EXC: It’s Not All About PA: EXC Navigating Noise, Positioning Themselves as a Partner Across PJM

Research evidence excerpt

EXC: It’s Not All About PA: EXC Navigating Noise, Positioning Themselves as a Partner Across PJM

ratios, with Shapiro

writing that “any equity share proposed in a rate case in excess of the amount of equity employed

by the utility’s parent holding company will require extraordinary justification,” as well as lower

ROEs tied either to competitive equity bids or a formula based on the 10-year Treasury yield plus an

equity risk premium, which we estimated would imply an ~8.4% ROE.

During the NDR, management characterized the letter as partly political posturing in an election

year, but not entirely bluster. Mgmt. said that Shapiro does want to change how utilities engage in

PA, particularly around transparency, black-box settlements and affordability, which EXC is open

to and has no issues with. They pointed to their existing regulatory filings that include their earning

ROE each quarter, emphasizing that the data is there anyway, it's just a matter of presentation as a

clean line item in case decisions. Given all the conversation, mgmt. does expect that we could see less

settlements in general than we have historically seen in PA, and that PAPUC Chairman DeFrank

is likely to be less out front and less engaged with the utilities. There could also be middle ground

solutions like increased use of the DSIC, which mgmt. would be in favor of with an increased cap.

Investors also asked about HB 2224, which was announced the same day as our meeting. The bill,

introduced by House Energy Committee Chair Elizabeth Fiedler would establish a formula-based

default ROE - 10-year Treasury + ~200 bps - with a backstop competitive equity auction if utilities

seek a higher return, similar to what was outlined in Shapiro’s letter. The bill also introduces annual

Equity Research | 3