Exelon 10-Q 2021-09-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number						Name of Registrant; State or Other Jurisdiction of Incorporation; Address of Principal Executive Offices; and Telephone Number						IRS Employer Identification Number
001-16169						EXELON CORPORATION						23-2990190
						(a Pennsylvania corporation) 10 South Dearborn Street P.O. Box 805379 Chicago, Illinois 60680-5379 (800) 483-3220
333-85496						EXELON GENERATION COMPANY, LLC						23-3064219
						(a Pennsylvania limited liability company) 300 Exelon Way Kennett Square, Pennsylvania 19348-2473 (610) 765-5959
001-01839						COMMONWEALTH EDISON COMPANY						36-0938600
						(an Illinois corporation) 10 South Dearborn Street 49th Floor Chicago, Illinois 60603-2300 (312) 394-4321
000-16844						PECO ENERGY COMPANY						23-0970240
						(a Pennsylvania corporation) P.O. Box 8699 2301 Market Street Philadelphia, Pennsylvania 19101-8699 (215) 841-4000
001-01910						BALTIMORE GAS AND ELECTRIC COMPANY						52-0280210
						(a Maryland corporation) 2 Center Plaza 110 West Fayette Street Baltimore, Maryland 21201-3708 (410) 234-5000
001-31403						PEPCO HOLDINGS LLC						52-2297449
						(a Delaware limited liability company) 701 Ninth Street, N.W. Washington, District of Columbia 20068-0001 (202) 872-2000
001-01072						POTOMAC ELECTRIC POWER COMPANY						53-0127880
						(a District of Columbia and Virginia corporation) 701 Ninth Street, N.W. Washington, District of Columbia 20068-0001 (202) 872-2000
001-01405						DELMARVA POWER & LIGHT COMPANY						51-0084283
						(a Delaware and Virginia corporation) 500 North Wakefield Drive Newark, Delaware 19702-5440 (202) 872-2000
001-03559						ATLANTIC CITY ELECTRIC COMPANY						21-0398280
						(a New Jersey corporation) 500 North Wakefield Drive Newark, Delaware 19702-5440 (202) 872-2000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class						Trading Symbol(s)						Name of each exchange on which registered
EXELON CORPORATION:
Common stock, without par value						EXC						The Nasdaq Stock Market LLC
PECO ENERGY COMPANY:
Trust Receipts of PECO Energy Capital Trust III, each representing a 7.38% Cumulative Preferred Security, Series D, $25 stated value, issued by PECO Energy Capital, L.P. and unconditionally guaranteed by PECO Energy Company						EXC/28						New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Exelon Corporation			Large Accelerated Filer			x			Accelerated Filer			☐			Non-accelerated Filer			☐			Smaller Reporting Company			☐			Emerging Growth Company			☐
Exelon Generation Company, LLC			Large Accelerated Filer			☐			Accelerated Filer			☐			Non-accelerated Filer			x			Smaller Reporting Company			☐			Emerging Growth Company			☐
Commonwealth Edison Company			Large Accelerated Filer			☐			Accelerated Filer			☐			Non-accelerated Filer			x			Smaller Reporting Company			☐			Emerging Growth Company			☐
PECO Energy Company			Large Accelerated Filer			☐			Accelerated Filer			☐			Non-accelerated Filer			x			Smaller Reporting Company			☐			Emerging Growth Company			☐
Baltimore Gas and Electric Company			Large Accelerated Filer			☐			Accelerated Filer			☐			Non-accelerated Filer			x			Smaller Reporting Company			☐			Emerging Growth Company			☐
Pepco Holdings LLC			Large Accelerated Filer			☐			Accelerated Filer			☐			Non-accelerated Filer			x			Smaller Reporting Company			☐			Emerging Growth Company			☐
Potomac Electric Power Company			Large Accelerated Filer			☐			Accelerated Filer			☐			Non-accelerated Filer			x			Smaller Reporting Company			☐			Emerging Growth Company			☐
Delmarva Power & Light Company			Large Accelerated Filer			☐			Accelerated Filer			☐			Non-accelerated Filer			x			Smaller Reporting Company			☐			Emerging Growth Company			☐
Atlantic City Electric Company			Large Accelerated Filer			☐			Accelerated Filer			☐			Non-accelerated Filer			x			Smaller Reporting Company			☐			Emerging Growth Company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x

The number of shares outstanding of each registrant’s common stock as of September 30, 2021 was:

Exelon Corporation Common Stock, without par value			978,317,787
Exelon Generation Company, LLC			not applicable
Commonwealth Edison Company Common Stock, $12.50 par value			127,021,383
PECO Energy Company Common Stock, without par value			170,478,507
Baltimore Gas and Electric Company Common Stock, without par value			1,000
Pepco Holdings LLC			not applicable
Potomac Electric Power Company Common Stock, $0.01 par value			100
Delmarva Power & Light Company Common Stock, $2.25 par value			1,000
Atlantic City Electric Company Common Stock, $3.00 par value			8,546,017

TABLE OF CONTENTS

						Page No.
GLOSSARY OF TERMS AND ABBREVIATIONS						4
FILING FORMAT						8
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION						8
WHERE TO FIND MORE INFORMATION						8
PART I.			FINANCIAL INFORMATION			9
ITEM 1.			FINANCIAL STATEMENTS			9
			Exelon Corporation
			Consolidated Statements of Operations and Comprehensive Income			10
			Consolidated Statements of Cash Flows			11
			Consolidated Balance Sheets			12
			Consolidated Statements of Changes in Shareholders’ Equity			14
			Exelon Generation Company, LLC
			Consolidated Statements of Operations and Comprehensive Income			16
			Consolidated Statements of Cash Flows			17
			Consolidated Balance Sheets			18
			Consolidated Statements of Changes in Equity			20
			Commonwealth Edison Company
			Consolidated Statements of Operations and Comprehensive Income			22
			Consolidated Statements of Cash Flows			23
			Consolidated Balance Sheets			24
			Consolidated Statements of Changes in Shareholders' Equity			26
			PECO Energy Company
			Consolidated Statements of Operations and Comprehensive Income			27
			Consolidated Statements of Cash Flows			28
			Consolidated Balance Sheets			29
			Consolidated Statements of Changes in Shareholder's Equity			31
			Baltimore Gas and Electric Company
			Statements of Operations and Comprehensive Income			32
			Statements of Cash Flows			33
			Balance Sheets			34
			Statements of Changes in Shareholder's Equity			36
			Pepco Holdings LLC
			Consolidated Statements of Operations and Comprehensive Income			37
			Consolidated Statements of Cash Flows			38
			Consolidated Balance Sheets			39
			Consolidated Statements of Changes in Member's Equity			41

						Page No.
			Potomac Electric Power Company
			Statements of Operations and Comprehensive Income			42
			Statements of Cash Flows			43
			Balance Sheets			44
			Statements of Changes in Shareholder's Equity			46
			Delmarva Power & Light Company
			Statements of Operations and Comprehensive Income			47
			Statements of Cash Flows			48
			Balance Sheets			49
			Statements of Changes in Shareholder’s Equity			51
			Atlantic City Electric Company
			Consolidated Statements of Operations and Comprehensive Income			52
			Consolidated Statements of Cash Flows			53
			Consolidated Balance Sheets			54
			Consolidated Statements of Changes in Shareholder’s Equity			56
			Combined Notes to Consolidated Financial Statements
			1. Significant Accounting Policies			57
			2. Mergers, Acquisitions and Dispositions			58
			3. Regulatory Matters			59
			4. Revenue from Contracts with Customers			69
			5. Segment Information			72
			6. Accounts Receivable			87
			7. Early Plant Retirements			92
			8. Nuclear Decommissioning			94
			9. Asset Impairments			96
			10. Income Taxes			98
			11. Retirement Benefits			101
			12. Derivative Financial Instruments			103
			13. Debt and Credit Agreements			110
			14. Fair Value of Financial Assets and Liabilities			113
			15. Commitments and Contingencies			125
			16. Changes in Accumulated Other Comprehensive Income			134
			17. Variable Interest Entities			135
			18. Supplemental Financial Information			139
			19. Related Party Transactions			146
			20. Planned Separation			149

						Page No.
ITEM 2.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			150
			Exelon Corporation			150
			Executive Overview			150
			Financial Results of Operations			150
			Significant 2021 Transactions and Developments			155
			Other Key Business Drivers and Management Strategies			160
			Critical Accounting Policies and Estimates			162
			Results of Operations By Registrant			163
			Exelon Generation Company, LLC			163
			Commonwealth Edison Company			174
			PECO Energy Company			177
			Baltimore Gas and Electric Company			181
			Pepco Holdings LLC			184
			Potomac Electric Power Company			185
			Delmarva Power & Light Company			188
			Atlantic City Electric Company			192
			Liquidity and Capital Resources			196
			Contractual Obligations and Off-Balance Sheet Arrangements			204
ITEM 3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			205
ITEM 4.			CONTROLS AND PROCEDURES			209
PART II.			OTHER INFORMATION			210
ITEM 1.			LEGAL PROCEEDINGS			210
ITEM 1A.			RISK FACTORS			210
ITEM 4.			MINE SAFETY DISCLOSURES			210
ITEM 5.			OTHER INFORMATION			211
ITEM 6.			EXHIBITS			211
SIGNATURES						214
			Exelon Corporation			214
			Exelon Generation Company, LLC			215
			Commonwealth Edison Company			216
			PECO Energy Company			217
			Baltimore Gas and Electric Company			218
			Pepco Holdings LLC			219
			Potomac Electric Power Company			220
			Delmarva Power & Light Company			221
			Atlantic City Electric Company			222

GLOSSARY OF TERMS AND ABBREVIATIONS
Exelon Corporation and Related Entities
Exelon						Exelon Corporation
Generation						Exelon Generation Company, LLC
ComEd						Commonwealth Edison Company
PECO						PECO Energy Company
BGE						Baltimore Gas and Electric Company
Pepco Holdings or PHI						Pepco Holdings LLC
Pepco						Potomac Electric Power Company
DPL						Delmarva Power & Light Company
ACE						Atlantic City Electric Company
Registrants						Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL, and ACE, collectively
Utility Registrants						ComEd, PECO, BGE, Pepco, DPL, and ACE, collectively
ACE Funding or ATF						Atlantic City Electric Transition Funding LLC
Antelope Valley						Antelope Valley Solar Ranch One
BSC						Exelon Business Services Company, LLC
CENG						Constellation Energy Nuclear Group, LLC
Constellation						Constellation Energy Group, Inc.
EGR IV						ExGen Renewables IV, LLC
EGRP						ExGen Renewables Partners, LLC
Exelon Corporate						Exelon in its corporate capacity as a holding company
FitzPatrick						James A. FitzPatrick nuclear generating station
NER						NewEnergy Receivables LLC
PCI						Potomac Capital Investment Corporation and its subsidiaries
PECO Trust III						PECO Energy Capital Trust III
PECO Trust IV						PECO Energy Capital Trust IV
Pepco Energy Services						Pepco Energy Services, Inc. and its subsidiaries
PHI Corporate						PHI in its corporate capacity as a holding company
PHISCO						PHI Service Company
RPG						Renewable Power Generation
SolGen						SolGen, LLC
TMI						Three Mile Island nuclear facility

GLOSSARY OF TERMS AND ABBREVIATIONS
Other Terms and Abbreviations
Note - of the 2020 Form 10-K						Reference to specific Combined Note to Consolidated Financial Statements within Exelon's 2020 Annual Report on Form 10-K
AEC						Alternative Energy Credit that is issued for each megawatt hour of generation from a qualified alternative energy source
AESO						Alberta Electric Systems Operator
AFUDC						Allowance for Funds Used During Construction
AMI						Advanced Metering Infrastructure
AOCI						Accumulated Other Comprehensive Income (Loss)
ARC						Asset Retirement Cost
ARO						Asset Retirement Obligation
BGS						Basic Generation Service
CAISO						California Independent System Operator
CBA						Collective Bargaining Agreement
CERCLA						Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended
CES						Clean Energy Standard
Clean Energy Law						Illinois Public Act 102-0662 signed into law on September 15, 2021
Clean Water Act						Federal Water Pollution Control Amendments of 1972, as amended
CMC						Carbon Mitigation Credit
CODM						Chief Operating Decision Maker(s)
DC PLUG						District of Columbia Power Line Undergrounding Initiative
DCPSC						Public Service Commission of the District of Columbia
DOE						United States Department of Energy
DOEE						District of Columbia Department of Energy & Environment
DOJ						United States Department of Justice
DPP						Deferred Purchase Price
DPSC						Delaware Public Service Commission
EDF						Electricite de France SA and its subsidiaries
EIMA						Energy Infrastructure Modernization Act (Illinois Senate Bill 1652 and Illinois House Bill 3036)
EPA						United States Environmental Protection Agency
ERCOT						Electric Reliability Council of Texas
FEJA						Illinois Public Act 99-0906 or Future Energy Jobs Act
FERC						Federal Energy Regulatory Commission
FRCC						Florida Reliability Coordinating Council
FRR						Fixed Resource Requirement
GAAP						Generally Accepted Accounting Principles in the United States
GCR						Gas Cost Rate
GHG						Greenhouse Gas
GSA						Generation Supply Adjustment
IBEW						International Brotherhood of Electrical Workers
ICC						Illinois Commerce Commission
ICE						Intercontinental Exchange
IPA						Illinois Power Agency
IRC						Internal Revenue Code
IRS						Internal Revenue Service

GLOSSARY OF TERMS AND ABBREVIATIONS
Other Terms and Abbreviations
ISO						Independent System Operator
ISO-NE						Independent System Operator New England Inc.
LIBOR						London Interbank Offered Rate
MDE						Maryland Department of the Environment
MDPSC						Maryland Public Service Commission
MGP						Manufactured Gas Plant
MISO						Midcontinent Independent System Operator, Inc.
mmcf						Million Cubic Feet
MOPR						Minimum Offer Price Rule
MPSC						Missouri Public Service Commission
MW						Megawatt
MWh						Megawatt hour
NAV						Net Asset Value
N/A						Not applicable
NDT						Nuclear Decommissioning Trust
NERC						North American Electric Reliability Corporation
NGX						Natural Gas Exchange
NJBPU						New Jersey Board of Public Utilities
Non-Regulatory Agreement Units						Nuclear generating units or portions thereof whose decommissioning-related activities are not subject to contractual elimination under regulatory accounting
NOSA						Nuclear Operating Services Agreement
NPNS						Normal Purchase Normal Sale scope exception
NPS						National Park Service
NRC						Nuclear Regulatory Commission
NYISO						New York Independent System Operator Inc.
NYMEX						New York Mercantile Exchange
NYPSC						New York Public Service Commission
OCI						Other Comprehensive Income
OIESO						Ontario Independent Electricity System Operator
OPEB						Other Postretirement Employee Benefits
PAPUC						Pennsylvania Public Utility Commission
PGC						Purchased Gas Cost Clause
PG&E						Pacific Gas and Electric Company
PJM						PJM Interconnection, LLC
POLR						Provider of Last Resort
PPA						Power Purchase Agreement
Price-Anderson Act						Price-Anderson Nuclear Industries Indemnity Act of 1957
PRP						Potentially Responsible Parties
PSDAR						Post-Shutdown Decommissioning Activities Report
PSEG						Public Service Enterprise Group Incorporated
PUCT						Public Utility Commission of Texas
REC						Renewable Energy Credit which is issued for each megawatt hour of generation from a qualified renewable energy source
Regulatory Agreement Units						Nuclear generating units or portions thereof whose decommissioning-related activities are subject to contractual elimination under regulatory accounting
RFP						Request for Proposal

GLOSSARY OF TERMS AND ABBREVIATIONS
Other Terms and Abbreviations
Rider						Reconcilable Surcharge Recovery Mechanism
RMC						Risk Management Committee
ROE						Return on Equity
RPS						Renewable Energy Portfolio Standards
RTO						Regional Transmission Organization
S&P						Standard & Poor’s Ratings Services
SEC						United States Securities and Exchange Commission
SERC						SERC Reliability Corporation (formerly Southeast Electric Reliability Council)
SNF						Spent Nuclear Fuel
SOS						Standard Offer Service
STRIDE						Maryland Strategic Infrastructure Development and Enhancement Program
TCJA						Tax Cuts and Jobs Act
Transition Bonds						Transition Bonds issued by ACE Funding
UGSOA						United Government Security Officers of America
U.S. Court of Appeals for the D.C. Circuit						United States Court of Appeals for the District of Columbia Circuit
VIE						Variable Interest Entity
WECC						Western Electric Coordinating Council
ZEC						Zero Emission Credit or Zero Emission Certificate
ZES						Zero Emission Standard

FILING FORMAT

This combined Form 10-Q is being filed separately by Exelon Corporation, Exelon Generation Company, LLC, Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company, Pepco Holdings LLC, Potomac Electric Power Company, Delmarva Power & Light Company, and Atlantic City Electric Company (Registrants). Information contained herein relating to any individual Registrant is filed by such Registrant on its own behalf. No Registrant makes any representation as to information relating to any other Registrant.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This Report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties including, among others, those related to the timing, manner, tax-free nature, and expected benefits associated with the potential separation of Exelon’s competitive power generation and customer-facing energy business from its six regulated electric and gas utilities. Words such as “could,” “may,” “expects,” “anticipates,” “will,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “predicts,” and variations on such words, and similar expressions that reflect our current views with respect to future events and operational, economic, and financial performance, are intended to identify such forward-looking statements.

The factors that could cause actual results to differ materially from the forward-looking statements made by the Registrants include those factors discussed herein, as well as the items discussed in (1) the Registrants' combined 2020 Annual Report on Form 10-K in (a) Part I, ITEM 1A. Risk Factors, (b) Part II, ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and (c) Part II, ITEM 8. Financial Statements and Supplementary Data: Note 19, Commitments and Contingencies; (2) this Quarterly Report on Form 10-Q in (a) Part II, ITEM 1A. Risk Factors, (b) Part I, ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and (c) Part I, ITEM 1. Financial Statements: Note 15, Commitments and Contingencies; and (3) other factors discussed in filings with the SEC by the Registrants.

Investors are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Report. 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 Report.

WHERE TO FIND MORE INFORMATION

The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information that the Registrants file electronically with the SEC. These documents are also available to the public from commercial document retrieval services and the Registrants' website at www.exeloncorp.com. Information contained on the Registrants' website shall not be deemed incorporated into, or to be a part of, this Report.

PART I. FINANCIAL INFORMATION

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
(In millions, except per share data)			2021						2020						2021						2020
Operating revenues
Competitive businesses revenues			$	4,084					$	4,331					$	13,250					$	12,348
Rate-regulated utility revenues			4,873						4,533						13,336						12,643
Revenues from alternative revenue programs			(47)						(11)						129						(66)
Total operating revenues			8,910						8,853						26,715						24,925
Operating expenses
Competitive businesses purchased power and fuel			1,541						2,311						8,103						6,967
Rate-regulated utility purchased power and fuel			1,492						1,303						3,914						3,439
Operating and maintenance			1,992						2,732						6,416						7,370
Depreciation and amortization			1,624						1,289						4,988						3,312
Taxes other than income taxes			468						452						1,337						1,299
Total operating expenses			7,117						8,087						24,758						22,387
Gain on sales of assets and businesses			65						3						147						16
Operating income			1,858						769						2,104						2,554
Other income and (deductions)
Interest expense, net			(391)						(398)						(1,161)						(1,222)
Interest expense to affiliates			(6)						(6)						(19)						(19)
Other, net			(55)						421						751						352
Total other income and (deductions)			(452)						17						(429)						(889)
Income before income taxes			1,406						786						1,675						1,665
Income taxes			174						216						229						141
Equity in losses of unconsolidated affiliates			(3)						(1)						(5)						(5)
Net income			1,229						569						1,441						1,519
Net income (loss) attributable to noncontrolling interests			26						68						126						(85)
Net income attributable to common shareholders			$	1,203					$	501					$	1,315					$	1,604
Comprehensive income, net of income taxes
Net income			$	1,229					$	569					$	1,441					$	1,519
Other comprehensive income (loss), net of income taxes
Pension and non-pension postretirement benefit plans:
Prior service benefit reclassified to periodic benefit cost			(1)						(10)						(4)						(30)
Actuarial loss reclassified to periodic benefit cost			56						49						167						142
Pension and non-pension postretirement benefit plan valuation adjustment			14						(13)						15						(17)
Unrealized loss on cash flow hedges			—						(1)						(1)						(2)
Unrealized (loss) gain on foreign currency translation			(3)						3						—						(3)
Other comprehensive income			66						28						177						90
Comprehensive income			1,295						597						1,618						1,609
Comprehensive income (loss) attributable to noncontrolling interests			26						68						126						(85)
Comprehensive income attributable to common shareholders			$	1,269					$	529					$	1,492					$	1,694
Average shares of common stock outstanding:
Basic			979						976						978						976
Assumed exercise and/or distributions of stock-based awards			1						1						1						—
Diluted(a)			980						977						979						976
Earnings per average common share
Basic			$	1.23					$	0.51					$	1.34					$	1.64
Diluted			$	1.23					$	0.51					$	1.34					$	1.64

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(a)The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was zero for the three and nine months ended September 30, 2021 and approximately 1 million for the three and nine months ended September 30, 2020, respectively.

See the Combined Notes to Consolidated Financial Statements

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

			Nine Months Ended September 30,
(In millions)			2021						2020
Cash flows from operating activities
Net income			$	1,441					$	1,519
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization, and accretion, including nuclear fuel and energy contract amortization			6,204						4,419
Asset impairments			541

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(Dollars in millions except per share data, unless otherwise noted)

Exelon

Executive Overview

Exelon is a utility services holding company engaged in the generation, delivery, and marketing of energy through Generation and the energy distribution and transmission businesses through ComEd, PECO, BGE, Pepco, DPL, and ACE.

Exelon has eleven reportable segments consisting of Generation’s five reportable segments (Mid-Atlantic, Midwest, New York, ERCOT, and Other Power Regions), ComEd, PECO, BGE, Pepco, DPL, and ACE. See Note 1 — Significant Accounting Policies and Note 5 — Segment Information of the Combined Notes to Consolidated Financial Statements for additional information regarding Exelon's principal subsidiaries and reportable segments.

Exelon’s consolidated financial information includes the results of its eight separate operating subsidiary registrants, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL, and ACE, which, along with Exelon, are collectively referred to as the Registrants. The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL, and ACE. However, none of the Registrants makes any representation as to information related solely to any of the other Registrants.

Financial Results of Operations

GAAP Results of Operations. The following table sets forth Exelon's GAAP consolidated Net Income attributable to common shareholders by Registrant for the three and nine months ended September 30, 2021 compared to the same period in 2020. For additional information regarding the financial results for the three and nine months ended September 30, 2021 and 2020 see the discussions of Results of Operations by Registrant.

			Three Months Ended September 30,												Favorable (unfavorable) variance						Nine Months Ended September 30,												Favorable (unfavorable) variance
			2021						2020									2021						2020
Exelon			$	1,203					$	501					$	702					$	1,315					$	1,604					$	(289)
Generation			607						49						558						(247)						570						(817)
ComEd			220						196						24						609						304						305
PECO			111						138						(27)						383						317						66
BGE			36						53						(17)						290						273						17
PHI			266						216						50						535						418						117
Pepco			130						118						12						264						227						37
DPL			50						27						23						135						91						44
ACE			90						75						15						141						106						35
Other(a)			(37)						(151)						114						(255)						(278)						23

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(a)Primarily includes eliminating and consolidating adjustments, Exelon’s corporate operations, shared service entities and other financing and investing activities.

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020. Net income attributable to common shareholders increased by $702 million and diluted earnings per average common share increased to $1.23 in 2021 from $0.51 in 2020 primarily due to:

• Absence of an impairment in the New England asset group;

• Absence of one time charges recorded in the third quarter of 2020 associated with Generation's decision to early retire the Byron and Dresden nuclear facilities and Mystic Units 8 and 9, and the reversal of one-time charges resulting from the reversal of the previous decision to early retire Byron and Dresden on September 15, 2021;

• Higher mark-to-market gains;

• Higher New York ZEC revenues due to higher generation and an increase in ZEC prices;

• Higher electric distribution earnings from higher rate base and higher allowed ROE due to an increase in treasury rates at ComEd; and

• The favorable impacts of the multi-year plan at BGE and regulatory rate increases at DPL and Pepco.

The increases were partially offset by:

• Lower net unrealized and realized gains on NDT funds;

• Decommissioning-related activities that were not offset for the Byron units beginning in the second quarter of 2021 through September 15, 2021. With Generation's September 15, 2021 reversal of the previous decision to retire Byron, Generation resumed contractual offset for Byron as of that date;

• Accelerated depreciation and amortization associated with Generation's previous decision in the third quarter of 2020 to early retire Byron and Dresden nuclear facilities in 2021, a decision which was reversed on September 15, 2021, and Generation's decision in the third quarter of 2020 to early retire Mystic Units 8 and 9 in 2024; and

• Higher net unrealized and realized losses on equity investments.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020. Net income attributable to common shareholders decreased by $289 million and diluted earnings per average common share decreased to $1.34 in 2021 from $1.64 in 2020 primarily due to:

• Impacts of the February 2021 extreme cold weather event;

• Accelerated depreciation and amortization associated with Generation's previous decision in the third quarter of 2020 to early retire Byron and Dresden nuclear facilities in 2021, a decision which was reversed on September 15, 2021, and Generation's decision in the third quarter of 2020 to early retire Mystic Units 8 and 9 in 2024;

• Decommissioning-related activities that were not offset for the Byron units beginning in the second quarter of 2021 through September 15, 2021. With Generation's September 15, 2021 reversal of the previous decision to retire Byron, Generation resumed contractual offset for Byron as of that date;

• Impairments at Generation of the New England asset group, the Albany Green Energy biomass facility, and a wind project, partially offset by the absence of an impairment of the New England asset group in the third quarter of 2020; and

• The absence of a prior year one-time tax settlement.

The decreases were partially offset by:

• Higher mark-to-market gains;

• Higher net unrealized and realized gains on NDT funds;

• Absence of one time charges recorded in the third quarter of 2020 associated with Generation's decision to early retire the Byron and Dresden nuclear facilities and Mystic generating station assets, and the reversal of one-time charges;

• Lower nuclear outage days;

• Higher New York ZEC revenues due to higher generation and an increase in ZEC prices;

• Lower operating and maintenance expense at ComEd due to the payments that ComEd made in 2020 under the Deferred Prosecution Agreement;

• Higher electric distribution earnings from higher rate base and higher allowed ROE due to an increase in treasury rates at ComEd;

• The favorable impacts of the multi-year plan at BGE and regulatory rate increases at

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The Registrants are exposed to market risks associated with adverse changes in commodity prices, counterparty credit, interest rates, and equity prices. Exelon’s RMC approves risk management policies and objectives for risk assessment, control and valuation, counterparty credit approval, and the monitoring and reporting of risk exposures. The RMC is chaired by the chief executive officer and includes the chief risk officer, chief strategy officer, chief executive officer of Exelon Utilities, chief commercial officer, chief financial officer, and chief executive officer of Constellation. The RMC reports to the Finance and Risk Committee of the Exelon Board of Directors on the scope of the risk management activities. The following discussion serves as an update to ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK of Exelon’s 2020 Annual Report on Form 10-K incorporated herein by reference.

Commodity Price Risk (All Registrants)

Commodity price risk is associated with price movements resulting from changes in supply and demand, fuel costs, market liquidity, weather conditions, governmental regulatory and environmental policies, and other factors. To the extent the total amount of energy Exelon generates and purchases differs from the amount of energy it has contracted to sell, Exelon is exposed to market fluctuations in commodity prices. Exelon seeks to mitigate its commodity price risk through the sale and purchase of electricity, fossil fuel, and other commodities.

Generation

Electricity available from Generation’s owned or contracted generation supply in excess of Generation’s obligations to customers, including portions of the Utility Registrants' retail load, is sold into the wholesale markets. To reduce commodity price risk caused by market fluctuations, Generation enters into non-derivative contracts as well as derivative contracts, including swaps, futures, forwards, and options, with approved counterparties to hedge anticipated exposures. Generation uses derivative instruments as economic hedges to mitigate exposure to fluctuations in commodity prices. Generation expects the settlement of the majority of its economic hedges will occur during 2021 through 2023.

As of September 30, 2021, the percentage of expected generation hedged for the Mid-Atlantic, Midwest, New York, and ERCOT reportable segments is 96%-99% for the remainder of 2021. Market price risk exposure is the risk of a change in the value of unhedged positions. The forecasted market price risk exposure for Generation’s entire economic hedge portfolio associated with a $5 reduction in the annual average around-the-clock energy price based on September 30, 2021 market conditions and hedged position would be immaterial for 2021. See Note 12 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information.

Fuel Procurement

Approximately 60% of Generation’s uranium concentrate requirements from 2021 through 2025 are supplied by three suppliers. In the event of non-performance by these or other suppliers, Generation believes that replacement uranium concentrates can be obtained, although at prices that may be unfavorable when compared to the prices under the current supply agreements. Non-performance by these counterparties could have a material adverse impact in Exelon’s and Generation’s financial statements.

Utility Registrants

There have been no significant changes or additions to the Utility Registrants exposures to commodity price risk that were described in ITEM 1A. RISK FACTORS of Exelon’s 2020 Annual Report on Form 10-K. See Note 12 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information regarding commodity price risk exposure.

Trading and Non-Trading Marketing Activities

The following table detailing Exelon’s, Generation’s, and ComEd’s trading and non-trading marketing activities is included to address the recommended disclosures by the energy industry’s Committee of Chief Risk Officers (CCRO).

The following table provides detail on changes in Exelon’s, Generation’s, and ComEd’s commodity mark-to-market net asset or liability balance sheet position from December 31, 2020 to September 30, 2021. It indicates the drivers behind changes in the balance sheet amounts. This table incorporates the mark-to-market activities that are immediately recorded in earnings. This table excludes all NPNS contracts and does not segregate proprietary trading activity. See Note 12 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information on the balance sheet classification of the mark-to-market energy contract net assets (liabilities) recorded as of September 30, 2021 and December 31, 2020.

			Exelon						Generation						ComEd
Total mark-to-market energy contract net assets (liabilities) at December 31, 2020(a)			$	428					$	729					$	(301)
Total change in fair value during 2021 of contracts recorded in results of operations			1,434						1,434						—
Reclassification to realized at settlement of contracts recorded in results of operations			(186)						(186)						—
Changes in fair value — recorded through regulatory assets(b)			87						—						87
Changes in allocated collateral			(2,061)						(2,061)						—
Net option premium paid			186						186						—
Option premium amortization			(45)						(45)						—
Upfront payments and amortizations(c)			(107)						(107)						—
Total mark-to-market energy contract net liabilities at September 30, 2021(a)			$	(264)					$	(50)					$	(214)

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(a)Amounts are shown net of collateral paid to and received from counterparties.

(b)For ComEd, the changes in fair value are recorded as a change in regulatory assets. As of September 30, 2021, ComEd recorded a regulatory asset of $214 million related to its mark-to-market derivative liabilities with unaffiliated suppliers. For the nine months ended September 30, 2021, ComEd recorded $72 million of increases in fair value and an increase for realized losses due to settlements of $15 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers.

(c)Includes derivative contracts acquired or sold by Generation through upfront payments or receipts of cash, excluding option premiums, and the associated amortizations.

Fair Values

The following tables present maturity and source of fair value for Exelon, Generation, and ComEd mark-to-market commodity contract net assets (liabilities). The tables provide two fundamental pieces of information. First, the tables provide the source of fair value used in determining the carrying amount of the Registrants’ total mark-to-market net assets (liabilities), net of allocated collateral. Second, the tables show the maturity, by year, of the Registrants’ commodity contract net assets (liabilities), net of allocated collateral, giving an indication of when these mark-to-market amounts will settle and either generate or require cash. See Note 14 — Fair Value of Financial Assets and Liabilities of the Combined Notes to Consolidated Financial Statements for additional information regarding fair value measurements and the fair value hierarchy.

Exelon

			Maturities Within																																				Total Fair Value
			2021						2022						2023						2024						2025						2026 and Beyond
Normal Operations, Commodity derivative contracts(a)(b):
Actively quoted prices (Level 1)			$	302					$	578					$	63					$	53					$	38					$	23					$	1,057
Prices provided by external sources (Level 2)			17						737						40						(40)						—						—						754
Prices based on model or other valuation methods (Level 3)(c)			(566)						(1,304)						17						(15)						(18)						(189)						(2,075)
Total			$	(247)					$	11					$	120					$	(2)					$	20					$	(166)					$	(264)

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(a)Mark-to-market gains and losses on other economic hedge and trading derivative contracts that are recorded in results of operations.

(b)Amounts are shown net of collateral paid/(received) from counterparties (and offset against mark-to-market assets and liabilities) of $(1,645) million at September 30, 2021.

(c)Includes ComEd’s net assets (liabilities) associated with the floating-to-fixed energy swap contracts with unaffiliated suppliers.

Generation

			Maturities Within																																				Total Fair Value
			2021						2022						2023						2024						2025						2026 and Beyond
Normal Operations, Commodity derivative contracts(a)(b):
Actively quoted prices (Level 1)			$	302					$	578					$	63					$	53					$	38					$	23					$	1,057
Prices provided by external sources (Level 2)			17						737						40						(40)						—						—						754
Prices based on model or other valuation methods (Level 3)			(565)						(1,293)						39						8						5						(55)						(1,861)
Total			$	(246)					$	22					$	142					$	21					$	43					$	(32)					$	(50)

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(a)Mark-to-market gains and losses on other economic hedge and trading derivative contracts that are recorded in the results of operations.

(b)Amounts are shown net of collateral paid/(received) from counterparties (and offset against mark-to-market assets and liabilities) of $(1,645) million at September 30, 2021.

ComEd

			Maturities Within																																				Total Fair Value
			2021						2022						2023						2024						2025						2026 and Beyond
Commodity derivative contracts(a):
Prices based on model or other valuation methods (Level 3)(a)			$	(1)					$	(11)					$	(22)					$	(23)					$	(23)					$	(134)					$	(214)

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(a)Represents ComEd’s net liabilities associated with the floating-to-fixed energy swap contracts with unaffiliated suppliers.

Credit Risk (All Registrants)

The Registrants would be exposed to credit-related losses in the event of non-performance by counterparties that execute derivative instruments. The credit exposure of derivative contracts, before collateral, is represented by the fair value of contracts at the reporting date. See Note 12 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for detailed discussion of credit risk.

Generation

The following tables provide information on Generation’s credit exposure for all derivative instruments, NPNS, and payables and receivables, net of collateral and instruments that are subject to master netting agreements, as of September 30, 2021. The tables further delineate that exposure by credit rating of the counterparties and provide guidance on the concentration of credit risk to individual counterparties and an indication of the duration of a company’s credit risk by credit rating of the counterparties. The amounts in the tables below exclude credit risk exposure from individual retail customers, uranium procurement contracts, and exposure through RTOs, ISOs, and commodity exchanges, which are discussed below.

Rating as of September 30, 2021						Total Exposure Before Credit Collateral						Credit Collateral**(a)**						Net Exposure						Number of Counterparties Greater than 10% of Net Exposure						Net Exposure of Counterparties Greater than 10% of Net Exposure
Investment grade						$	701					$	254					$	447					—						$	—
Non-investment grade						23						2						21						—						—
No external ratings
Internally rated — investment grade						110						1						109						—						—
Internally rated — non-investment grade						309						48						261						—						—
Total						$	1,143					$	305					$	838					—						$	—

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(a)As of September 30, 2021, credit collateral held from counterparties where Generation had credit exposure included $188 million of cash and $117 million of letters of credit.

						Maturity of Credit Risk Exposure
Rating as of September 30, 2021						Less than 2 Years						2-5 Years						Exposure Greater than 5 Years						Total Exposure Before Credit Collateral
Investment grade						$	579					$	69					$	53					$	701
Non-investment grade						23						—						—						23
No external ratings
Internally rated — investment grade						96						10						4						110
Internally rated — non-investment grade						251						49						9						309
Total						$	949					$	128					$	66					$	1,143

Net Credit Exposure by Type of Counterparty						As of September 30, 2021
Financial institutions						$	53
Investor-owned utilities, marketers, power producers						652
Energy cooperatives and municipalities						62
Other						71
Total						$	838

The Utility Registrants

There have been no significant changes or additions to the Utility Registrants exposures to credit risk that are described in ITEM 1A. RISK FACTORS of Exelon’s 2020 Annual Report on Form 10-K. See Note 12 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information regarding credit exposure to suppliers.

Credit-Risk-Related Contingent Features (All Registrants)

Generation

As part of the normal course of business, Generation routinely enters into physical or financial contracts for the sale and purchase of electricity, natural gas, and other commodities. In accordance with the contracts and applicable law, if Generation is downgraded by a credit rating agency, especially if such downgrade is to a level below investment grade, it is possible that a counterparty would attempt to rely on such a downgrade as a basis for making a demand for adequate assurance of future performance. Depending on Generation’s net position with a counterparty, the demand could be for the posting of collateral. In the absence of expressly agreed-to provisions that specify the collateral that must be provided, collateral requested will be a function of the facts and circumstances of the situation at the time of the demand. See Note 12 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information regarding collateral requirements. See Note 15 — Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements for additional information regarding the letters of credit supporting the cash collateral.

Generation transacts output through bilateral contracts. The bilateral contracts are subject to credit risk, which relates to the ability of counterparties to meet their contractual payment obligations. Any failure to collect these payments from counterparties could have a material impact on Exelon’s and Generation’s financial statements. As market prices rise above or fall below contracted price levels, Generation is required to post collateral with purchasers; as market prices fall below contracted price levels, counterparties are required to post collateral with Generation. To post collateral, Generation depends on access to bank credit facilities, which serve as liquidity sources to fund collateral requirements. See Note 17 — Debt and Credit Agreements of Exelon’s 2020 Annual Report on Form 10-K for additional information.

Utility Registrants

As of September 30, 2021, the Utility Registrants were not required to post collateral under their energy and/or natural gas procurement contracts. See Note 12 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information.

Interest Rate and Foreign Exchange Risk (Exelon and Generation)

Exelon and Generation use a combination of fixed-rate and variable-rate debt to manage interest rate exposure. Exelon and Generation may also utilize interest rate swaps to manage their interest rate exposure. A hypothetical 50 basis point increase in the interest rates associated with unhedged variable-rate debt (excluding Commercial Paper) and fixed-to-floating swaps would result in approximately a $1 million decrease in Exelon pre-tax income for the nine months ended September 30, 2021. To manage foreign exchange rate exposure associated with international energy purchases in currencies other than U.S. dollars, Generation utilizes foreign currency derivatives, which are typically designated as economic hedges. See Note 12 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information.

Equity Price Risk (Exelon and Generation)

Exelon and Generation maintain trust funds, as required by the NRC, to fund certain costs of decommissioning its nuclear plants. As of September 30, 2021, Generation’s NDT funds are reflected at fair value in its Consolidated Balance Sheets. The mix of securities in the trust funds is designed to provide returns to be used to fund decommissioning and to compensate Generation for inflationary increases in decommissioning costs; however, the equity securities in the trust funds are exposed to price fluctuations in equity markets, and the value of fixed-rate, fixed-income securities are exposed to changes in interest rates. Generation actively monitors the investment performance of the trust funds and periodically reviews asset allocation in accordance with Generation’s NDT fund investment policy. A hypothetical 25 basis points increase in interest rates and 10% decrease in equity prices would result in a $863 million reduction in the fair value of the trust assets. This calculation holds all other variables constant and assumes only the discussed changes in interest rates and equity prices.