Calvin Butler, Exelon, Q&A with Manoj Patel, DWS

Minaj, my pleasure. Good to see you.

Absolutely. That's going to be the easiest question you ask me, Minaj, throughout this. So, I would tell you that Exelon is the largest transmission and distribution company in the United States, especially by customer count. We have the privilege and the responsibility to serve 10.7 million customers across some of the most diverse cities in our country. That's including right here in Chicago, Illinois, Baltimore, Maryland, Philadelphia, Pennsylvania, and our nation's capital, Washington, DC. We also have the privilege to serve in Wilmington, Delaware and Atlantic City. So when you think about that footprint, large urban cities, rural communities, and coastal communities, we serve all customers and serve them all very well. At Exelon, we are an infrastructure company, meaning that we build things. We invest in this nation's grid and we keep it the most reliable in the country. Our utilities are some of the best operators and we take a lot of pride in that. But we take a lot of pride in it because one, we know how we show up each and every day. Exelon's combined utilities are ranked number 1, 3, 5, and 8 as the most reliable utilities in the nation. And yes, we are striving to get to 1, 2, 3, and 4. So I'll keep you updated. But having said all that, it takes a lot of time and money to be that reliable. Our four-year plan going out through 2028, we're investing $38 billion in capital, but not one project, Minaj, is more than 3% of our capital. So why do I share that with you? That means we're a low-risk infrastructure company. We don't have one customer or one project that's driving that investment, not one larger than 3%. And when you look at the variety and diversity of our customers, that is what makes Exelon Exelon. So I'm very proud of who we are, especially when you think about where we've come from. Three years ago we were a very different company and this leadership team that we have assembled here today is I think one of the best in the industry and is really leading this transformation of Exelon 2.0 and doing it very well.

Absolutely. First and foremost, our investments are driven by keeping the lights on and the gas flowing. I talked about our reliability. So everything we do is centered on building a reliable and resilient system. We go to our commissions with the plan, they approve it, then we get to work. And out of that $38 billion, most of it is on the electric side of the business. We have some of that investment that's on gas main replacement because we have three of our utilities that are in the gas distribution business which is very important for safety and reliability. Over 30% of our plan is built on transmission and all of our projects are built from the ground up. Meaning that we don't start a project if we don't have a sense that it's serving that customer in an impactful way. And there's no lag within our jurisdictions. So, these projects are based on concrete evidence that they're adding value. You talked about the growth that we're having across our business. Here right here in Chicago, we've seen a growth of over 17 gigawatts of new load coming in, mostly driven by data centers, but hyperscalers. We've got just two weeks ago, we announced Quantum coming with a campus right here on the South Shore on the lakefront. That's exciting for this business. So 17 gigawatts of new load with just as much in the pipeline. So this is work that is going out for years. So once again, not driven by one customer, not driven by one project, driven by multiple concrete customers and business development opportunities. That's what I'm excited about. And Illinois is just one. We're seeing growth in Pennsylvania. Governor Shapiro and his team have really put economic development on the forefront. And you see announcements that they're doing. I think a couple of weeks ago, or two months ago, Pittsburgh announcing a big data center project which you look at the transmission that's being built by PECO in that area. I know the governor is planning a couple other announcements in the coming weeks. I don't want to jump out ahead of them but that's what's exciting. Maryland, you look at our Brandon Shores and our Tri-County transmission lines being built. Two projects totaling over $1 billion. Transmission is becoming a big part of that investment thesis. And when you say transmission is only about 20% of our portfolio, but we're investing in our capital plan over 30 to 35% in transmission with a long trail behind it. So we're excited about that and that's what makes up that $38 billion.

That's exactly right. I mean, it's been well over 30 years since we've had this type of load growth. And people often wonder, okay, how is Exelon benefiting from that load growth? Well, I remind them we're an infrastructure company, meaning that it doesn't happen without us and we're the backbone of everything that's happening within our communities. Yes, I don't have generation, but I don't have the cyclical nature of that either. Our assets are going to be critical, not just for today, but for the next 50 years. And it's a reason that our companies have been around 800 plus years because they are economic drivers in the communities that we serve, not just around data centers, but the small businesses, our large customers, the other manufacturing that's coming on. So I tell the team every day, yes, we're excited about this growth, but don't get too enamored because things come and go. Be consistent in what we do. And I think that's why people invest in Exelon. It's the level of consistency, not just in how we operate, our reliability, but our concern for our customers and how we're always using the customer's voice to do everything we do.

Yes. So when you think about our investment, all the investments that I'm talking about right now within transmission, consider them an Exelon footprint which happens to be a very large footprint but it's in our footprint and there's two advantages of that. One, because of our size and scale, we know how to do it and we don't have the same concerns about getting easements, getting waivers because most of it is on our property. I give you one example. Our $1 billion transmission project within the Brandon Shores area, 99% of that was on Exelon footprint. So the timing, the execution of that is that much simpler when it's on your footprint. That's one. And I haven't even shared with you about the $10 to $15 billion of potential transmission on the backside outside of our service territory that is adjacent to our markets. That's what's exciting for us is that we don't see any slowdown because of the reasons you just outlined. The data center growth, the distributed energy resources that are being brought online all require transmission and require to be built sooner rather than later. Going back to my statement, we're the backbone of this ecosystem and getting it done well and getting it done in a timely manner is going to be critical.

A couple of things on that. It's all about execution because you're meeting a customer's timeline. You're ensuring that time is money for our customers and understanding that. So, let me give you an example. We had a large project in Delaware, a transmission project, and it was being built because some generating plants were retiring. And of course that generating facility was getting reliability must run until the transmission lines were built. We completed that project over a year early and returned tens of millions of dollars back into our customers' pockets. That's what matters. And the execution of those projects because of our size and scale. We have concerns around supply chain, but they're not as dramatic because we use our size and scale to leverage on how we show up. So, we can get that done. We have a metric within Exelon that all of our capital projects are always done within 1 to 2% annually of our total spend and we compensate our employees for that. So, for example, at ComEd right here, they have a capital budget annually of well over $3 billion. They finish within 1 to 2% of that spend every year. That's how precise we are in doing what we do because we know it matters. So that is the why and then I would tell you the larger scale how we approach it. Every big project has a project manager and we assign that person, he or she, to really driving the execution, identifying the risk early on before we ever break ground. Because going back to meeting the customer, the cost involved in that and ensuring that when we go back to the commission, they can see that we were prudent with every dollar that our customers have allocated to us because again, they've already signed off on the projects, meaning the commission. Now it's all about when we go back in at the end a reconciliation that you did it right and that's why it's so important.

Oh, that's my gray hair. No. Well, size and scale matters, right? And it also brings in another set of issues. When you're operating in seven different jurisdictions, you have seven different regulatory bodies that you're dealing with and all have different needs depending on where they are and how their customers and their constituents request. What we found is that when you're transparent and lay out your strategy and then involve in candid two-way conversation, good things can happen. We're in a time right now in this low growth period that affordability is becoming a big issue because we do know we have to invest in this system for one, reliability and safety, two, for load growth and our governors all want economic development. But what comes with investment is rising costs. And then from our perspective as Exelon, 80% of the bill is not even me, not even our utilities, it's supply. And the supply cost, why? Because when you have increased demand and lower supply, the costs are going to go up, of course. But customers, they're not like you at your home, you just see a higher bill with my utility's name on it. You don't get caught up into who's supplying. You just know my ComEd bill or my BGE bill is higher. I have the responsibility to educate my customers, residential, small business, commercial, because they view it. I don't wash my hands from it, but I'm part of the solution. But it's difficult when you're not the majority of the problem. Of course, having said that, Exelon created a $50 million customer fund this year to help out. And as I told my regulators, this is temporary. This is short-term assistance. We need long-term fixes, which is why we're leaning into regulated generation, meaning why utilities should own generation to increase supply and reduce the cost, making it more affordable for everyone. Having said that, regulators in different states are in different places with that. But by starting the conversation and being at the forefront of the why and talking about this is going to help your constituents and my customers is meaningful. We're making progress and I'm encouraged by the conversations, but more importantly because we're all working to solve the same problem. Ease the burden of energy costs on our customers.