How an Exelon Divestiture Resulted in Two Excellent Treasuries

Two years ago, Chicago-based Exelon Corp. was the largest nuclear operator in the United States, and also the nation’s largest utility company by customers served, with more than 32,000 employees serving over 10 million customers. Unfortunately, as its business had grown and evolved over the years, its treasury technology environment had fallen far behind.

“We were using a treasury system that was beyond end of life,” explains Gregory Tate, the director of financial planning and analysis (FP&A) and treasury financial transformation. The system was more than a decade old and was no longer supported by the vendor. Plus, Tate adds, “it had become highly customized over time, and we were using it for activities that it wasn’t necessarily designed to do, such as accounting entries. That was producing some additional risk for the organization. And from a maintenance standpoint, the customization was pretty cumbersome.” In fact, the solution was challenged to effectively complete even core treasury functions.

“We had major bottlenecks in treasury operations,” explains Paul Lehmbeck, treasury transformation lead. “Through the years, our business had expanded with the addition of both utilities and unregulated businesses. Each of these business units came to Exelon with its own banking partners and its own software environment, so our technology infrastructure became a web of complexity. As the organization grew, our treasury system just couldn’t handle that complexity.”

As a result, rules for classifying types of cash flows within the treasury management system became inconsistent across Exelon. The company’s treasury analysts used Excel to track historical cash flows, and they were constantly modifying the spreadsheets because of those inconsistencies. “A BAI code might mean one thing within one part of the organization but mean something different somewhere else,” Lehmbeck says. “As you can imagine, once our cash flow tracking was Excel-based, we didn’t have an easy way to automate forecasting, either.”

The treasury group identified a long list of challenges, from the Excel-based cash positioning, forecasting, and reporting to Excel-based bank account management—and from manual payment acknowledgements and manual execution of international payments to manual settlement of intercompany transactions and processing of interest on corporate cash pools. Instead of addressing each challenge individually, the team undertook a comprehensive review of all treasury operations.

They envisioned what they wanted treasury to look like in the future, then engaged key internal stakeholders to identify the roles those individuals and teams would like treasury to play in the future. The treasury operations, cash management, capital markets, and project finance teams collaborated with internal teams across IT, accounting, financial systems, business operations, audit, security, and project management. They also involved their 13 external banking partners, as well as the third-party transaction houses that the company was using. The project team held cross-functional workshops with all these different constituencies, as well as hosting daily stand-up calls for project updates.

Next, the treasury group began evaluating technologies that could help them reach their desired future state. The solution selection process included detailed software demonstrations and the evaluation of each vendor’s ability to meet Exelon’s current and future needs.

“In addition to automating many of our manual activities and reducing our reliance on Excel, our treasury team wanted to improve our reporting to Exelon leadership,” Lehmbeck says. “We also really needed a bank account management solution. Our legacy treasury system was not able to do electronic account management, and Excel was not sufficient to provide the full scope of information and capabilities that we needed.”

As Exelon worked through the treasury technology selection process, the project was thrown a major curveball: Exelon announced that it would soon be spinning off its power generation and competitive energy business. Once the divestiture was complete, both Exelon Corp. and the new Constellation Energy Corp. would be Fortune 200 companies. And each would obviously need its own treasury processes and technologies.

“You hear organizations talk about major technology rollouts as building a plane while in flight,” Lehmbeck says. “We had the equivalent of a propellor plane. It was in flight, and we were trying to build two jets as it flew.”

In the midst of all the other challenges inherent in a divestiture of this size—including separating the treasury staff into two separate entities—the treasury project team started the software selection process over again. They distinguished the treasury needs of Exelon, which would remain a regulated utility, from those of the unregulated and soon-to-be-spun-off Constellation Energy. They conducted a separate vendor evaluation for each company.

Treasury selected the Kyriba software-as-a-service (SaaS) treasury management system for both organizations, and they used Deloitte to deploy the split-company configuration of the solution. The parallel implementation took 15 months and involved development of a number of unique features that expanded beyond the standard Kyriba configuration.

Among other innovations, the project team created a treasury chart of accounts for all cash transactions, which enabled them to build a daily direct cash flow statement from the treasury management system for use in daily reporting to leadership. “Because of the complexity of our organization, we needed to know the type of activity and the technology system that each type of cash flow might be related to,” Lehmbeck says.

“Our system integrator had never had a client take this approach to cash flow management,” he continues, “but understanding what our cash position is at any point in time is a game changer for us.” When aggregated on a monthly basis, these direct cash flow statements align to the major forecasted items reported by the FP&A group. Thus, the development of these new treasury reports enables cash flow variance reporting with alignment to key FP&A forecasting areas.

“Our use of this cash flow data is still a work in progress,” Lehmbeck adds. “But our future state will be to work with our accounting and finance teams, who can see where these activities are booked to the ledger, and actually provide linkages to the balance sheet with FP&A and accounting so that they receive direct cash flows in a way that looks more familiar to them.”

The project team also integrated the new treasury management system with all 13 banks (both domestic and international) and with nine other companywide software systems, including receivables, payables, payroll, and portfolio settlement solutions. These integrations required innovation from the company’s IT and financial systems teams to ensure file format compatibility, middleware connectivity, and ease of maintenance.

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Through these integrations, the companies were able to support direct data feeds from the general ledger (G/L) to the treasury management system. These data feeds enabled the project team to automate intercompany settlements. “Before, the accounting team would have to reconcile intercompany transactions’ business units, departments, and amounts in an Excel spreadsheet, then take that data once it was reconciled and split it into a different position sheet,” Lehmbeck says. “Then treasury would approve the transactions and release them to the banks, which in some cases meant manually setting up the transactions within a banking portal.”

By contrast, “our new system pulls in the balances for the accounts and business units, does a check that everything ties out, provides the clearance to cash accounting, and then automatically generates the respective payments for the involved business units based on rules we have created,” Lehmbeck explains. “Cash accounting releases the payments, which are automatically transmitted to the banks.” The project team also configured the treasury management system to import interest rates directly from the banks and then calculate interest on each organization’s cash pools.

All told, Lehmbeck says, the difference between Exelon’s legacy treasury processes and the new Exelon and Constellation Energy processes is “night and day.” All treasury activities—including daily cash management and payment processing—are now automated within a single technology platform. Streamlined forecasting, reporting, and actuals analysis provide the companies’ leadership teams with better visibility into working capital. They also enable treasury to make quicker and more accurate funding decisions. “It’s crucial for management to have the real-time visibility into liquidity within the organization that our treasury management system now provides,” Lehmbeck says.

The companies no longer need third-party payment and bank statement processors, which eliminates those transmission risks and reduces costs. Bank account management within the treasury system improves both controls and visibility. And the improvements to intercompany transactions and cash pooling increase efficiency, reduce costs and labor required, and improve controls in those activities.

Overall, this project’s massive reductions in the day-to-day manual workload of each organization’s treasury team free up staff to engage in more strategic activities. “Now we are positioned as an organization to start working with different parts of the business,” Lehmbeck says. “We might say, ‘Hey, we see you still have some legacy data transmissions going to the bank. Kyriba can be the single point of contact for all the company’s bank activities. Let’s make that happen.’ Or if we’re adding a new line of business and they have relationships with three different banks we’ve never used before, we can work with them to build out connectivity with Kyriba so those banks tuck into our corporate system.”

“Even as leadership and team staffing evolved, other company initiatives juggled resources, and Covid-19 fundamentally shifted the work experience, this project was able to remain on schedule, ensure that all cash activities occurred as needed, retire the obsolete legacy system, and develop leading-edge innovation,” Tate concludes. “Through innovation, we were able to address the individual needs of both companies to ensure both are set up for success to meet present and future goals.”