Good morning, welcome to 2019 second quarter Exelon earnings call. My name is Nora, and I'll be facilitating the audio portion of today's interactive broadcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. This event also features a streaming audio, which allows you to listen to the show through your PC speakers. For those of you on the stream, please take note of the options available in your event console. At this time, I'd like to turn the show over to Dan Eggers, Exelon's Senior Vice President of Corporate Finance. Please go ahead, sir.
Thank you, Nora. Good morning, everyone, and thank you for joining our second quarter 2019 earnings conference call. Leading the call today are Christopher Crane, Exelon's President and Chief Executive Officer, and Joseph Nigro, Exelon's Chief Financial Officer. They're joined by other members of Exelon's senior management team who will be available to answer your questions following our prepared remarks. We issued our earnings release this morning, along with the presentation, both of which can be found in the investor relations section of Exelon's website. The earnings release and other matters which we discussed during today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. Actual results could differ from our forward-looking statements based on factors and assumptions discussed in today's material and comments made during the call.
Please refer to today's 8-K and Exelon's other SEC filings for discussions of risk factors and factors that may cause results to differ from management's projections, forecasts, and expectations. Today's presentation also includes references to adjusted operating earnings and other non-GAAP measures. Please refer to the information contained in the appendix of our presentation and our earnings release for reconciliations between the non-GAAP measures and nearest equivalent GAAP measures. We scheduled 45 minutes for today's call. I'll now turn the call over to Christopher Crane, Exelon's CEO.
Thanks, Dan, and good morning, everyone, and thank you for joining us today. Before I turn to the financial results for the quarter, I'm going to spend a few minutes providing some key updates on a number of positive developments in our businesses over the last three months. First, we continue to move forward on our utility regulatory strategy, filing distribution rate cases at BGE, ComEd, and Pepco D.C., reflecting our safety and reliability investments across those service territories. In D.C., we filed our first multi-year rate case. The plan provides the necessary framework to align Pepco system investments with D.C. policy goals, including grid modernization and further improvements to customer service and reliability. Joe will discuss the details in his remark. Second, last week, Pepco and other parties filed a settlement agreement at FERC for PECO's formula rate, transmission rate.
The settlement includes a 10.35% ROE inclusive of a 50 basis point ROE adder. We expect the final order from FERC in 2020. Third, in June, we issued our annual corporate sustainability report marking our performance and sustainability goals and priorities. In addition, the benchmarking air emissions report that found Exelon is the largest generator of zero emissions energy in the U.S., producing 12% of the nation's clean energy. Also, that we have the lowest emissions rate emitting at a rate that is four times less than the next cleanest generator. Fourth, the New Jersey BPU approved ZEC payments for the state nuclear units, including our interest in Salem. We appreciate the state support for the carbon-free power produced by these units.
Fifth, we were unable to get legislation done in Pennsylvania in time to reverse the decision to close TMI this fall. Since then, there have been continued discussions on a path forward for the remaining nuclear plants in the state, including consideration of placing a price on carbon through the regional carbon trading. Sixth, we are also pleased the Trump administration decided not to impose quotas on uranium, which would have jeopardized the continued operation of commercial nuclear reactors in the United States. Finally, last week, FERC issued an order directing PJM not to run the capacity auction in August. We agree with FERC's decision to delay the auction until the rules are finalized. The delay provides PJM and the state policymakers time to adjust to the commission's changes. Before I turn to the financial results, I also want to address two matters you have raised with us recently.
First, we've received a number of questions from investors about the impact on our business from the steep decline in power prices. The decline presents a considerable challenge for us, but as you know, our hedging disclosures are a point-in-time estimate. If you have seen them move up and down in the past, we need to be thoughtful and deliberate about our response if these prices persist, and we have a variety of levers that we can pull and decisions we can make if this is the future of energy markets. We are pursuing a number of market reforms addressing the financial challenges many of our plants face. Against this backdrop, I can also again assure you that we will not operate unprofitable or negative free cash flow plants.
You've seen us close money-losing plants in the past, and you should expect that discipline to continue if reforms are not enacted. The bottom line is that fundamental market reforms are needed in the United States if we want to meet the nation's clean energy climate goals, maintain fuel security, and reliable system, we need to sustain and increase electrification, preserving significant economic value through good-paying jobs and property taxes. We'll continue to work at the state level and the national level with FERC, the Congress, and the administration to make this happen. Second, we've received numerous questions from our investors about the subpoena in Illinois from the U.S. Attorney's Office. We are cooperating fully and are providing all information requested by the U.S. Attorney's Office. We simply can't comment further on the investigation, and we're not going to speculate on whether it may affect legislative efforts in Illinois this fall.
What we do know about this fall session is there are a number of stakeholders who want to see clean energy legislation enacted. Illinois lags behind other progressive states on clean energy policy. Passing the clean energy legislation is a priority for many stakeholders in Illinois, including the Citizens Utility Board, labor, the Clean Jobs Coalition, and the renewable community. These stakeholders want to greatly expand their renewable penetration so the state will be able to achieve the 100% clean energy target by 2030. Kathleen and her team are working with the stakeholders to help craft the legislative package and inform members of the General Assembly on the benefits of this legislation. It's important to remember that while we are putting a real effort into preserving the value of the generation fleet, our focus remains on the utilities.
The bulk of our capital investment and growing majority of our earnings are coming from the regulated business, where we continue to see great opportunities to invest and grow to the benefit of our customers and communities. I'll turn to the financial results on slide five. We had a good quarter, delivering earnings at midpoint range of our guidance. On a GAAP basis, we earned $0.50 per share versus $0.56 last year. On a non-GAAP basis, we earned $0.60 per share versus $0.71 last year. Joe will cover these drivers in his remarks. Turning to slide six, operational performance of the utility was mixed during the quarter. We continued to perform at top quartile levels of cost for reliability and customer operations metrics, but our safety performance has slipped. Safety is the highest priority, and we are focused on ways to improve our safety culture and performance.
Outage frequency and outage duration performance is in the top quartile for three of our four utilities, with ComEd performing in the top decile. On the customer operations side, all of our utilities performed at top quartile for service level and call abandonment rate. Our relationship with our customers is improving due to the investments we are making to improve reliability and the customer experience. This can be seen in our customer satisfaction scores and in the recent J.D. Power Electrical Residential Customer Satisfaction ratings. BGE and PECO and ComEd achieved top decile performance in customer satisfaction index. We've improved or maintained our rankings in the J.D. Power rankings. Delmarva Power ranked first in the East mid-sized region, the first Exelon utility to ever be ranked first. BGE and PECO maintained their first quartile performance in the East large segment, and ComEd improved in its ranking to the second quartile.
Generation performed well during the quarter. Nuclear produced 38.8 terawatts, hours of zero-emission electricity with a capacity factor of 95.1%. Exelon Power had a gas and hydro dispatch match of 99.7, exceeding our plan, and the wind and solar capture on the plan was beat the plan of 96%. Now I'll turn it over to Joe.
Thank you, Chris, and good morning, everyone. Today, I will cover our second quarter results, our quarterly financial updates, including trailing 12-month ROEs at the utilities, and our hedge disclosures. Turning to slide seven, we earned $0.50 per share on a GAAP basis and $0.60 per share on a non-GAAP basis, which is at the midpoint of our guidance range of $0.55-$0.65 per share. Exelon Utilities delivered a combined $0.39 per share, net of holding company expenses. Utility earnings were modestly higher than our plan, largely due to O&M timing at ComEd, BGE, and PECO, which will reverse itself over the course of the year. This was partially offset by milder weather than expected in the Philadelphia area, impacting PECO by about $0.01 per share. ExGen earned $0.21 per share behind our plan.
This was a result of lower load volumes at Constellation due to mild weather and the extended outage at Salem. These factors were partially offset by favorable O&M, strong performance of our generation fleet, and realized gains in our nuclear decommissioning trust fund. We are reaffirming our full-year guidance of $3 to $3.30 per share. For the third quarter, we are providing adjusted operating earnings guidance of $0.80 to $0.90 per share. On slide eight, we show our quarter-over-quarter walk. The $0.60 per share in the second quarter of this year was $0.11 per share lower than the second quarter of 2018. Exelon Utilities less Holdco earnings were up $0.04 per share compared with last year. The earnings growth is driven primarily by higher distribution rates associated with completed rate cases and higher transmission revenues at ComEd and PHI relative to the second quarter of 2018.
This was partially offset by unfavorable weather at PECO. Exelon's earnings were down $0.13 per share compared with last year. The decrease was driven by lower realized energy prices, partially offset by higher ZEC revenue from the increase in New York ZEC prices and the start of the New Jersey ZEC program. Moving to slide nine, our utility ROEs remain strong, and we continue to exceed our 9%-10% earned ROE targets across the utilities. The consolidated PHI utility earned a 9.1% ROE for the trailing 12 months. Compared to last quarter, we had some help from the constructive distribution rate case settlements at ACE, Pepco DC, and Pepco Maryland, offset by equity infusions across PHI. Legacy Exelon utilities maintained its strong 10.5% earned ROEs in the quarter. Importantly, consolidated ROEs across our utilities were 10.2%.
We remain focused on meeting our utility earnings growth targets by maintaining the earned ROEs at PHI and sustaining strong performance at our other utilities. Turning to slide 10. On May 24th, BGE filed for a combined $148 million rate increase in electric and gas distribution revenues. The requested rate increase includes $81 million and almost $68 million for electric and gas revenues respectively, based on rate base of $5.4 billion and a requested ROE of 10.3%. The increase is primarily driven by the ongoing need for capital investments to maintain and modernize the electric and gas distribution system. It also reflects moving $15.8 million of revenues currently being recovered via the STRIDE and electric reliability investment surcharges into base rates. We expect to receive an order in the fourth quarter.
On May 30th, Pepco filed a multi-year plan in the District of Columbia, requesting a revenue increase over three years to recover capital investments made during the 2018-2019 period and planned investments over the 2020 to 2022 time period. The request provides the necessary framework to allow Pepco to align its system investments with policy goals set by the commission and enable us to continue to make the investments needed to modernize the energy grid, support the District's energy goals, sustain first quartile reliability performance, and enhance programs and tools that have resulted in improved satisfaction among our customers. The multi-year plan includes five performance incentive mechanisms, or PIMs, focused on system reliability, customer service, and interconnection of distributed energy resources. The inclusion of these PIMs with the multi-year plan provide a performance-based rate-making approach designed to strengthen general incentives for good utility performance and penalize for underperformance.
The multi-year plan provides customers with rate predictability and reduces the administrative cost to customers caused by frequent filing of traditional rate cases to recover costs. On July 9th, the chief public utility law judge issued his proposed order in the Pepco Maryland distribution rate case. The chief judge recommended a $10.3 million revenue increase and a 9.6% allowed ROE, which is 10 basis points higher than Pepco Maryland's current ROE. A final order by the Maryland PSC is expected by August 13th. Finally, ComEd's annual formula rate update filing is expected to be decided in December of this year. More details on these rate cases can be found on slides 20 through 23 in the appendix. Turning to slide 11. We are continuing our robust capital deployment program at the utilities, and during the second quarter, we invested $1.4 billion of capital to the benefit of our customers.
We expect to exceed our capital plan of $5.3 billion by $100 million this year. We've been able to take advantage of the favorable weather to fund investments in our gas business at BGE. Plus, we had some additional storm-related work. As Chris mentioned, these investments are improving our infrastructure, increasing reliability and resiliency, which results in a better customer experience. Today, I'd like to talk about two projects that are part of these efforts and will bring improved operations to our customers in D.C. and Northern Illinois. The first project is the District of Columbia Line Underground Project, or DC PLUG. The DC PLUG initiative is a $500 million multi-year partnership between the District Department of Transportation and Pepco, focused on the underground placement of more vulnerable distribution power lines. Over the course of the initiative, up to 30 feeders will be placed underground, with six during the first phase.
The underground placement of these lines will make the electric distribution system more resilient during severe weather events, reducing the duration and frequency of electric outages. The second project featured is the expansion of ComEd's Itasca Substation. This $48 million project installed a new distribution terminal and associated equipment, including an indoor switchgear building, three medium power transformers, and 12 138 kV circuit breakers. The expanded substation provides capacity to power the equivalent of 45,000 homes. It will support three new data centers in the Itasca Elk Grove technology corridor near O'Hare Airport. These customers chose the greater Chicago area after several years of discussions with ComEd's economic development team, part of our continuing efforts to bring additional investment and jobs to northern Illinois. On slide 12, we provide our gross margin update and current hedging strategy at the generation company.
Before discussing the gross margin update, I want to spend a minute talking about the drop in the illiquid forward power curves during the second quarter, particularly in June. Prices in PJM in 2020 and 2021 declined sharply. NI Hub around-the-clock power prices fell nearly $3 per MW hour, or approximately 11% in 2020, and approximately $2.40 per MW hour, or close to 10% in 2021. PJM Western Hub prices fell more than $4 per MW hour and approximately 13%-14% in 2020 and 2021, respectively. Jim can cover in more detail during Q&A, but at a high level, we think these declines reflected some combination of the following: lower natural gas prices, a mild start to summer that weighed on prompt prices, which then cascaded out to the forward curve, which we have seen before.
Some market anticipation of plants targeted for retirement looking less likely to retire, and hedging activity, likely including market participants selling based on changes in the economic value of revenue put options sold or written to support new-build power plants over the last few years, driving down prices. Despite the mild weather and low price environment, 2019 total gross margin is flat to our last update. During the quarter, we executed $100 million in power new business and $50 million in non-power new business. We are highly hedged for the rest of the year and well-balanced on our generation to load matching strategy. In 2020 and 2021, our total gross margin is down $100 million and $250 million, respectively. Open gross margin declined $550 million and $500 million, respectively, primarily due to lower energy prices at PJM West Hub, New York Zone A, and PJM NI Hub.
Mark-to-market of hedges were up $500 million and $300 million, respectively, as our hedge position mitigated part of the impact of the price declines. We also executed $50 million of power new business in both. We continue to remain behind our ratable hedging from respective and added less than a ratable amount of hedges across our regions during the quarter. We ended the quarter 10%-13% behind ratable in 2020, and 7%-10% behind in 2021 when considering cross-commodity hedges. Our generation to load matching strategy remains a competitive advantage, contributing positive margin and providing a vehicle to bring our generation output to market in a disciplined manner. We remain comfortable with this strategy to hold open market length given the continued strength of our balance sheet. Moving on to slide 13. We remain committed to maintaining a strong balance sheet in our investment-grade credit ratings.
Even at the June 30th pricing marks, given the levers we have available, we are confident that we will stay within our consolidated FFO to debt metrics in our disclosure window 2019-2022. Our consolidated corporate credit metrics remain above our targeted ranges and meaningfully above S&P thresholds. Looking at ExGen, we are well ahead of our debt-to-EBITDA target of 3 times. For 2019, we expect to be at 2.5 times debt to EBITDA and 2 times on a recourse basis. With that, I will now turn the call back to Chris for his closing remarks.
Thanks, Joe. Turning to slide 14. We recognize the current power markets are creating headwinds for us. We're prepared to meet them head-on and take thorough or thoughtful action if necessary. In the meantime, we are accomplishing the things we committed to do, including maintaining industry-leading operations, meeting our financial commitments, effectively deploying more than $5 billion in capital across our utilities this year, and advocating for policies that support clean energy. Our strategy remains the right one. We are committed to our value proposition. We continue to grow the utilities, targeting a 7.8% rate base growth and a 6%-8% earnings growth through 2022. We continue to use free cash flow from the Genco to fund the incremental equity needs of the utilities, pay down debt and fund part of the growing dividend.
We will continue to optimize the value of ExGen business by seeking fair compensation for our zero-emitting generation fleet, closing uneconomic plants like we're doing with TMI, and selling assets where it makes sense to accelerating our debt reduction plans, and maximizing value through the generation to load match strategy at Constellation. We will sustain strong investment-grade credit metrics, and we'll grow our dividend annually 5% through 2020. The strategy underpinning this value proposition is effective. We remain committed to optimizing the value of our businesses and earning your ongoing support of Exelon. Operator, we can now open the call up to questions.
Thank you. I'd like to remind everyone, in order to ask a question via phone, please press star then the number 1 on your telephone keypad. Your first question comes from the line of Greg Gordon of Evercore ISI.
Hey, good morning.
Hey, Greg.
One high-level question, then maybe one or two in the weeds questions. I don't want to ask you anything that you're maybe not comfortable delving too deeply into, but I'm going to anyway. You mentioned the concept of levers that you have to pull in order to stay on track to generate the free cash flow and credit metric targets that you laid out for us at the beginning of the year, despite the fall and the forward curves. You talked about how you won't run power plants that aren't cash flow positive. Look, I've covered this stock for a long time, I've covered the company for a long time. We've been in this situation before, and nothing is ever as good or as bad as it looks at the moment.
Can you tell us, should this persist, what some of those options are in a little bit more detail, please?
Yeah. I'll let Joe go through the list of what we've got laid out right now. We've been talking quite a bit about it, meeting on it, as we watch the markets. Joe?
Yeah. Good morning, Greg. Greg, you mentioned one of them. I think we've proven through our time with our financial discipline that we're not going to run power plants in perpetuity that are uneconomic. That would be the first lever. Obviously, you've seen us continue to drive efficiencies in our business and continue to look at ways to streamline our costs, and we would continue to do that. That would be across our Exelon Generation business, as well as at the business services company. At our disposal, and I won't speculate on what at this time, but we obviously have the opportunity, if necessary, to look at asset sales. We do have a small amount of growth capital in our ExGen business. We would look at that and take a hard look at that.
Then there are alternate forms of financing when you think about project financing and other things. I think when you look at it, this is a point in time estimate of our financials. As you said, we've seen the markets move up and down. We're comfortable, like I said, with our credit metrics through the disclosure period, and we continue to allocate capital in the ways we've laid out. If we had to, if this continued, we would look at these levers.
Yeah. I'm very cognizant that some of those plants are large nuclear units in the state of Illinois. I'm also cognizant that you're having a dialogue with legislators and other constituencies in the state around an omnibus energy strategy that takes into account and contemplates certain actions with regard to those plants. Can you tell us how broad that coalition is as we get into the veto session and whether you think that the state policymakers understand the implications of the lack of necessary market reforms in PJM and the need to take back control of the market?
As you can imagine, we have a significant communications drive with the legislative and the Administration on the situation. We are prepared to present them with the coalition. I'll let Kathleen describe who she's working with that will balance out the needs for the state, the goals that the governor set after his election to get to 100% clean by 2030. Be able to do that in an economic way that does not harm our customers. You want to talk about the coalition?
Yeah. Good morning, Greg. There are a number of stakeholders that are very focused on getting clean energy legislation enacted in Illinois. As you know, a number of states across the country have already set 100% clean energy targets. It's not just states like California, New York, it's across the country. There's a lot of emphasis on making sure that Illinois, which is already the cleanest state in the country, has an equally aggressive target. On that question, we have folks in the environmental community heavily focusing on environmental justice players. The renewable developers are very focused on addressing both flaws in the prior version of the state's clean energy targets to make sure that they can achieve the goals that have been set previously, but also, as I said, set a more ambitious new target for renewable development in the state.
The consumer advocate is heavily focused on this policy as well because the question of states having to pay twice for capacity is very much in the forefront. Ensuring that if we're going to incentivize clean energy, we can count that capacity towards our obligations for PJM. Finally, the labor community, very focused on what these policies mean both for new construction and preservation of existing clean energy resources. That's the coalition that's focusing on putting the package together. There are a number of parties who will come together in the end to help communicate the message that Chris mentioned, that this is important for the state. It's not going to be possible if we can't allow those resources to count as capacity, and that's why the FRRP is foundational to getting this policy done.
Thanks. My final question was actually a numbers question on the update on the mark-to-market, Joe. There was a $50 million decline in power new business to go. Is that because that moved into hedges? Is that because you executed sales? Or are you assuming either lower volumes or lower margins in the out years in the retail business?
Hi, Greg. Yeah, this is James McHugh. That is just executed business that now has moved into the mark-to-market of hedges. When you net that all together, the numbers, those two lines would be flat from last quarter. It's just executed now.
Okay. Thank you.
Thank you.
Your next question comes from the line of Steve Fleishman of Wolfe Research. Your line is open.
Yeah, thanks. I got follow-ups to both of Greg's questions. First of all, I know in the past when prices have fallen a lot, at certain times you've talked about actually how much money losing plants there are and potential offsets. Can you give any flavor on that, on just, hey, if prices stay this low, if we shut certain plants or generally shut plants, what the potential offset could be?
If you're asking in market prices, we don't calculate the effect of uneconomic plants being shut down on the effect of the market.
Yep.
If you're asking about the effect of removing the negative free cash flow, we haven't got those numbers to be published right now. It's something that we're looking at. We're trying to evaluate unit by unit and then in aggregate. As we've said publicly, right now, you can see a challenge in the future if this market persists between the capacity and the energy market, that Dresden, Byron, and Braidwood are financially challenged. We do think we've got a clear path with good coalition to support fixing some of it at the state level. We still are working very hard with PJM for FERC to continue on baseload scarcity and the capacity market reforms that should correct and make a fair market. Short of those things happening, those three sites, you can look into the future and see the challenges that they have.
Okay. I guess the point there is if we're just using current forwards and taking it down, that we're including basically losses on plants that you would not just sit and take forever.
Right.
Correct.
That's right.
Okay.
Either we have a clear path to securing them, or the units will be shut down. We will not damage the balance sheet sitting around for years with negative free cash flow or negative earnings.
Okay. Just a specific question to the Illinois Coalition, can you just give any color, if possible, that since this news from a few weeks ago came out about the subpoena, have these talks continued? Is there any kind of public process we'll be able to see those talks? Or is it just going to be suddenly a legislative proposal?
Steve, it's Bill Mahaney. The activity that has started and continued for a number of months on advancing the clean energy legislation among the coalition that was referenced by Kathleen and by Chris remains unchanged. We're meeting regularly. We're doing the stakeholder outreach. We're trying to craft a package and educate members of the legislature. The pendency of the grand jury and subpoenas had no impact on the level of activity or the intensity of the activity in that regard.
Okay. Thank you.
Your next question comes from the line of Chris Turner of JPMorgan. Your line is open.
Good morning. I was wondering if you could just help us with some background of your franchise agreement in Chicago, when that expires, the terms of renewal, et cetera, and how you're thinking about that right now.
Joe? Anne?
Well, I'll start. Hi, this is Anne. Joe Dominguez is here as well. Basically, the expiration date is the end December of 2020.
To give us an indication by the end of the year as to whether they want to maintain status quo, renegotiate, or terminate the franchise agreement. We'll know by the end of the year. We're in discussions with them. We've started to have discussions around that. We understand what their priorities are. Their, I think, priorities are very much aligned with ours. They want to see more clean energy in the City of Chicago, and they're concerned about vulnerable populations, in particular in terms of pricing. Those are both strong strategic elements of our focus going forward at all our utilities. That's the status right now.
Yeah. Just to supplement what Anne said, we've been in the process of these negotiations for some time. We've exchanged terms and had detailed discussions about how the agreement would be structured going forward. We had a slowdown in those negotiations during the transition to the new mayor, but those negotiations have resumed in full at this point.
Okay. Right now, that is your set of assets, and you would need to be compensated if anything changed there.
Yeah, that's correct. Again, the focus here is on getting the franchise agreement done. Our expectation is it will be fully negotiated and done. We'll address the issues that Anne talked about. To the extent municipalization is looked at, that will come with a very hefty price tag, as you know, and I don't think realistically that's a path we're going to go down.
Okay. I guess just more modeling here for the balance of 2019. You put out the third quarter guidance there, which was, I think, a little bit less than we had expected. How are you thinking about the fourth quarter right now and what, I guess, might look like a O&M headwind, at least in the back half overall?
Yeah. It's Joe. Good morning. You heard me say in my prepared remarks that we reaffirmed our guidance, range of $3.00-$3.30. That's inclusive of the earnings guidance we gave you, obviously, for the third quarter, and we're comfortable with those numbers.
Okay. Anything to think about that might be kind of one time or non-recurring in nature for the third or fourth quarter that could help you year-over-year?
You saw some of the drivers of the second quarter when we talked about the lower load volumes at Constellation driven by the unfavorable weather. As Jim talked about, we continue to execute our new business at Constellation, and we continue to manage the utility business accordingly, and we're comfortable with the full year guidance.
Okay, great. Thanks, Joe.
Your next question comes from the line of Michael Weinstein from Credit Suisse. Your line is open.
Hi, guys. Just one quick follow-up on guidance. The guidance for $4.2 billion of cash flow generation from ExGen over the next four years, what does that assume in terms of uneconomic plants that might be operating or, I guess, retirements going forward of those types of plants? What's built into that $4.2 billion number?
Well, good morning, Michael. It's Joe. As Chris mentioned when he just said inclusive, when you look at the three plants in Illinois that he mentioned, Byron, Braidwood, and Dresden, those plants are running in those cash flow forecasts. To the extent these power prices continue, there's obviously challenges financially with those. As I said in my remarks, we won't continue to run those plants in perpetuity uneconomically. Having said that, we haven't provided the numbers specifically. We put out a forecast on our fourth quarter call for $7.8 billion of free cash flow from 2019 to 2022 coming off generation, and we're still working with that number.
Would it be accurate to say?
There's one side of the story here, obviously, because in the numbers we provide, we're showing you the mark to market. You see our gross margins disclosures and the change quarter-over-quarter, this quarter driven by the price drops we saw in the second quarter. I also discussed there are other levers at our disposal. Those aren't reflected in our disclosures, you can go back to what we modeled on the fourth quarter call, and that's what we've disclosed at this point.
Okay, great. Thanks.
Your last question comes from the line of Praful Mehta of Citigroup. Your line is open.
Thanks so much. Hi, guys.
Hi.
Hi. Maybe just following up a little bit on the power markets. It was very helpful to get the levers that you've talked about. Just to understand from a PJM perspective, do you see more happening on the market side as in other players shutting down other plants or other form of rationalization like you've also talked about regulation? Where do you see PJM going? If it stays this way, clearly it's unsustainable. I wanted to understand how you thought the market would play out.
I can, Praful. This is Jim. I'll start. I think from a markets perspective, first of all, the one thing I want to highlight to Joe's point about this is a point in time. We've already seen the NI Hub market move up $1 on the forward curve since the end of the quarter, and the West Hub markets moved up about $0.75 since the June 30th pricing. We've seen a pickup in prices so far. I think when it comes to what we're working on, we've talked over the last several quarters on the market reform side. fast-start pricing is waiting to be enacted. There's some work being done on reserves and scarcity in PJM. In the long run, it's a little bit lower priority right now for PJM, but the focus on the baseload price formation and interface relaxation. Those are some of the things. I think there are.
We have new builds and retirements both happening over the next four or five years as natural course of business in our fundamental analysis. There will be a little bit of that, but I think by and large, the reforms are around price formation. In the long run, if we're able to come up with a market solution to have carbon pricing in the market, would be another thing in the long run that would be something we would all continue working on. The one thing that's interesting to me about where we've seen these prices in that $22 area in the NI Hub, if you look out at Cal '21, Cal '22, Cal '23, that's trading down where the quarter two just cleared. Quarter two NI Hub just cleared $22.25 with very mild weather. The entire curve is trading where a very mild quarter just traded.
It's an interesting note to me, and I think gives us some insight into why we think those prices on the forward curve have already responded slightly higher in the last couple of weeks.
That's super helpful comment. Maybe just one follow-up, more strategic. If you do see these profiles, does that mean that you think more retail would be helpful to the business? Do you look to expand on the retail side or maybe acquire more retail businesses? Is that something that you think would work?
Yes. I think from a retail perspective, our customer-facing businesses are doing pretty well. The margins are hanging in, our win rates are strong, and we're holding our market share. Our retail customer-facing business and our wholesale load auctions and wholesale origination businesses have performed well. I think as far as acquisitions and expanding it, we've talked for a while now about having grown really what is the best-in-class platform. We will look to acquire books of business if there's a value proposition there that we can absorb it into our best-in-class platform and just take a retail book of business. We'll look for those opportunities, and we certainly would take a hard look at them.
All right. Really helpful. Thank you, guys.
Yep.
I would like to turn the call over back to speaker Christopher Crane. Please go ahead, sir.
Thank you all for participating in the call today. We remain on track to meet our commitments to our customers, communities, and shareholders. With that, we'll close out the call.
This concludes today's conference call. You may now all disconnect.