Exelon Corporation (NASDAQ:EXC) Q3 2022 Earnings Conference Call November 3, 2022 10:00 AM ET
Andy Plenge – Vice President of Investor Relations
Chris Crane – Chief Executive Officer
Jeanne Jones – Chief Financial Officer
Gil Quiniones – Chief Executive Officer, ComEd
Calvin Butler – President and Chief Operating Officer
Conference Call Participants
Ross Fowler – UBS
Steve Fleishman – Wolfe Research
David Arcaro – Morgan Stanley
Jeremy Tonet – JPMorgan
Michael Lapides – Goldman Sachs
Good day and thank you for standing by. Welcome to the Q3 2022 Exelon Corporation Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.
And I would now like to hand the conference over to your speaker today, Mr. Andy Plenge, Vice President of Investor Relations. Sir, please go ahead.
Thank you, Chris. Good morning everyone and thank you for joining our third quarter 2022 earnings conference call. Leading the call today are Chris Crane, Exelon’s Chief Executive Officer; and Jeanne Jones, Exelon’s Chief Financial Officer. They’re joined by Calvin Butler, Exelon’s President and Chief Operating Officer, who will join Chris, Jeanne and other members of Exelon’s senior management team to answer your questions following prepared remarks. We issued our earnings release this morning along with the presentation, all of which can be found in the Investor Relations section of Exelon’s website.
The earnings release and other matters, which we discuss 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 this call. Please refer to today’s 8-K and Exelon’s other SEC filings for discussions of risk factors and other factors 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. We’ve scheduled 60 minutes for today’s call.
I’ll now turn the call over to Chris Crane, Exelon’s CEO.
Thanks, Andy, and good morning to everybody. We’re glad to have you with us this morning. As you know – as you all know, yesterday, we announced my retirement from Exelon at the end of the year due to some health reasons. I plan on addressing that at the end of the call after reviewing the operational and financial update of the quarter. Let me turn through, first, though, to the operating aspects of that announcement. Calvin Butler, our President and Chief Operating Officer become the President and CEO and a member of the Exelon Board on my retirement. Since Calvin began with us to comment, he has been a key part the development of our industry-leading platform. During his time at BGE, he made customer satisfaction best-in-class, significantly increase the leadership diversity and became CEO of Exelon Utilities after that. In that role, he continue to push the operating companies to align with the management model and drive industry-leading operational excellence.
Jeanne is now CFO, which we’re very pleased with. Jeanne has been with Exelon for 15 years in various finance roles across the corporate and the former nuclear division. She was CFO at ComEd and most recently, Senior Vice President of Exelon Corporation. Jeanne has a very strong background and experienced positions for well for expanded responsibility. You’ll hear from Jeanne momentarily for the financial update. And both Calvin and Jeanne will join me for the Q&A of the call. I would also like to thank Joe Nigro for his work launching the new Exelon and successfully executing the spin.
Happy to report solid performance for the quarter. The investments we’re making are on behalf of our customers and continue to drive strong operations and financial results. We reported GAAP earnings of $0.68 per share and adjusted operating earnings of $0.75 per share. We are reaffirming the midpoint of our range and narrowing it by $0.06. Jeanne will provide more color on that. We continue to execute at high operational levels, which I’ll speak more about on the next slide. We had a construction rate case outcome this quarter. The commission in Delaware and Pennsylvania improve settlements on gas situation rates for Delmarva and [indiscernible]. We also reached a settlement on key elements with the first multi-year filing for Delmarva Power first settlement for the multiyear plan. We expect the final order in December.
In Illinois, ComEd received the final order on its performance tracking mechanisms and the plan in September. That’s a big milestone on the transition they’re making to a multiyear distribution rate construct, and it gives us a good foundation to build upon. As a result, we intend to file a multiyear distribution plan in January with a four-year rate structure beginning January 1, 2024, continuing through the end of 2026 choosing the multiyear plan over a future test year is the right choice for our customers and our shareholders. We appreciate the transparency and forward-looking planning in rate predictability that it allows. Our rate case will be filed at the same time as our multiyear integrated grid plant with the final order by the end of 2023. So there has been a lot of good operational and financial progress this year and we’re on track to close a very strong year.
We know investors are focused on our outlook this year. First, I’ll update you on the Inflation Reduction Act. We’ve always strived for transparency. So last quarter, we communicated the potential impact or higher annual cash tax as a result of the IRA. Since passing the bill, we’ve been working with the industry and we remain optimistic that Treasury will implement the guidelines in a way that materially mitigates the impact. Regardless of the outcome of Treasury, we’re reaffirming our 6% to 8% annual growth target from 21 to 25, which I’ll talk bit more about shortly. In addition to reaffirming our growth commitment, we have emphasized the impact of the potential higher cash tax. Even in the event of the impact is not mitigated through treasury regulations. We expect that higher cash needs will not require us to issue additional equity beyond the original $1 billion commitment through 2025.
On the positive side, the Inflation Reduction Act is very beneficial for our customers as we lead the energy transition. We look forward to the moment that we will build an industry as the industry takes advantage of this historic legislation past this year.
Our jurisdictions were already driving for clean and federal support enacted this year is more affordable and accessible to customers. We see opportunities in terms of [indiscernible] to connect renewables, support alternative fuel production and distribution, and make the grid ready for increased electrification, including electric vehicles. Legislation alongside the Infrastructure Jobs Act provide more than $550 billion funding for energy related infrastructure over the next 10 years, which will generate significant demand for our investments we make.
Finally, I’d like to talk about our growth outlook. We told you on Analyst Day, we expect to invest $29 million of capital to serve our customers in our communities over the next four years, which supports an annual growth rate of 8.1% that will drive the long-term earnings growth rate. As many of you know the path to achieving our annualized growth target is not linear, but 6% to 8% commitment through 2025 is our focus, largely because the cadence of rate cases, we have some years that maybe lower than that range and other years that will be above that range. We’ll see that more clearly when Jeanne covers Slide 9.
On the operational highlights, Slide 5. We continue to ensure customers receive safety, affordability, and reliability and clean, which underpins everything they do. Excuse me. Reliability remains at top notch, we are again at top quartile for outage duration over all of our jurisdictions and outage frequency performance remains at high levels. ComEd and PECO achieved their best on record performance. In fact, through the third quarter of 2022, ComEd has delivered the most reliable service it ever has an over a 100 years.
Reliability is 82% better than when ComEd had set out on a smart grid improvements in 2011. Our customers have greatly benefited from the investment as reliability on the grid increases.
Through the third quarter BGE and ComEd – a testament to the reliability, I got a page ahead of my stuff. A testament to the reliability has increased data center growth in the ComEd district in the last few years. The data center additions have aggregated about 500 megawatts of new demand each year, approximately nine times the average of the annual amount seen in earlier in the prior decade. For safety ComEd maintains top decile performance, but the three other utilities continue to fall outside of that level [indiscernible].
We expect only the highest safety standards and performance for all utilities. Each utility is dedicated to implementing safety practices developed through lessons learned to minimize the chance of incident, and there’s an intense training program going on with our personalized supervisors to help further educate and it has set the expectation, which all utilities are participating together, which helps.
Through third quarter – excuse me, three quarters BGE, ComEd, PECO remain in top quartile of customer satisfaction performance. Lastly, we remain top decile performance in odor response across our three gas utilities.
For the third quarter in a row, PHI responded to all gas odor reports in less than one hour.
Let me turn to Jeanne to provide the financial update.
Thank you, Chris. And good morning everyone. Today will cover our third quarter results, completed an upcoming rate case activity, and then as Chris noted, provide further clarity on our earnings growth trajectory and potential balance sheet implications of the corporate minimum tax.
On Slide 6, we show our quarter-over-quarter adjusted operating earnings. Exelon’s continuing operations earned $0.75 per share in the third quarter of 2022 versus $0.53 per share in the third quarter of 2021. As a reminder, the prior year third quarter reflects an $0.08 per share discontinued operations adjustments for certain corporate and overhead costs, previously allocated to generation that are required by accounting roles to be presented as part of Exelon’s continuing operations. These costs were paid for by generation and they are not indicative of our corporate overhead post separation.
Excluding this $0.08 adjustment, Exelon third quarter results were $0.14 per share higher than the third quarter of 2021. The earnings growth was driven primarily by higher distribution rates associated with incremental investments and completed rate cases relative to third quarter 2021. The impact of higher treasury rates on ComEd’s distribution ROE, the absence of summer storm activity and distribution formula rate, timing at ComEd. This was partially offset by depreciation and amortization and higher interest expense on debt at the holding company. Year-to-date, results in drivers from the prior year are detailed on Appendix 540.
Turning to the full year, we are narrowing our 2022 EPS guidance range to $2.21 to $2.29 per share from $2.18 to $2.32 per share. At Analyst Day, we told you we expected to earn 28% of our full year earnings in the first quarter, 20% in the second quarter, and 32% in the third quarter, or about 80% of full year earnings by the end of the third quarter. Delivering year-to-date earnings of $1.84 per share puts us slightly ahead at 82% of the midpoint of our revised guidance range, which considers the impact of higher treasury come on the distribution ROE, the absence of storms and our continued disciplined approach to cost management.
These benefits are partially offset by higher financing costs at corporate and the businesses along with one-time items occurred in the first quarter. We are delivering on our financial commitments and are confident we will be within our revised guidance range at year-end.
Moving to Slide 7. Looking at our utility returns on a consolidated basis, our trailing 12-month ROE as of the third quarter has improved to 9.3% and is back within our 9% to 10% targeted range. The 50 basis point increase from last quarter is in line with expectations as timing of equity infusions from the first half of the year are offset by the earnings growth in the second half of the year.
As discussed on previous calls, we expect a trailing 12-month ROE to remain in our 9% to 10% target range at year-end. Our focus continues to be delivering strong earned returns at the utilities, which sustain the investment we make on behalf of our customers.
Turning to Slide 8. There were some important developments in our open distribution rate case proceedings this quarter. Our successful execution builds momentum into 2023 when several jurisdictions expect to file a multi-year plans.
Let me begin by highlighting key developments in the 2022 rate cases. On October 12, the Delaware Public Service Commission approved Delmarva Power settlement agreement without modification for its gas distribution rate case. The settlement was for a $13.4 million increase in distribution rates, which includes the transfer of $5.8 million of revenues from the distribution system improvement charge capital tracker into base distribution rates, reflecting an ROE of 9.6%. As permitted by Delaware law, Delmarva Power implemented full allowable rates on August 14, subject to refund.
Additionally, on October 27, the Pennsylvania Public Utility Commission issued an order approving the joint petition for settlement in PECO’s GAAP rate case including an annual natural gas distribution revenues increase of $54.8 million beginning January 1, 2023. We also have two rate cases pending final orders.
Notably, Delmarva Power reached a settlement on the majority of key elements for its first electric distribution multi-year plan with the Maryland Public Service Commission, including a cumulative revenue increase of $28.9 million beginning in 2023 through 2025, reflecting an ROE of 9.6%.
The ability to reach this settlement is a testament of the many benefits of this progressive rate design, including customer rate predictability, ease of regulatory burden and transparency into future system investments at our utilities. We expect a final order from the commission by year-end.
Lastly, we expect a final order on ComEd’s final distribution formulary update in the fourth quarter. More details on the 2022 rate cases can be found on Slides 18 through 22 of the appendix.
Turning to 2023 rate filings. ComEd continues to prepare for a new rate filing in January of 2023. Throughout 2022, ComEd has been working with stakeholders on the performance metrics proceeding. On September 27, the Illinois Commerce Commission issued its order approving the performance and tracking metrics plans, which includes seven performance metrics with a total value of plus or minus 32 basis points.
The order paves the way for ComEd’s first multi-year plan filing in January 2023 for rate effective 2024 to 2027. Details of the filing will be shared on our fourth quarter call. The multi-year plans across our East Coast jurisdictions have enabled investments necessary to improve reliability and customer service.
They’ve modernized the distribution system and supported state environmental goals that have served our customers and communities well. Building on this momentum, we anticipate filing second multi-year plan at BGE in the first quarter, at Pepco Maryland in the second quarter and at Pepco DC in the first half of 2023.
Additionally, we anticipate filing the first multi-year plan reconciliation with BGE expected to file in the first quarter of 2023. Our first multi-year plan reconciliation is an important milestone that helps us throughout variances from the costs we filed as part of the multi-year plan in early 2020.
Importantly, this reconciliation process will also provide our first opportunity to understand how the process will be implemented for any potential cost variances in future multi-year plans. As you can see, next year, we’ll be busy on the regulatory front, but we are excited for the transparency and stability the multi-year plans will continue to provide our customers and stakeholders. Relationships across our jurisdictions will be constructive, and we are working together with our regulators, speeds and communities to support their clean energy and chemical.
As Chris noted, this year’s federal legislation only bolsters support for and the affordability of the transformation of our energy economy. The multi-year plans provide a great structure to align on the pace and the progress of that transformation. As a reminder, we expect nearly 100% of our rate base growth will be covered by alternative recovery mechanisms, such as the multi-year plan by the end of our planning period.
Moving to Slide 9. As Chris described, we are confident that $29 billion of investments we are making on behalf of our customers will result in expected rate base growth of 8.1% and 16% annualized earnings growth from 2021 through 2025. We have noted that our business model does include some variability in year-over-year earnings growth due to the timing of rate cases, largely driven by Pennsylvania, which generates strong returns that support the continued need to invest for the benefit of our customers.
In addition, for 2022 and 2023 at ComEd, we’re exposed to the 30-year treasury rate before making the transition to a more traditionally set return on equity. We’ve attempted to provide investors with additional information on the year-over-year variability with the building blocks of our earnings growth trajectory.
As defined in the chart, the gray arrows represent implied 6% to 8% CAGR pass from the 2021 guidance mid-point of $0.02 per share as disclosed at Analyst Day through 2025. While the [indiscernible] illustrates expected year-over-year growth percentages from the prior year relative to the 68% range each year.
Getting to the growth drivers, starting with 2023, we have already mentioned ComEd in its exposure to the 30-year treasury rate. Although current forward imply we should see some good upside to its ROE, we’ll need to monitor the impact through 2023, which remains fully exposed to market move.
People will be in year two of its existing electric distribution rate per year cycle and as a result, is expected to have lower year-over-year earnings assuming normal weather. PECO’s earnings should be positively impacted by new GAAP rates, transmission and its distribution system improvement charge tracker, which provides a mechanism for recovery on distribution investments made between rate cases.
Weather and store normalization will also be a factor in the PECO’s decoupled and we are modestly benefiting from weather to date. Like all companies, we face challenges from higher financing costs and inflation, which we are working hard to offset through productivity initiatives, investments in technology and by leveraging our size and scale.
Reconciliation processes in 2023 in Maryland and DC will help establish precedent for future cost recovery under the multi-year plan. Lastly, at corporate, we will see increased costs as we continue to refinance our remaining floating rate from the separation as well financing the investment needs of our utilities at the current higher rates.
As we do have the utilities, we continue to challenge our corporate center to reduce costs. For all these reasons, 2023 is expected to be below the lower end of the 6% to 8% growth range based on our outlook as of September 30. In 2024, we expect to be in the range as we enter the next cycle of our BGE and PECO multi-year plan, which allow us to align with stakeholders for the next three-year phase of the clean energy transition.
PECO is expected to be in its third year of its existing electric distribution rate impacting year-over-year growth. Then with an expected rate case filing for PECO electric in 2025 and the rest of our utilities growing generally in line with the rate base investments, we expect to be above the upper end of the 6% to 8% range in 2025. The combination of growth across these years should put us squarely in the 6% to 8% range on an annualized basis for the 2021 through 2025 planning horizon. You can expect us to initiate 2023 guidance and provide a roll board of CapEx, rate base and financing plans as we normally do on our fourth quarter earnings call.
Turning to Slide 10. Exelon remains committed to maintaining a strong balance sheet and a battered credit ratings continue to be a top priority. Our long-term corporate consolidated credit metric outlook remains strong for both S&P and Moody’s, regardless of the outcome of the corporate minimum tax. If the corporate minimum tax is enacted as written in the Inflation Reduction Act, the exposure tax on balance sheet is approximately $200 million per year as is posted in our August 8-K filing. We are working with the industry and remain optimistic that this impact can be mitigated.
Even if unmitigated, as Chris noted, we expect to observe the cash impact on our balance sheet with cushion above our downgrade thresholds and we expect to be in our targeted 13% to 40% average range over the planning horizon without a need for incremental equity beyond the previously announced $1 billion commitment from 2022 through 2025. As a reminder, we issued $575 million in equity in August through a onetime offering and lease the remaining $425 million over the 2023 through 2025 period. Our commitment to a strong balance sheet is a top priority to ensure we can make the investments needed on behalf of our customers.
I want to close by reiterating our confidence in investing an estimated $29 billion of capital from 2022 to 2025 driving 68% earnings growth from 2021 to 2025 and a strong balance sheet. This remains the case regardless of whether the corporate minimum tax is mitigated.
Thank you. I will now turn the call back to Chris for his closing remarks.
Thanks, Jeanne. Moving to Slide 11. I’d like to emphasize excellence in value proposition and placing the energy delivery industry. The economy is making the transition to a cleaner, more resilient energy model the significant federal legislation passed this year, including the IIJA and the IRA provide momentum and support to our jurisdictions, which have been leading the way for years.
Exelon offers an unparalleled exposure to that opportunity. We serve more electric and gas customers in any of the utility in the country in some of the largest cities of the country. We have earned the trust of our customers and our commissions by consistently reliably providing top-notch operation performance. And we live our values with steady commitments to path – to our path to clean goal as well as through environmental advocacy and is support for our communities in a strong governance model.
As a result, there is a tremendous demand and support for investments we expect to make in our communities, which, as I said earlier, totals that $29 million of capital from 2022 to 2025. And only in the beginning stages of the transition that will take hold a few decades. None of our investments represent more than 1% of the $29 billion and the result from customer growth need to keep up the customer demand and the resilience on the [indiscernible]
So we continue to feel confident in our 8.1% rate base growth and the projected 6% to 8% growth through – rate growth through 2025. We offer a very strong proposition – we have offered very strong proposition and will continue for years to come with the balance sheet and matching dividend commitments, combining our 3.5% dividend yield with the 6% to 8% annual growth offers low risk to the 9.5% to 11.5% total return proposition.
That brings me to my retirement announcement. As noted in the release yesterday, I’ll retire at the end of the year. And as I mentioned, Calvin will assume the role of CEO and a member of the Exelon Board. We have made this decision recently that I will need treatment for a significant spine and hip issue that require me to focus on my health. Because of these issues, I won’t be able to join you – but Calvin and Jeanne and other members of our senior team look forward to seeing you there.
Being part of building this industry-leading company over the last 24 years has been an honor. Regardless of the economy, the commodity prices, the regulatory output for our asset mix, Exelon has always focused on job running its operations safely and at top notch levels to serve our customers. We have built an amazing platform over the decades.
I want to thank all of our talented employees, what they have done to get us where we are today and recognize the diverse experience and innovative approaches that will get us to where we need to go tomorrow. While I’ll miss being part of the team being this energy industry transformation, I have all the trust in the world of Calvin and his leadership team to rise to the latest challenges in Exelon in many ways.
As always, thank you for your time and support and we’ll now take questions.
Thank you. [Operator Instructions] Our first question will come from Ross Fowler of UBS. Your line is open.
Good morning, Chris. Good morning, Jeanne. Chris, best wishes as you deal with the spine issue, really sincerely hope everything works out okay. So just on Slide – let’s maybe go back to – Jeanne to go back to Slide 9 and just think about what this is communicating. If I kind of look at the 210, which is the midpoint of 2021 guidance, that should be my base year for thinking about the 6% to 8% range. And then you’re saying in 2023, you’re below that. So, if I’m thinking about this correctly, I take the 225 [ph] base or midpoint of 2022. That’s really saying given that, that 7% growth of 2021, that you’re growing maybe at sort of 4%, if I’m thinking about the math directly off 2022 into 2023. But then if I think about what you’re saying for 2024 and 2025 will swinglines here around 7% and above 8%. You got to kind of get back to that 7% four-year CAGR midpoint off 2021 by the time we get out to 2025. Is that a fair way to think about this?
Yes, yes. You’re thinking about it right. And I’ll just reiterate that the shareholders [ph] represent year-over-year growth from the prior year. So the way you walked through it is right. And then what we’ve tried to do is not give you a specific number for every year, but sort of narrow the outcome based on the building blocks below the CAGR line. So you can see the combination of growth over those years, puts us squarely in the 6% to 8% commitment 2021 through 2025.
Okay. Great. Perfect. And then maybe on the $200 million of cash tax impact, you said that’s unmitigated. Is mitigation here really just about the treasury rules? And what’s the timing of maybe getting a first preliminary look at those treasury rules? Is that really Q1 since every corporation is going to have to make an estimated tax payment at some point in April? And then if you mitigate that, does that change the equity need at all? Or is that equity need pretty firm regardless of what happens with this $200 million?
Sure. Yes. So, I think three questions there. First, when we think about mitigation, there is working with EEI and the industry on the regulation. So that certainly would be a meaningful mitigation there if the regulations are written in a way that allows for certain deductions that we’ve previously had. But I would also say, as you know, right, we will look internally to do what we can, mitigate anything that we can on our end. But it’s a combination of those factors, but that’s right, the 60 basis points to 70 basis points that we put on the slide is the unmitigated whether through the regulations or internally the most conservative impact.
I think your second question, I’m forgetting, but the third question was if the regulations do mitigate it or if it’s a 60 basis points to 70 basis points go away are we still committed to the $425 million that we are. So, we’re not – we don’t expect to do any more than the $1 billion we announced. As you know, we’ve already done the $575 million and then the remaining $425 million will execute between 2023 and 2025. The timing of the regulation.
Yes. The second question, the second part of the question. Yes, timing. Yes.
Yes. So it would be helpful to have them by the first quarter. Obviously, that would be when we make our first payment that would be helpful, and we’ve sort of signaled that, that would be helpful, but we really can’t control. And we should know more next year, the sooner the better, obviously. But we’re still working through that. There are obviously the treasury is obviously still working through that.
Okay, great. Thank you. I’ll jump back in the queue. Thanks.
Thank you. One moment please for our next question. Our next question will come from Paul Zimbardo of Bank of America.
Hey good morning. It’s actually Julien here. Thanks for the time and Chris my best wishes here. If I may, just with respect to this quickly lines, as we call them, and your commentary about being squarely within – I don’t mean to repeat the last question too much, but to ask you does squarely within equate to effectively at the midpoint of the 6% to 8%? Is that a fair way to interpret that specific language you used?
Yes. I think we always seem to be solidly in within the range, right? But we haven’t given you sort of where with it. But what we’ve tried to do is show you that if you look at the year-over-year growth, and you look at the drivers below it that we are confidently reaffirming our 6% to 8% 2021 through 2025.
Okay. Fair enough. Sorry, I don’t mean the word it too much. You use the word. And then related second follow-up, if I may, on balance sheet. I know you talked about uncertainties here, but it sounds as if I’m hearing you correctly, the risk of having to make a payment, that payment being unknown, you’re confident in the current cumulative $1 billion of capital outlay on equity as being intact almost regardless of the various scenarios. Again, it doesn’t sound like it’s less than the $1 billion cumulatively, but it also similarly, depending on the scenarios doesn’t sound like it’s more than that as best you can tell right now again. And then if you can elaborate a little bit, is there any other nuance that we should be aware of that might be an offset to cash flow here to keep metrics intact? Or is this just simply a reduction of the metrics?
Yes. I think it’s – I think you’re thinking about it right. We are affirming we don’t need more than the $1 billion that we mentioned after analyzing the unmitigated impact. We can – again, whether it’s unmitigated through EEI or internally, we can absorb that on the balance sheet, stay above our downgrade threshold without incremental equity and then be within our 13% to 14% over the planning price.
Got it. All right. Fair enough. Thank you for the clarification.
Thank you. One moment please for the next question. Our next question will come from Steve Fleishman of Wolfe Research. Your line is open.
Hi good morning. Chris, I also want to give you the best wishes and hope your health gets better and just recognize – just I know we’re seeing it more through a different stock right now with CEG, but just the turnaround in nuclear that you help kind of make happens pretty remarkable. So congrats on that.
Just on the – I guess, Jeanne, just on the first question on the nonlinear growth. I think from the very beginning when you gave the guide of the new Exelon, you did kind of – you did say that it wasn’t going to be linear and may not be in the range each year. So just now that you’re giving this incremental information, is it pretty consistent where it would have been if you had just given this at the beginning of the year, just reflecting this PECO rate cycle for the most part? Or are there other like big changes that have occurred?
Yes. I think the trajectory is pretty consistent. There might have been some puts and takes between 2023 and 2024, but the sort of nonlinearity. And I think the fundamental thing is it’s consistent with what we said at Analyst Day and that we’re investing $29 billion, which drives the rate fees growth of 8.1%, which drives the earnings growth. But because of the rate case timing, there’s some variability in there. And I think what we’re hopeful here is that this visual provides more clarity on how that – how those rate cases impact different years.
Okay. Second question is, I think some people are trying to take those each year number from the Slide 9 and kind of taking, even though it’s an estimate to kind of adding that up. And when you do that by 25, you kind of maybe get to the lower half of the 25 range. Is that not what you should do because there’s estimates are just how – how should we take that?
Yes. I think what I would just say, the combination of growth over the years and we’re – and then the tilde [ph], I’m laughing because we’ve – you wouldn’t view us laugh at how much we spend over tilde versus other things here to show the visual. But what we’re trying to show here is that the combination of growth puts you squarely in the range. And so that’s what we want to reiterate through the investments of the $29 billion, what we’re confident we’re going to be squarely in the range.
Okay. And then just on the, going back to the alternative minimum tax, I think one of the big issues of focus with treasury is the repairs tax and whether that could get included. If you could get the repairs tax addressed as part of this, would that – would that cover most of this $200 million because some companies are actually assuming that it will get fixed?
Yes, it would.
It would, okay.
It was substantially mitigated, yes.
One thing Steve [indiscernible] with the IRS. So they march to their own big – our tech folks here are working with the industry and are really working on trying to communicate the necessity to move faster. But there can’t be a guarantees in the first quarter we have a good agreement on the approach.
Okay. Great. Thank you very much.
Thank you. One moment for our next question. Our next question will come from David Arcaro, Morgan Stanley. Your line is open.
Hey, good morning. Thanks much for taking my questions and Chris best wishes from my end as well. As we look at the upcoming comment, multi-year plan, filing in January, I was just wanted to get a sense how comfortable and confident are you in managing that jurisdiction within a four-year plan going forward. Do you anticipate the parameters are going to be manageable to work under over that period?
This is Gil Quiniones, CEO of ComEd. We have to had a constructive relationship with stakeholders and other parties here in our jurisdiction. And what you will see from us is that our plans will squarely align with the goals of the Climate Equitable Jobs Act, and generally the energy environmental and economic policies of this state, so that will be our plan and as was noted in the earlier remarks, the details of such we will share in our next earning call.
Okay. Got it. Thanks. And then as we think about just the PECO electric earnings dynamic here, I was just wondering if as you’re planning out longer term, are there opportunities that you’re looking for or exploring to smooth out just the EPS contributions, whether it’s kind of shifting around expenses and cost saving opportunities? Are there longer term ways to smooth out the EPS growth trajectory?
Good morning. This is Calvin. We’re always looking at ways to operate our business more efficiently and manage our costs because that’s our responsibility in delivering that value to our customers. And as we’ve talked about previously, affordability is a driving factor as we operate in all of our jurisdictions. And just remember, PECO is one of our highest – is our highest earning utility in the fleet and one of the highest earning across the country. And the constructive regulatory environment within Pennsylvanian is something that we’ve come to build on and have that relationship – collaborative relationship with the regulators. So as we continue to manage across our platform, we will always look at costs within the operating units as well as at the corporate center; so to answer your question directly, yes.
Okay, great. Thanks so much.
Thank you. One moment – just a second for our next question. Our next question will come from Jeremy Tonet, JPMorgan. Your line is open.
Hi, good morning.
Good morning Jeremy.
Just want to come back, I guess to 23 to 25 go drivers a little bit and anything else you could say as far as the way you can to minimize the headwinds for 2023 to operate against the plan and really just want to see what 30-year expectation was baked into the guidance there?
Sure, yes. So I’ll take that. As Calvin mentioned, I think the first and foremost is our continued focus on cost management. So we continue to do that. I think the other thing is we’re also looking to manage interest rate volatility. So when you think about our long-term financing, we use tools there like creation, hedging to dollar cost average into the long-term rates before the issuance on our short-term debt. We’ve got interest rate caps that protect against the upside but also retain the benefit should rates fall. So we’re doing all the things we can to control costs heading into 2023. And then in addition to that I think you asked about where we marked that, I think in the footnote it says as of 9.30 [ph], so we marked comment to the 9.30 rate for 2023 there.
Got it. That’s helpful. Thanks. And maybe just one more question if I could, if you applied the new Illinois performance metrics historically to ComEd, how would it have scored and how do you think about the opportunity here going forward?
Yes. I would say there – the categories are somewhat consistent, but they’re also different enough, right? I don’t think you can back cast it. But what I would say is under the formula rate, one piece that’s very different as there was only downside risk and so we only had penalties under the formula rate. What’s constructive about this new path going forward is we now have the opportunity to do better. And as you heard Chris say, ComEd performing the best it ever has in its 100 years of operations. And so we’re excited about that. I think the other thing about the multi-year plan is the upfront alignment around the investments. And that was also there in the formula rate where we agreed that there would be grid modernization required and smart meters. And when you look at the results of that ComEd improve the reliability at 82%. So we like the ability to align upfront and we like the ability to get recognized should we perform well, which ComEd has done.
And Jeremy, I would add that keep in mind how those performing metrics were developed. They were done in collaboration and partnership with stakeholders. So we started the process of transparency in which ComEd as they go in to file their multiyear rate plan. That’s the value of working with your customers and your regulators to ensure that the investments that you are making are leading to the increased reliability, resilience and meeting the clean energy goals of the state as Gil pointed out. And I think that is the first step as we continue to build a process in a constructive regulatory environment.
Got it. That’s helpful. I’ll leave it there. Thanks.
Thank you. One moment for our next question. Our last question will come from Michael Lapides of Goldman Sachs. Your line is open.
Thank you very much and Chris, obviously wish you well, wish you the best physically. Can – a cost question. When you benchmark yourselves whether benchmarking T&D, O&M or benchmarking at the corporate center, and I’m sure you still do a lot of that. Where do you think you do not score in the first quartile? Meaning from a cost management perspective? Where do you think whether it’s transmission, distribution, customer service, customer accounts or corporate G&A, where do you think the greatest opportunity set, not in the near term, but over a three to five, three to seven year period is to get more efficient? Like can you just kind of point directionally at where the opportunity sets may lie?
Yes. I think that it operates – we look at it across the board and we would say there’s opportunity everywhere, right? We want to drive to the lowest cost possible while maintaining safety and reliability. I think the where everyone can kind of see what we see is where it shows up in our affordability metric because O&M is such a lever when you think about driving affordability. And so when you look at our electric, whether it’s build or rate on any metric, we are below the national average, whether it’s percent of median income, whether it’s average rates, we look at our average rates and they’re 20% below the top 20 metropolitan cities.
When you look on the gas side, our gas bills are some of the lowest in the states we operate. So I think that, that’s where you can see our history of continued financial discipline. But that’s important that we look across all areas, whether it’s the corporate center, power utilities, and I think it shows up best in those metrics.
And Michael, what that jumps I’ll add to you is that in 2022, after the split, had a lot of talent go over to the other side to Constellation, and we continue to maintain our operational performance and metrics and continue to – at that time, it was one, keeping your O&M flat to below the rate of inflation and each of our operating companies continue to do that. And our corporate center stepped up because one of our commitments, and it continues to be one of our commitments when we announced the split that we would not let our corporate services ride as a result of that.
And we were spending so much of that building over to the other side of the business. And we ended the year on the split to go back to our commissions and we met that regulatory compact. And that’s what I’m protest teams and the leadership and how they continue to dive in. And as I said earlier, costs will always remain a focus of ours and under Chris’ leadership, what you’ve seen is that Exelon has continued to raise the bar and meet that challenge. And I commit to you and we commit to you leadership team will continue to do that.
Got it. And I guess one follow-up on the cost side because I was kind of probing for a little more granularity and kind of where when you benchmark performance you see the opportunity sets within the organization to kind of get the cost performance up. That’s kind of the follow-on if you can give a little detail.
The other is we’re starting to see companies that have formed via years and years of combinations. Recognize that there’s a little bit of hidden value in corporate real estate. And given the fact that you serve a lot of urban markets, just curious how you’re thinking about the real estate footprint of the company and whether there’s value that maybe not necessarily being the owner or the lessor of all of that real estate. We’re seeing companies like one of your T&D neighbors in the Midwest, Mid-Atlantic and we saw PG&E with their headquarters a year or so ago. Just curious how you’re looking at that opportunity set as well to both lower cost to improve the income statement but also to improve customer bills.
Yes. We have and we continue to look at that. We are consolidating our control centers across our fleet. We continue to look at how in this new hybrid work environment in some of our areas, what does that mean for office space. And as part of our real estate portfolio and supply chain, we continue to drive those costs out of our business. But as we’ve said, affordability is going to remain a focus, and we’re going to look at every opportunity we have to drive that. And I’ll turn it over to Chris.
I think you’re used to us having the nuclear benchmarking book and how every nuclear operator shared their operational data and their cost data. UCG, we’ve got a lot of information from. And so we have very solid benchmarks. What we know is the national rates, affordability rates and we’ve continued to stay low those. But you’re not going to get the same level of disclosure from every facility like you got it from every plant. So the team has to work hard not only benchmarking ourselves against ourselves but also finding willing partners that will let us benchmark with them and benchmark with us.
So we have a very high level of confidence Jeanne said it the supportability metrics and the total cost to the consumer that we’re far below the average benchmark, but the cost of putting a hole in the cost of transform just don’t get down to that level of detail or have that in the utilities. So we have to depend on our own challenges and depend on some that we can benchmark with and continue to drive these other indicators to ensure we’re providing the best service at the cheapest price.
Got it. Thank you.
So I think that’s the end of the call. I’d like to thank you for joining the call today. The team looks forward to seeing many of you at EEI later that month, this month. And with that, I’ll just close everything out. And thank you all.
Thank you. This concludes today’s conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.