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Exelon Corporation (NASDAQ:EXC)
Q3 2021 Earnings Call
Nov 6, 2021, 2:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and welcome to Exelon's third quarter earnings call. My name is Justin, and I will be your event specialist today. [Operator Instructions] It is now my pleasure to turn today's program over to Emily Duncan, Vice President, Investor Relations. The floor is yours.

Emily Duncan -- Vice President of Investor Relations

Thank you, Justin. Good morning, everyone, and thank you for joining our third quarter 2021 earnings conference call. Leading the call today are Chris Crane, Exelon's President and Chief Executive Officer; and Joe Nigro, Exelon's Chief Financial Officer. They're joined by other members of Exelon's senior management team who will be available to answer your questions following our prepared remarks. We issued our earnings release this morning, along with this 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 the call. Please refer to today's 8-K and Exelon's other SEC filings for discussions of risk factors and other factors, including uncertainties surrounding the planned separation, 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.

I'll now turn the call over to Chris Crane, Exelon's CEO.

Chris M. Crane -- President, Chief Executive Officer

Thanks, Emily, and good morning, everybody. And Emily, thank you for putting a hedge on everything we're about to say. We had a good quarter financially and operationally and had several very positive developments during the quarter. I'm starting on slide five. We earned $1.23 per share on a GAAP basis and $1.09 on a non-GAAP basis, and Joe will get into those details. Illinois passed, at the last minute, a landmark clean energy legislation which makes the state a national leader in clean energy. Illinois will achieve 100% carbon-free by 2045 by preserving and adding -- preserving the plants and adding tens of thousands of jobs. And we thank Kathleen Barron and her team and many others for the work they've done.

As a result, we have reversed the retirement decision on Byron and Dresden. Our Illinois plants will continue to provide good-paying jobs, economic support to the communities and zero-carbon energy to the citizens of Illinois. We've begun to fill the 650 vacant positions, and we'll be investing more than $300 million in our plants over the next five years to catch up on what we pulled back from during the unknown period. The legislation also includes the provision that would transition to -- these out of the formula rates into a new multiyear, performance-based rate framework.

In August, we completed the put transaction and acquired the EDF's portion of the CENG nuclear plants, adding 17 terawatts to our own zero-emitting nuclear generation. We did receive a grant from the U.S. Department of Energy to explore the potential benefits of on-site hydrogen production at our Nine Mile Point in New York, and we continue to believe that there's a very strong future for hydrogen. Hydrogen will be key in helping the nation address the climate crisis, and the nuclear plants can play a vital role in its production with its heat and capabilities.

We're partnering with Nel Hydrogen and the national labs to demonstrate the integrated production storage and use of hydrogen on site to prove its commercial viability. Operations are expected to begin in 2022. On the regulatory front, Delaware PSC issued a constructive order in our Delmarva rate case. Last quarter, we announced our Path to Clean and our net-zero goal for the utilities, so we continue to strive to meet what our customers desire and our regulators desire. Each utility is building upon existing work and supporting a Path to Clean that aligns to the goals that are needed for their local jurisdictions and stakeholders. An example is PECO's climate solution.

It's a five-year action plan that will fill Pepco's -- I said PECO, Pepco's that will fill with the DC PSC's request last month. This filing outlines 62 different programs to help enable the district's road map toward decarbonization. Another example of helping our communities to meet their goals is through our energy efficiency programs, which are some of the nation's largest. Joe will talk about them in his remarks. We're committed to serving our communities and helping to drive equity and positive change. Last week, we launched a $36 million Racial Equity Capital Fund to expand access to capital for minority-owned businesses, so they can create jobs and grow their businesses and reinvest in the neighborhoods and the communities that we serve.

It's the first-of-a-kind in our sector. In addition, we partnered with the UNCF to launch a $3 million Exelon fund for Corporate Scholarship Program to provide scholarships and internships that create opportunities for students attending historically Black colleges and universities that reside in the communities that we serve. Finally, we are closely watching the work in Washington on the infrastructure Build Back Better Agenda. The legislation will help us address climate change crisis through incentivizing clean technologies and infrastructure investments to make the grid more resilient and ready for clean energy technologies.

It is clear from the proposal that the administration and Congress recognize the critical importance of maintaining the existing nuclear fleet to ensure that the nation can cost effectively address climate change, and we're confident that when the legislation pass -- does pass, it will include a production tax credit for the existing nuclear. Moving on to slide six, to our operations. Reliability remains incredibly strong. All the utilities are delivering a top decile outage frequencies and first quartile in outage durations. BGE, PECO and PHI were top decile for gas odor responses, which is very critical for us as we continue to fend gas as a source -- a bridge source to the future.

Customer service is top-notch with BGE, ComEd and PECO achieving top decile and PHI top quartile. On the generation front, our generation fleet performed well during the quarter, even in the face of uncertainty in Illinois. Our nuclear plants produced 40.5 terawatts of zero-carbon generation, avoiding approximately 21 million tons of carbon dioxide that would be generated otherwise. The fleet had a 96% capacity factor over that period of time, and we're very proud of their operations with the uncertainty they faced. On slide seven, the progress on separation.

We continue to make progress on separating the businesses into two independent Fortune 200 companies. FERC approved the separation in August. And in September, we received a private letter ruling from the IRS confirming the tax-free nature of the separation. The process for the NRC and New York PSC approvals are moving forward, as expected, and remain on track. Last week, the New York PSC staff held the first meeting of settlement negotiations. This is an important step in the process, and we've asked for authorization from the commission by December 16 on their scheduled meeting date. We have named the CEO of each company, as well as their direct reports, and we'll continue the staffing process over the course of the next few weeks and months to be ready for the close in the first quarter of next year.

Joe Dominguez and I are both excited to lead our companies into the next chapter. Exelon will continue to be one of the nation's premier customer-focused energy delivery companies with more than 10 million customers. Joe is the right person to lead Constellation, will be America's leading clean energy company, producing 12% of the nation's clean energy and nearly two times more than any other clean energy company out there. We remain focused on setting each business up to be successful for the long term.

Joe, I'll turn over to you for the financial update.

Joseph Nigro -- Senior Executive Vice President and Chief Financial Officer

Thank you, Chris, and good morning, everyone. Today, I'll cover our third quarter results, our quarterly financial updates and our hedge disclosures. I will also provide an update on our full year 2021 guidance. Turning to slide eight first. We earned $1.09 per share on a non-GAAP basis for the quarter. Exelon Utilities delivered a combined $0.66 per share, net of holding company expenses, and this was primarily driven by above-normal summer weather in our non-decoupled jurisdictions, along with strong operational performance and the impacts of distribution rate cases.

ExGen earned $0.44 per share in the third quarter. Generation and Constellation both performed well during the quarter. We continue to make progress on levers we identified to mitigate the Texas loss, and we expect it will take the full year to realize all of the savings. Realized gains in our decommissioning trust funds partially offset the unrealized losses from our Constellation technology venture investments which are mark to market every quarter until realized. At our holding company, we benefited from expected income tax favorability in the third quarter.

And as a reminder, our holding company incurred $0.12 per share drag in the first quarter associated with how consolidated full year tax expenses are booked due to the impact of the losses incurred at ExGen in Texas. The remainder of the first quarter drag is expected to reverse in the fourth quarter and is not expected to impact our full year results. Turning to guidance. We are narrowing our 2021 EPS guidance range to $2.70 to $2.90 per share from $2.60 to $3 per share previously. Our updated guidance considers reversal of the retirements of the Byron and Dresden nuclear stations as well as execution of the EDF put and our continued additional -- a disciplined approach to cost management.

We are delivering on our financial commitments and are confident we will be within our revised range at year-end. On slide nine, we show our quarter-over-quarter earnings walk. The $1.09 per share in the third quarter of this year was $0.05 per share higher than the third quarter of 2020. Exelon Utilities, inclusive of holding company earnings, were $0.08 per share higher compared to last year. The earnings growth was driven primarily by higher transmission and distribution rates associated with completed rate cases relative to the third quarter of 2020 and higher treasury rates on ComEd's distribution ROE.

This was partially offset by costs related to the remnants of Hurricane Ida that swept through the PECO service territory in early September. The partial reversal of the first quarter tax expense at corporate also drove favorability relative to last year's results. ExGen's earnings were down $0.03 per share compared with last year, and the decrease was due to net unrealized and realized losses on Constellation venture investments; lower capacity revenues, primarily in PJM; and more planned nuclear outage days. This was partially offset by realized gains in our nuclear decommissioning trust funds and higher ZEC revenue due, in part, to increased volumes resulting from fewer planned refuel outages and ZEC pricing in New York.

Moving to slide 10. Looking at our utility returns on a consolidated basis, we continue to meet our consolidated 9% to 10% target with a 9.3% trailing 12-month ROE as of the third quarter. Earned ROEs dipped modestly by 10 basis points since last quarter. Despite higher earnings driven primarily by distribution and transmission rates, the earnings were outpaced by increased equity infusions across all four utilities to support capital investments. Looking forward, we remain focused on delivering stronger returns at the utilities and supporting our growth targets to enable customer benefits.

Turning to slide 11, there were some important developments on the regulatory front since the last call. First, on September 1, Delmarva Maryland filed an electric base rate case with the Maryland Public Service Commission seeking an approximately $29 million increase in electric distribution rates and reflecting an ROE of 10.1%. The case highlights Delmarva Power's strong record of reliability, reporting the second-best reliability performance in Maryland in 2019 and '20 behind only Pepco. Delmarva Power continues to make significant investments to improve reliability and customer service for our customers and communities. DPL Maryland expects to receive an order by March 30, 2022.

Second, on September 15, Delmarva Delaware received a verbal order for its distribution electric rate case. The Delaware Commission approved approximately $14 million increase in annual base distribution rates, reflecting an ROE of 9.6%. As permitted by Delaware law, Delmarva Power implemented full allowable rates on October 6, 2020, subject to refund. We also have two rate cases pending final orders in the fourth quarter. On October 6, the administrative law judge presiding over PECO's electric distribution base rate case recommended the settlement with all parties be approved. The settlement provides for an increase of $132 million in annual electric distribution revenues, and we expect to receive an order in the fourth quarter.

And then on November 2, the ALJ presiding over ComEd's 2021 distribution formula rate update issued a proposed order. There were no adjustments to ComEd's proposed revenue requirement increase of $45.8 million. We expect to receive a final order from the Illinois Commerce Commission by early December. We continue to have constructive regulatory relationships across our jurisdictions and are working with our regulators, states and communities to support their clean energy and climate goals. As a reminder, we expect nearly 100% of our rate base growth will be covered by alternative mechanisms by the end of our planning period, a differentiator for our utilities when compared to peers.

More details on the rate cases can be found on slides 20 through 24 of the appendix. And as Chris mentioned, our energy efficiency programs highlighted on slide 12 is one example of how Exelon's utilities are helping their customers on the Path to Clean. Exelon Utilities are driving customer-driven emissions reductions in our communities through some of the nation's largest energy-efficiency programs and conservation efforts. These programs enable customer savings through home energy audits, lighting discounts, appliance recycling, home improvement rebates, equipment upgrade incentives and innovative programs like smart thermostats and combined heat and power programs.

In 2020, through a combination of new and prior year investments, our utilities helped customers save over 22.3 million megawatt hours of energy. This equates to 8.1 million metric tons of CO2 emissions avoided, the equivalent of nearly 932,000 homes energy use for one year or the carbon sequestered by 10.5 million acres of U.S. forests in one year according to EPA's greenhouse gas calculator. Each of Exelon's utilities is building upon existing work and supporting a Path to Clean that aligns to the goals and needs of their local jurisdictions and stakeholders.

Our approach allows jurisdictional flexibility, such that each utility may respond to their unique regions and markets and employ the strategies and solutions that best address their operational footprints and customer preferences. Before discussing our gross margin update on slide 13, I want to remind you that we expect to provide 2022 hedge disclosures at Analyst Day, which will be held closer to the completion of the separation. However, what I can say now is that we have continued to hedge on our ratable plan for future years, and this includes the length from the Byron and Dresden retirement reversals until the carbon mitigation contracts begin and Exelon's full ownership of the CENG assets.

Turning to the table. Total gross margin increased $500 million since last quarter due to the plant retirement reversals in Illinois and full ownership of the CENG assets beginning on August 7. In 2021, open gross margin is up $1.6 billion relative to the second quarter, primarily due to higher prices in all regions and higher volumes driven by execution of the EDF put and the decision to reverse Byron and Dresden's early retirements. Capacity in ZEC dollars are up $100 million due to full ownership of the CENG assets.

Mark to market of hedges were down $1 billion due to our hedged position, partially offset by the execution of power new business. We executed $200 million of power new business and $50 million of non-power new business during the third quarter. The non-gross margin impacts of the Illinois plant reversals and the full ownership of CENG are incorporated on page 32 of the appendix.

Thank you, and I'll now turn the call back to Chris for his closing remarks.

Chris M. Crane -- President, Chief Executive Officer

Thanks, Joe. Turning to slide 14, I'll close on our ongoing priorities and commitments. As we've said in the past and we'll continue, we will meet or exceed our financial commitments, delivering earnings with our guidance range and maintaining a strong balance sheet. And that goes for both companies as we split. There's a commitment on both sides to do that. We'll complete the preparations to separate the businesses, including the organization, the cost structure for each company that will set each company up for long-term success at a strong investment grade. At Exelon Utilities, we are prudently and efficiently deploying $6.6 billion of capital to benefit our customers and help meet the needs of our jurisdictions' energy policy goals.

We are working with our regulators to ensure timely recovery of these investments, as Joe discussed in his talking points. We continue to advocate for clean energy and climate policies with the new administration and Congress in our states to put the country on a path to meeting the carbon and air pollution reduction goals. There's more here than just carbon. We have a city in Chicago that is the third highest with lung disease. And it's not only carbon. It's the fumes from the industrial sources, and we need to do our part to help lower that. And we're partnering and supporting our customers and the communities that we serve.

So with that, I thank you for your time today, and I'll open up the call to questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from Stephen Byrd from Morgan Stanley. Your line is now open.

Stephen Byrd -- Morgan Stanley -- Analyst

Hi. Good morning. Thanks so much for the thorough update.

Chris M. Crane -- President, Chief Executive Officer

Thanks, Steve.

Stephen Byrd -- Morgan Stanley -- Analyst

I wanted to step back and talk about federal legislation broadly and discuss the impacts, less on nuclear. I think you all have been very clear on that side. I'm thinking more about everything from tax policy to support for transmission. Just curious, at a high level, what are you thinking in terms about the potential impacts to your business if this legislation were to pass?

Chris M. Crane -- President, Chief Executive Officer

I'll let Kathleen Barron speak to it. We think there's a lot of positives that can be put in play here. I don't think we're looking for any handouts. We'd rather make the investments ourselves. And between Kathleen and Calvin Butler, they'll ham and egg it.

Kathleen L. Barron -- Executive Vice President of Government and Regulatory Affairs and Public Policy

Yes. And Joe may want to jump in on the tax question. But, good morning, Stephen. As you pointed out, I think we're very heartened by the support for the nuclear stations and the recognition that their continued operation is essential to meeting the climate goals. But the bill goes way beyond nuclear, as you pointed out, in terms of the extensive support for electric vehicles, both personal vehicles and electric buses in transit, transmission, as you pointed out, and then significant funding on resiliency for hardening and weatherization, all of which, we think, are essential for the communities that we serve, as Chris pointed out.

The transmission program, that's always been a challenging issue, as you know, given that it's not just about funding, but it's also about citing. And so we do expect that to continue to be a challenging area but obviously essential to the clean energy build-out. So I'll stop there and let Cal jump in or Joe, as I said, on tax.

Calvin G. Butler Jr. -- Executive Vice President and Chief Executive Officer

I'll just add a couple of things to piggyback off of what Kathleen said. If you think about some of the specifics that the federal government is looking to partner with the states, think about the $7.5 billion they've earmarked for charging infrastructure. The $5 billion going toward zero emission and clean buses; port electrification, when you think about port electrification for our city of Baltimore and Philadelphia, what that would mean for them; and not even talking about the different grants that they are proposing where utilities could partner to do different things and creative.

And all of this is good for the customers. If that -- those monies are coming directly to the state and there's a partnership, we will continue to invest on reliability and resiliency and then take these moments. It keeps the customer bill down, and that is a concern of ours, just to keep affordability at the forefront of everything we do. So that's that partnership and how we see it playing out.

Chris M. Crane -- President, Chief Executive Officer

Joe?

Joseph Nigro -- Senior Executive Vice President and Chief Financial Officer

Yes. And I'll pick up, Stephen, on the tax question. And we're studying the potential implications across our business. And as you know, we obviously have very large capital plans at our utilities for the benefit of our customers, and they also help drive the local economies and help meet the climate and clean energy goals of our communities. Many of the goals -- of those same goals are shared by this Build Back Better Plan, which I think is driving the tax question.

And you've heard others in the industry say the minimum tax could increase customer bills and potentially impact investment of the capital that we deploy. We are communicating with policymakers about that fact and the impacts it may have on the capital planning process, and we're continuing to work through that.

Stephen Byrd -- Morgan Stanley -- Analyst

Very helpful. Thank you. And then maybe just separately, just thinking about the utility business. You already have excellent growth, so I suppose this question is going to come across as somewhat greedy, but I am thinking about sort of other areas of upside potential there. And I was just curious, maybe for Calvin and Chris, just sort of as we think about categories of growth upside beyond the Exelon base plan that is resulting in above-average growth, but what are some of the categories of sort of additional upside as we think about the utilities growth prospects going forward?

Chris M. Crane -- President, Chief Executive Officer

I'll just start off and then punt it to Calvin. There are many case studies being done on voltage requirements, on dual-flow voltage requirements. What do we use to harden ourselves from an Internet exposure which would be our own wires, our own fiber? But Cal?

Calvin G. Butler Jr. -- Executive Vice President and Chief Executive Officer

Chris, you captured it. It really goes around building the reliability and resiliency of our system. And I think as we lay out our multiyear plans and across our jurisdictions, it's understanding and really diving in, Stephen, in terms of what the customers want in our jurisdictions. But the hardening and the resiliency of our system is coming in the forefront, in addition to fighting climate change. That's a big part of what we're doing and along with the security-related issues, as Chris has outlined. So those are opportunities in the areas, but it's that partnership and really understanding what the jurisdictions are wanting.

Stephen Byrd -- Morgan Stanley -- Analyst

Thank you very much. Go ahead.

Chris M. Crane -- President, Chief Executive Officer

We can't run a system on the distribution side any longer at a 4,160 voltage level. We got to get up to 13,800, and that's going to take a significant investment to do that, and that's to support the distributed generation. So there's a lot more work to be done.

Stephen Byrd -- Morgan Stanley -- Analyst

Thank you very much.

Operator

Thank you. And our next question comes from Steve Fleishman from Wolfe Research. Your line is now open.

Steve Fleishman -- Wolfe Research -- Analyst

Hi, good morning.

Chris M. Crane -- President, Chief Executive Officer

Hi, Steve.

Steve Fleishman -- Wolfe Research -- Analyst

Hi. So I guess two questions. First, on the Build Back Better infra bill, just thoughts on the likelihood that, that passes. And if some reason it does not, how do you feel about opportunities to address nuclear PTCs and other bills if we somehow got there?

Chris M. Crane -- President, Chief Executive Officer

Well, Kathleen is earning her paycheck to ensure that it gets done, so I'll let her answer the question.

Steve Fleishman -- Wolfe Research -- Analyst

Kathleen, make it two for two.

Kathleen L. Barron -- Executive Vice President of Government and Regulatory Affairs and Public Policy

Thanks, Steve. Yes. I think we're still feeling very confident about the Democrats' ability to get both infrastructure and Build Back Better across the finish line. There's, as you know, a strong proposal put out by the President that had support last week around a top line number that the group has apparently coalesced around. They have continued to work to flesh out the meat on the bone so that they can move this package quickly. And Senator Manchin has shared that he thinks that's doable, indeed even citing agreement with the Senate majority leader that it's possible this could get done by Thanksgiving.

So I think there's broad consensus that action is needed, and in particular, on the clean energy tax package that there is sufficient support for the provisions that will get the country to a place where it can come close to meeting the 2030 carbon reduction goals. If for some reason that, that does not occur, as you know, there's regularly action at the end of the year on a bipartisan basis to look at tax extenders. And we're, again, hopeful, given the amount of support that we've seen for support for the existing fleet that the nuclear provision could be considered as part of an end-of-the-year bipartisan package if the Democrat BBB bill doesn't get across the finish line.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. My other question related to that is just I know there's a ton of detail of this. But just high level, how does the PTC interact with your existing state commitments for the different units or subsidies or laws and also your hedging and retail and all that as well?

Chris M. Crane -- President, Chief Executive Officer

Do you want to start, and then we'll...

Kathleen L. Barron -- Executive Vice President of Government and Regulatory Affairs and Public Policy

Yes. I'll start off and pass it to Jim on the hedging question. But the short answer is that under the nuclear PTC, as drafted, revenues from a state program are not -- included at the state program would adjust to reflect the existence of the federal support. And almost all of our programs have some explicit reference to the fact that if there is subsequent federal support after the state program takes effect, that it will be reflected in the state calculation of the support under the program.

So there clearly will need to be further proceedings to evaluate and have the state adjudicate how that federal support will be reflected. But assuming that the PTC passes, we would expect each of the states to take a look at that and for it to be reflected in the level of the state support. Jim?

James Mchugh -- Executive Vice President and Chief Executive Officer of Costellation

Yes. And Steve, I think on the hedging, the best -- the details of implementation are going to really matter. But like for now, I think the right way to think about it is this effectively will serve as a hedge for a significant portion of our generation, right? If you take our nuclear fleet and we kind of reconcile what this -- what the PTC program will do and then kind of reflect what Kathleen just said about its impact on the state programs, the net result is you have a pretty highly hedged portfolio in the -- with the PTC.

Now we'll get into the details about the exact settlement of it and exactly how it -- the implementation plan will be settled all the way through the prices in the -- all the way through to the spot market. The best way, I think, on the retail business for us is we'll be able to still win our customer business. We'll have a portfolio that's a little bit more hedged to begin with. We'll have purchases in the market to help us where we need to go, make additional purchase to help us serve the load portfolio that we'll continue to serve.

Steve Fleishman -- Wolfe Research -- Analyst

Great. Thank you.

Operator

Thank you. And our next question comes from Julien Dumoulin-Smith from Bank of America. Your line is now open.

Julien Dumoulin-Smith -- Bank of America -- Analyst

Hey. Good morning, team. Congrats on the continued progress across all your various efforts here, so kudos again to Kathleen and team. But perhaps just to focus on one of the other topical issues of late, uranium prices have been seeing a pretty sharp uptick of late. I suspect it's not too subservient for you all, but I just want to make sure I understand how you all are thinking about that impacting sort of longer-term hedging and procurement activities and ultimately impact back to the core business.

Chris M. Crane -- President, Chief Executive Officer

I think we're very well hedged through this period, and it's not like we haven't seen it before. But I'll let Bryan Hanson, our Head of the generating company -- operations of the generating company, answer that.

Bryan Hanson -- Executive Vice President and Chief Generation Officer

Yes. Thanks, Chris. We think today's market fundamentals are much improved from the last uranium bull market that we saw in 2008-2010 period. Demand is lower. Primary mining supply has increased, and utility inventories are higher. We, at Exelon, we hedge with a diverse portfolio of fuel contracts that include varying pricing mechanisms or varying horizons with a diverse group of qualified and reliable suppliers. And we maintain a strategic inventory, both to ensure security of supply for our reactors and to provide flexibility and purchase timing in the event of a market disruption like we're seeing today.

We even maintain or keep our uranium inventory in different material states such as yellowcake or uranium hexafluoride gas. So we think we're well hedged and well ready for this current bull market. We are looking in the forward part of the LRP for any opportunities, and they're all well within our expectations that we see today.

Chris M. Crane -- President, Chief Executive Officer

That would be UF level six.

Bryan Hanson -- Executive Vice President and Chief Generation Officer

UF6. Very good, Chris.

Julien Dumoulin-Smith -- Bank of America -- Analyst

There we go. Excellent. I appreciate it. And then just on the hydrogen side, I heard the comment about partnering with Nel here, scaling into commercial opportunities to the extent available in '22. Can you talk a little bit more about what that opportunity means for you all? I mean, is this just about having a firm offtake? Or is this about having some portion of the economics over time? And I know it's early days, but I'm just curious to hear, at least as best you understand it, what that opportunity may be, especially considering the credits at hand here as well.

Chris M. Crane -- President, Chief Executive Officer

Yes. I don't think we're ready to give a full business model on it right now. I think we've got a good partnership with the DOE. Exelon, like other utility companies, sees a great use for hydrogen if it's mixing it with natural gas to cut down the carbon loads or other ways. There's -- our strategy organization is still looking at the transportation methodology, and they're doing some metallurgical research with other labs to make sure that we -- if we were replacing natural gas pipelines with hydrogen pipelines that the embrittlement problem doesn't become severe.

So what we need to do first is predict or perfect an efficient technology using our heat and steam to develop the hydrogen, and then from there, continue to work with other stakeholders on where we put the hydrogen. Does it go in a mixed form with natural gas at first? Does it become, what was thought about 10 years ago, the hydrogen economy? And I don't think we're there yet. I think there's a lot of work to be done before we get there. But just having the grants and working with the labs and the government to start using a nuclear plant for something more than electricity because you get all that waste, heat and steam that can be redirected into the development of very efficient hydrogen and then continue to move on from there.

Julien Dumoulin-Smith -- Bank of America -- Analyst

Got it. And sorry, just to clarify this. I imagine you wouldn't touch on the subject of capital allocation, given the rise in commodity prices here and still stated equity needs. Still too early, right?

Chris M. Crane -- President, Chief Executive Officer

Yes, yes. Too early.

Julien Dumoulin-Smith -- Bank of America -- Analyst

Fair enough. We will leave it there. Thank you, guys. Best of luck here.

Chris M. Crane -- President, Chief Executive Officer

All right. Thanks.

Operator

Thank you. And our next question comes from Shar Pourreza from Guggenheim Partners. Your line is now open.

Shar Pourreza -- Guggenheim Partners -- Analyst

Hey, guys. Good morning.

Chris M. Crane -- President, Chief Executive Officer

Good morning.

Shar Pourreza -- Guggenheim Partners -- Analyst

Joe, can you just maybe further unpack, I guess, the level of details and additional disclosures around the retail business that you kind of plan to talk about at the Analyst Day now that it's obviously a lot more in focus? And in the interim, maybe just further elaborate on how we should think about...

Chris M. Crane -- President, Chief Executive Officer

Joe, talk to the interim.

Shar Pourreza -- Guggenheim Partners -- Analyst

Nigro, when I think about the POM year and year two hedge profiles, just given kind of the lack of disclosures and significant moves in the curves. I mean, a peer didn't obviously take as much advantage, as expected. So maybe just a better sense here would help, even if it's directionally.

Joseph Nigro -- Senior Executive Vice President and Chief Financial Officer

Yes. Let me answer the first question, Shar, and then I'll turn over the hedge question to Jim McHugh. As I've said previously, as we get closer to actual separation date, we plan to have an Analyst Day for both companies where we'll update all of the financial variables, so you have a complete picture of both companies, and you'll get insight into -- on the Exelon side, all the things that we normally provide, including earnings trajectories and rate base growth and so on.

And on the Constellation side, we'll give you the details with the updated hedge disclosures and all the other associated information that allows you to do your modeling. But that's not going to happen, obviously, until we get much more certainty and much closer to the actual execution of separation itself. And with that, Jim, I'll let you answer the hedge question.

James Mchugh -- Executive Vice President and Chief Executive Officer of Costellation

Sure. I'll talk about hedging. The outer-years where we have less hedge, we've always talked about our ratable hedge program. We're still following that, right? We're not deviating a large deal from what we've historically talked about. I think the change for 2022 has to be in relation to what we saw develop over the course of this quarter with the legislation, right? We had assets that we had previously said we're going to retire, and then the legislation passed, and we unretired.

And what that effectively meant for 2022 is that before the contract goes into effect, it created a position that added extra generation link to our portfolio that we've been able to, since then, hedge. But beyond -- then beyond May or June when the contract starts, effectively, those megawatts are hedged through the CMC contract. So the 2022 is just a little bit in a different beginning of the year, end of year story because, effectively, the contracts are providing the hedge in the long run.

We hedged the length that got added back to the book, largely speaking, in the beginning of the year during this price action that we saw this quarter so that's been a generally good development. And then in the outer-years, we would still -- other than the contracted assets, we would still be following along our ratable hedge program. So there's -- the further out in time you go, the more open position areas, as we've always had historically.

Shar Pourreza -- Guggenheim Partners -- Analyst

Got it. No. That's actually a pretty interesting point. Thank you for that. And then just lastly, and I know you guys are still working through the details, but could we just touch on maybe just how you're thinking about the SpinCo capital allocation, just even briefly, right? I mean, your IPP peers have been very specific. Is this something we should -- we could see from Constellation? Just maybe some high-level thoughts on how you and the Board are thinking about approaching growth versus returning capital to shareholders.

Chris M. Crane -- President, Chief Executive Officer

We're going through that modeling right now. As Joe Dominguez takes over and he puts his financial team together, they will be evaluating the best use of capital and what the opportunities are. Having a good investment grade gives us a little bit more opportunity. And maybe what would somebody would call our peers that we don't think that they are our peers because of the hedged portion of the nuclear plants, but they -- we'll continue to evaluate that in the best way to create shareholder value. And Joe Dominguez, do you want to add any more?

Joseph Dominguez -- Chief Executive Officer of Exelon Generation

No. I don't think I really can at this point. We're looking at it pretty carefully. As Chris said, we think we have some unique opportunities in this business around collocation of assets, hydrogen and other things that will depend on how the legislation plays out and we've covered that. I think we'll have a lot more to say on Analyst Day. But at this point, we're really just studying options, pretty excited about the opportunities in front of us.

Chris M. Crane -- President, Chief Executive Officer

One thing I can say is I don't see him building a new nuclear plant anytime soon.

Joseph Dominguez -- Chief Executive Officer of Exelon Generation

I'll take that to the bank.

Shar Pourreza -- Guggenheim Partners -- Analyst

Thank you for clarifying that, Chris. Appreciate it, guys. [Indecipherable]

Chris M. Crane -- President, Chief Executive Officer

All right.

Operator

Thank you. And our next question comes from Jeremy Tonet from JPMorgan. Your line is now open.

Jeremy Tonet -- JPMorgan -- Analyst

Hi, good morning. It's actually Ryan on for Jeremy. Just had one on the regulated business, and I kind of think understanding it's still early days, but the changes in kind of the framework at kind of Illinois and ComEd and how you're kind of thinking at this stage about kind of those two different options, the multiyear plan versus kind of the traditional rate-making, and how that might impact kind of customer bill impacts as we kind of approach that date.

Calvin G. Butler Jr. -- Executive Vice President and Chief Executive Officer

Hey, Ryan. This is Calvin Butler. First and foremost, the team is really looking through and analyzing all the metrics. And as you know, we're operating with the formula rate through the end of '22, and we'll make that -- decide on early midyear what that looks like going forward. But we're really making that determination now, so we have not decided yet whether it's going to be a 4-year multiyear plan, forward-looking test year. We're doing that analysis now.

Jeremy Tonet -- JPMorgan -- Analyst

Okay. Understood. And then maybe just one on ExGen. I know you guys have been very successful in achieving kind of the offsets laid out beginning of the year on the -- to offset the kind of the storm. And just kind of thinking through maybe you can provide more color on what those offsets have been and any kind of incremental thoughts on relative sustainability kind of going into kind of future years.

Chris M. Crane -- President, Chief Executive Officer

Bryan, do you want to talk about what you're doing?

Bryan Hanson -- Executive Vice President and Chief Generation Officer

Yes. On the nuclear side, where a lot of the offsets came from in our capital allocation, our capital maintenance, many of those items were like big major transformer improvements, changes, change-outs. We've just simply moved those out a year or two. We bundle them the way we did because it streamlined our efficiencies and use of craft resources. We were able to skip a year or two on those.

No challenges to reliability from that standpoint and a number of the other modifications included just material condition. Improvements were always kept in the plan. But some of the digital upgrades that we had planned for those years, we've moved those out a couple of years and reassessing the economic viability of some of those improvements.

Chris M. Crane -- President, Chief Executive Officer

Just bring him back, Colorado Bend from hardening for the lessons learned.

Bryan Hanson -- Executive Vice President and Chief Generation Officer

Yes. In the Texas assets, we have done all the work that's required that addressed the known issues and the acute issues from Winter Storm Uri. We're finishing up at Colorado Bend, which is done -- our plant by Houston. We'll follow -- we finished that work up a couple of weeks ago, as well as a number of enhancements we made just to protect ourselves against a sustained cold weather event again in Texas; temporary improvements that we made, looking for, again, what's the long-term market signals for those plants.

Jeremy Tonet -- JPMorgan -- Analyst

Got it. Appreciate the color. Thank you

Operator

And, thank you. I would now like to turn the call back to President and CEO, Chris Crane, for closing remarks.

Chris M. Crane -- President, Chief Executive Officer

Thank you for joining the call today. As you know, we're working hard to run the business at best-in-class levels and taking steps to step up two items, strong in -- two companies, strong, independent companies. And we look forward to seeing you at EEI, I think, next week. It's coming quick. And with that, we'll close the call out and tell everybody to be safe.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Emily Duncan -- Vice President of Investor Relations

Chris M. Crane -- President, Chief Executive Officer

Joseph Nigro -- Senior Executive Vice President and Chief Financial Officer

Kathleen L. Barron -- Executive Vice President of Government and Regulatory Affairs and Public Policy

Calvin G. Butler Jr. -- Executive Vice President and Chief Executive Officer

James Mchugh -- Executive Vice President and Chief Executive Officer of Costellation

Bryan Hanson -- Executive Vice President and Chief Generation Officer

Joseph Dominguez -- Chief Executive Officer of Exelon Generation

Stephen Byrd -- Morgan Stanley -- Analyst

Steve Fleishman -- Wolfe Research -- Analyst

Julien Dumoulin-Smith -- Bank of America -- Analyst

Shar Pourreza -- Guggenheim Partners -- Analyst

Jeremy Tonet -- JPMorgan -- Analyst

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