After spinning off its power generation assets into a stand-alone company, Exelon Corp. is positioning itself as a pure-play transmission and distribution utility that brings a new voice to the US clean energy transition.
"We have the privilege to serve more than 10 million customers across some of the most diverse jurisdictions in the country," Calvin Butler, Exelon's new CEO, said in a recent interview at CERAWeek by S&P Global. "When you think of this multidecade energy transition, all of our customers are impacted, so our voice matters. And now that we don't own generation, we show up in a very authentic way."
Exelon's separation in February 2022 from its spinoff, Constellation Energy Corp., enabled the Chicago-headquartered flagship company to shed approximately 32,400 MW of owned generation capacity, including the nation's largest nuclear fleet. In its remade form, Exelon is now focused on executing an ambitious four-year capital plan across its six electric and gas utilities that focus solely on transmission and distribution (T&D).
Grid reliability, physical security, affordability and energy equity are top of mind for Butler, aged 53, who officially stepped into the CEO role on Dec. 31, 2022.
Capital plan responds to state policies
Exelon is the largest utility in the US by customer count, with 10.6 million total customers. It is also one of the nation's most valuable, with a $56 billion rate base. In February, the company updated its four-year capital plan to invest $31.3 billion through 2026, an increase of more than $2 billion over its prior four-year plan.
"When we talk about investing $31 billion through 2026, it's a bottoms-up approach," Butler said. "I look at what the grid needs first, for reliability and security, and then I look at what the policies dictate."
Exelon CEO Calvin Butler
With subsidiaries in Delaware, Illinois, Maryland, New Jersey, Pennsylvania and Washington, D.C., Exelon is subject to some of the most aggressive climate legislation in the US.
Illinois, for example, passed a sweeping 100% clean energy law in 2021 that requires greenhouse gas-emitting power generators to permanently reduce their carbon emissions to zero by 2045.
When subsidiary Commonwealth Edison Co. developed its latest four-year plan, "all of its investments were tied directly to the provisions of that law," Butler said.
In 2022, Maryland lawmakers passed legislation that requires the state to slash greenhouse gas emissions 60% by 2031 from 2006 levels, besting California's nation-leading climate law at the time. Baltimore Gas and Electric Co.'s second multiyear plan also responds to provisions in that law, Butler added.
The CEO acknowledged that the nation's energy transition will carry a hefty price tag.
"This multidecade energy transition is going to cost money," Butler said. "Everyone needs to be aware of that. But at the same time, my job as a utility executive is to push down my costs so I can make it more equitable."
To that point, Butler cited Exelon figures showing that rates in the company's service territories, on average, are 23% below the largest US metro cities. Exelon service territories include the Baltimore, Chicago, Philadelphia and Washington, D.C., metro areas.
In the past, the company's goal has been to keep its operation and maintenance (O&M) costs below the rate of inflation to free up additional capital. Given the record pace of inflation in the US over the last year, however, Exelon's new goal is to hold O&M cost increases to below 2%.
"What we know is that for every dollar in O&M costs we save, I can invest $7 to $8 in capital without increasing your bill," Butler said.
Company uses scale to shore up supply chains, invest in equity
In October 2022, utility trade groups urged the US Energy Department to use emergency funding to address a nationwide shortage of electric transmission transformers, warning of "an unacceptable risk to the electric reliability of our nation." Labor shortages are the primary driver, according to the industry.
Exelon initially felt the pinch, but the company has leveraged its scale to shore up its own supply chain.
"We scoured the country for different suppliers," Butler said. "We most recently found a supplier in Brazil that met all of our spec requirements and safety requirements, and now that's a supplier of transformers."
The company also ran scenario simulations after two individuals in Maryland were charged in February with conspiracy to attack one of Baltimore Gas and Electric Co.'s substations.
"We were already investing hundreds of millions of dollars in our physical and cybersecurity," Butler said. "We looked at where we were storing spare transformers, we looked at our cameras situation, our sensors, our fencing, and I'm pleased to tell you we came out in a good spot."
The near attack shows why additional investments in physical grid security are needed, Butler said.
Butler also highlighted Exelon's efforts to procure equipment and services from diverse suppliers. In 2022, the company spent $2.8 billion with minority and women-owned businesses, representing 39% of its total supplier spend for the year.
Exelon also launched a $36 million racial capital fund and has sponsored more than 75 workforce development programs to address economic inequities within its communities, Butler noted. "When we talk about putting equity into energy, that's where we're going," the CEO said.
Near-term focus on T&D businesses
Looking ahead, Butler said Exelon is committed to remaining a pure-play T&D utility.
Select opportunities could arise to install and own community solar in disadvantaged communities, Butler stated. Butler said the company could potentially own limited amounts of battery storage if that helps drive down costs and improve energy equity.
Butler said deploying storage as a transmission-only asset could also help Exelon control T&D costs. But the CEO does not foresee any moves on the M&A front in the near term.
"This team is focused on investing that $31 billion through 2026 efficiently," Butler said. "When we do that well and get our return, we will have created approximately $18 billion in value, which is equivalent to the size of [Commonwealth Edison] without the premium and without the regulatory headache."
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