What is the primary financial impact of the Tax Cuts and Jobs Act on Exelon?

The primary impact is a reduction in the corporate income tax rate from 35% to 21%. Exelon expects this to result in a material decrease in its net deferred income tax liabilities and an estimated $0.10 per share increase in adjusted non-GAAP operating earnings on a run-rate basis in 2019.

How will the tax savings be handled by Exelon's utility companies?

The regulated utility subsidiaries will record corresponding regulatory liabilities because changes in income taxes are generally passed through to customers via rates. Exelon's utilities, such as ComEd and BGE, have begun the process of filing with state regulatory commissions to return these tax savings to customers through lower rates.

Will the Act affect Exelon's generation business differently from its utility business?

Yes. Exelon Generation Company will recognize a decrease in income tax expense, leading to lower projected effective tax rates (around 22% for 2018-2020) and increased net income and operating cash flows. The utility subsidiaries, conversely, will primarily pass through savings to customers and will see an increase in their rate base, impacting their financial flows differently.

What is the expected impact on customer rates and the utility rate base?

The Act is expected to lead to lower customer rates over time as tax savings are passed back and deferred tax liabilities are refunded. However, it is also expected to cause an incremental increase in the utility rate base of approximately $1.6 billion by 2020, which will be funded by Exelon.

EXC 8-K SEC Disclosure

Summary

Exelon Corporation (EXC) has filed an 8-K report on January 5, 2018, to disclose the initial impacts of the Tax Cuts and Jobs Act (the Act), signed into law on December 22, 2017. While management is still evaluating the full scope of the Act's effects, Exelon anticipates a run-rate increase in adjusted non-GAAP operating earnings per share of approximately $0.10 in 2019, relative to projections prior to the Act. This filing outlines how the significant reduction in the corporate income tax rate from 35% to 21% will affect its subsidiaries, including both its generation business and its regulated utilities. The company expects a material decrease in net deferred income tax liability balances across its subsidiaries due to the remeasurement of these balances as of December 31, 2017. Exelon Generation Company, LLC (Generation) will recognize a corresponding decrease in income tax expense, leading to lower projected effective tax rates (around 22% for 2018-2020) and increased net income and operating cash inflows. Conversely, the Utility Registrants (ComEd, PECO, BGE, PHI, Pepco, DPL, and ACE) will record regulatory liabilities, as tax savings are typically passed through to customers. These utilities expect to lower customer rates over time, refund deferred income tax liabilities, and anticipate an incremental increase in their rate base of approximately $1.6 billion by 2020, funded by Generation's excess cash flows.

Key Highlights

1Exelon anticipates a positive impact from the Tax Cuts and Jobs Act (the Act), expecting an approximate $0.10 per share increase in adjusted non-GAAP operating earnings on a run-rate basis in 2019.
2The Act's reduction in the corporate tax rate from 35% to 21% will necessitate a remeasurement of deferred income tax balances, leading to a material decrease in net deferred tax liabilities.
3Exelon Generation Company is expected to benefit from lower income tax expense and higher operating cash inflows, with a projected effective tax rate of around 22% for 2018-2020.
4Regulated utility subsidiaries (ComEd, PECO, BGE, etc.) will record regulatory liabilities to reflect the pass-through of tax savings to customers, leading to anticipated rate reductions over time.
5The Act is expected to increase the rate base for utility subsidiaries by approximately $1.6 billion by 2020.
6Commonwealth Edison (ComEd) and Baltimore Gas and Electric (BGE) have filed with state regulators on January 5, 2018, to begin passing tax savings back to customers.
7Exelon Corporation expects interest on its debt to remain fully tax-deductible, albeit at the new lower corporate tax rate.

EXELON CORP 8-K Report, Corporate Update (Jan 5, 2018)

Summary

Key Highlights

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