Exelon's Q2 2025: Rising Costs and Interest Rates Squeeze Profits

Exelon Corp. (EXC), one of the nation's largest utility services holding companies, recently released its financial results for the second quarter of 2025. By examining the details in their latest 10-Q filing, we can get a clear picture of the company's performance and the financial currents shaping the utilities sector. The key takeaway? While revenues remained stable, rising costs—particularly interest expenses—put a squeeze on the bottom line.

A Look at the Numbers

For the quarter ending June 30, 2025, Exelon reported total operating revenues of $5.43 billion, a slight increase from $5.36 billion in the same period last year. However, this top-line stability didn't translate directly to profit. Net income attributable to common shareholders came in at $391 million, a noticeable drop from the $448 million earned in Q2 2024. This resulted in diluted earnings per share of $0.39, down from $0.45 a year prior.

This divergence between steady revenue and declining profit highlights a challenging operating environment. Let's trace how the money flows through the company to understand why.

From Revenue to Profit

A company's income statement tells the story of its financial performance over a period. The following flow diagram visualizes Exelon's journey from revenue to net income for the quarter.

As the chart illustrates, Exelon's $5.4 billion in revenue was primarily offset by two major cost categories. The Cost of Revenue, which is largely composed of purchased power and fuel, amounted to $1.9 billion. On top of that, Operating Expenses totaled $2.6 billion, a figure that includes critical functions like system maintenance ($1.3 billion) and depreciation on its vast infrastructure ($902 million). After accounting for these costs, Exelon was left with an operating income of $927 million.

Why Is Some Revenue Negative?

One item in the revenue breakdown that may stand out is the negative $275 million from "alternative revenue programs." This isn't an error; it represents a credit or refund returned to customers, which acts as a reduction of gross revenue.

This is a common feature of modern utility regulation, often tied to "decoupling" mechanisms. Decoupling is a regulatory tool that separates a utility's revenue from the volume of energy it sells. If the utility collects more revenue than a pre-approved amount (for instance, due to unusual weather causing higher-than-forecasted energy consumption), it must refund the excess to customers in a later period. This negative revenue figure reflects that refund process in action.

Performance Across the Grid

Exelon operates as a holding company for several major, geographically distinct utility companies. Analyzing their individual performance provides insight into the company's core earnings drivers. For the quarter, the operating income breakdown was as follows:

• ComEd: Serving Northern Illinois, including Chicago, was the largest contributor with $380 million.
• PHI (Pepco Holdings): Covering areas in the Mid-Atlantic through its subsidiaries (Pepco, DPL, and ACE), generated $271 million.
• PECO: Serving Southeastern Pennsylvania, brought in $190 million.
• BGE: The primary utility for Central Maryland, including Baltimore, contributed $120 million.

The consistent profitability of these regulated segments underscores the stable, foundational nature of Exelon's business model.

Headwinds and Tailwinds

So, what caused the dip in net income? The filing points to several factors. Operating and maintenance expenses rose by over $100 million compared to the prior year, driven in part by higher storm-related costs at its PECO subsidiary.

Furthermore, a significant headwind was the increase in interest expense, which climbed to $531 million for the quarter from $483 million in Q2 2024. As a capital-intensive business, utilities carry substantial debt to fund infrastructure projects, making them sensitive to changes in interest rates.

On the positive side, Exelon benefited from favorable rate increases across its various service territories. These regulatory-approved price adjustments are a crucial tool for utilities to recover their costs and earn a return on their investments, and they were a key reason revenues remained resilient.

Conclusion

Exelon's second-quarter performance paints a picture of a quintessential modern utility. The company's regulated operations provide a steady and predictable revenue stream, bolstered by necessary rate increases. However, it is not insulated from broader economic pressures. Rising operational costs and, more significantly, the higher cost of financing its debt are creating tangible pressure on profitability. For investors and market watchers, the key will be to monitor Exelon's ability to manage these expenses and successfully navigate future regulatory proceedings to ensure costs are recovered and margins are protected.