What is the financial impact of the Mystic Generating Station asset retirement?

Exelon expects to record a non-cash impairment charge between $350 million and $550 million (pre-tax) in the third quarter of 2020. Additionally, there will be annual financial impacts of $75 million to $125 million (pre-tax) related to accelerated depreciation of plant assets, recognized annually through May 2024. Both of these are expected to be excluded from adjusted operating earnings.

Why is Exelon retiring the Mystic Generating Station assets?

The decision to permanently cease operations at Mystic Generating Station assets stems from the Federal Energy Regulatory Commission's (FERC) denial of Exelon Generation's complaint against ISO-NE. The complaint concerned ISO-NE's evaluation of these assets for transmission security, and the FERC's decision affirmed that the assets would not be retained under terms that would make their continued operation viable beyond the current cost of service agreement.

Will these charges affect Exelon's reported earnings per share?

The impairment charge and the accelerated depreciation costs are considered non-cash charges and will be excluded from Exelon's and Generation's adjusted (non-GAAP) operating earnings. While these will impact GAAP net income, investors often focus on adjusted earnings for operational performance analysis, so the impact on adjusted EPS may be mitigated.

When will the retirement of the Mystic Generating Station assets take effect?

Exelon Generation will permanently cease generation operations at the Mystic Generating Station assets on or about May 31, 2024. This date aligns with the end of the current cost of service agreement.

EXC 8-K: Financial Events

Summary

Exelon Corporation (EXC) has announced the permanent cessation of generation operations at its Mystic Generating Station assets in New England on or about May 31, 2024. This decision follows the Federal Energy Regulatory Commission's (FERC) denial of Exelon Generation Company, LLC's complaint against ISO-NE regarding the evaluation of these assets for transmission security. Consequently, Exelon anticipates recording a significant non-cash impairment charge in the third quarter of 2020, estimated between $350 million and $550 million on a pre-tax basis. In addition to the impairment, investors should note that the company expects annual financial impacts related to accelerated depreciation of plant assets, estimated at $75 million to $125 million pre-tax annually through the retirement date. These charges and impacts will be excluded from adjusted operating earnings, a non-GAAP measure, which is important for investors analyzing the company's core operational performance. While one-time cash expenditures related to the retirement are not expected to be material, the impairment and accelerated depreciation represent substantial non-cash charges.

Key Highlights

1Exelon Generation to permanently cease operations at Mystic Generating Station assets on or about May 31, 2024.
2FERC denied Exelon Generation's complaint against ISO-NE regarding transmission security evaluations.
3Anticipates a non-cash impairment charge of $350 million to $550 million (pre-tax) in Q3 2020.
4Expects annual incremental non-cash pre-tax expense of $75 million to $125 million due to accelerated depreciation.
5Impairment charge and accelerated depreciation impacts will be excluded from adjusted (non-GAAP) operating earnings.
6Estimated one-time cash expenditures related to the retirement are not expected to be material.

EXELON CORP 8-K Report, Exit or Disposal Costs (Aug 21, 2020)

Summary

Key Highlights

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