Executive Summary / Key Takeaways

• Pure-Play Transmission Monopoly in the AI Era: Exelon's post-2022 spin-off of Constellation Energy has created the largest pure-play regulated transmission and distribution utility in the U.S., uniquely positioned to capture a 19+ gigawatt data center pipeline that represents one of the most visible load growth opportunities in the utility sector.

• $38 Billion Capital Engine Driving 5-7% Earnings Growth: Management's four-year, $38 billion capital plan (80% transmission-focused) is not a speculative bet but a rate-based investment program backed by favorable regulatory outcomes covering 90% of its rate base, with financing 40% equity-funded to protect credit metrics that recently earned an S&P upgrade to BBB+.

• Operational Excellence as Regulatory Currency: Achieving top-quartile reliability rankings (1, 2, 4, and 7 among peers) while maintaining rates 19-21% below national averages creates the regulatory goodwill necessary to approve multi-year rate plans, directly supporting the earnings growth trajectory through 2028.

• Financial Discipline Amidst Massive Investment: Despite a capex intensity that drove negative free cash flow of -$1.53 billion TTM, Exelon has identified $100 million in sustainable cost savings, limited O&M growth to 0.5%, and pre-funded nearly half its equity needs through 2028, demonstrating the balance sheet management required to execute this growth strategy.

• Critical Execution Variables: The investment thesis hinges on successfully integrating 19+ GW of new load without compromising reliability, navigating Illinois and Maryland regulatory frameworks for multi-year rate recovery, and managing supply chain/tariff impacts that could affect the 1.5% of capital plans before mitigation.

Setting the Scene: The Utility at the Center of the Electrification Supercycle

Exelon Corporation, incorporated in 1999 and headquartered in Chicago, Illinois, operates as the largest pure-play regulated transmission and distribution utility in the United States following its February 2022 separation of Constellation Energy (CEG). This strategic divestiture transformed Exelon from a hybrid generation-and-distribution company into a focused utility services holding company with six fully regulated subsidiaries serving 10 million customers across the most economically vibrant corridors of the Mid-Atlantic and Midwest. The company's roots trace back to 1816 with Baltimore Gas and Electric, but the modern Exelon emerged from the 2000 merger of Commonwealth Edison and Philadelphia Electric Company, creating the foundation for today's 20,000+ mile transmission network.

The utility industry stands at an inflection point unlike any in the past half-century. Artificial intelligence and data center development are driving a structural demand surge that PJM projects will require 19+ gigawatts of new capacity in Exelon's footprint alone. This isn't cyclical growth—it's a permanent step-change in electricity demand as manufacturing reshoring, vehicle electrification, and digital infrastructure converge. Exelon's service territory encompasses the critical nexus of this transformation: Northern Illinois (ComEd) with its concentration of Chicago-area data centers, Southeastern Pennsylvania (PECO) serving Philadelphia's life sciences corridor, Central Maryland (BGE) adjacent to federal government data infrastructure, and the Washington D.C. metro area (Pepco) where digital economy tenants cluster.

Regulated utilities operate as legal monopolies with rate base growth as the primary earnings driver. Every dollar of capital investment, when prudently deployed and approved by regulators, translates directly into allowed returns. Exelon's $38 billion capital plan through 2028—representing a $3.5 billion increase from the prior planning period—doesn't reflect management optimism but rather concrete load growth commitments from data center developers who have signed Transmission Security Agreements (TSAs) or entered cluster studies. The company has already priced nearly half its equity needs for this program, demonstrating the financial discipline required to maintain investment-grade credit while funding growth.

Strategic Differentiation: The TSA Framework and Regulatory Innovation

Exelon's competitive moat isn't technological in the traditional sense—it's regulatory and operational. The company has pioneered an innovative Transmission Security Agreement approach that fundamentally changes how utilities manage large load interconnections. Traditional utility interconnection processes treat all prospective customers equally, creating a first-come, first-served queue where speculative projects can block real development for years. Exelon's TSA framework requires data center developers to post financial security and commit to specific in-service dates, effectively creating a "reservation system" that prioritizes genuine projects while protecting existing customers from cost-shifting.

This approach solves the critical execution risk facing all utilities in the data center boom: distinguishing real demand from speculative announcements. With 27 gigawatts either awaiting signed TSAs or in active cluster studies, Exelon's process helps eliminate double counting and really focus on who's real and who's not, as CEO Calvin Butler stated. The first TSA at PECO and ComEd's filed tariff for loads exceeding 50 megawatts create a scalable model that other utilities are now attempting to replicate. This first-mover advantage in process innovation is as valuable as any technology patent.

The regulatory strategy extends beyond TSAs. Exelon has successfully advocated for multi-year rate plan legislation in its key jurisdictions, with Maryland's Next Generation Energy Act and Illinois' Clean and Reliable Grid Affordability Act both recognizing multi-year frameworks and setting ambitious battery storage goals. These laws provide regulatory visibility that underpins the 5-7% earnings growth target. When regulators approve a multi-year plan, they effectively pre-authorize rate base growth, reducing the lag between capital deployment and earnings recognition that has historically plagued the utility sector.

Operational excellence serves as the currency that purchases this regulatory goodwill. Exelon's four utilities achieved rankings of 1, 2, 4, and 7 among peers for reliability in 2025, improving from last year's already strong 1, 3, 5, and 8 positions. This performance isn't accidental—it's the result of decades of grid modernization investments. More importantly, Exelon delivers this above-average performance at below-average rates, with bills 19-21% below U.S. averages. This combination creates a powerful argument with regulators: the company has earned the right to invest and earn returns because it operates efficiently and keeps customer costs low.

Financial Performance: Evidence of Executing the Strategy

Exelon's third quarter 2025 results provide tangible evidence that the strategy is working. Operating earnings of $0.86 per share exceeded expectations, driven by favorable rate impacts across ComEd, PECO, BGE, and PHI, lower storm costs, and disciplined cost management. For the nine months ended September 30, 2025, net income attributable to common shareholders increased $361 million year-over-year to $2.15 per share, with the key drivers telling a clear story: rate base growth from incremental investments, higher returns on regulatory assets, and timing benefits from tax repairs and AFUDC .

The segment performance reveals where value is being created. Commonwealth Edison (ComEd), serving Northern Illinois, generated $6.176 billion in operating revenue and $903 million in net income for the nine-month period, up $80 million year-over-year. This growth stems directly from higher distribution and transmission rate base due to incremental investments supporting data center load. ComEd's net income increase was partially offset by lower transmission peak load, a temporary factor that doesn't diminish the structural demand story. With over $1 billion of the transmission capital increase projected at ComEd, this subsidiary is ground zero for the data center buildout.

PECO Energy, serving Southeastern Pennsylvania, showed even stronger profit growth with net income increasing $296 million to $652 million, driven by new electric and gas distribution rates, lower storm costs, and tax repair deductions. The June 2025 storm that caused 325,000 outages could have been a major earnings headwind, but PECO's ability to defer extraordinary storm costs demonstrates the regulatory construct's protective features. BGE's $45 million net income increase to $398 million similarly reflects distribution and transmission rate growth, while PHI's $25 million increase to $628 million shows the benefits of the multi-year plan framework across the Mid-Atlantic footprint.

Cost management provides crucial support to the earnings trajectory. Exelon identified dozens of initiatives supporting $100 million of sustainable savings in 2024, limiting O&M growth to just 0.5% year-over-year. This discipline preserves the "below-average rates" value proposition while funding above-average reliability. In an inflationary environment where many utilities saw O&M growth of 3-5%, Exelon's cost control strengthens its regulatory position and protects margins.

The balance sheet supports the capital plan without compromising credit quality. Exelon's estimated 2025 capital expenditures of $8.975 billion are funded through a balanced approach: $20 billion of internally generated cash flow over the four-year plan, $12 billion of utility debt, $3 billion of holding company debt, and $2.8 billion of equity. The company has already completed all planned 2025 debt issuances and priced nearly half its equity needs through 2028. This proactive financing, combined with credit metrics approaching 14% by period-end, earned an S&P upgrade to BBB+ in February 2025—a critical validation for a capital-intensive business.

Outlook and Execution: The Path to 5-7% Growth

Management's reaffirmed guidance for 2025 operating earnings of $2.64-$2.74 per share implies confidence in executing the final quarter despite assuming a reversal of timing benefits and normal weather. More importantly, they reaffirmed the 5-7% annualized growth rate through 2028, with expectations to deliver at the midpoint or better. This guidance rests on several key assumptions that investors must monitor.

First, the company assumes normal weather and storm activity, which contributed $0.03-$0.05 of earnings upside in 2025 due to a mild storm season. Second, guidance assumes fair and reasonable outcomes for open rate proceedings, including reconciliations at BGE, Pepco Maryland, and ComEd. The ComEd reconciliation includes a $268 million adjustment primarily from operating under a lower revenue requirement in 2024—a one-time headwind that doesn't affect the multi-year growth trajectory.

The capital execution risk is material but manageable. The $38 billion plan represents a 10% increase from prior forecasts, with over 80% allocated to transmission. Transmission investments earn higher returns than distribution and are less subject to usage risk. The company estimates an additional $10-15 billion of transmission opportunity beyond the current plan, including over $1 billion for new high-density load not yet in guidance and MISO Tranche 2.1 projects that could deliver at least $1 billion in ComEd's territory. This pipeline provides upside optionality if data center demand accelerates further.

Load growth assumptions are conservative yet substantial. The 19+ GW pipeline includes projects with signed TSAs or in active cluster studies, representing committed demand rather than speculative announcements. This load growth drives two benefits: direct transmission investment opportunities and improved cost spreading across the rate base. As Butler noted, "All states need to leverage all available options to bring control, certainty and customer benefits to securing power," positioning utility-owned transmission as the most reliable solution for economic development.

The dividend policy reflects capital retention priorities. Management projects a 60% payout ratio with dividend growth at the lower end of the 5-7% earnings target range, retaining capital for efficient investment. The $1.60 per share 2025 dividend represents 5.2% growth, providing income while funding the growth engine. This approach contrasts with peers like Southern Company and Dominion Energy that maintain higher payout ratios but sacrifice growth flexibility.

Material Risks: What Could Break the Thesis

Execution risk on the capital plan represents the primary threat. The $38 billion investment must be deployed prudently and recovered through rates. While 90% of the rate base is covered by favorable regulatory outcomes, the remaining 10% and future filings depend on maintaining operational excellence and regulatory relationships. Any deterioration in reliability metrics or cost management could jeopardize the multi-year rate plan construct.

The FERC audit settlement on ComEd's overhead cost allocation, while resolved with a $70 million charge in 2024, highlights the regulatory scrutiny inherent in utility cost recovery. Though the settlement was approved in April 2025 and the charge is not recoverable in rates, it demonstrates that capitalized costs face ongoing review. This increases the base of costs subject to regulatory audit, creating potential for future disallowances.

Supply chain and tariff impacts, while manageable, could pressure returns. Exelon sources approximately 90% of supplies domestically, limiting direct tariff exposure, but management estimates a 1.5% impact on the four-year capital and O&M plan before mitigation. With the majority affecting capital, these cost increases could delay projects or reduce returns if not fully recoverable in rates. The company's inventory management and long lead times provide some insulation, but sustained inflation in equipment costs remains a headwind.

The Corporate Alternative Minimum Tax (CAMT) presents a regulatory risk with financial implications. While interim guidance allows a repairs adjustment for CAMT, the drafting doesn't achieve the intended result, providing no benefit to Exelon. Management continues advocating for language that incorporates all tax repairs, but failure to secure favorable final regulations could increase effective tax rates and reduce cash flow available for reinvestment.

Interest rate risk is amplified by the capital intensity. Exelon's plan assumes $12 billion of utility debt and $3 billion of holding company debt through 2028. With higher interest rates increasing financing costs, the company must balance debt funding with the 40% equity target to maintain credit metrics. The recent upgrade to BBB+ provides some cushion, but sustained high rates could pressure the 5-7% earnings growth target if financing costs exceed projections.

Competitive Positioning: Strengths and Vulnerabilities

Exelon competes in a fragmented but consolidating utility landscape where scale, operational efficiency, and regulatory relationships determine success. Against key peers, Exelon's pure-play T&D focus represents both a strength and vulnerability.

Duke Energy (DUK) operates a similar-scale utility footprint but retains generation assets, providing integrated resource planning advantages. However, DUK's exposure to hurricane-prone regions creates earnings volatility that Exelon's Midwest/Mid-Atlantic footprint largely avoids. DUK's operating margin of 27.1% exceeds Exelon's 22.2%, reflecting its generation mix, but Exelon's 10.3% ROE is comparable to DUK's 9.9%, demonstrating efficient capital deployment in a purely regulated model.

Southern Company (SO) maintains a strong nuclear fleet and aggressive renewables target, but its 36.6% operating margin includes generation benefits that Exelon deliberately exited. SO's higher payout ratio (72.6% vs. Exelon's 56.6%) reflects a mature, slower-growth profile, while Exelon's retained earnings fund the data center buildout. SO's geographic concentration in the Southeast limits direct data center competition with Exelon's Northeast corridor.

NextEra Energy (NEE) represents the growth benchmark with 30.8% operating margins and 24.7% profit margins driven by its unregulated renewables development arm. However, NEE's 57.3x price-to-free-cash-flow multiple reflects market expectations that Exelon's 7.1x multiple doesn't require. Exelon's regulated model provides earnings predictability that NEE's merchant power exposure lacks, making Exelon a lower-risk play on the same electrification trend.

American Electric Power (AEP) and Dominion Energy (D) operate in overlapping PJM territories, but neither matches Exelon's data center pipeline concentration. AEP's 25.9% operating margin and D's 34.5% margin reflect their generation ownership, while Exelon's 22.2% margin represents pure T&D returns. Exelon's strategic advantage lies in its urban density—serving Chicago, Philadelphia, Baltimore, and Washington D.C.—where data center developers concentrate for fiber access and latency advantages.

Exelon's primary vulnerability is the absence of generation ownership post-spin. While this created focus, it eliminates the ability to capture merchant power margins during price spikes and requires reliance on third-party generation for resource adequacy. The company's advocacy for utility-owned generation as a complement to its T&D business reflects this gap, but regulatory barriers to utility generation ownership remain significant in its jurisdictions.

Valuation Context: Pricing the Growth

At $45.00 per share, Exelon trades at 16.1x trailing earnings and 11.7x EV/EBITDA, representing a discount to the utility sector average despite superior growth visibility. The 3.5% dividend yield provides income while investors wait for the capital plan to convert to earnings. Price-to-operating-cash-flow of 7.1x compares favorably to Duke's 7.7x and Southern's 10.5x, reflecting efficient cash conversion.

Relative to growth-adjusted multiples, Exelon's 5-7% earnings growth target and 6% rate base growth support a premium valuation, yet the stock trades at a PEG ratio below 3x—reasonable for a regulated utility with visible earnings drivers. The recent S&P upgrade to BBB+ should theoretically reduce the cost of equity and support multiple expansion, though this has not yet materialized.

The key valuation question is whether the market is adequately pricing the data center pipeline optionality. With 19+ GW of committed load and an additional $10-15 billion of transmission opportunities beyond the current plan, Exelon has earnings upside that peers lack. However, the negative $1.53 billion free cash flow in 2024 reflects the heavy capital investment phase, requiring investors to trust that rate base growth will convert to cash flow as projects enter service.

Peer comparisons highlight Exelon's relative attractiveness. NEE trades at 18.5x EV/EBITDA with higher growth but greater risk. DUK and SO trade at 11.4x and 12.2x EV/EBITDA with slower growth profiles. AEP's 12.6x multiple reflects similar transmission exposure but less data center concentration. Exelon's valuation sits at the low end of the quality peer group, suggesting either market skepticism about execution or an opportunity for re-rating as the data center pipeline converts to rate base.

Conclusion: The Critical Infrastructure Play on AI

Exelon has positioned itself as the essential regulated infrastructure provider for America's AI and electrification supercycle. The 2022 Constellation spin-off created a pure-play transmission and distribution utility with unmatched exposure to data center load growth, while the $38 billion capital plan provides a visible path to 5-7% earnings growth through 2028. Operational excellence—top-quartile reliability at below-average rates—creates the regulatory currency needed to approve multi-year rate plans and recover capital investments.

The investment thesis hinges on two critical variables: successful execution of the 19+ GW data center interconnection pipeline without compromising reliability, and maintenance of regulatory relationships that support the multi-year rate plan construct. The company's proactive financing, cost discipline, and recent credit upgrade demonstrate management's commitment to financial strength through the investment cycle.

Trading at 16.1x earnings with a 3.5% dividend yield, Exelon offers a reasonable valuation for a utility with above-average growth visibility. The market has not yet fully recognized the earnings power of the data center pipeline, creating potential for re-rating as Transmission Security Agreements convert to rate base. For investors seeking exposure to the AI infrastructure buildout with regulated utility risk characteristics, Exelon represents a compelling combination of growth, income, and operational excellence. The key monitoring points remain quarterly load growth additions, regulatory docket outcomes, and execution on the capital plan's timeline and budget.