Exelon Financial Model

Utility revenue modeling differs fundamentally from standard corporate modeling. Revenue is driven by the "cost of service" model: recovering operating expenses plus earning an authorised return on rate base.

• Total assets: Approximately $100 billion.
• Key asset categories:
• Property, Plant, and Equipment (PP&E): The vast majority of assets. Represents the physical grid (poles, wires, substations, gas mains).
• Regulatory Assets: Costs incurred that regulators have approved for future recovery from customers (e.g., deferred storm costs, under-collected pass-throughs).
• Working capital profile:
• DSO: 30-45 days.
• Net working capital: Typically negative. Utilities carry large current liabilities (accounts payable for purchased power, short-term debt) against highly liquid receivables.
• Goodwill: Legacy goodwill from the PHI acquisition; rarely impaired due to regulated cash flows.

• Capex scale: $41.3 billion planned for 2026-2029 (averaging ~$10.3 billion annually).
• Capex as % of revenue: ~40-45% (exceptionally high, standard for T&D utilities).
• Maintenance vs. growth: The majority is classified as growth/modernisation (grid resilience, transmission build-out for data centres, gas pipe replacement).
• M&A pattern: Purely organic growth currently. The company is focused on executing its massive internal capital plan rather than acquiring other utilities.

• Total debt: Highly leveraged, typical for a regulated utility. Debt sits at both the holding company (HoldCo) and operating company (OpCo) levels.
• Credit rating: BBB+ (S&P). Maintaining this is critical for access to cheap capital.
• Interest rate profile: Mostly fixed-rate long-term bonds (e.g., 10-year to 30-year First Mortgage Bonds issued by OpCos).
• Equity issuance: To fund the $41.3 billion capex plan while maintaining credit ratings, Exelon targets funding 40% of incremental capital with equity. This requires approximately $850 million in annual equity issuance through 2029.
• Dividend policy: Target payout ratio of approximately 60% of adjusted operating earnings. 2025 dividend was $1.60 per share, growing at ~5% annually.

• Operating cash flow: Highly stable and predictable, driven by regulated returns and depreciation add-backs.
• Free cash flow: Deeply negative. OCF is insufficient to cover the $10+ billion annual capex. The company structurally outspends its cash flow to grow the rate base.
• Financing cash flows: The bridge. The model must show continuous debt and equity issuances to balance the cash flow statement.
• Cash tax rate: Very low. Accelerated depreciation on massive capital investments creates significant deferred tax liabilities, pushing cash taxes near zero.

1. Assumptions: Hardcoded drivers for rate base growth, allowed ROE, equity issuance, and debt costs.
2. Rate Base Roll-Forward: The engine of the model. Tracks opening rate base, plus capex, minus depreciation, minus deferred taxes, to calculate the closing rate base for ComEd, PECO, BGE, and PHI.
3. Revenue Build: Calculates revenue by segment based on rate base returns, recoverable O&M, and pass-through commodity costs.
4. Income Statement: Consolidated view. Must separate "Purchased Power and Gas" from "O&M" to calculate true operating margin.
5. Balance Sheet: Driven by PP&E, regulatory assets/liabilities, and debt tranches.
6. Cash Flow Statement: Standard indirect method. Must clearly show the negative FCF and the required financing plug.
7. Debt & Financing Schedule: Tracks OpCo debt, HoldCo debt, and the annual $850 million equity issuance (calculating share count dilution).
8. Valuation (DCF & DDM): Dividend Discount Model is often preferred for utilities over DCF due to the perpetual negative FCF. Includes a Sum-of-the-Parts (SOTP) P/E valuation.

1. `Ending Rate Base = Beginning Rate Base + Capex - Depreciation - Change in Deferred Income Taxes`
2. `Average Rate Base = (Beginning Rate Base + Ending Rate Base) / 2`
3. `Segment Operating Income = Average Rate Base x Authorised Return on Rate Base (approx. 7.0-7.5% blended cost of capital)`
4. `Segment Net Income = Average Rate Base x Authorised Return on Equity (approx. 9.5-10.0%) x Equity Ratio (approx. 50%)`
5. `Total Revenue = Purchased Power (Pass-through) + O&M + Depreciation + Taxes + Operating Income`
6. `Free Cash Flow = Cash from Operations - Capital Expenditures`
7. `Funding Gap = Free Cash Flow - Dividends Paid`
8. `New Equity Issued = $850 million (management guidance for 2026-2029)`
9. `New Debt Issued = Funding Gap - New Equity Issued`
10. `Diluted Shares Outstanding = Prior Year Shares + (New Equity Issued / Average Share Price)`
11. `Dividend Per Share = Prior Year DPS x (1 + Target Dividend Growth Rate of 5%)`
12. `Total Dividend Paid = Dividend Per Share x Diluted Shares Outstanding`

The critical chain in a utility model is circular by nature:

• Assumptions dictate Capex.
• Capex feeds the Rate Base Roll-Forward and increases PP&E on the Balance Sheet.
• The Rate Base dictates Operating Income on the Income Statement.
• Net Income feeds the Cash Flow Statement.
• Massive Capex creates a cash shortfall on the Cash Flow Statement.
• The shortfall triggers the Debt & Financing Schedule to issue debt and equity.
• New debt increases Interest Expense on the Income Statement (creating a circularity).
• New equity increases the share count, which increases the total dividend payout, further reducing cash and requiring more debt.
• A circuit breaker (iteration toggle) must be built into the interest expense and share count calculations.

• Revenues and income are positive.
• Expenses (O&M, Depreciation, Interest) are positive in their specific schedules but subtracted in the Income Statement.
• Capital expenditures are positive in the Capex schedule but negative in the Cash Flow Statement.
• Debt and equity issuances are positive in the Cash Flow Statement.
• Dividends paid are negative in the Cash Flow Statement.

• Misunderstanding Decoupling: Modeling revenue based on volumetric load growth (GWh sold) is incorrect for Exelon. Revenue is decoupled; it is driven by rate base growth, not weather or usage.
• Ignoring Equity Dilution: Exelon plans to issue $850 million in equity annually. Failing to increase the share count will artificially inflate EPS and understate the total dividend cash burden.
• Mispricing Pass-Throughs: Attempting to forecast purchased power costs and applying a margin to them. These are zero-margin pass-throughs.
• Regulatory Lag: Assuming 100% of capex immediately earns a return. In reality, there is a delay between spending capital and having it approved in a rate case.
• Deferred Taxes: Forgetting to subtract deferred taxes from the rate base. Accelerated depreciation creates deferred tax liabilities, which regulators treat as zero-cost capital, reducing the earning rate base.
• HoldCo vs OpCo Debt: Blending all debt together. Operating companies issue secured first mortgage bonds at lower rates; the holding company issues unsecured debt at higher rates.
• Valuation Methodology: Using a standard Unlevered DCF. Because capex perpetually exceeds operating cash flow, terminal value calculations in a standard DCF break down. A Dividend Discount Model (DDM) or P/E multiple approach is required.
• O&M Inflation: Assuming O&M grows with inflation. Management actively cuts O&M to keep customer bills flat while rate base grows. O&M should be modeled as flat or growing at <1%.

• "Rate base growth must equal approximately 7.9% CAGR through 2029; flag if outside 7.5-8.5%."
• "Consolidated Operating ROE should be between 9.0% and 10.0%."
• "Annual equity issuance must equal exactly $850 million per management guidance."
• "Dividend payout ratio must remain between 58% and 62% of Adjusted Operating Earnings."
• "Total Capex for the 2026-2029 period must sum to approximately $41.3 billion."
• "O&M expense growth should not exceed 1% annually."
• "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period."
• "Effective tax rate should be low (12-15%) due to utility-specific tax deductions and amortisation of excess deferred taxes."

• SEC EDGAR: Exelon (EXC) 10-K and 10-Q filings.
• Investor Relations: Exelon Q4 2025 Earnings Presentation (contains the $41.3B capex and 7.9% rate base growth targets).
• Industry Data: Edison Electric Institute (EEI) for typical bill benchmarks and regulatory ROE averages.
• State Utility Commissions: Illinois Commerce Commission (ICC), Maryland PSC, Pennsylvania PUC, and New Jersey BPU for actual rate case dockets and approved ROEs.
• Key Peers: Consolidated Edison (ED), American Electric Power (AEP), Eversource Energy (ES), and Xcel Energy (XEL).

• Exelon Corporation Q4 2025 Earnings Release (February 12, 2026)
• Exelon Corporation 2025 Annual Report on Form 10-K
• Exelon Q4 2025 Earnings Call Transcript
• Exelon 2026 Proxy Statement (DEF 14A)