Jeanne Jones
Executive Vice President and Chief Financial Officer at Exelon
Thank you, Calvin, and good morning, everyone. Today, I will cover our fourth quarter and full year results, key regulatory developments in Illinois and across the platform, and provide annual updates to our financial disclosures, including 2024 guidance. Starting on Slide 7. As Calvin noted, we delivered strong financial results for the second year in a row despite the historically mild weather impacting our non-decoupled jurisdictions. For the fourth quarter, Exelon earned $0.62 per share on a GAAP basis and $0.60 per share on a non GAAP basis. For the full year 2023, we earned $2.34 per share on a GAAP basis and $2.38 per share on a non GAAP basis, results that are at the top end of our narrowed guidance range and represent almost 6% growth off the midpoint of the 2022 guidance range. Throughout the year, we benefited from a higher earned ROE at ComEd primarily due to rising treasury rates impacting ComEd's distribution ROE as well as favorable depreciation at PECO relative to expectations.
Additionally, the ruling in December on BGE's reconciliation from its first multiyear plan approved recovery for over 90% of the requested 2021 and 2022 amounts and established a precedent to record a portion related to the 2023 reconciliation, which is expected to be determined in a future proceeding. These benefits coupled with our ability to manage work plans across the platform allowed us to mitigate nearly $140 million of weather and storm challenges relative to prior year along with a labor strike in New Jersey that occurred late in the year driving contracting costs up year-over-year. In a year in which we faced multiple headwinds, we delivered on our goal to achieve earnings in the top half of our guidance range. Quarter-to-date and year-to-date drivers relative to prior year are detailed in the appendix on slides 30 and 31.
Turning to our outlook for 2024. We are initiating adjusted operating earnings guidance of $2.40 to $2.50 per share. With BGE and Pepco entering the next cycles of their multiyear plans, 2024 earnings are expected to grow approximately 4% relative to the midpoint of our 2023 original guidance range. Compared to our last update, the reduction in expected year-over-year earnings growth is driven solely by the December 14 rate order issued by the Illinois Commerce Commission and ComEd's multi year rate plan, which we were only able to partially mitigate in '24 with cost management, redirected investment to serve our customers and margin we had built up in the plan.
Outright rejection of the grid plan, the challenging financial support for our net distribution investment in the December order and uncertainty around the amount of spend ComEd will be able to recover has caused us to dramatically reduce the originally planned level of distribution investment in Illinois this year. Until there is resolution on the grid plan, our 2024 plan has been risk adjusted for the overall uncertainty and prudently assumes earnings at ComEd consistent with the December rate order. While the rehearing on the interim revenue requirement is expected to provide additional cost recovery until grid plan approval, we have not assumed this as our base case.
Therefore, despite the uncertainty that remains with ComEd, we expect our 2024 range to cover a range of possible outcomes for not receiving any rate relief relative to the final order to the prospect that we receive an approval of our revised grid plan. The uncertainty in Illinois will further cause volatile quarterly earnings shaping in '24, both due to the significant rework of ComEd's operational plan in '24, as well as due to the fact of the prospect for the rehearing and revised grid plan processes to impact ComEd's expected revenue requirement. We currently expect to realize approximately 29% of full year earnings in the first quarter, which accounts for the December rate order at ComEd, seasonal weather patterns and the completed rate cases at our other utilities.
Moving to Slide 9. I would like to take a moment to step through the regulatory developments in Illinois since receipt of the ICC's final order in mid-December. First, starting with the application for rehearing on December 22, ComEd acted swiftly to request the commission correct fundamental, legal and evidentiary errors around four primary issues with the final order, return on equity, capital structure, return on pension asset and the basis of the ordered revenue requirement across all test years that was adopted absent and approved grid plan. At an open meeting on January 10, the ICC granted one portion of ComEd's application directing that 150 day rehearing process reconsider the year-over-year revenue requirement increases absent and approved grid plan.
While ComEd anticipates that the revenue requirements will be further updated upon approval of a revised grid plan, the rehearing order due on June 10 is expected to reset interim rates for 2024 at the discretion of the commission. Immediately following the open meeting on January 10, ComEd filed with the third district appellate court an appeal of the three other elements of the ICC's final order on which rehearing was denied. While there is no set schedule or deadline for an appeal conclusion, we will seek to move expeditiously through the court process.
Separately, as directed in the final order, ComEd will file a revised grid plan by March 13. ComEd has fully reengaged staff and all parties to the proceeding to align on the appropriate adjustments to the revised grid plan to fully address the concerns expressed by the commission. We continue to believe significant investment is needed to support Illinois' clean energy goals and desire to promote economic development in the state, a fact acknowledged by all stakeholders. But the revised grid plan we expect to file will reflect the significantly below average financial support provided in the final order and address the commission's feedback to further prioritize affordability.
We simply cannot invest at the same pace under an ROE that does not fairly recognize ComEd's cost of financing to do so, especially in the current interest rate and inflation environment. There is no statutory deadline for commission action on the revised grid plan. However, the final order stated that the commission appreciates the urgency of having a compliant grid plan in place and is eager to move forward with a grid plan that satisfies the statutory requirements for approval and so we are optimistic for resolution by year end.
In response to the challenging rate order, our long-term guidance reflects a $1.25 billion reduction in ComEd distribution capital expenditures over the three year period spanning 2024 to 2026 relative to our Q4 2022 disclosure update. This updated investment outlook for ComEd's distribution business includes reductions agreed to with stakeholders leading up to last October's proposed order along with additional reductions that result in a plan that further balances priorities across our stakeholders. As I will discuss later around our long-term outlook, our guidance has accounted for the possibility that substantially more capital is removed from the plan as a result of this process despite significant broad reaching support for our investment strategy.
On Slide 10, we provide our updated outlook for capex and rate base covering 2024 to 2027. We plan to invest $7.4 billion in 2024 and a total of $34.5 billion over the next four years, an increase of $3.2 billion or over 10% from the prior planning period. So we reduced ComEd's distribution capital plan by over 18% in response to the final order. The multidecade energy transformation continues to gain momentum and we see no shortage of needs to invest for our customers across all of our service territories and an ability to do so at a reasonable cost. We are the largest transmission and distribution utility in the country by customer account and we have the privilege and responsibility to serve many major densely populated areas.
We operate six utilities across seven jurisdictions including FERC and beyond our industry leading size and scale, we are also one of the best operators in the sector providing a world-class customer experience for reliability at very competitive rates. Given the power of this platform, our updated four year capital plan includes $3.2 billion of additional capital net of the adjustments to ComEd distribution to serve our customers. Included in that increase is $1.5 billion of incremental transmission capital over the 2023 to 2026 period since our last disclosure update addressing the significant need for high voltage investments to support federal, state and customer goals on renewable energy and electrification. $725 million of that increase is projected at ComEd for data center and other high intensity load growth along with increasing renewables and retirements of older fossil fuel generation is driving increased transmission investment needs.
The balance of the additional transmission largely relates to the two large transmission projects discussed on prior earnings calls. The RTEF for liability window three projects awarded by PJM to mitigate reliability challenges driven by incremental data center demand in the region and the other assigned due to the retirement of the brand insurance coal plant. While some of the transmission capital at ComEd is expected to go in service during the guidance period, very little of the transmission spend for the large East Coast project is reflected in the updated rate based outlook.
Brand insures is expected to go into service in 2028, while the RTEP Window 3 project will be in service closer to 2030 providing line of sight to strong rate based growth beyond the current guidance window. We continue to expect there will be transmission opportunities across our service territories associated with the same drivers underpinning these projects, high density, localized load growth, traditional fossil fueled plant retirements, increased renewables, not to mention from our extremely well positioned footprint on the mid-Atlantic coast for offshore wind interconnection.
To further put our competitive position into perspective, all but one mile of those two large transmission projects is expected to occur on our existing right of ways. We expect to remain active in seeking additional opportunities to lead in this space and as always, we will only include spend in our plan that is identified and expected to proceed tied to the needs of our jurisdictions. In total, our capital plan updates are expected to result in an increased to rate base of 7.5% over the next four years on a compound annual growth basis to $74 billion.
This growth adds approximately $18.5 billion to rate base from 2024 through 2027 and reflects a shift in the mix of our total capital growth portfolio by 2% from distribution to transmission since the last disclosure update despite a significant portion of the transmission capital added not yet placed in service. Exelon's transmission rate based growth recovered through FERC formula rate provides a stable and predictable financial profile. As clean energy and electrification continue to grow, our transmission strategy is designed to adapt to this new paradigm while continuing to operate the transmission system at world-class levels.
Moving to Slide 11. One way to ensure sustainability of our capital growth profile is to continue delivering superior value as efficiently as possible to our customers and communities and as one Exelon, we are building from a strong foundation. Our history of steady cost discipline while delivering a premier experience for our customers has positioned us very well as you can see in the chart on the right. Exelon's investment in grid modernization has enabled an approximate 40% increase in reliability performance across the platform, whether based on outage frequency or outage duration, while maintaining average electric rates 17% below the top 20 metropolitan cities in the United States. More simply put, when $1 is placed in our hands to invest, our customers can trust us to create value through reliable, affordable service.
Had our adjusted O&M costs grown in line with historical annualized inflation rate of 3.5% from 2016 through 2024, they would have increased by approximately $1.2 billion. Instead, we are projecting a 2.4% CAGR for the same period eliminating $400 million of customer rate increases that would have occurred without our intentional focus on driving efficiencies. And while 2024 is expected to grow at a higher rate, one key driver is the number of significant back office and operational IT system investments whose savings will be monetized over a longer period of time as I'll discuss in a minute.
In addition, upon aligning with several of our jurisdictions on the spending programs associated with advancing their state's energy goals and priorities through the recently approved rate cases, we are anticipating some catch up to meet the levels of service and investment agreed upon with our jurisdictions. However, we expect to maintain an annualized growth rate of approximately 2% through 2027, a below inflation level that is expected to result in bills for customers over $400 million lower than they otherwise would have been. Our expectation to limit the annualized O&M growth rate to approximately 2% over the long-term and maintain our competitive position with rates among those that are the lowest in the nation will improve our customers experiences. In fact, our multiyear plan rate structures allow us to quickly flow any benefits back to customers.
Let me take a moment to highlight a few ways in which we continue delivering value for our customers. First, as Calvin mentioned, a permanent team was established in 2023 to continue efforts to standardize and streamline the structure and operations of the organization ensuring all of our efforts are coordinated with the sole purpose of serving our customers and communities in an efficient and superior manner. Second, we have several initiatives underway to upgrade major enterprise resource planning, customer billing and automated work order systems expected to create work efficiencies, some of which I mentioned are driving our spend in '24.
Third, we are standardizing storm response protocol to increase role transparency and accountability in emergency events, mitigating cost risk and improving restoration performance in the future. Fourth, we are delivering a framework to migrate from a preventive maintenance asset management strategy to an automated condition based maintenance strategy in our transmission operations. And lastly, we are streamlining processes and leveraging technology, particularly in the call center and field for increased efficiency and responsiveness for our customers. To ensure that ROEs remain strong and we can invest at the levels our jurisdictions want, we are committed to leveraging our size and scale as one Exelon to manage costs across our operating companies and deliver affordable rates for our customers.
Turning to Slide 12. With $34.5 billion of projected capital spend, driving 7.5% rate based growth and with continued focus on earning ROEs of 9% to 10%, we are initiating an annualized operating earnings growth target of 5% to 7% through 2027 from our 2023 guidance midpoint of $2.36 per share. The lower growth outlook from what we previously laid out is not a decision we took lightly, but is a result of the challenging rate case outcome and decelerated pace of investment in Illinois.
As you heard from Calvin, Illinois is only one jurisdiction in which we operate. We are continuing momentum in our other jurisdictions as the second multi year plans at Pepco progress in line with our expectations as PECO anticipates filing in the first half of this year consistent with their general two to three year rate case cadence and as all of our utilities execute on the robust transmission strategy and cost management initiatives outlined on the prior slides. Accordingly, we are confident the earnings CAGR will be at midpoint or better of the 5% to 7% range over the 2023 to 2027 period and in future updates.
Even with the process in Illinois remaining uncertain, our earnings growth guidance is resilient and accounts for the possibility that limited progress is made in Illinois and we need to significantly reduce investment in ComEd distribution further. We also continue to project an approximate 60% dividend payout ratio of operating earnings with the dividend growing in line with our long-term earnings target. We announced today an expected annualized dividend of $1.52 per share in '24, which is over 5.5% higher than the '23 dividend.
Maintaining our commitment to transparency and predictability, we have provided year-over-year drivers contributing to the expected annual growth in our earnings through 2027 on Slide 13. While there is variability in the year-over-year growth over the four year time period, the business drivers provide transparency into our expected 5% to 7% growth through 2027, including an expectation to deliver every year after '24 within the 5% to 7% range, if not above.
I will conclude with a review of our balance sheet activity on Slide 14. As you have heard from us before, maintaining a strong balance sheet is core to our strategy and we closed out another year with credit metrics comfortably exceeding S&P's and Moody's downgrade thresholds of 12%. Similar to the first two years since operation over the guidance period, we project to continue to have approximately 100 basis points of cushion on average for our consolidated corporate credit metrics above the threshold specified by the agencies.
While the final rate order issued by the Commission in Illinois negatively impacted our future cash flow outlook, we have largely mitigated those impacts through cost management and curtailment of distribution capital spend at ComEd while ensuring we maintain a safe, reliable grid for customers. As we identified new investments in the plan, we are funding in a prudent manner by incorporating an incremental $1.3 billion of equity to ensure we maintain our previous commitments on cushion and keep us on a path to 13% to 14% consolidated credit metrics over time. As our consolidated spend profile has shifted more towards transmission, the cash generated from these longer dated investments is expected to follow the earnings largely beyond the guidance period and further strengthen our credit metrics over time.
Additionally, I'd remind you that our plan continues to incorporate the assumption that the corporate term minimum tax will not allow for repairs. If implemented in a way that mitigates the cash impact, we'd expect an increase of approximately 50 basis points to our consolidated credit metrics average -- on average over the plan, which would provide incremental cushion. From a financing perspective, we expect the $34.5 billion capital plan to be supported by $19 billion of internally generated cash flow, $10 billion of debt at the utilities and $3 billion of debt at the holding company with a balance funded with a modest amount of equity.
In the fourth quarter of 2023, we completed $142 million of equity via our ATMs and expect $150 million to be issued in 2024 and as mentioned to fund the robust $3.2 billion of incremental capital opportunities while maintaining a strong balance sheet. Our financing plan includes $1.3 billion of additional equity that we expect to issue over the '25 through '27 period. The incremental equity funds 40% of the incremental capital investments over the four year plan and represents slightly more than 1% per year of excellence current market cap. As we work with our jurisdictions and identify needs for further investment at the utilities, we anticipate that any incremental capital investment would be funded by no more than approximately 40% equity.
I want to close by reiterating our confidence in investing an estimated $35 billion of capital across our diversified platform from '24 to '27 driving 5% to 7% earnings growth from '23 to '27 with an expectation of midpoint or better and maintaining a strong balance sheet while doing so.
Thank you. I'll now turn the call back to Calvin for his closing remarks.
