Leadership Dialogue with Chris Crane, President and Chief Executive Officer, Exelon Corporation

Good morning, Larry. How you doing?

You know, we have very high percentage of reliability and we have high customer satisfaction numbers at our utilities. I don't think the customers take it for granted. You know, we've had storms before where customers are baking stuff when their power comes back on, bringing it out to the linemen. We have been able to work with the government and local agencies to stress the criticality of our employees, not only for the availability of PPE but the continued access in the stay-at-home orders. And also, we've done a lot of advancement in getting some prioritization on testing for not only the Exelon utilities but through the Electric Sector Security Council, working with the government, getting the recognition that our folks have to stay safe also.

Yes, definitely. If you go back to the bird flu, we had not seen for a very long time a potential international pandemic, or pandemic which is international. So we had done a lot of planning back at that stage on how to manage through a situation like that. Like many other utilities, we created crisis management teams, and we stood those teams up and had them on the ready not only for this but for other major events. Every day at 4:00 p.m. Eastern, we have about 65 people on the call going through our checklist and making sure, first of all, we get the health report out. We know how many positives, how many have to be quarantined, what are we doing to help in disinfecting areas, that type of thing. So within days, we had the playbook totally in works. And then also communicating very closely with our state, local, and federal officials on what we're doing, keeping the elected officials informed, but keeping all the critical services aligned with us so they're aware of what we need or what we are doing.

The biggest issue we had, we had a lot of PPE on hand, some of it actually dated back to the bird flu. But our capability of sourcing, while we're competing with other critical infrastructures, hospitals, first responders, in trying to source enough material to keep our folks safe so they can execute their job, has been more difficult than we anticipated. We would not get caught short like this again. We had an order in with a very big supplier at the 1st of January when we started to catch on that there was something going on in China, and that order was for 1.2 million N95 masks. I think we're going to get about 80,000. We've been sourcing from some very reliable candidates. We've had offers from what we found are not reliable candidates. So just making sure that we've got that part intact, the rest of it is just working right off the playbook. And the whole company, the whole corporation, and the individual companies are executing very well. We're performing refueling outages where we have over a thousand people on a site, you know, doing the work to ready the reactor for another two years. We had all the equipment for thermal testing, we had all the equipment for separation, we've been able to enact all of that. But the sourcing of materials has probably been the hardest thing.

Oh, definitely. You know, not only in our regions but across the country. I think the latest data we've seen is anywhere from three to ten percent on a regional basis. PJM and MISO, our main ISOs, it's definitely right at ten percent now. But through our Constellation organization, we have our retail wholesale group, we're going to our large industrial and commercial customers to try to project their load profiles. We're seeing in that sector, which is different from residential this time, in that sector we're seeing up to a fifteen percent reduction. So we're watching it very closely. You know, seven weeks is hard to say we've got a trend, but we're trying to obtain all the data that we can from the ISOs, from our own meter information, to understand the reaction. And can we correlate this to '08? I don't think we're going to be able to correlate it to '08, but we'll have to see as time goes on what the full demand destruction is.

We have pulled capex back going into the rest of this year. In the nuclear division, we had some non-critical capex that would not affect safety, we've pulled back at this point. We're continuing to spend on the utility side. Five billion dollars will be going in for critical investments for the consumers in electricity and gas, and twenty-five billion over the next five years to continue to meet the consumer demands.

We deal with a lot of repo market, the commercial paper, the overnight paper, where you used to be able to go into the market and carry it for ten days. As we saw that market tighten, we were getting some higher rates for a 24-hour loan. And so we took on a strategy, we issued some debt. We had been able to weather it. Now with the Fed coming in, they've done a great job helping support that market, and so we're not seeing the tightness anymore. On bad debt, it's something that we're working hard on now. In all our jurisdictions, as you can imagine, all our jurisdictions have slightly different recovery mechanisms for bad debt. And at this point, all our utilities, and we've extended at once, have put a moratorium on disconnects due to bad debt. And we actually even reconnected customers that were disconnected because of bad debt if they desired that. Bad debt is building up. We have in all jurisdictions some type of regulatory asset that we're trying to put in place, working with the commissions and working with the stakeholders. It becomes a cash issue this year more than an earnings issue, but you'll start to be able to recover it. So like ComEd as a true-up on an annual basis, PECO goes in for a rate case filing and they do a three-year average. So it's not going to be as detrimental in the long run, but in the short term, you know, we have to watch it very closely and make sure we've got the right recovery mechanisms in place.

I don't think we're going to know right now. The legislature and all the administrations in our states, for sure, have been focused on the pandemic and the response to health, the safety of the public. I think, you know, you've got 21 governors and how many cities across the country that have made mandates that they want to get to a low-carbon environment. Every one of our service territories has done that. So, you know, we have seen the air quality improve with this, no cars on the road. It's kind of creepy here in Chicago, you look out and you see one or two cars go by every once in a while and no gridlock. But we will see a reduction in CO2. But as the economy comes back, and we have a great dependency on natural gas to blend in with nuclear and blend in with the renewables, I would sense that we would have some increase back again. But I think the focus, like Illinois wants to be 100 percent clean by 2030, they put that out there. I don't see the governor backing away from that unless this pandemic does something very, very critical in the long term to the economy and the health and safety of the public.

The 2030 is going to be a very tough goal to be 100 percent clean. We do not have, as you know, adequate technology around storage that is a long-term, deep storage that can support the grid through periods of no wind and no sun. So there is going to be a dependency for some time on natural gas. I think for the most part we'll move away from, in most of the country, from coal. The economics of the old coal units are doing that themselves. So I think we'll be able to get close, but until we have a breakthrough on storage technology or other technologies that can support the distributed or the other renewables, large-scale renewables, it will be difficult.

Yeah, it definitely is a very efficient way to continue to clean the environment. You may be able to support some levels of natural gas to keep the system reliable, but you'll have a greater impact if you go to electrification of transportation, more electrification on the industrial side. So we have been working, as all the utilities have been working, on how do we work with our stakeholders on driving further electrification and get their concepts of how they want to do that so we can enable the distribution or the transmission system to support that. You know, we look at every one of our jurisdictions, some have pilots already on EV charging stations, which, you know, it's just a start, it's not a big impact yet, but knowing that we can go there and be able to understand the customer needs, the grid needs, and how to support it. Chicago has the third-highest issue with respiratory illness, it's behind LA and New York. You know, that causes a great deal of issues, especially in the underserved communities where the trucks are rolling through and the buses are rolling through. You think of our kids sitting on school buses run by diesel, idling there in the parking lot before they're told they can drive out. It's just really bad for the health and safety of the public. So we do have good coalitions going forward. There are some projections that you could have greater than a 24 percent load increase just off of EVs by 2050, and we've seen other projections by 2030. But right now what we have to do is gain the support of all, figure out with the balance sheets of the municipalities and the states, how do we execute on that, how do we help support execute on that, what strategies will be put in place to be able to not only they could afford the buses, they can afford much more heavy-duty trucks, electric vehicles. It's something that we're all working on very hard, and I think it will be beneficial to the environment.

It is a top 10 for the organized markets. I mean, it's probably number one in the organized markets. The way that the locational marginal pricing was designed was not the way the system runs today. So generators are not being compensated adequately. We have issues with negative prices, although we've solved some of that in Illinois, you still see that from time to time. So these mandates haven't matched a load profile to the mandate, the necessity on how many megawatts that they want built, and because of that we've got a distorted market from pricing. And we haven't seen any reliability issues yet, but you have to watch for those. And in some cases, the subsidies for the renewables have really benefited the customers, and it's been a way to jumpstart that. Phasing out the PTC and the ITC is the right thing to do. They're not emerging technologies anymore, they're mature technologies, and they've done a very good job on bringing their costs down. So if we can get more of a discipline on saying, okay, I don't need a rooftop solar on every house in Illinois, let's look at the load profile, let's look at the physics of the system, and figure out how we can make it as clean as possible. So to do that, there's going to have to be some good thinking and design changes to the markets and so forth.

I think the states are going to have to take over, especially on capacity, to be able to adequately secure the resources they want. You know, FERC is focused on functioning markets that are the holistic ISO. They want to make sure it's the lowest-priced provider is out there, and anybody that has a subsidy or compensation for their environmental benefits should be treated differently. Once you do that in an auction, you will still go back to the lowest-cost provider, but the lowest-cost provider will get a premium because they're bidding up against the marginal, which will be a low-carbon output.

You know, I think from the electric sector and the natural gas sector is talking about market designs and ensuring that we can provide adequate, reliable power with the mandates that the states have around clean. Every one of our jurisdictions and our customers, it polls very high, if not in most jurisdictions the top, they want us to be responsible for the environment. We cannot be responsible for a market that doesn't compensate around the environment. You know, it's a dirty word or dirty phrase to go back to a carbon tax. However we put that phrase in, that's the national fix. If we could go there, then you let the markets respond, let technology emerge in, and people get compensated for their ability to produce at the low level. But right now the markets aren't doing it. The administration has not seen that as a priority. And so I think we'll be talking about that, dysfunctional markets, and how do we get to our environmental standards that our states and customers want.

Yeah, you too.