Exelon Corporation: A Deep Dive into Its Return on Equity (ROE)

Exelon Corporation (NASDAQ: EXC), a leading utility services holding company, has consistently demonstrated strong financial performance, with a particular focus on its return on equity (ROE). As of the most recent data available, Exelon's ROE stands at an impressive 9.29%, reflecting the company's ability to generate significant profit with the money shareholders have invested. This article will delve into the factors contributing to Exelon's ROE fluctuations over the past decade, compare its ROE to its peers in the utilities sector, and explore the role of regulatory changes and infrastructure investments in driving Exelon's ROE.



Factors Contributing to Exelon's ROE Fluctuations

Exelon's ROE has experienced ups and downs over the past decade due to several factors, including earnings fluctuations, rate base changes, interest expense, depreciation and amortization expense, and credit loss expense. These factors have collectively contributed to the variations in Exelon's ROE over time.

* Earnings fluctuations: Exelon's earnings have experienced ups and downs, directly impacting its ROE. For instance, in 2018, Exelon reported a significant increase in earnings due to higher utility earnings, primarily driven by rate increases at BGE, distribution and transmission rate increases at PHI, and decreased storm costs at PHI. However, in 2020, earnings decreased due to lower utility earnings, primarily driven by lower distribution earnings at ComEd and BGE, and higher depreciation and amortization expense at PECO and BGE.
* Rate base changes: Exelon's rate base, which represents the assets used to provide service to customers, has grown over time. This growth can lead to higher earnings and, consequently, a higher ROE. For example, in 2022, Exelon's rate base grew by 7.9% due to significant infrastructure investments, which contributed to its expected 6-8% annualized growth in operating earnings per share through 2026.
* Interest expense: Exelon's interest expense has varied over the years, affecting its earnings and, ultimately, its ROE. In 2022, Exelon's interest expense increased, which negatively impacted its earnings and ROE. However, in 2024, Exelon reported a decrease in interest expense, which contributed to its higher earnings and ROE.
* Depreciation and amortization expense: Exelon's depreciation and amortization expense has also fluctuated over the years, impacting its earnings and ROE. In 2022, Exelon's depreciation and amortization expense increased, which negatively impacted its earnings and ROE. However, in 2024, Exelon reported a decrease in depreciation and amortization expense, which contributed to its higher earnings and ROE.
* Credit loss expense: Exelon's credit loss expense has varied over the years, affecting its earnings and, ultimately, its ROE. In 2022, Exelon's credit loss expense increased, which negatively impacted its earnings and ROE. However, in 2024, Exelon reported a decrease in credit loss expense, which contributed to its higher earnings and ROE.



Exelon's ROE Compared to Its Peers in the Utilities Sector

Exelon's return on equity (ROE) has been consistently higher than many of its peers in the utilities sector over the past decade. As of the most recent data available, Exelon's ROE was 9.29%, compared to the following ROE values for some of its peers:

* NextEra Energy (NEE): 12.15%
* Southern (SO): 10.23%
* Iberdrola S.A (IBDRY): 11.45%
* Duke Energy (DUK): 8.75%
* National Grid Transco (NGG): 7.50%
* Vistra (VST): 10.20%
* Pacific Gas & Electric (PCG): 8.50%
* American Electric Power (AEP): 9.50%
* Dominion Energy (D): 10.50%
* Public Service Enterprise Group (PEG): 11.50%
* Xcel Energy (XEL): 9.50%
* Consolidated Edison Inc (ED): 8.50%
* Edison (EIX): 9.50%
* Entergy (ETR): 10.50%
* WEC Energy (WEC): 9.50%
* DTE Energy (DTE): 8.50%
* PPL (PPL): 9.50%
* Ameren (AEE): 9.50%
* FirstEnergy (FE): 8.50%
* Eversource Energy (ES): 8.50%
* Fortis (FTS): 10.50%
* CLP Holdings (CLPHY): 11.50%
* CenterPoint Energy (CNP): 9.50%
* NRG Energy (NRG): 10.50%
* CMS Energy (CMS): 10.50%
* Tenaga Nasional Berhad (TN

While Exelon's ROE is lower than some of its peers, such as NextEra Energy and Iberdrola, it is still within the range of many other utilities in the sector. Additionally, Exelon's ROE has shown consistent improvement over the past decade, indicating strong performance and growth.

The Role of Regulatory Changes and Infrastructure Investments in Exelon's ROE

Regulatory changes and infrastructure investments play a significant role in Exelon's Return on Equity (ROE). Exelon's ROE has shown a consistent upward trend over the past decade, with several regulatory changes and infrastructure investments contributing to this growth.

One key regulatory change that has positively impacted Exelon's ROE is the increase in allowed electric distribution ROE due to an increase in treasury rates. This change led to higher electric distribution earnings at ComEd, as mentioned in the earnings release: "Higher utility earnings primarily due to higher electric distribution earnings at ComEd from higher allowed electric distribution ROE due to an increase in treasury rates and higher rate base, and rate increases at PECO, BGE, and PHI."

Infrastructure investments have also been crucial in driving Exelon's ROE. The company plans to invest $34.5 billion in critical infrastructure over the next four years, which is expected to result in a 7.9% rate base growth and a fully regulated operating EPS compounded annual growth of 6-8% from 2022 to 2026. This significant investment in infrastructure is a testament to Exelon's commitment to maintaining and enhancing its grid's safety, reliability, and service for customers.

Moreover, Exelon's focus on revenue decoupling has shielded the company from the adverse effects of weather fluctuations and varying customer usage patterns. This strategy has contributed to Exelon's stable financial performance and consistent ROE growth.

In conclusion, regulatory changes, particularly the increase in allowed electric distribution ROE, and infrastructure investments have played a pivotal role in Exelon's ROE growth. These factors, combined with Exelon's effective revenue decoupling strategy, have contributed to the company's consistent ROE performance over the past decade. As Exelon continues to invest in its infrastructure and adapt to regulatory changes, it is well-positioned to maintain its strong ROE and continue to deliver value to its shareholders.