Form 10-12B
We note your disclosure that your information statement contains estimates and projections regarding market and industry data that were obtained from internal Company estimates as well as third-party sources, such as market research, consultant surveys, publicly available information and industry publications and surveys. Please revise to include the names and dates of these studies or reports.Rest of the question
To the extent that you commissioned any of the third-party data that you use in the prospectus, also provide the consent of the third-party in accordance with Rule 436. Please also provide us with supplemental support, or in the alternative provide citations, for all statements that relate to your competitive position within your industry or your market opportunity.
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You state that you are "America’s leading clean energy company." Revise to substantiate this claim and your other competitive statements in the first paragraph on page 1. Reasons for the Separation, page 11
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Please expand the disclosure to further describe the differences between Exelon’s “competitive generation and customer-facing energy businesses” and its “regulated electric distribution and transmission and gas distribution businesses." Our results could be negatively affected by the impacts of COVID-19, page 23
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You disclose that COVID-19 "could" negatively affect your ability to operate your generating assets, your ability to access capital markets, and your results of operations. Please revise your disclosure here and elsewhere as appropriate to clarify that COVID-19 has impacted you and disclose any material effects of COVID-19 on your business, financial condition and results of operations.Rest of the question
In this regard, we note your disclosure on page 95 that the estimated impact to your net income was approximately $170 million for the year ended December 31, 2020. Also discuss what management expects the pandemic's future impact will be, how management is responding to evolving events, and how it is planning for COVID-19related uncertainties. For guidance, consider the Division of Corporation Finance's Disclosure Guidance Topics Nos. 9 & 9A, available on our website.
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You disclose on page 96 that beginning on February 15, 2021, your Texas-based generating assets within the ERCOT market, specifically Colorado Bend II, Wolf Hollow II, and Handley, experienced periodic outages as a result of historically severe cold weather conditions.Rest of the question
You also disclose that Exelon and Generation estimate a reduction in net income of approximately $670 million to $820 million for the full year 2021 arising from these market and weather conditions. Please expand this risk factor to reflect this event.
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Please revise to disclose whether the Exelon board of directors considered alternatives to the spin-off transaction and, if so, why those alternatives were not pursued.
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We note the disclosure on page 38 that "each holder of Exelon common stock will receive share of [y]our common stock for every share of Exelon common stock held...on...the record date." Please clarify that the issuance of shares of the Company’s common stock is based on the current assumption of one share of your common stock for each share of Exelon common stock outstanding on the record date on a pro rata basis.
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Please expand your disclosure to present historical basic and diluted per share amounts based on continuing operations attributable to the controlling interests and the number of shares used to calculate such per share amounts on the face of the pro forma condensed statement of operations. Refer to Rule 11-02-(a)(9)(i) of Regulation S-X.
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You disclose under Our Competitive Strengths that your commitment to an investment grade credit rating remains paramount and that you view a strong balance sheet as a competitive strength that will position you to pursue value enhancing opportunities. We also note that S&P lowered your senior unsecured debt rating to ‘BBB’ from ‘BBB+’ on November 4, 2020 and to ‘BBB-‘ from ‘BBB’ on February 24, 2021.Rest of the question
Please discuss and analyze material changes in your financial position. Please refer to Item 303 of Regulation S-K.
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You disclose revenues net of purchased power and fuel expense (“RNF”) on a consolidated and segment basis. Your current disclosure of RNF on a consolidated basis outside of the segment footnote is a non-GAAP measure. Given that this measure reduces your reported revenue by a non-revenue line item, explain to us your basis for presenting this as a measure of revenue.Rest of the question
If revenues net of purchased power and fuel expense is intended to be presented as a measure of gross profit, tell us whether you considered the use of a different caption and the presentation of a reconciliation for this non- GAAP measure to the most directly comparable GAAP measures, i.e. gross margin that includes depreciation, depletion and amortization. See Item 10(e)(1)(i)(B) of
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Please discuss and analyze the operating revenues and purchased power and fuel expense line items on a consolidated basis in your results of operations. Please also quantify the underlying reasons for material changes in RNF by region disclosed on page 108. Please refer to Item 303(b) of Regulation S-K.
No reply letter found.
You disclose that changes in your cash flows from operations were generally consistent with changes in results of operations, as adjusted by changes in working capital in the normal course of business. Please revise to discuss and analyze why Changes in working capital and other noncurrent assets and liabilities decreased by $2.633 billion in 2020.Rest of the question
Please also discuss and analyze why net cash flows provided by operating activities declined from $3.9 billion in 2018 to $584 million in 2020.
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Please revise to describe the material terms of each of your transition services agreement, tax matters agreement, and employment matters agreement.
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You disclose a $4.4 billion decrease in net cash flows provided by operating activities in Other Assets and Liabilities in 2020. Please disaggregate the material amounts of Other Assets and Liabilities that comprise the $4.4 billion net decrease in cash flows provided by operating activities in 2020.
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We note your disclosure that you expect that Generation will enter into an amended and restated credit agreement providing for a revolving credit facility. Please file a copy of this agreement as an exhibit when it is available. In addition, please file the indenture governing Generation's $4.2 billion aggregate principal amount of senior notes outstanding and any material project financing credit agreements.Rest of the question
Refer to Item 601(b) of General
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We note your disclosure that no vote of Exelon stockholders is required in connection with the spin-off. Please provide us with a legal analysis regarding the basis for that statement.
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We note your response to prior comment 2. Please define the term "clean energy" and clarify throughout, if true, that your references to "carbon-free" is solely based on your generation output of electricity. Risk Factors Our financial performance could be negatively affected by matters arising from our ownership and operation of nuclear facilities, page 28
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We note your response to prior comment 2. Please revise to enhance your risk factor to describe the operational risks arising from your ownership and operation of nuclear facilities. We note your disclosure on page 79 that the generation of nuclear energy results in spent nuclear fuel and radioactive waste.
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We note your revisions in response to prior comment 6. Please expand your disclosure to discuss in greater detail the board's consideration of a sale of Exelon’s competitive generation and customer facing business as a possible alternative, including whether the board considered or engaged in discussions, due diligence, or negotiations regarding a sale.Rest of the question
In addition, disclose the reasons the board ultimately decided the spin-off transaction was a better strategic alternative than a sale.
No reply letter found.
We reviewed your response to prior comment 9. Discuss and analyze your financial position and the changes in your financial condition as required by Item 303(a) and (b) of Regulation S-K. Specifically, discuss and analyze material changes to your balance sheet and discuss material events and uncertainties that may impact your future financial condition.
No reply letter found.
We have read your response to prior comment 10. Please reconcile the non-GAAP measure consolidated RNF to a GAAP gross profit that includes depreciation and amortization. In this regard, a GAAP gross profit should be used as the starting point of the non-GAAP reconciliation. Lastly, tell us whether you considered the use of a different caption for RNF.
No reply letter found.
We have read your response to prior comment 11. You state that you do not believe an analysis of the changes in operating revenues or purchased power and fuel expense provides useful information to investors given your business model and implemented risk mitigation strategy.Rest of the question
However, it is unclear what your cost structure is for nuclear generation, fossil and renewables and purchased power or for example why capacity revenues have materially decreased in the Mid-Atlantic, Midwest and Other Power regions and materially increased in the New York region. Please revise your results of operations to discuss and analyze material changes in operating revenues and energy costs by generation source.
No reply letter found.
We note the price of electricity is a key determinant of the profitability of the Company. Many variables can impact the price of electricity, such as the price of different fuels, weather and load growth. These variables differ by region and therefore the price of electricity varies by region.Rest of the question
To increase transparency of the underlying trends in the price of electricity by region, an investor would benefit from additional disclosure of the average power price for each of your major markets or regions. Additionally, it appears you could disclose the realized average power price per region that includes the impact of settled hedges. Lastly, tell us how you allocate the effects of the economic hedges to each specific region.
No reply letter found.
We have read your response to prior comment 12. It appears there are other changes in working capital that are not addressed in your response, such as changes in accounts payable and accrued expenses. Revise your operating cash flow discussion to quantify, discuss, and analyze each significant change in working capital and the underlying reasons for such changes.
No reply letter found.
You disclose that the estimated impact to your net income for the nine months ended September 30, 2021 arising from the impacts of the February 2021 extreme cold weather event and Texas-based outages was a reduction of approximately $880 million. You estimate a full year reduction in net income of approximately $670 million to $820 million related to these events in 2021.Rest of the question
Revise to disclose how the range for the full year was determined and quantify the estimated impact of each material factor that contributed to the development of this range.
We have revised the disclosure to incorporate the material factors that contributed to the development of the range, see updates underlined in the disclosure below. We have recorded an estimated impact of $880 million for the nine months ended September 30, 2021, of which the most material factors in the estimated net loss impact have settled in cash (approximately $800 million), which comprises the vast majority of the mid-point of our range.Read in the reply ↗Rest of the answer
We have also disclosed that our full year range considers the reversal of natural gas penalties in the fourth quarter 2021 (approximately $80 million) based on our expectation of the outcome of the related regulatory proceeding. Additionally, we have disclosed that there are other pending legal and regulatory matters that could result in a reduction to the impact of this event, which were considered in the development of the low end of the range.
Impacts of the February 2021 Extreme Cold Weather Event and Texas-based Generating Assets Outages
Beginning on February 15, 2021, our Texas-based generating assets within the ERCOT market, specifically Colorado Bend II, Wolf Hollow II, and Handley, experienced outages as a result of extreme cold weather conditions. In addition, those weather conditions drove increased demand for service, dramatically increased wholesale power prices, and also increased gas prices in certain regions.
The estimated impact to our Net income for the nine months ended September 30, 2021 arising from these market and weather conditions was a reduction of approximately $880 million. We estimate a reduction in Net income of approximately $670 million to $820 million for the full year 2021. Our full year range is primarily based upon the estimated net loss for the nine months ended September 30, 2021 of approximately $800 million that has settled in cash.
The nine months estimated Net income impact included a reduction of approximately $80 million due to estimated net penalties associated with the natural gas business, that we anticipate will be lowered in the fourth quarter 2021. Therefore, such charges are not included in the estimated full year earnings impact. Additionally, our full year range contemplates probabilities of outcomes on various pending legal and regulatory matters. The ultimate impact to our consolidated financial statements may be affected by a number of factors, including the impacts of customer and counterparty credit losses, any state or federal solutions to address the financial challenges caused by the event, and related litigation and contract disputes. See Note 3 — Regulatory Matters and Note 15 — Commitments and
Contingencies of the interim Notes to Consolidated Financial Statements for additional information.
We note your disclosure here and elsewhere that you expect that you will pay dividends on your common stock commencing following the first full fiscal quarter after the separation. Please revise to disclose any restrictions applicable to your payment of dividends, including in your anticipated new credit facility.Rest of the question
Please also address the risks related to your ability to pay dividends and disclose whether your dividend policy will be reflected in any written policies of the Company.
We have revised the text under “Dividend Policy” to indicate that the Company’s dividend policy is not reflected in a written policy and have added a paragraph referring to possible restrictions on Generation’s ability to pay distributions to the Company as a result of a consolidated leverage ratio requirement that is expected to appear in Generation’s new credit agreement to be entered concurrently with the distribution.Read in the reply ↗Rest of the answer
We have also added a new risk factor entitled “As a holding company, we are dependent on upstream cash flows from our subsidiaries for the payment of dividends on our common stock.” under “Risk Factors – Risks Related to Our Common Stock.”
We note that Section 6.01(a) of your form of articles of incorporation filed as Exhibit 3.1 provides that unless your board of directors consents in writing to an alternative forum, a state court within the Commonwealth of Pennsylvania (or if no such state court has jurisdiction, a federal district court within the Commonwealth of Pennsylvania) will be the sole and exclusive forum for any "derivative action,"Rest of the question
including any derivative suit brought to enforce any liability or duty created by the Exchange Act, and that the federal district courts of the United States of America, to the fullest extent permitted by law, shall be the sole and exclusive forum for the resolution of any action asserting a cause of action arising under the Securities Act. Please clarify how your exclusive forum provision applies to actions arising under the Exchange Act. In that regard, we note that Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Please also describe any risks related to the impact of this provision on your shareholders. Further, if this provision does not apply to actions arising under the Exchange Act, please also ensure that the exclusive forum provision in the governing documents states this clearly.
We note that the existing disclosure under “Description of Capital Stock – Exclusive Forum” states that the exclusive forum provisions apply to “any derivative action or proceeding brought on behalf of the Company (including any derivative suit brought to enforce any liability or duty created by the Exchange Act) . . .Read in the reply ↗Rest of the answer
”, and we reformatted the disclosure so this point is more prominent.
We also added disclosure that the exclusive forum provision may be ineffective as the Exchange Act creates exclusive federal jurisdiction over suits brought to enforce any duty or liability created by the Exchange Act. We also added the following risk factor on page 37 of the information statement:
Our amended and restated articles of incorporation will designate the state courts of the Commonwealth of Pennsylvania (or if such state courts do not have jurisdiction, the federal district courts located within the Commonwealth of Pennsylvania) as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, and the United States federal district courts as the exclusive forum for claims under the Securities Act, which could limit our shareholders’ ability to obtain what such shareholders believe to be a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated articles of incorporation will provide that, unless our board of directors consents in writing to an alternative forum, a state court within the Commonwealth of Pennsylvania (or if no such state court has jurisdiction, a federal district court within the Commonwealth of Pennsylvania) will be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of the Company (including any derivative suit brought to enforce any liability or duty created by the Exchange Act), (2) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or employee of the Company to the Company or its shareholders, (3) any action asserting a claim against the Company or any of its directors, officers or employees arising pursuant to any provision of the
Pennsylvania Business Corporation Law (the “PBCL”) or as to which the PBCL confers jurisdiction on the Pennsylvania Courts of Common Pleas or the amended and restated articles of incorporation or amended and restated bylaws or (4) any action asserting a claim against the Company or any of its directors, officers or employees governed by the internal affairs doctrine. The amended and restated articles of incorporation will also provide that unless our board of directors consents in writing to an alternative forum, the federal district courts of the United States of America will be the sole and exclusive forum for the resolution of any action asserting a cause of action arising under the Securities Act.
Although the amended and restated articles of incorporation will include these exclusive forum provisions, it is possible that a court could rule that these provisions are inapplicable or unenforceable. Our exclusive forum provision will apply to derivative suits brought to enforce any liability or duty created by the Exchange Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. These exclusive provisions may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder believes to be favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits.
It is possible that a court could find these exclusive forum provisions inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, and we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.
We note your disclosure on page 168 that you expect to enter into a new credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and various financial institutions providing for a $3.5 billion revolving credit facility and maturing on the fifth anniversary of the distribution date. Please file a copy of the form of this agreement as an exhibit to your registration statement.
We have filed as an exhibit a copy of the form of Generation’s credit agreement that is expected to be entered concurrently with the distribution. Please note that the description of the expected revolving credit agreement, which was previously based upon a term sheet, has been revised to reflect the form of the credit agreement filed as an exhibit. The revised description, which reflects the deletion of several covenants (including a previous covenant restricting distributions), appears under “Description of Certain Indebtedness – Revolving Credit Facility.” Read in the reply ↗
We note your response to prior comments 1 and 3, and reissue in part. Your response to prior comment 3 states that the form of credit agreement reflects deletions of several covenants (including a previous covenant restricting distributions).Rest of the question
However, Section 6.04 of your form of credit agreement filed as Exhibit 10.8 refers to restrictions and conditions to pay dividends or other distributions identified on Schedule 6.04. Please file a copy of Schedule 6.04 with your form of credit agreement filed as Exhibit 10.8 and revise your disclosures regarding these restrictions and conditions accordingly. We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff.
We have refiled the Credit Agreement (Exhibit 10.8) with Schedule 6.04 attached. As you will see, the Schedule says “None.” Consequently, we do not believe changes are needed to the existing description of the Credit Agreement under “Description of Certain Indebtedness – Revolving Credit Facility” as no restrictive agreements or arrangements are identified in that Schedule. Read in the reply ↗
Also in this review: company letter, 2021-12-27