3,362 2,874 (33 ) (b),(d) 2,841 Operating and maintenance 2,371 107 (e),(g),(h), 2,478 2,204 (24 ) (e),(l) 2,180 (i),(j),(k) Depreciation and amortization 1,115 (251 ) (i) 864 633 — 633 Taxes other than income 408   —   408   292   —   292   Total operating expenses 7,072 40 7,112 6,003 (57 ) 5,946 Gain (Loss) on sales of assets (89 ) 89   —   8   —   8   Operating income 714   226   940   707   37   744   Other income and (deductions) Interest expense, net (356 ) — (356 ) (278 ) — (278 ) Other, net 33   37   (c),(i),(k) 70   134   (73 ) (c),(n) 61   Total other income and (deductions) (323 ) 37   (286 ) (144 ) (73 ) (217 ) Income before income taxes 391 263 654 563 (36 ) 527 Income taxes 136 118 (b),(c),(d), 254 268 (54 ) (b),(c),(d), 214 (e),(f),(g), (e),(f),(l), (h),(i),(j), (m),(n) (k) Equity in losses of unconsolidated affiliates (8 ) —   (8 ) (4 ) —   (4 ) Net income 247 145 392 291 18 309 Net income (loss) attributable to noncontrolling interests and preference stock dividends 43   (61 ) (o) (18 ) (18 ) (20 ) (o) (38 ) Net income attributable to common shareholders $ 204   $ 206   $ 410   $ 309   $ 38   $ 347   Effective tax rate 34.8 % 38.8 % 47.6 % 40.6 % Earnings per average common share Basic $ 0.22 $ 0.22 $ 0.44 $ 0.34 $ 0.04 $ 0.38   Diluted $ 0.22   $ 0.22   $ 0.44   $ 0.33   $ 0.05   $ 0.38   Average common shares outstanding Basic 925 925 921 921 Diluted 928 928 924 924 Effect of adjustments on earnings per average diluted common share recorded in accordance with GAAP: Mark-to-market impact of economic hedging activities (b) $ (0.05 ) $ — Unrealized losses (gains) related to NDT fund investments (c) 0.01 (0.05 ) Amortization of commodity contract intangibles (d) 0.03 0.01 Merger and integration costs (e) 0.02 0.01 Reassessment of state deferred income taxes (f) 0.01 0.05 Asset retirement obligation (g) (0.08 ) — Merger commitments (h) 0.04 — Plant retirements and divestitures (i) 0.10 — Cost management program (j) 0.01 — Curtailment of Generation growth and development activities (k) 0.06 — Long-lived asset impairment (l) — 0.01 Reduction in state income tax reserve (m) — (0.01 ) PHI merger related redeemable debt exchange (n) — 0.01 Noncontrolling interest (o) 0.07   0.02   Total adjustments $ 0.22   $ 0.05      

For the three months ended December 31, 2016, includes financial results for PHI. Therefore, the results of operations from 2016 and 2015 are not comparable for Exelon. The explanations below identify any other significant or unusual items affecting the results of operations.

  (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 unrealized gains and losses on NDT fund investments to the extent not offset by contractual accounting as described in the notes to the consolidated financial statements. (d) Adjustment to exclude the non-cash amortization of intangible assets, net, related to commodity contracts recorded at fair value related to the Integrys acquisition in 2015 and the Integrys and ConEdison Solutions acquisitions in 2016. (e) Adjustment to exclude certain costs associated with mergers and acquisitions, including, if and when applicable, professional fees, employee-related expenses, integration activities and upfront credit facilities fees related to the PHI acquisition and pending FitzPatrick acquisition. (f) Adjustment to exclude the non-cash impact of the remeasurement of state deferred income taxes, primarily as a result of changes in forecasted apportionment. (g) Adjustment to exclude a non-cash benefit pursuant to the annual update of the Generation nuclear decommissioning obligation related to the non-regulatory units. (h) Adjustments to exclude costs incurred as part of the settlement orders approving the PHI acquisition and in 2016, a charge related to a 2012 CEG merger commitment. (i) Adjustment to primarily exclude incremental accelerated depreciation and amortization expenses from June 2, 2016 through December 6, 2016 pursuant to the second quarter decision to early retire the Clinton and Quad Cities nuclear generating facilities, which decision was reversed in December 2016, partially offset by the reversal of certain one-time charges for materials & supplies inventory reserves and severance reserves upon Generation’s decision to continue operating the plants with the passage of the Illinois Zero Emission Standard. (j) Adjustment to exclude 2016 reorganization costs related to a cost management program. (k) Adjustment to exclude the one-time recognition of a loss on sale of assets and asset impairment charges pursuant to Generation’s strategic decision in the fourth quarter of 2016 to narrow the scope and scale of its growth and development activities. (l) Adjustment to exclude a 2015 charge to earnings primarily related to the impairment of upstream assets at Generation. (m) Adjustment to exclude the 2015 reduction of a previously recorded state income tax reserve associated with the 2014 sales of Keystone and Conemaugh. (n) Adjustment to exclude the costs associated with the exchange and redemption in December 2015 of certain mandatorily redeemable debt issued to finance the PHI merger. (o) Adjustments to exclude Generation's noncontrolling interest related to CENG exclusion items, primarily related to the impact of unrealized gains and losses on NDT fund investments and changes in asset retirement obligations in 2016, and in 2015 the impact of unrealized gains and losses on NDT fund investments.       EXELON CORPORATION Reconciliation of GAAP Consolidated Statements of Operations to Adjusted (non-GAAP) Operating Earnings

(unaudited)

(in millions, except per share data)

  Twelve Months Ended December 31, 2016 Twelve Months Ended December 31, 2015       Adjusted       Adjusted GAAP (a) Adjustments Non-GAAP GAAP (a) Adjustments Non-GAAP Operating revenues $ 31,360 $ 545 (b),(d),(e) $ 31,905 $ 29,447 $ (210 ) (b),(d) $ 29,237 Operating expenses Purchased power and fuel 12,640 395 (b),(d),(j) 13,035 13,084 55 (b),(d) 13,139 Operating and maintenance 10,048 (849 ) (e),(f),(g), 9,199 8,322 (90 ) (e),(f),(g), 8,232 (i),(j),(k), (p) (m) Depreciation and amortization 3,936 (704 ) (e),(j) 3,232 2,450 — 2,450 Taxes other than income 1,576   (1 ) (k) 1,575   1,200   —   1,200   Total operating expenses 28,200 (1,159 ) 27,041 25,056 (35 ) 25,021 Gain (Loss) on sales of assets (48 ) 57   9   18   —   18   Operating income 3,112   1,761   4,873   4,409   (175 ) 4,234   Other income and (deductions) Interest expense, net (1,536 ) 153 (l) (1,383 ) (1,033 ) (27 ) (e),(o),(n) (1,060 ) Other, net 413 (124 ) (c),(j),(l), 289 (46 ) 284 (c),(r) 238         (m)                 Total other income and (deductions) (1,123 ) 29   (1,094 ) (1,079 ) 257   (822 ) Income before income taxes 1,989 1,790 3,779 3,330 82 3,412 Income taxes 761 538 (b),(c),(d), 1,299 1,073 92 (b),(c),(d), 1,165 (e),(f),(g), (e),(f),(g), (h),(i),(j), (h),(n),(o), (k),(l),(m) (p),(q),(r) Equity in losses of unconsolidated affiliates (24 ) —   (24 ) (7 ) —   (7 ) Net income 1,204 1,252 2,456 2,250 (10 ) 2,240 Net income (loss) attributable to noncontrolling interests and preference stock dividends 70   (102 ) (s) (32 ) (19 ) 32   (s) 13   Net income attributable to common shareholders $ 1,134   $ 1,354   $ 2,488   $ 2,269   $ (42 ) $ 2,227   Effective tax rate 38.3 % 34.4 % 32.2 % 34.1 % Earnings per average common share Basic $ 1.23 $ 1.47 $ 2.70 $ 2.55 $ (0.05 ) $ 2.50 Diluted $ 1.22   $ 1.46   $ 2.68   $ 2.54   $ (0.05 ) $ 2.49   Average common shares outstanding Basic 924 924 890 890 Diluted 927 927 893 893 Effect of adjustments on earnings per average diluted common share recorded in accordance with GAAP: Mark-to-market impact of economic hedging activities (b) $ 0.03 $ (0.18 ) Unrealized (gains) losses related to NDT fund investments (c) (0.13 ) 0.13 Amortization of commodity contract intangibles (d) 0.04 — Merger and integration costs (e) 0.12 0.07 Long-lived asset impairment (f) 0.11 0.02 Asset retirement obligation (g) (0.08 ) (0.01 ) Reassessment of state deferred income taxes (h) 0.01 0.05 Merger commitments (i) 0.47 — Plant retirements and divestitures (j) 0.47 — Cost management program (k) 0.04 — Like-kind exchange tax position (l) 0.21 — Curtailment of Generation growth and development activities (m) 0.06 — Tax settlements (n) — (0.06 ) Mark-to-market impact of PHI merger related swaps (o) — (0.02 ) Midwest Generation bankruptcy recoveries (p) — (0.01 ) Reduction in state income tax reserve (q) — (0.01 ) PHI merger related redeemable debt exchange (r) — 0.01 Noncontrolling interest (s) 0.11   (0.04 ) Total adjustments $ 1.46   $ (0.05 )     As a result of the PHI acquisition completion on March 23, 2016, the table includes financial results for PHI beginning on March 24, 2016 to December 31, 2016. Therefore, the results of operations from 2016 and 2015 are not comparable for Exelon. The explanations below identify any other significant or unusual items affecting the results of operations.   (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 unrealized gains and losses on NDT fund investments to the extent not offset by contractual accounting as described in the notes to the consolidated financial statements. (d) Adjustment to exclude the non-cash amortization of intangible assets, net, related to commodity contracts recorded at fair value related to the Integrys acquisition in 2015 and the Integrys and ConEdison Solutions acquisitions in 2016. (e) Adjustment to exclude certain costs associated with mergers and acquisitions, including, if and when applicable, professional fees, employee-related expenses, integration activities, and upfront credit facilities fees related to the PHI acquisition and pending FitzPatrick acquisition, partially offset in 2016 at ComEd, BGE and PHI by the anticipated recovery of previously incurred PHI acquisition costs. (f) Adjustment to exclude a 2015 charge to earnings primarily related to the impairment of investment in long-term leases at Corporate and 2016 charges to earnings primarily related to the impairment of upstream assets and certain wind projects at Generation. (g) Adjustment to exclude a non-cash benefit pursuant to the annual update of the Generation nuclear decommissioning obligation related to the non-regulatory units. (h) Adjustment to exclude the non-cash impact of the remeasurement of state deferred income taxes, primarily as a result of changes in forecasted apportionment. (i) Adjustments to exclude costs incurred as part of the settlement orders approving the PHI acquisition and in 2016, a charge related to a 2012 CEG merger commitment. (j) Adjustment to primarily exclude accelerated depreciation and amortization expenses through December 2016 and construction work in process impairments associated with Generation’s previous decision to early retire the Clinton and Quad Cities nuclear facilities, partially offset by a gain associated with Generation's 2016 sale of the New Boston generating site. (k) Adjustment to exclude 2016 severance expense and reorganization costs related to a cost management program. (l) Adjustment to exclude the recognition of a penalty and associated interest expense in the third quarter of 2016, as a result of a tax court decision on Exelon's like-kind exchange tax position. (m) Adjustment to exclude the one-time recognition of a loss on sale of assets and asset impairment charges pursuant to Generation’s strategic decision in the fourth quarter of 2016 to narrow the scope and scale of its growth and development activities. (n) Adjustment to exclude benefits related to the favorable settlements in 2015 of certain income tax positions on Constellation's pre-acquisition tax returns. (o) Adjustment to exclude the impact of mark-to-market activity on forward-starting interest rate swaps held at Exelon Corporate related to financing for the PHI acquisition, which were terminated on June 8, 2015. (p) Adjustment to exclude the 2015 benefit for the favorable settlement of a long-term railcar lease agreement pursuant to the Midwest Generation bankruptcy. (q) Adjustment to exclude the 2015 reduction of a previously recorded state income tax reserve associated with the 2014 sales of Keystone and Conemaugh. (r) Adjustment to exclude costs associated with the exchange and redemption in December 2015 of certain mandatorily redeemable debt issued to finance the PHI merger. (s) Adjustments to exclude the elimination from Generation’s results of the noncontrolling interest related to CENG exclusion items, primarily related to the impact of unrealized gains and losses on NDT fund investments and mark-to-market activity.

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Exelon CorporationDan Eggers, 312-394-2345Investor RelationsorPaul Adams, 410-470-4167Corporate Communications