UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Quarterly Period Ended September 30, 2004 | ||
or | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Name of Registrant; State of Incorporation; | IRS Employer | |||||||
Commission | Address of Principal Executive Offices; and | Identification | ||||||
File Number | Telephone Number | Number | ||||||
|
|
|
||||||
1-16169 |
EXELON CORPORATION
(a Pennsylvania corporation) 10 South Dearborn Street 37th Floor P.O. Box 805379 Chicago, Illinois 60680-5379 (312) 394-7398 |
23-2990190 | ||||||
1-1839 |
COMMONWEALTH EDISON COMPANY
(an Illinois corporation) 10 South Dearborn Street 37th Floor P.O. Box 805379 Chicago, Illinois 60680-5379 (312) 394-4321 |
36-0938600 | ||||||
1-1401 |
PECO ENERGY COMPANY
(a Pennsylvania corporation) P.O. Box 8699 2301 Market Street Philadelphia, Pennsylvania 19101-8699 (215) 841-4000 |
23-0970240 | ||||||
333-85496 |
EXELON GENERATION COMPANY, LLC
(a Pennsylvania limited liability company) 300 Exelon Way Kennett Square, Pennsylvania 19348 (610) 765-6900 |
23-3064219 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o .
The number of shares outstanding of each
registrants common stock as of September 30, 2004 was:
662,549,435
127,016,488
170,478,507
not applicable
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Exelon Corporation Yes þ No o Commonwealth Edison Company, PECO Energy Company and Exelon Generation Company, LLC Yes o No þ .
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TABLE OF CONTENTS
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Page No. | ||||||
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SIGNATURES | 178 | |||||
Exelon Corporation | 178 | |||||
Commonwealth Edison Company | 178 | |||||
PECO Energy Company | 179 | |||||
Exelon Generation Company, LLC | 179 | |||||
CERTIFICATION EXHIBITS | 180 |
2
FILING FORMAT
This combined Form 10-Q is being filed separately by Exelon Corporation (Exelon), Commonwealth Edison Company (ComEd), PECO Energy Company (PECO) and Exelon Generation Company, LLC (Generation) (collectively, the Registrants). Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to any other registrant.
FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this Report are forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. The factors that could cause actual results to differ materially from the forward-looking statements made by a registrant include those factors discussed herein, as well as the items discussed in (a) the Registrants 2004 Annual Report on Form 10-K ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Business Outlook and the Challenges in Managing Our Business for each of Exelon, ComEd, PECO and Generation, (b) the Registrants 2004 Annual Report on Form 10-K ITEM 8. Financial Statements and Supplementary Data: Exelon Note 19, ComEd Note 15, PECO Note 14 and Generation Note 13 and (c) other factors discussed in filings with the United States Securities and Exchange Commission (SEC) by the Registrants. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Report. None of the Registrants undertakes any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this Report.
WHERE TO FIND MORE INFORMATION
The public may read and copy any reports or other information that the Registrants file with the SEC at the SECs public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These documents are also available to the public from commercial document retrieval services, the web site maintained by the SEC at www.sec.gov and Exelons website at www.exeloncorp.com.
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4
PART I. FINANCIAL INFORMATION
Item 1. Financial
Statements
5
EXELON CORPORATION
See Combined Notes to Consolidated Financial
Statements
6
EXELON CORPORATION AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
7
EXELON CORPORATION AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
8
EXELON CORPORATION AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
9
COMMONWEALTH EDISON COMPANY
See Combined Notes to Consolidated Financial
Statements
10
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
11
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
12
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
13
PECO ENERGY COMPANY
See Combined Notes to Consolidated Financial
Statements
14
PECO ENERGY COMPANY AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
15
PECO ENERGY COMPANY AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
16
PECO ENERGY COMPANY AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
17
EXELON GENERATION COMPANY, LLC
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
18
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
19
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
20
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY
COMPANIES
See Combined Notes to Consolidated Financial
Statements
21
EXELON CORPORATION AND SUBSIDIARY
COMPANIES
Exelon Corporation (Exelon) is a utility services
holding company engaged, through its subsidiaries, in the energy
delivery, wholesale generation and other businesses discussed
below (see Note 17 Segment Information). The
energy delivery businesses (Energy Delivery) include the
purchase and sale of electricity and distribution and
transmission services by Commonwealth Edison Company (ComEd) in
northern Illinois and PECO Energy Company (PECO) in
southeastern Pennsylvania and the purchase and sale of natural
gas and related distribution services by PECO in the
Pennsylvania counties surrounding the City of Philadelphia. The
generation business consists of the electric generating
facilities and energy marketing operations of Exelon Generation
Company, LLC (Generation), the competitive retail sales business
of Exelon Energy Company, equity interests in Sithe Energies
Inc. (Sithe) and certain generation projects. The enterprises
business segment consists of the remaining infrastructure and
electrical contracting services of Exelon Enterprises Company,
LLC (Enterprises) and other investments weighted towards the
communications and energy services industries. Effective
January 1, 2004, Enterprises competitive retail sales
business, Exelon Energy Company, became part of Generation. See
Note 3 Acquisitions and Dispositions for
information regarding the disposition of businesses within the
enterprises segment.
The consolidated financial statements of Exelon,
ComEd, PECO and Generation each include the accounts of entities
in which it has a controlling financial interest, other than
certain financing trusts of ComEd and PECO described below,
after the elimination of intercompany transactions. A
controlling financial interest is evidenced by either a voting
interest greater than 50% or a risk and rewards model that
identifies the registrant as the primary beneficiary of the
variable interest entity. Investments and joint ventures in
which Exelon, ComEd, PECO and Generation do not have a
controlling financial interest and certain financing trusts of
ComEd and PECO are accounted for under the equity or cost
methods of accounting.
In accordance with Financial Accounting Standards
Board (FASB) Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities (FIN
No. 46-R), Sithe, a 50% owned subsidiary of Generation, was
consolidated in the financial statements of Exelon and
Generation as of March 31, 2004. Certain trusts and limited
partnerships that are financing subsidiaries of ComEd and PECO
have issued debt or mandatorily redeemable preferred securities.
Due to the adoption of FIN No. 46-R, these trusts and
limited partnerships are no longer consolidated within the
financial statements of Exelon, ComEd or PECO as of
December 31, 2003, or as of July 1, 2003 for PECO
Energy Capital Trust IV (PECO Trust IV). See
Note 2 New Accounting Principles for further
discussion of the adoption of FIN 46-R and the resulting
consolidation of Sithe and the deconsolidation of these
financing entities.
The accompanying consolidated financial
statements as of September 30, 2004 and for the three and
nine months then ended are unaudited but, in the opinion of the
management of each of Exelon, ComEd, PECO and Generation,
include all adjustments that are considered necessary for a fair
presentation of its respective financial statements in
accordance with accounting principles generally accepted in the
United States of America (GAAP). All adjustments are of a
normal, recurring nature, except as otherwise disclosed. The
share and per-share amounts included in Exelons
consolidated financial statements and combined notes to
consolidated financial statements have been adjusted for all
periods presented to reflect a 2-for-1 stock split of
Exelons common stock. See Note 14
Earnings Per Share and Shareholders Equity for additional
information regarding the stock split. The December 31,
2003 Consolidated Balance Sheets were derived from audited
financial statements. These combined notes to consolidated
financial statements do not include all disclosures required by
GAAP. Certain prior-year amounts have been reclassified for
comparative purposes.
22
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
These reclassifications had no effect on net
income or shareholders or members equity. These
notes should be read in conjunction with the Notes to
Consolidated Financial Statements of Exelon, ComEd, PECO and
Generation included in or incorporated by reference in ITEM 8 of
their Annual Reports on Form 10-K for the year ended
December 31, 2003.
The FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN
No. 46), in January 2003 and subsequently issued its
revision in FIN No. 46-R in December 2003, which addressed
the requirements for consolidating certain variable interest
entities. FIN No. 46 was effective for Exelons
variable interest entities created after January 31, 2003
and FIN No. 46-R was effective December 31, 2003 for
Exelons other variable interest entities that were
considered to be special-purpose entities. FIN No. 46-R
applied to all other variable interest entities as of
March 31, 2004.
Exelon and Generation consolidated Sithe as of
March 31, 2004 pursuant to the provisions of FIN
No. 46-R and recorded income of $32 million (net of
income taxes) as a result of the elimination of a guarantee of
Sithes commitments previously recorded by Generation. This
income was reported as a cumulative effect of a change in
accounting principle in the first quarter of 2004. Generation is
a 50% owner of Sithe, and Exelon and Generation had accounted
for Sithe as an unconsolidated equity method investment prior to
March 31, 2004. Sithe owns and operates power-generating
facilities. See Note 4 Sithe for additional
information on the consolidation of Sithe.
PECO Trust IV, a financing subsidiary of
PECO created in May 2003, was deconsolidated from the financial
statements of Exelon and PECO pursuant to the provisions of FIN
No. 46 as of July 1, 2003. Pursuant to the provisions
of FIN No. 46-R, as of December 31, 2003, the
financing trusts of ComEd, namely ComEd Financing II, ComEd
Financing III, ComEd Funding LLC and ComEd Transitional
Funding Trust, were deconsolidated from the financial statements
of Exelon and ComEd, and the other financing trusts of PECO,
namely PECO Energy Capital Trust III (PECO Trust III)
and PECO Energy Transition Trust (PETT), were deconsolidated
from the financial statements of Exelon and PECO. Amounts owed
to these financing trusts were recorded as debt to financing
trusts or affiliates within the Consolidated Balance Sheets at
September 30, 2004 and December 31, 2003 as follows:
This change in presentation had no effect on the
net income of Exelon, ComEd or PECO. In accordance with FIN
No. 46-R, prior periods were not reclassified.
FASB Statement of Financial Accounting Standards
(SFAS) No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143), provides accounting
requirements for retirement obligations (whether statutory,
contractual or as a result of principles of promissory estoppel)
associated with tangible long-lived assets. Exelon, ComEd, PECO
and Generation were required to adopt SFAS No. 143 as
of January 1, 2003.
23
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A significant retirement obligation is
Generations obligation to decommission its nuclear plants
at the end of their license lives. See Note 13
Asset Retirement Obligations and Nuclear Decommissioning Trust
Fund Investments for additional information.
Exelon recorded income of $112 million (net
of income taxes) as a cumulative effect of a change in
accounting principle in connection with its adoption of
SFAS No. 143 in the first quarter of 2003. The
components of the cumulative effect of a change in accounting
principle, net of income taxes, were as follows:
The cumulative effect of the change in accounting
principle in adopting SFAS No. 143 had no effect on
PECOs income statement.
In July 2003, the Emerging Issues Task Force
(EITF) of the FASB reached a consensus on EITF Issue
No. 03-11, Reporting Realized Gains and Losses on
Derivative Instruments That Are Subject to FASB Statement
No. 133, Accounting for Derivative Instruments and
Hedging Activities, and Not Held for Trading
Purposes as Defined in EITF Issue No. 02-3,
Issues Involved in Accounting for Derivative Contracts
Held for Trading Purposes and Contracts Involved in Energy
Trading and Risk Management Activities
(EITF 03-11), which was ratified by the FASB in August
2003. The EITF concluded that determining whether realized gains
and losses on physically settled derivative contracts not
held for trading purposes should be reported in the
income statement on a gross or net basis is a matter of judgment
that depends on the relevant facts and circumstances. Exelon and
Generation adopted EITF 03-11 as of January 1, 2004
and presented $272 million of revenue, $271 million of
purchased power and $1 million of fuel expense net within
revenues during the three months ended September 30, 2004
and $724 million of revenue, $715 million of purchased
power and $9 million of fuel expense net within revenues
during the nine months ended September 30, 2004. Prior
periods were not reclassified. The adoption of EITF 03-11
had no effect on the net income of Exelon or Generation. Had
EITF 03-11 been retroactively applied to 2003, operating
revenues, purchased power and fuel expense would have been
affected as follows:
24
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Through its postretirement benefit plans, Exelon
provides retirees with prescription drug coverage. The Medicare
Prescription Drug, Improvement and Modernization Act of 2003
(Prescription Drug Act) was enacted on December 8, 2003.
The Prescription Drug Act introduced a prescription drug benefit
under Medicare as well as a Federal subsidy to sponsors of
retiree health care benefit plans that provide a benefit that is
at least actuarially equivalent to the Medicare prescription
drug benefit. Actuarial equivalence has not yet been formally
defined by the U.S. Department of Health and Human Services and
thus is a matter of judgment by the plan sponsor and its
actuaries. Management believes the prescription drug benefit
provided under Exelons postretirement benefit plans is at
least actuarially equivalent to the Medicare prescription drug
benefit. In response to the enactment of the Prescription Drug
Act, in May 2004, the FASB issued FASB Staff Position (FSP)
FAS 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (FSP FAS 106-2), which
provides transition guidance for accounting for the effects of
the Prescription Drug Act and supersedes FSP FAS 106-1,
which had been issued in January 2004. FSP FAS 106-1
permitted a plan sponsor of a postretirement health care plan
that provides a prescription drug benefit to make a one-time
election to defer the accounting for the effects of the
Prescription Drug Act. Exelon made the one-time election allowed
by FSP FAS 106-1 during the first quarter of 2004.
During the second quarter of 2004, Exelon early
adopted the provisions of FSP FAS 106-2, resulting in a
re-measurement of its postretirement benefit plans assets
and accumulated postretirement benefit obligations
(APBO) as of December 31, 2003. Upon adoption, the
effect of the subsidy on benefits attributable to past service
was accounted for as an actuarial experience gain, resulting in
a decrease of the APBO of approximately $177 million. The
annualized reduction in the net periodic postretirement benefit
cost is estimated to be approximately $32 million compared
to the annual cost calculated without considering the effects of
the Prescription Drug Act. The effect of the subsidy on the
components of net periodic
25
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
postretirement benefit cost for the three and
nine months ended September 30, 2004 included in the
consolidated financial statements and Note 11
Retirement Benefits was as follows:
The following table presents Exelons net
income and earnings per share for the three months ended
March 31, 2004 as if FSP FAS 106-2 had been adopted as
of January 1, 2004. Previously reported historical
financial information for the three months ended March 31,
2004 has been adjusted in the table below and will be adjusted
when presented for comparative purposes in future periods to
reflect a reduction in net periodic postretirement benefit cost
due to the adoption of FSP FAS 106-2.
The following table presents net income of ComEd
and Generation and net income on common stock of PECO for the
three months ended March 31, 2004 as if FSP FAS 106-2
was adopted as of January 1, 2004. Historical financial
information for the three months ended March 31, 2004 has
been adjusted in the table below and will be adjusted when
presented for comparative purposes in future periods to reflect
a reduction in net periodic postretirement benefit cost due to
the adoption of FSP FAS 106-2.
26
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In March 2004, the EITF reached a consensus on
and the FASB ratified EITF Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments (EITF 03-1). EITF 03-1
provides guidance for evaluating whether an investment is
other-than-temporarily impaired. Exelon adopted the disclosure
requirements of EITF 03-1 for investments accounted for
under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, within its
financial statements for the year ended December 31, 2003.
On September 30, 2004, the FASB issued FSP
EITF 03-1-1, Effective Date of Paragraphs 10-20
of EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and its Application to Certain
Investments, which delayed the effective date
of the application guidance on impairment of securities included
within EITF 03-1. Exelon, ComEd, PECO and Generation are
still evaluating the potential impact of the adoption of
EITF 03-1.
In March 2004, the EITF reached a consensus on
and the FASB ratified EITF Issue No. 03-16,
Accounting for Investments in Limited Liability
Companies (EITF 03-16). The EITF concluded that if
investors in a limited liability company have specific ownership
accounts, they should follow the guidance prescribed in
Statement of Position 78-9, Accounting for Investments in
Real Estate Ventures, and EITF Topic No. D-46,
Accounting for Limited Partnership Investments.
Otherwise, investors should follow the significant influence
model prescribed in Accounting Principles Board Opinion
No. 18, The Equity Method of Accounting for
Investments in Common Stock. EITF 03-16 was effective
for Exelon, ComEd, PECO and Generation during the third quarter
of 2004. Exelon recorded a charge of $9 million (net of an
income tax benefit of $5 million) as a cumulative effect of
a change in accounting principle in connection with its adoption
of this standard as of July 1, 2004. This charge related to
certain investments in limited liability partnerships held by
Enterprises. The adoption of this standard had no effect on the
financial statements of ComEd, PECO or Generation.
On May 25, 2004, Exelon and Generation
completed the sale, transfer and assignment of ownership of
their indirect wholly owned subsidiary, Boston Generating, LLC
(Boston Generating), which owns the companies that own the
Mystic 4-7, Mystic 8 and 9 and Fore River generating facilities,
to a special purpose entity owned by the lenders under Boston
Generatings $1.25 billion credit facility (Boston
Generating Credit Facility).
The sale was pursuant to a settlement agreement
reached with Boston Generatings lenders on
February 23, 2004. The Federal Energy Regulatory Commission
(FERC) approved the sale of Boston Generating in May 2004.
Responsibility for plant operations and power marketing
activities were transferred to the lenders special purpose
entity and its contractors in a separate transaction on
September 1, 2004.
In connection with the settlement reached on
February 23, 2004, Exelon, Generation, the lenders and
Raytheon Company (Raytheon), the guarantor of the obligations of
the turnkey contractor under the projects engineering,
procurement and construction agreements, entered into a global
settlement of all disputes relating to the construction of the
Mystic 8 and 9 and Fore River generating facilities. See
Note 15 Commitments and Contingencies for
information regarding the settlement of litigation associated
with the projects.
27
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with the decision to transition out
of Boston Generating and the generating units, Generation
recorded during the third quarter of 2003 an impairment charge
of its long-lived assets pursuant to SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144), of $945 million
($573 million net of income taxes) in operating expenses
within its Consolidated Statements of Income and Comprehensive
Income. As a result of Boston Generatings liabilities
being greater than its assets at the time of the sale, transfer
and assignment of ownership, Exelon and Generation recorded a
gain of $85 million ($52 million net of income taxes)
in other income and deductions within the Consolidated
Statements of Income and Comprehensive Income in the second
quarter of 2004. In connection with the sale, Exelon and
Generation recorded a liability associated with an existing
guarantee by their subsidiary Exelon New England Holdings, LLC
(Exelon New England) of fuel purchase obligations of Boston
Generating. Due to Generations ongoing involvement through
the continued existence of this guarantee and in accordance with
SFAS No. 144, the results of Boston Generating have
not been classified as a discontinued operation within the
Consolidated Statements of Income and Comprehensive Income of
Exelon and Generation. See Note 15 Commitments
and Contingencies for further information regarding the
guarantee.
Boston Generating was reported in the Generation
segment of Exelons consolidated financial statements prior
to its sale. At the date of the sale, Boston Generating had
approximately $1.2 billion in assets, primarily consisting
of property, plant and equipment, and approximately
$1.3 billion of liabilities of which approximately
$1.0 billion was debt outstanding under the Boston
Generating Credit Facility. As of the date of transfer, these
amounts were eliminated from the Consolidated Balance Sheets of
both Exelon and Generation. Exelons and Generations
Consolidated Statements of Income and Comprehensive Income for
the three and nine months ended September 30, 2004 and 2003
include the following financial results related to Boston
Generating:
Exelon Thermal Holdings,
Inc.
On June 30, 2004,
Enterprises sold its Chicago business of Exelon Thermal
Holdings, Inc. (Thermal) for net cash proceeds of
$134 million, resulting in a pre-tax gain of
$45 million. Enterprises repaid $37 million of debt
outstanding of the Chicago thermal operations prior to closing,
resulting in prepayment penalties of $9 million. On
September 29, 2004, Enterprises sold ETT Nevada, Inc., the
holding company for its investment in Northwind Aladdin, LLC,
for a net cash outflow of $1 million, resulting in a
pre-tax loss of $3 million.
Exelon Services,
Inc.
During the nine months ended
September 30, 2004, Enterprises disposed of substantially
all of the operating components of Exelon Services, Inc.
(Services), including Exelon Solutions, most mechanical services
businesses and the Integrated Technology Group. Total expected
proceeds (subject to post-closing adjustments) and the net gain
on sale (before income taxes) recorded during 2004 related to
the disposition of these businesses of Services were
$35 million and $9 million, respectively. As of
28
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004, Services had remaining
assets and liabilities of $66 million and $14 million,
respectively, which primarily represented the corporate center
operations.
PECO TelCove.
On
June 30, 2004, Enterprises sold its investment in PECO
TelCove, a communications joint venture, along with certain
telecommunications assets, for proceeds of $49 million. A
pre-tax gain of $9 million was recorded in other income and
deductions on Exelons Consolidated Statements of Income
and Comprehensive Income. An impairment charge of
$5 million (before income taxes) related to the
telecommunications assets had been recorded in the fourth
quarter of 2003.
InfraSource, Inc.
On
September 24, 2003, Enterprises sold the electric
construction and services, underground and telecom businesses of
InfraSource, Inc. (InfraSource). See the Notes to Consolidated
Financial Statements in Exelons 2003 Form 10-K for
further information regarding this sale. A $30 million
subordinated note receivable that was received as part of the
sale proceeds at closing was collected in full prior to its
maturity during the second quarter of 2004, resulting in income
of $18 million. Enterprises results of operations for
the three and nine months ended September 30, 2004 compared
to the same periods in 2003 were significantly affected by the
sale of InfraSource. In connection with the transaction,
Enterprises entered into an agreement that may result in certain
payments to InfraSource if the amount of services Exelon
purchases from InfraSource during the period from closing
through 2006 is below specified thresholds. Due to Exelons
ongoing involvement with InfraSource through the continued
existence of this agreement and in accordance with
SFAS No. 144, the results of InfraSource have not been
classified as a discontinued operation within Exelons
Consolidated Statements of Income and Comprehensive Income.
The results of Thermal and Services have been
included in income from continuing operations within
Exelons Consolidated Statements of Income and
Comprehensive Income (as opposed to discontinued operations) as
the impact of these entities on Exelons consolidated
financial statements was not significant.
Effective January 1, 2004, Exelon
contributed its interest in Exelon Energy Company to Generation.
The transaction had no effect on the assets and liabilities of
Exelon Energy Company, which were previously reported as a part
of the Enterprises segment. Beginning in 2004, Exelon Energy
Companys assets and liabilities and results of operations
are included in Generations financial statements.
Generation and Enterprises 2003 segment information has
been adjusted to reflect this transfer in
Note 17 Segment Information.
The following summary represents the assets,
liabilities, and equity of Exelon Energy Company, before
intercompany eliminations, that were transferred to Generation
as of January 1, 2004:
29
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
See Note 5 Selected Pro Forma
and Consolidating Financial Information for the effect of the
transfer of Exelon Energy Company to Generation as if the
transaction had occurred on January 1, 2003 and was
included in Generations results from that date.
On December 22, 2003, Generation purchased
British Energy plcs (British Energy) 50% interest in
AmerGen Energy Company, LLC (AmerGen) for $277 million. The
allocation of fair value of long-lived assets will be affected
by the finalization of the purchase price based on the
completion of the review of the closing balances of AmerGen and
the British Energy holding companies that were acquired in this
transaction. Generation and British Energy are currently
negotiating the finalization of the purchase price adjustments
and anticipate completion of these negotiations by the end of
the fourth quarter of 2004.
Prior to the purchase, Generation was a 50% owner
of AmerGen and had accounted for the investment as an
unconsolidated equity method investment. For the three and nine
months ended September 30, 2003, Generation recorded equity
in earnings of unconsolidated affiliates related to its
investment in AmerGen of $47 million and $131 million,
respectively, including income of $47 million
($28 million, net of tax) for the cumulative effect of the
adoption of SFAS 143 on January 1, 2003. Generation
recorded $133 million and $310 million, respectively,
of purchased power from AmerGen for the three and nine months
ended September 30, 2003, respectively. The book value of
Generations investment in AmerGen prior to the purchase
was $311 million. For the three and nine months ended
September 30, 2004, AmerGens assets and liabilities
and results of operations are included in Generations
financial statements.
See Note 5 Selected Pro Forma
and Consolidating Financial Information for the effect of the
acquisition of the remaining 50% interest in AmerGen by
Generation as if the transaction had occurred on January 1,
2003 and was included in Exelon and Generations results
from that date.
Synthetic fuel-producing facilities chemically
change coal, including waste and marginal coal, into a fuel used
at power plants. In November 2003, Exelon purchased interests in
two synthetic fuel-producing facilities. The purchase price for
these facilities included a combination of cash, notes payable
and contingent consideration dependent upon the production level
of the facilities. The notes payable recorded for the purchase
of the facilities were $238 million. Exelons right to
acquire its share of tax credits generated by the facilities was
recorded as an intangible asset which is amortized as the tax
credits are earned. In April 2004, the Internal Revenue Service
(IRS) issued two private letter rulings that affirmed that the
process used by the facilities will produce a solid synthetic
fuel that qualifies for tax credits under Section 29 of the
Internal Revenue Code.
In July 2004, Exelon purchased an interest in a
limited partnership that indirectly owns four synthetic
fuel-producing facilities. Exelons purchase price for
these facilities included a combination of cash, a note payable
and contingent consideration dependent upon the production
levels of the facilities. The note payable recorded for the
purchase of the facilities was $22 million. Exelons
right to acquire its share of tax credits generated by the
facilities was recorded as an intangible asset which is
amortized as the tax credits are earned. Private letter rulings
have been received by the partnership that affirm that the
process used by the facilities will produce a solid synthetic
fuel that qualifies for tax credits under Section 29 of the
Internal Revenue Code.
Tax credits generated by the production of
synthetic fuel are subject to a phase-out provision that
gradually reduces tax credits as the annual average wellhead
price per barrel of domestic crude oil increases
30
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
into an inflation-adjusted phase-out range. For
2003, the tax credit would have begun to phase-out when the
annual average wellhead price per barrel of domestic crude oil
exceeded $50.14 per barrel and would have been completely
phased out when the annual average wellhead price per barrel of
domestic crude oil reached $62.94 per barrel. The 2004 and
2005 phase-out range will be calculated using inflation rates
published in 2005 and 2006, respectively, by the Internal
Revenue Service.
Due to the low price of domestic crude oil during
the first part of 2004, the phase-out is not expected to affect
Exelons tax credits or net income from the facilities for
2004. If domestic crude oil prices remain high in 2005, the tax
credits and net income generated by the investments may be
reduced substantially. In addition, Exelon has recorded an
intangible asset related to its investments in these facilities
that could become impaired if domestic crude oil prices continue
to increase in the future. See Note 8
Intangible Assets for additional information regarding this
intangible asset.
Exelons investments in synthetic
fuel-producing facilities are not consolidated within
Exelons financial statements as Exelon does not have a
controlling financial interest in these facilities. See
Note 12 Income Taxes for information regarding
the effect of these investments in synthetic fuel-producing
facilities on Exelons effective income tax rate.
During the third quarter of 2004, the remainder
of Sithe assets and liabilities classified as held for sale at
June 30, 2004 were sold. During the second quarter of 2004,
Sithe completed the sale of certain of its gas, hydroelectric,
and the Australian businesses, which represented an aggregate of
$160 million and $143 million of assets and
liabilities held for sale, respectively, at March 31, 2004,
recognizing a gain on the sale of these businesses of
$6 million during the period.
During 2004, Enterprises sold the assets and
liabilities of Thermal and Services that were classified as held
for sale at December 31, 2003. See Disposition of
Enterprises Entities above for additional information
regarding these dispositions.
Sithe is primarily engaged in the ownership and
operation of electric wholesale generating facilities in North
America. At September 30, 2004, Sithe operated nine power
units with total average net capacity of 1,323 megawatts (MW).
Sithe also has a 49.5% interest in TEG, consisting of two 230-MW
projects in Mexico, which commenced commercial operations during
the second quarter of 2004. See Note 19
Subsequent Events for information on the transfer of
Sithes interests in the two generating facilities in
Mexico to Generation.
On November 25, 2003, Generation, Reservoir
Capital Group (Reservoir) and Sithe completed a series of
transactions resulting in Generation and Reservoir each
indirectly owning a 50% interest in Sithe (Generation owned
49.9% prior to November 25, 2003). See the 2003
Form 10-K for further details regarding these transactions.
Both Generation and Reservoirs 50% interests in Sithe were
subject to put and call options that could result in either
party owning 100% of Sithe.
On September 29, 2004, Generation exercised
its call option to acquire Reservoirs 50% interest in
Sithe for $97 million. The closing of the call is subject
to the receipt of state and Federal regulatory approvals.
31
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Generations intent is to fully divest its
interest in Sithe, and it is actively pursuing opportunities to
dispose of Sithe. Generation believes that exercising its call
option will provide it with greater certainty of a timely exit
from Sithe on favorable terms and conditions.
Exelon and Generation had accounted for the
investment in Sithe as an unconsolidated equity method
investment prior to its consolidation on March 31, 2004
pursuant to FIN No. 46-R. See Note 2 New
Accounting Principles for further discussion.
As a result of the series of transactions in
November 2003 referred to above, the consolidation of Sithe at
March 31, 2004 was accounted for as a step acquisition
pursuant to purchase accounting policies. Under the provisions
of FIN No. 46-R, the operating results of Sithe were
included in Exelon and Generations results of operations
beginning April 1, 2004.
Sithe has entered into tolling arrangements
(Tolling Agreement) with Dynegy Power Marketing and its
affiliates with respect to Sithes Independence Station.
The Tolling Agreement commenced on July 1, 2001 and runs
through 2014. Additionally, Sithe has entered into an energy
purchase agreement (Energy Purchase Agreement) with Consolidated
Edison Company relating to the Independence Station, which
continues through 2014. As a result of the acquisition
accounting described above, values were assigned to the Tolling
Agreement and the Energy Purchase Agreement on March 31,
2004 of approximately $91 million and $282 million,
respectively, which have been recorded as intangible assets on
Exelons and Generations Consolidated Balance Sheets
in deferred debits and other assets. These amounts were
determined based on fair value techniques utilizing the contract
terms and various other estimates including forward power
prices, discount rates and option pricing models.
The intangible assets representing the Tolling
Agreement and the Energy Purchase Agreement are being amortized
on a straight-line basis over the lives of the associated
agreements. The allocation of fair value related to the
valuation of long-lived assets is preliminary and is anticipated
to be finalized in the fourth quarter of 2004. Sithes
intangible assets are included in other non-current assets on
Generations Consolidated Balance Sheet. See
Note 8 Intangible Assets for further
information regarding Sithes intangible assets as of
September 30, 2004.
In connection with the consolidation of Sithe,
certain indemnification guarantees previously recorded in
accordance with the provisions of FASB Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN No. 45), were reversed in
accordance with FIN No. 45, as Generation can no longer
record liabilities associated with guarantees for the
performance of a consolidated entity. The reversal of the
guarantees resulted in Exelon and Generation recording income of
$32 million (net of $22 million of income taxes) as a
cumulative effect of a change in accounting principle. The
condensed consolidating financial information included in
Note 5 Selected Pro Forma and Consolidating
Financial Information presents the financial position of Exelon,
Generation and Sithe, as well as consolidating entries related
primarily to acquisition notes payable and receivables between
Generation and Sithe.
The book value of Generations investment in
Sithe immediately prior to its consolidation on March 31,
2004 was $49 million. For the three months ended
September 30, 2004, Generation recorded no equity method
income or loss as Sithe is consolidated in Generations
results. Generation recorded $2 million of equity method
losses in the first quarter of 2004 prior to the consolidation
of Sithes results of operations. Generation recorded
equity method income related to Sithe of $6 million for the
three and nine months ended September 30, 2003,
respectively.
32
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Substantially all of Sithes property, plant
and equipment and project agreements secure Sithes
outstanding long-term debt, which consists primarily of project
debt. During 2003, Sithe entered into an agreement with Exelon
and Generation under which Exelon would obtain letters of credit
to support contractual obligations of Sithe and its
subsidiaries. As of September 30, 2004, Exelon has obtained
$59 million of letters of credit in support of Sithes
obligations not including the $50 million letter of credit
that is not guaranteed by Exelon. With the exception of the
issuance of letters of credit to support contractual
obligations, the creditors of Sithe have no recourse against the
general credit of Exelon or Generation.
The following table details the Sithe balance
sheet classification of mark-to-market energy contract net
assets recorded as of September 30, 2004:
The financial statements of Sithes foreign
subsidiaries were prepared in their respective local currencies
and translated into U.S. dollars based on the current
exchange rates at the end of the periods for the Consolidated
Balance Sheets and on weighted-average rates for the periods for
the Consolidated Statements of Income and Comprehensive Income.
Foreign currency translation adjustments, net of deferred income
tax benefits, are reflected as a component of other
comprehensive income on the Consolidated Statements of Income
and Comprehensive Income and accordingly have no effect on net
income.
The following unaudited pro forma financial
information gives effect to the acquisition of the remaining 50%
interest in AmerGen by Generation and the sale of Boston
Generating by Generation, in each case, as if the transaction
had occurred on January 1, 2003 and was included in or
excluded from Exelons results from that date.
33
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The above unaudited pro-forma financial
information should not be relied upon as being indicative of the
historical results that would have been obtained if the
transactions had actually occurred on January 1, 2003, nor
of the results that might be obtained in the future.
The following condensed consolidating financial
information presents the financial position of Exelon and Sithe,
as well as eliminating entries, related primarily to acquisition
notes payable and receivables between Generation and Sithe.
34
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following unaudited pro forma financial
information gives effect to the acquisition of the remaining 50%
interest in AmerGen, the transfer of Exelon Energy Company to
Generation and the sale of Boston Generating, in each case, as
if the transaction had occurred on January 1, 2003 and was
included in or excluded from Generations results from that
date.
The above unaudited, pro forma financial
information should not be relied upon as being indicative of the
historical results that would have been obtained if these
transactions had actually occurred on January 1, 2003, nor
of the results that might be obtained in the future.
35
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following condensed consolidating financial
information presents the financial position of Generation, Sithe
and Exelon Energy, as well as eliminating entries related
primarily to acquisition notes payable and receivables between
Generation and Sithe.
36
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Exelon accounts for its stock-based compensation
plans under the intrinsic method prescribed by Accounting
Principles Board No. 25, Accounting for Stock Issued
to Employees and related interpretations and follows the
disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS No. 123), and SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure an amendment of FASB
Statement No. 123. Accordingly, no compensation
expense for stock options has been recognized within the
Consolidated Statements of Income and Comprehensive Income. The
tables below show the effect on net income and earnings per
share for Exelon had Exelon elected to account for its
stock-based compensation plans using the fair-value method under
SFAS No. 123 for the three and nine months ended
September 30, 2004 and 2003:
The net income (loss) of ComEd, PECO and
Generation for the three and nine months ended
September 30, 2004 and 2003 would not have been
significantly affected had Exelon elected to account for its
stock-based compensation plans using the fair-value method under
SFAS No. 123.
37
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
PJM Integration.
On
June 2, 2003, ComEd began receiving electric transmission
reservation services from PJM and transferred control of
ComEds Open Access Same Time Information System to PJM. On
April 27, 2004, the FERC issued its order approving
ComEds application to complete its integration into PJM,
subject to certain stipulations, including a provision to hold
certain utilities in Michigan and Wisconsin harmless from the
impacts of ComEd joining PJM. ComEd agreed to these stipulations
and fully integrated into PJM on May 1, 2004. In October
2004, ComEd entered into settlement agreements with nearly all
the Michigan parties calling for a payment of approximately
$2 million by ComEd. The agreements have been filed with
the FERC and are awaiting approval. Settlement talks continue
between ComEd and the remaining Wisconsin parties.
Open Access Transmission
Tariff.
On November 10, 2003, the
FERC issued an order allowing ComEd to put into effect, subject
to refund and hearing, new transmission rates designed to
reflect nearly $500 million of infrastructure investments
made since 1998. During the third quarter of 2004, a settlement
agreement was reached and approved by the FERC, on an interim
basis, which established new wholesale rates that became
effective May 1, 2004. The FERC has allowed the proposed
rates in the settlement agreement pending its final approval.
However, because of the Illinois retail rate freeze and the
method for calculating competitive transition charges, the
increase is not expected to have a significant effect on
operating revenues until after December 31, 2006.
Competitive Service
Declaration.
On November 14,
2002, the Illinois Commerce Commission (ICC) allowed ComEd,
by operation of law, to revise its provider of last resort
obligation to be the back-up energy supplier at market-based
rates for customers with energy demands of at least three
megawatts. About 370 of ComEds largest energy customers
are affected, representing an aggregate supply obligation or
load of approximately 2,500 megawatts. These customers accounted
for 10% of ComEds 2003 MWh deliveries. These
customers will not have a right to take bundled service after
June 2006 or to come back to bundled rates if they choose an
alternative supplier prior to June 2006. The parties to the
March 2003 Agreement have committed, if specified market
conditions exist, not to oppose a process for achieving a
similar competitive declaration for customers having energy
demands of one to three megawatts. To date, ComEd has not
requested the competitive declaration for this second set of
customers but continues to evaluate its options.
On March 28, 2003, the ICC approved changes
to ComEds real-time pricing tariff, to be available to
customers who choose not to go to the competitive market to
procure their electric power and energy. An appeal to each of
the ICCs orders was filed. On March 24, 2004, the
Illinois Appellate Court issued its opinion affirming the
ICCs orders in both cases. The Court found that the ICC
properly allowed ComEds competitive declaration for
customers with loads of more than three megawatts to go into
effect and that the ICCs order approving the hourly rate
was lawful.
Service Life
Extension.
Upon the acquisition of
AmerGen, Generation changed the accounting estimates related to
the depreciation of certain AmerGen generating facilities to
conform with Generations depreciation policies. The
estimated service lives were extended by 20 years for the
three AmerGen stations. These changes were based on engineering
and economic feasibility analyses performed by Generation. The
service life extensions are subject to approval by the Nuclear
Regulatory Commission (NRC) of extensions of the existing
NRC operating licenses. Generation has not applied for license
extensions at the AmerGen
38
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
facilities, but has announced its plan to file an
extension request for the Oyster Creek Nuclear Generating
Station (Oyster Creek), and is planning on filing for license
extensions at Unit 1 at the Three Mile Island Nuclear Station
(TMI) and the Clinton Nuclear Power Station (Clinton) on a
timeline consistent and integrated with the other planned
extension filings for the Generation nuclear fleet.
Goodwill.
As of
September 30, 2004 and December 31, 2003, Exelon had
recorded goodwill of approximately $4.7 billion. Under the
provisions of SFAS No. 142, goodwill is tested for
impairment at least annually, or more frequently if events or
circumstances indicate that goodwill might be impaired. Exelon
will perform its annual goodwill impairment assessment in the
fourth quarter of 2004. The changes in the carrying amount of
goodwill by reportable segment (see Note 17
Segment Information for further information regarding
Exelons segments) for the periods ended September 30,
2004 and December 31, 2003 were as follows:
39
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other Intangible
Assets.
Exelons other intangible
assets, included in deferred debits and other assets, other,
consisted of the following:
Amortization expense related to these intangible
assets was $21 million and $62 million for the three
and nine months ended September 30, 2004, respectively, of
which $8 million and $26 million for the three and
nine months ended September 30, 2004, respectively, have
been reflected as a reduction in revenues related to the energy
purchase agreement and the tolling agreement. Amortization
expense was not significant in 2003. Amortization expense
related to these intangible assets is expected to be in the
range of $100 million to $120 million annually from
2005 through 2007 and approximately $50 million in 2008.
Goodwill.
As of
September 30, 2004 and December 31, 2003, ComEd had
recorded goodwill of approximately $4.7 billion. Under the
provisions of SFAS No. 142, goodwill is tested for
impairment at least annually, or more frequently if events or
circumstances indicate that goodwill might be impaired. ComEd
will perform its annual goodwill impairment assessment in the
fourth quarter of 2004. The changes in the carrying amount of
goodwill for the periods ended September 30, 2004 and
December 31, 2003 were as follows:
40
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other Intangible
Assets.
Generations other
intangible assets consisted of the following:
Amortization expense related to Generations
intangible assets was $8 million and $26 million for
the three and nine months ended September 30, 2004, which
has been reflected as a reduction in revenue. Amortization
expense was not significant in 2003. Amortization expense
related to these intangible assets is expected to be
$43 million annually from 2005 through 2009.
At December 31, 2003, Exelon Corporate,
along with ComEd, PECO and Generation, participated in a
$750 million 364-day unsecured revolving credit agreement
and a $750 million three-year unsecured revolving credit
agreement with a group of banks. On July 16, 2004, the
$750 million 364-day facility was replaced with a
$1 billion five-year facility and the $750 million
three-year facility was reduced to $500 million. The terms
of the new facilities are consistent with the previous
facilities. Both revolving credit agreements are used
principally to support the commercial paper programs at Exelon
Corporate, ComEd, PECO and Generation and to issue letters of
credit.
Approximately $1.0 billion of debt was
outstanding under the non-recourse Boston Generating Credit
Facility at December 31, 2003, all of which was reflected
in the Consolidated Balance Sheets of Exelon and Generation as a
current liability due to certain events of default under the
Boston Generating Credit Facility.
The outstanding debt under the Boston Generating
Credit Facility was eliminated from the financial statements of
Exelon and Generation upon the sale of Generations
ownership interest in Boston Generating in May 2004. See
Note 3 Acquisitions and Dispositions for
additional information regarding the sale.
41
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Issuance of Long-Term
Debt.
During the nine months ended
September 30, 2004, the following long-term debt was issued:
Debt Retirements.
During the nine months ended September 30, 2004, the
following debt was retired, either through redemption or payment
at maturity:
During the three and nine months ended
September 30, 2004, ComEd made scheduled payments of
$82 million and $261 million, respectively, related to
its obligation to the ComEd Transitional Funding Trust,
42
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and PECO made scheduled payments of
$120 million and $286 million, respectively, related
to its obligation to the PETT.
During the nine months ending September 30,
2004, ComEd retired $768 million of long-term debt pursuant
to Exelons accelerated liability management plan. ComEd
funded the retirements through cash from operations, a return of
investments in the intercompany money pool and collections on an
intercompany note receivable from Unicom Investments, Inc.
Exelon and ComEd recorded a charge of $106 million
associated with the retirement of debt under the plan for the
three and nine months ended September 30, 2004. This charge
is included within other, net within Exelons Consolidated
Statements of Income and Comprehensive Income. The components of
this charge included the following: $63 million related to
prepayment premiums; $11 million related to net unamortized
premiums, discounts and debt issuance costs; $23 million of
losses on reacquired debt previously deferred as regulatory
assets; and $9 million related to settled cash-flow
interest-rate swaps previously deferred as regulatory assets.
Sithe Long-Term
Debt.
At September 30, 2004, the
following long-term debt of Sithe was consolidated in
Exelons and Generations Consolidated Balance Sheets
as a result of the adoption of FIN No. 46-R. See
Note 2 New Accounting Principles and
Note 4 Sithe for further information regarding
the consolidation of Sithe.
43
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Aggregate maturities of Sithes debt are as
follows:
Interest-Rate Swaps.
In September 2004, Exelon entered into forward-starting
interest-rate swaps in the aggregate amount of $160 million
to lock in interest rate levels in anticipation of a future
financing. The debt issuance that these swaps are hedging was
considered probable as of September 30, 2004; therefore,
Exelon accounted for these interest-rate swaps as cash-flow
hedges. At September 30, 2004, these interest-rate swaps,
designated as cash-flow hedges, had an aggregate fair market
value of less than $1 million based on the present value
difference between the contract and market rates at
September 30, 2004. If these derivative instruments had
been terminated at September 30, 2004, this estimated fair
value represents the amount that would be paid by the
counterparties to Exelon.
In 2004, ComEd entered into fixed-to-floating
interest-rate swaps in order to maintain its targeted percentage
of variable-rate debt associated with fixed-rate debt issuances
in the aggregate amount of $240 million. At
September 30, 2004, these interest-rate swaps, designated
as fair-value hedges, had an aggregate fair market value of
$9 million based on the present value difference between
the contract and market rates at September 30, 2004. If
these derivative instruments had been terminated at
September 30, 2004, this estimated fair value represents
the amount that would be paid by the counterparties to ComEd.
Exelon, ComEd, PECO and Generation provide
severance and health and welfare benefits to terminated
employees pursuant to pre-existing severance plans primarily
based upon each employees years of service with Exelon and
compensation level. The registrants account for their ongoing
severance plans in accordance with SFAS No. 112,
Employers Accounting for Postemployment Benefits, an
amendment of FASB Statements No. 5 and 43, and
SFAS No. 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits, and accrue amounts
associated with severance benefits that are considered probable
and that can be reasonably estimated.
In conjunction with The Exelon Way, a
company-wide effort to define how Exelon will conduct business
in years to come, Exelon, ComEd, PECO and Generation have
collectively identified 1,850 positions for elimination as
of September 30, 2004. Exelon, ComEd, PECO and Generation
based their estimates of the number of positions to be
eliminated on managements current plans and ability to
determine the appropriate staffing levels to effectively operate
the businesses. Exelon, ComEd, PECO and Generation may incur
further severance costs associated with The Exelon Way if
additional positions are identified for elimination. These costs
will be recorded in the period in which the costs can be first
reasonably estimated.
44
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables present, by segment,
Exelons total salary continuance severance costs for the
three and nine months ended September 30, 2004 and 2003.
These tables include charges for new positions identified in
addition to revised estimates to reflect specific individuals
instead of positions previously identified under The Exelon Way.
The following tables provide total salary
continuance severance costs for ComEd, PECO and Generation for
the three and nine months ended September 30, 2004 and 2003.
The following tables provide a roll forward of
the salary continuance severance obligations from
January 1, 2003 through September 30, 2004 for Exelon,
ComEd, PECO and Generation:
45
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Exelon sponsors defined benefit pension plans and
postretirement welfare benefit plans applicable to essentially
all ComEd, PECO, Generation and Exelon Business Services Company
(BSC) employees and certain employees of Enterprises.
Substantially all non-union employees and electing union
employees hired on or after January 1, 2001 participate in
Exelon-sponsored cash balance pension plans. Substantially all
non-union employees hired prior to January 1, 2001 were
offered a choice to remain in Exelons traditional pension
plan or transfer to a cash balance pension plan for management
employees. Employees of AmerGen participate in separate defined
benefit pension plans and postretirement welfare benefit plans
sponsored by AmerGen.
The defined benefit pension plans and
postretirement welfare benefit plans are accounted for in
accordance with SFAS No. 87, Employers
Accounting for Pensions, and SFAS No. 106,
Employers Accounting for Postretirement Benefits
Other than Pensions, and are disclosed in accordance with
SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits an
Amendment of FASB Statements No. 87, 88, and 106
(revised 2003). The costs of providing benefits under these
plans are dependent on historical information, such as employee
age, length of service and level of compensation, and the actual
rate of return on plan assets, in addition to assumptions about
the future, including the expected rate of return on plan
assets, the discount rate applied to benefit obligations, rate
of compensation increase and the anticipated rate of increase in
health care costs. The effects of changes in these factors on
pension and other postretirement welfare benefit obligations are
generally recognized over the expected remaining service life of
the employees rather than immediately recognized in the income
statement. Exelon uses a December 31 measurement date for
the majority of its plans.
Exelons traditional and cash balance
pension plans are intended to be tax-qualified defined benefit
plans, and Exelon has submitted applications to the IRS for
rulings on the tax-qualification of the form of each plan. By
letters dated April 21, 2004, the IRS notified Exelon that
the rulings on its applications for the traditional and
management cash balance plans were delayed pending advice from
the IRSs National Office, pursuant to a previously
announced moratorium on rulings with respect to plans involved
in so called cash balance conversions. On
June 1, 2004, the IRS issued a favorable ruling on the
union cash balance plan.
On June 15, 2004, the U.S. Treasury
Department announced the withdrawal of its proposed regulations
covering cash balance plans in order to provide Congress an
opportunity to consider proposed legislation. In addition,
various methods used by other employers to accrue and calculate
benefits under cash balance plans have been challenged in recent
lawsuits. The design of Exelons cash balance plans differs
in certain material respects from the cash balance plans
involved in the cases decided to date, and the courts have not
reached uniform decisions on certain issues. As a result,
considerable uncertainty remains regarding the application of
the Employee Retirement Income Security Act of 1974, the
Internal Revenue Code and Federal employment laws to cash
balance plans. Exelon does not know how the current uncertainty
will be resolved and cannot determine at this time what impact,
if any, future developments in this area will have on its
pension plans or the funding of its pension obligations.
46
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the second quarter of 2004, Exelon early
adopted FSP FAS 106-2. See Note 2 New
Accounting Principles for information regarding the adoption of
FSP FAS 106-2 and the effect on the net periodic benefit
cost of the other postretirement benefits plans included in the
tables below.
During the third quarter of 2004, Exelon
announced changes to the benefit provisions of its
postretirement welfare benefit plans. The changes will be
effective January 1, 2005 and triggered a remeasurement of
the plan assets and obligations as of August 1, 2004. The
plan change resulted in a reduction in the accumulated
postretirement benefit obligation of $106 million and a
reduction of projected other postretirement benefit costs in
2004 of $6 million that will be recognized in the third and
fourth quarters of 2004.
The following tables present the components of
Exelons net periodic benefit costs recognized for the
three and nine months ended September 30, 2004 and 2003,
including the net periodic benefit costs of AmerGens
pension and postretirement plans for 2004. These tables reflect
an annualized reduction in net periodic postretirement benefit
cost of $32 million related to a Federal subsidy provided
under the Prescription Drug Act. This subsidy has been accounted
for under FSP FAS 106-2, as described in
Footnote 2 New Accounting Principles. The
expected long-term rate of return on plan assets used to
estimate 2004 pension benefit costs was 9.00%. Prior to the
August 1, 2004 remeasurement, the expected long-term rate
of return on plan assets used to estimate 2004 other
postretirement benefit costs was 8.33%. The expected long-term
rate of return on plan assets used for the August 1, 2004
remeasurement of the other postretirement benefit obligation was
8.35%. A portion of the net periodic benefit cost is capitalized
within the Consolidated Balance Sheets.
47
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the allocation by
registrant of Exelons pension and post-retirement benefit
costs, excluding curtailment and special termination benefits
costs, during the three and nine months ended September 30,
2004 and 2003. These amounts include a reduction in net periodic
postretirement benefit cost resulting from the adoption of FSP
FAS 106-2.
The following tables present the allocation by
registrant of Exelons curtailment and special termination
benefit charges during the three and nine months ended
September 30, 2004 and 2003:
48
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Exelon sponsors savings plans for the majority of
its employees. The plans allow employees to contribute a portion
of their pre-tax income in accordance with specified guidelines.
Exelon matches a percentage of the employee contribution up to
certain limits. The following table presents, by registrant, the
matching contribution to the savings plans during the three and
nine months ended September 30, 2004 and 2003:
Exelons effective income tax rate varied
from the U.S. Federal statutory rate principally due to the
following:
49
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ComEds effective income tax rate varied
from the U.S. Federal statutory rate principally due to the
following:
PECOs effective income tax rate varied from
the U.S. Federal statutory rate principally due to the
following:
50
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Generations effective income tax rate
varied from the U.S. Federal statutory rate principally due
to the following:
Please refer to Exelon Corporations 2003
Form 10-K for a full discussion on the accounting for
nuclear decommissioning and the fair value of financial assets
and liabilities.
SFAS No. 143 provides accounting
guidance for retirement obligations (whether statutory,
contractual or as a result of principles of promissory estoppel)
associated with tangible long-lived assets. Liabilities for
SFAS No. 143 asset retirement obligations (AROs) have
been recorded at Generation in connection with its obligation to
decommission its nuclear power plants as well as legal
obligations associated with the closing of its fossil power
plants. Based on the extended license lives of the nuclear
plants, decommissioning expenditures are expected to occur
primarily during the period 2029 through 2056. Exelon, through
its regulated subsidiary utility companies, ComEd and PECO,
currently recovers costs for decommissioning Generations
nuclear generating stations, excluding the three AmerGen plants,
through regulated rates. The amounts recovered from customers
are deposited into trust accounts and invested for funding the
future decommissioning costs of the nuclear generating stations.
51
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents a rollforward of the
ARO reflected on the Exelon and Generation Consolidated Balance
Sheets from January 1, 2003 to September 30, 2004:
Exelon updates its ARO on a periodic basis. In
September 2004, Generation recorded a $325 million net
increase to the ARO resulting from updates to estimated future
expected nuclear decommissioning cash flows comprised of a
$374 million increase in the estimated ARO for certain
nuclear units, offset by a $49 million decrease in the
estimated ARO for another unit. Increases in the ARO resulted in
the establishment of a corresponding Asset Retirement Cost
(ARC) of $374 million, including approximately
$36 million related to retired units. The ARC associated
with three of the units was immediately impaired through
depreciation expense as it was associated with retired nuclear
units that do not have any remaining useful life. For the unit
with the estimated $49 million ARO decrease, and pursuant
to FAS 143, decreases in AROs are first offset by any
existing related ARCs for those units and, to the extent there
is no ARC, the amounts are included in operating income.
However, currently there is no impact to net income for the
decommissioning of the former ComEd and PECO units and, as such,
both the $36 million impairment charge and the
$49 million ARO decrease were equally offset by a charge of
$13 million in operating income.
The net increase in the ARO for the former ComEd
units, the former PECO units and the AmerGen units during the
third quarter of 2004 was $121 million, $147 million
and $57 million, respectively. The ARO balances at
September 30, 2004 for the former ComEd units, the former
PECO units and the AmerGen units were approximately
$1.875 billion, $1.015 billion and $575 million,
respectively.
The increase to the ARO recorded in the third
quarter of 2004 resulted primarily from updated decommissioning
cost studies provided by third-party providers and changes in
cost escalation factors used to estimate future undiscounted
costs. The adjustment did not have a significant impact on the
Consolidated Statements of Income and Comprehensive Income of
Exelon or Generation.
Generation expects additional cost estimate
updates from third-party providers in the fourth quarter of
2004. The change to the ARO in the fourth quarter cannot be
reasonably estimated at this time.
52
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2003, Exelon had gross
unrealized gains of $394 million and gross unrealized
losses of $300 million related to the nuclear
decommissioning trust fund investments. With the exception of
the portion of these amounts primarily related to AmerGen, as a
result of its regulatory arrangements for decommissioning costs,
approximately $62 million of these net gains were recorded
as an increase to regulatory liabilities. At September 30,
2004, prior to its evaluation for other-than-temporary
impairments, Exelon had gross unrealized gains of
$480 million and gross unrealized losses of
$345 million. The gross unrealized losses were comprised of
$314 million related to trust accounts for the
decommissioning of the former ComEd and PECO plants and
$31 million primarily related to the trust accounts for the
decommissioning of the AmerGen plants.
Exelon has historically evaluated the
decommissioning trust fund investments for other-than-temporary
impairments by analyzing the historical performance, cost basis
and market value of its securities in unrealized loss positions
in comparison to related market indices. As of
September 30, 2004, Exelon concluded that certain trust
fund investments were other-than-temporarily impaired based on
various factors assessed in the aggregate, including the
duration and severity of the impairment, the anticipated
recovery of the securities and considerations of Exelons
ability and intent to hold the investments until the recovery of
their cost basis. This determination resulted in a
$7 million impairment charge recorded in other income and
deductions associated with the trust funds for the
decommissioning of the AmerGen plants. Also, Exelon realized
$260 million of the previously unrealized losses of
$314 million associated with the trust investments for the
decommissioning of the former ComEd and PECO plants. As both
realized and unrealized losses are included as a reduction in
the fair value of the investments and in the fair value of the
regulatory liability, this realization of these losses
associated with the former ComEd and PECO plants had no impact
on Exelons or Generations results of operations or
financial position.
On January 27, 2004, the Board of Directors
of Exelon approved a 2-for-1 stock split of Exelons common
stock. The distribution date was May 5, 2004. The
authorized common stock was increased from
600,000,000 shares with no par value to
1,200,000,000 shares with no par value. The share and
per-share amounts included in Exelons consolidated
financial statements and combined notes to consolidated
financial statements have been adjusted for all periods
presented to reflect the stock split.
53
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Diluted earnings per share are calculated by
dividing net income by the weighted average number of shares of
common stock outstanding, including shares to be issued upon
exercise of stock options outstanding under Exelons stock
option plans considered to be common stock equivalents. The
following table sets forth the computation of basic and diluted
earnings per share and shows the effect of these stock options
on the weighted average number of shares outstanding used in
calculating diluted earnings per share:
The number of stock options not included in the
calculation of diluted common shares outstanding due to their
antidilutive effect was 30 million for the three months
ended September 30, 2003 and 50 thousand and
10 million for the nine months ended September 30,
2004 and 2003, respectively. There were no stock options
excluded for the three months ended September 30, 2004.
In April 2004, Exelons Board of Directors
approved a discretionary share repurchase program that allows
Exelon to repurchase shares of its common stock on a periodic
basis in the open market. The share repurchase program is
intended to mitigate, in part, the dilutive effect of shares
issued under Exelons employee stock option plan and
Exelons Employee Stock Purchase Plan (ESPP). The aggregate
value of the shares of common stock repurchased pursuant to the
program cannot exceed the economic benefit received after
54
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
January 1, 2004 due to stock option
exercises and share purchases pursuant to Exelons ESPP.
The economic benefit consists of the direct cash proceeds from
purchases of stock and the tax benefits associated with
exercises of stock options. The share repurchase program has no
specified limit on the number of shares that may be repurchased
and no specified termination date. Any shares repurchased are
held as treasury shares unless cancelled or reissued at the
discretion of Exelons management. Treasury shares are
recorded at cost. For the nine months ended September 30,
2004, 2.3 million shares of common stock were purchased
under the share repurchase program for $75 million.
The following table summarizes the changes in
shareholders equity for the nine months ended
September 30, 2004:
For information regarding capital commitments and
nuclear decommissioning at December 31, 2003, see the
Commitments and Contingencies and Nuclear Decommissioning and
Spent Fuel Storage notes in the Notes to Consolidated Financial
Statements of Exelon, ComEd, PECO and Generation in the 2003
Form 10-K.
At September 30, 2004, Generations
long-term commitments, relating to the purchase and sale of
energy, capacity and transmission rights from unaffiliated
utilities and others, including the Midwest Generation contract,
did not change significantly from December 31, 2003, except
for the following:
55
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Exelon, ComEd, PECO and Generations
commercial commitments as of September 30, 2004,
representing commitments not recorded on the balance sheet but
potentially triggered by future events, including obligations to
make payments on behalf of other parties and financing
arrangements to secure obligations, did not change significantly
from December 31, 2003, except for the following:
Exelon, ComEd, PECO and Generation accrue amounts
for environmental investigation and remediation costs that can
be reasonably estimated, including amounts for manufactured gas
plant (MGP) investigation and remediation. Exelon has
identified 69 sites where former MGP activities have or may have
resulted in actual site contamination. Of these 69 sites, the
Illinois Environmental Protection Agency has approved the clean
up of 4 sites and the Pennsylvania Department of Environmental
Protection has approved the clean up of 8 sites. Pursuant to a
Pennsylvania Public Utility Commission (PUC) order, PECO is
currently recovering a provision for environmental costs
annually for the remediation of former MGP facility sites, for
which PECO has recorded a regulatory asset (see
Note 16 Supplemental Financial Information). As
of
56
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004 and December 31,
2003, Exelon, ComEd, PECO and Generation had accrued the
following amounts for environmental liabilities:
Exelon, ComEd, PECO and Generation cannot predict
the extent to which they will incur other significant
liabilities for additional investigation and remediation costs
at these or additional sites identified by environmental
agencies or others, or whether such costs may be recoverable
from third parties.
During the third quarter of 2004, Exelon and the
U.S. Department of Justice, in close consultation with the
Department of Energy (DOE), reached a settlement under which the
government will reimburse Exelon for costs associated with
storage of spent fuel at Generations nuclear stations
pending DOEs fulfillment of its obligations. Under the
agreement, Generation received $80 million immediately in
gross reimbursements for storage costs already incurred
($53 million net after considering amounts due from
Generation to co-owners of certain nuclear stations), with
additional amounts to be reimbursed annually for future costs.
In all cases, reimbursements will be made only after costs are
incurred and only for costs resulting from DOE delays in
accepting the fuel. As of September 30, 2004, the amount of
spent fuel storage costs for which reimbursement will be
requested in mid-2005 from the DOE under the settlement
agreement is $26 million net, which is recorded within
accounts receivable, other. This amount is comprised of
$12 million which has been recorded as a reduction to
operating and maintenance expense and $8 million which has
been recorded as a reduction to capital expenditures, both
recorded during the three months ended September 30, 2004.
The remaining $6 million represents amounts owed to the
co-owners of the Peach Bottom and Quad Cities generating
facilities.
57
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Retail Rate Law.
In
1996, three developers of non-utility generating facilities
filed litigation against various Illinois officials claiming
that the enforcement against those facilities of an amendment to
Illinois law removing the entitlement of those facilities to
state-subsidized payments for electricity sold to ComEd after
March 15, 1996 violated their rights under Federal and
state constitutions. The developers also filed suit against
ComEd for a declaratory judgment that their rights under their
contracts with ComEd were not affected by the amendment and for
breach of contract. On November 25, 2002, the court granted
the developers motions for summary judgment. The judge
also entered a permanent injunction enjoining ComEd from
refusing to pay the retail rate on the grounds of the amendment
and Illinois from denying ComEd a tax credit on account of such
purchases. ComEd and Illinois each appealed the ruling. On
March 9, 2004, the Illinois Appellate Court reversed the
trial court. The Appellate Court held that the 1996 law does
apply to the developers facilities and, therefore, they
are not entitled to subsidized payments. The Court expressly
ruled that the breach of contract claims against ComEd are
dismissed with prejudice. Two of the developers sought review of
the Appellate Courts decision by the Illinois Supreme
Court. On May 26, 2004, the Supreme Court declined to hear
the earlier-filed of the two appeals. On October 6, 2004,
the Supreme Court declined to hear the final appeal.
Real Estate Tax
Appeals.
PECO and Generation each have
been challenging real estate taxes assessed on nuclear plants.
PECO is involved in litigation in which it is contesting taxes
assessed in 1997 under the Pennsylvania Public Utility Realty
Tax Act of March 4, 1971, as amended (PURTA), and has
appealed local real estate assessments for 1998 and 1999 on the
Limerick Generating Station (Montgomery County, PA) (Limerick)
and Peach Bottom Atomic Power Station (York County, PA) (Peach
Bottom) plants. Generation is involved in real estate tax
appeals for 2000 through 2004, also regarding the valuation of
its Limerick and Peach Bottom plants, its Quad Cities Station
(Rock Island County, IL) and, through its wholly owned
subsidiary AmerGen, Three Mile Island Nuclear Station (Dauphin
County, PA) and Oyster Creek Nuclear Generating Station (Forked
River, NJ).
PECO and Generation believe their reserve
balances for exposures associated with the real estate taxes as
of September 30, 2004 reflect the probable expected outcome
of the litigation and appeals proceedings in accordance with
SFAS No. 5, Accounting for Contingencies.
The ultimate outcome of such matters, however, could result in
additional unfavorable or favorable adjustments to the
consolidated financial statements of Exelon, PECO and Generation
and such adjustments could be material.
Cotter Corporation
Litigation.
During 1989 and 1991,
actions were brought in Federal and state courts in Colorado
against ComEd and its subsidiary Cotter Corporation (Cotter)
seeking unspecified damages and injunctive relief based on
allegations that Cotter permitted radioactive and other
hazardous material to be released from its mill into areas owned
or occupied by the plaintiffs, resulting in property damage and
potential adverse health effects. Several of these actions
resulted in nominal jury verdicts or were settled or dismissed.
One action resulted in an award for the plaintiffs of a more
substantial amount, but was reversed on April 22, 2003 by
the Tenth Circuit Court of Appeals and remanded for retrial. An
appeal by the plaintiffs to the United States Supreme Court was
denied on November 10, 2003. See Note 19
Subsequent Events for information regarding the settlement of
this litigation.
58
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On February 18, 2000, ComEd sold Cotter to
an unaffiliated third party. As part of the sale, ComEd agreed
to indemnify Cotter for any liability incurred by Cotter as a
result of these actions, as well as any liability arising in
connection with the West Lake Landfill discussed in the next
paragraph. In connection with Exelons 2001 corporate
restructuring, the responsibility to indemnify Cotter for any
liability related to these matters was transferred by ComEd to
Generation.
The U.S. Environmental Protection Agency
(EPA) has advised Cotter that it is potentially liable in
connection with radiological contamination at a site known as
the West Lake Landfill in Missouri. Cotter is alleged to have
disposed of approximately 39,000 tons of soils mixed with 8,700
tons of leached barium sulfate at the site. Cotter, along with
three other companies identified by the EPA as potentially
responsible parties (PRPs), has submitted a draft feasibility
study addressing options for remediation of the site. The PRPs
are also engaged in discussions with the State of Missouri and
the EPA, which will determine the remedy. The estimated costs of
the anticipated remediation strategy for the site may range up
to $22 million. Once a remedy is selected, it is expected
that the PRPs will agree on an allocation of responsibility for
the costs. Generation has accrued what it believes to be an
adequate amount to cover its anticipated share of the liability.
Raytheon and Mitsubishi
Litigation.
In connection with the
February 2004 settlement among Exelon, Generation and the
lenders under the Boston Generating Credit Facility more fully
described in Note 3 Acquisitions and
Dispositions, Exelon, Generation, and Raytheon, as the guarantor
of the obligations of the turnkey contractor under the
projects engineering, procurement and construction
agreements entered into a global settlement of all disputes
relating to the construction of the Mystic 8 and 9 and Fore
River generating facilities. Under the global settlement,
Generation agreed to pay approximately $31 million to
Raytheon and approximately $1 million to Boston Generating.
Raytheon released Exelon, Generation, their affiliates and the
lenders from construction claims related to the projects.
Raytheon also resolved all of the pending Mitsubishi Heavy
Industries, LTD (MHI) and Mitsubishi Heavy Industries of
America (MHIA) claims relating to work performed on the
projects prior to the settlement, and indemnified Exelon,
Generation, their affiliates and the lenders from certain
subcontractor claims relating to the projects. In return,
Exelon, Generation, their affiliates and the lenders released
all of their claims against Raytheon. All litigation by and
between Raytheon, MHI, MHIA and the project companies relating
to the projects has been dismissed.
Oyster Creek.
On
April 7, 2004, AmerGen entered into settlements with the
State of New Jersey relating to an environmental incident on
September 23, 2002 at Oyster Creek. The incident resulted
in a fishkill from heated water discharged from the plant. The
State alleged that the plant had violated its water discharge
permit. The settlements with the State of New Jersey settled all
claims without any admission of liability for payments
aggregating $1 million.
Exelon, ComEd, PECO and Generation are involved
in various other litigation matters that are being defended and
handled in the ordinary course of business. Exelon, ComEd, PECO
and Generation maintain accruals for such costs that are
probable of being incurred and subject to reasonable estimation.
The ultimate outcomes of such matters, as well as the matters
discussed above, are uncertain and may have a material adverse
effect on their respective financial condition, results of
operations or cash flows.
Dynegy.
Generation
is counterparty to Dynegy, Inc. (Dynegy) in various energy
transactions. The credit ratings of Dynegy are below investment
grade. As of September 30, 2004, Generation has credit risk
59
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
associated with Dynegy through Generations
investment in Sithe. Sithe is a 100% owner of the Independence
generating station, a 1,028-MW gas-fired facility that has an
energy-only long-term tolling agreement with Dynegy, with a
related financial swap arrangement. As of March 31, 2004,
Generation consolidated the assets and liabilities of Sithe in
accordance with the provisions of FIN No. 46-R. As a
result, Generation recorded an asset of $127 million on its
Consolidated Balance Sheets related to the fair market value of
the financial swap agreement with Dynegy that is
marked-to-market under the terms of SFAS No. 133,
Accounting for Derivatives and Hedging Activities.
If Dynegy were unable to fulfill the terms of the financial swap
agreement, Generation would be required to impair the related
asset. Exelon estimates, as a 50% owner of Sithe, that the
impairment would result in an after-tax reduction of its net
income by approximately $23 million. See
Note 4 Sithe for information regarding
Generations exercise of a call option to acquire the
remaining 50% of Sithe.
In addition to the asset impairment, if Dynegy
were unable to fulfill its obligations under the financial swap
agreement and the tolling agreement, Generation would likely
incur an impairment of the intangible asset associated with the
Independence plant tolling agreement. Depending upon the timing
of Dynegys failure to fulfill its obligations and the
outcome of any restructuring initiatives, Generation could
realize an after-tax charge of up to $50 million. In the
event of a sale of Generations investment in Sithe to a
third party, proceeds from the sale could be negatively affected
by up to $84 million, which would represent an after-tax
loss of up to $50 million.
Generation previously disclosed that the future
economic value of AmerGens purchased power arrangement
with Illinois Power Company (Illinois Power), a subsidiary of
Dynegy, could be affected by events related to Dynegys
financial condition. On September 30, 2004, Dynegy sold
Illinois Power to a third party, which reduced Generations
credit risk associated with Dynegy.
ComEd and PECO have entered into several
agreements with a tax consultant related to the filing of refund
claims with the IRS. ComEd and PECO previously made refundable
prepayments to the tax consultant of $11 million and
$5 million, respectively. The fees for these agreements are
contingent upon a successful outcome of the claims and are based
upon a percentage of the refunds to be recovered from the IRS,
if any. The ultimate net cash outflow to ComEd and PECO related
to all the agreements will either be positive or neutral
depending upon the outcome of the refund claims with the IRS.
These potential tax benefits and associated fees could be
material to the financial position, results of operations and
cash flows of ComEd and PECO. A portion of ComEds tax
benefits, including any associated interest for periods prior to
the merger of Exelon, Unicom Corporation and PECO on
October 20, 2000 (Merger), would be recorded as a reduction
of goodwill pursuant to a reallocation of the Merger purchase
price. ComEd and PECO cannot predict the timing of the final
resolution of the refund claims.
During the second quarter of 2004, the IRS
granted preliminary approval for one of ComEds refund
claims. As such, ComEd believes that it is probable that a fee
will ultimately be paid to the tax consultant. Therefore, ComEd
has recorded an expense of $5 million (pretax), which
resulted in a decrease to the prepayment from $11 million
to $6 million. The charge represents an estimate of the fee
to the tax consultant which may be adjusted upward or downward
depending on the IRS final calculation of the tax and
interest benefit. ComEd has not reflected the tax benefit
associated with the refund claim pending final approval of the
IRS. However, as described above, the net income statement
impact for ComEd is not anticipated to be material.
60
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On January 28, 2004, the NRC issued a letter
requesting Public Service Enterprise Group (PSEG) to
conduct a review of its Salem facility, of which Generation owns
42.59%, to assess the workplace environment for raising and
addressing safety issues. PSEG responded to the letter on
February 28, 2004, and had independent assessments of the
work environment at the facility performed. Assessment results
were provided to the NRC in May 2004. The assessments concluded
that Salem was safe for continued operation, but also identified
issues that needed to be addressed. At an NRC public meeting on
June 16, 2004, PSEG outlined its action plans to address
these issues, which focus on safety conscious work environment,
the corrective action program, and work management. A letter
documenting these plans and commitments was sent to the NRC on
June 25, 2004. PSEG will provide the NRC a report of its
progress and discuss the progress of its actions to resolve
identified issues at public meetings on December 2, 2004
and in 2005. PSEG will publish metrics to demonstrate
performance commencing in the fourth quarter of 2004.
In June 2001, the New Jersey Department of
Environmental Protection (NJDEP) issued a renewed
National Pollutant Discharge Elimination System permit for
Salem, expiring in July 2006, allowing for the continued
operation of Salem with its existing cooling water system. An
application for renewal of that permit, including a
demonstration of compliance with the requirements of the
recently published Federal Water Pollution Control Act
Section 316(b) regulations, must be submitted to NJDEP by
February 2, 2006 unless the agency grants additional time
to collect information to comply with the new regulations. NJDEP
advised PSEG in a letter dated July 12, 2004 that it
strongly recommends reducing cooling water intake flow
commensurate with closed-cycle cooling as a compliance option
for Salem. PSEG has not made a determination regarding how it
will demonstrate compliance with the Section 316(b)
regulations. If application of the Section 316(b)
regulations requires the retrofitting of Salems cooling
water intake structure to reduce cooling water intake flow
commensurate with closed-cycle cooling, the retrofit would
result in material costs of compliance to the owners of the
facility.
61
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables provide additional
information regarding the components of other, net within the
Consolidated Statements of Income and Comprehensive Income of
Exelon, ComEd, PECO and Generation for the three and nine months
ended September 30, 2004 and 2003:
62
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables provide additional
information regarding the regulatory assets and liabilities of
ComEd and PECO:
63
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables provide information
regarding accumulated depreciation and the allowance for
uncollectible accounts as of September 30, 2004 and
December 31, 2003:
Exelon operates in three business segments:
Energy Delivery (ComEd and PECO), Generation and Enterprises.
Exelon evaluates the performance of its business segments on the
basis of net income.
ComEd, PECO and Generation each operate in a
single business segment; as such, no separate segment
information is provided for these registrants.
64
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Exelons segment information for the three
months ended September 30, 2004 and 2003 is as follows:
65
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Exelons segment information for the nine
months ended September 30, 2004 and 2003 and at
September 30, 2004 and December 31, 2003 is as follows:
66
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Exelon Energy Companys total assets as of
December 31, 2003 were $134 million and for the nine
months ended September 30, 2003, Exelon Energy Company
reported the following:
Effective December 31, 2003, ComEd
Financing II, ComEd Financing III, ComEd Funding, LLC
and ComEd Transitional Funding Trust were deconsolidated from
the financial statements of Exelon and ComEd in conjunction with
the adoption of FIN No. 46-R. In accordance with FIN
No. 46-R, prior periods were not restated
The financial statements of Exelon and ComEd
include related-party transactions with its unconsolidated
affiliates as presented in the tables below.
67
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition to the transactions described above,
ComEds financial statements include related-party
transactions as presented in the tables below.
68
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
69
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective July 1, 2003, PECO Trust IV,
a financing subsidiary created in May 2003, was deconsolidated
from the financial statements of Exelon and PECO in conjunction
with the adoption of FIN No. 46. Additionally, effective
December 31, 2003, PECO Trust III and the PETT were
deconsolidated from the financial statements of Exelon and PECO
in conjunction with the adoption of FIN No. 46-R. In
accordance with FIN No. 46-R, prior periods were not
restated.
The financial statements of Exelon and PECO
include related-party transactions with unconsolidated financing
subsidiaries as presented in the tables below.
70
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition to the transactions described above,
PECOs financial statements include related-party
transactions as presented in the tables below.
71
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
72
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The financial statements of Exelon and Generation
include related-party transactions with unconsolidated
affiliates as presented in the tables below. Generation
accounted for its investment in AmerGen as an equity method
investment prior to the acquisition of British Energys 50%
interest in December 2003 and its investment in Sithe as an
equity method investment prior to its consolidation as of
March 31, 2004. Additionally, effective January 1,
2004, Enterprises competitive retail sales business,
Exelon Energy Company, was transferred to Generation.
73
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
74
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ComEd Debt
Retirements.
In October 2004, ComEd
retired $25 million of 7.625% First Mortgage Bonds due
April 15, 2013 and $56 million of 9.20% medium term
notes.
PECO Debt
Retirements.
In October 2004, PECO
retired $156 million of Pollution Control Revenue Refunding
Bonds due between April 2021 and October 2034.
Generation Debt
Issuances.
In October 2004, Generation
issued $156 million of variable rate Pollution Control
Revenue Refunding Bonds, due between April 2021 and October 2034
through the Delaware County Industrial Development Authority
(Pennsylvania) and the Montgomery County Industrial Development
Authority (Pennsylvania).
Cotter Corporation Litigation
(Generation).
In October 2004, a
settlement of the claims of all Cotter plaintiffs associated
with allegations that Cotter permitted radioactive and other
hazardous material to be released from its mill into areas owned
or occupied by the plaintiffs was reached and approved by the
Federal
75
COMBINED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
District Court in Colorado. This settlement
amount approximated Generations reserve for this matter.
Settlements with the two primary Cotter insurers were also
concluded, under which they will pay Generation approximately
$20 million, which covers the amount previously reserved as
well as certain other costs incurred by Generation related to
this matter, by November 2004. Neither of these settlements
affect the environmental liability associated with the West Lake
Landfill as described in Note 15 Commitments
and Contingencies.
Generations Purchase of Sithe
International, Inc.
On
October 13, 2004, Sithe transferred all the shares of Sithe
International, Inc. and its subsidiaries to a subsidiary of
Generation in exchange for cancellation of a $92 million
note and accrued interest which are currently eliminated as part
of the consolidation of Sithe. Sithe International, Inc.
indirectly owns a 49.5% interest in TEG, consisting of two
petcoke-fired plants in Mexico that commenced commercial
operations in the second quarter of 2004.
76
(Dollars in millions except per share data,
unless otherwise noted)
General
Exelon Corporation (Exelon), a registered public
utility holding company, through its subsidiaries, operates in
three business segments:
See Note 17 of the Combined Notes to
Consolidated Financial Statements for further segment
information. Exelons corporate operations, through its
business services subsidiary, Exelon Business Services Company
(BSC), provide Exelons business segments with a variety of
support services, including legal, human resources, financial,
information technology, supply management and corporate
governance services. Additionally, in 2004, due to the
centralization of certain functions, certain employees were
transferred from ComEd, PECO and Generation to BSC. As a result,
ComEd and PECO now receive additional services from BSC,
including planning and engineering of delivery systems,
management of construction, maintenance and operations of the
transmission and delivery systems, and management of other
support services. Generation now receives additional services
from BSC for inventory and information technology support and
management of other support services. These costs are allocated
to the applicable business segments. Additionally, the results
of Exelons corporate operations include costs for
corporate governance and interest costs and income from various
investment and financing activities.
Critical Accounting Policies and
Estimates
Management of each of the registrants makes a
number of significant estimates, assumptions and judgments in
the preparation of its financial statements. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Policies and Estimates in the 2003
Form 10-K for a discussion of the estimates and judgments
necessary in the registrants accounting for derivative
instruments, regulatory assets and liabilities, nuclear
decommissioning, depreciable lives of property, plant and
equipment, asset impairments, severance accounting, defined
benefit pension and other postretirement welfare benefits,
taxation, unbilled energy revenues and environmental costs. Set
forth below is an update to the 2003 Form 10-K.
As of September 30, 2004, Exelon, through
Generation, owns an indirect 50% interest in Sithe. In
accordance with Financial Accounting Standards Board
(FASB) Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities (FIN
No. 46-R), Exelon and Generation consolidated Sithe within
their financial statements as of March 31, 2004. The
determination that Sithe qualified as a variable interest entity
and that Generation was the primary beneficiary under FIN
No. 46-R required an
77
In addition to Sithe, management reviewed other
entities with which Exelon and its subsidiaries have business
relationships to determine if those entities were variable
interest entities that should be consolidated under FIN
No. 46-R and concluded that those entities should not be
consolidated within the financial statements of Exelon, ComEd,
PECO or Generation.
New Accounting Pronouncements
See Note 2 of the Combined Notes to
Consolidated Financial Statements for discussion of new
accounting pronouncements.
EXELON CORPORATION
Executive Overview
Financial Results.
Exelons diluted earnings per average common share were
$0.85 for the three months ended September 30, 2004 as
compared to a net loss of $0.16 for the same period in 2003,
primarily as a result of an increase in net income at
Generation, reduced severance and severance-related charges
associated with The Exelon Way and favorable effects from
investments in synthetic fuel-producing facilities, which were
partially offset by decreased net income at Energy Delivery and
Enterprises. The increase in Generations net income
reflects a $945 million impairment charge (before income
taxes) recorded during the third quarter of 2003 related to the
long-lived assets of Boston Generating, LLC (Boston Generating)
and a $55 million impairment charge recorded in 2003
related to its investment in Sithe. Exelons investments in
synthetic fuel-producing facilities increased Exelons net
income for the three months ended September 30, 2004 by
$18 million. The decrease in net income at Energy Delivery
reflects charges of $106 million (before income taxes)
associated with ComEds extinguishment of debt and a
decrease in revenues primarily due to unfavorable weather
conditions in the ComEd and PECO service territories.
Enterprises 2003 income reflected a gain on the sale of
InfraSource, Inc. (InfraSource) of $44 million (before
income taxes).
Exelons diluted earnings per average common
share were $2.25 for the nine months ended September 30,
2004 as compared to $0.96 for the same period in 2003, primarily
as a result of increased income at Generation, a reduction in
severance and severance-related charges associated with The
Exelon Way, decreased losses at Enterprises and favorable
effects from investments in synthetic fuel-producing facilities,
partially offset by decreased net income at Energy Delivery. The
increase in Generations net income reflects 2003
impairment charges of $945 million and $255 million
(before income taxes) related to the long-lived assets of Boston
Generating and Generations investment in Sithe,
respectively. Generations 2004 income includes an
$85 million gain (before income taxes) on the sale of
Boston Generating during the second quarter of 2004. Enterprises
results reflect net gains recorded in 2004 related to the
dispositions of businesses and investments and investment
impairment charges recorded in 2003. Exelons investments
in synthetic fuel-producing facilities increased its 2004
after-tax earnings by $47 million. Energy Deliverys
net income was negatively affected by debt retirement costs of
$106 million (before income taxes).
78
In the first quarter of 2004, Exelon recorded an
after-tax gain of $32 million in accordance with
FIN No. 46-R and the resulting consolidation of Sithe.
In the third quarter of 2004, Exelon recorded an after-tax loss
of $9 million upon the adoption of EITF Issue
No. 03-16, Accounting for Investments in Limited
Liability Companies (EITF 03-16). In the first
quarter of 2003, Exelon recorded an after-tax gain of
$112 million upon the adoption of Statement of Financial
Accounting Standards (SFAS) No. 143, Asset
Retirement Obligations (SFAS No. 143).
The Exelon Way.
See
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Exelon Executive Summary in the 2003
Form 10-K for a discussion of Exelons implementation
of The Exelon Way.
Investment Strategy.
Exelon continued to follow a disciplined approach in investing
to maximize the earnings and cash flows from its assets and
businesses and to divest those assets and businesses that do not
meet its goals. Highlights in the first nine months of 2004
include:
Enterprises continues to pursue the divestiture
of other businesses and investments; however, it may be unable
to fully divest certain businesses and investments for a number
of reasons, including an inability to locate appropriate buyers
or negotiate acceptable terms for the transactions. In addition,
the amount that Enterprises may realize from a divestiture is
subject to market conditions that may contribute to pricing and
other terms that are materially less than expected and could
result in a loss on the sale. Timing of any divestitures may
positively or negatively affect the results of operations. As of
September 30, 2004, Enterprises had total assets and
liabilities of $278 million and $82 million,
respectively.
Financing
Activities.
Exelon met its capital
resource commitments primarily with internally generated cash.
When necessary, Exelon obtains funds from external sources,
including capital markets, and through bank borrowings. During
the nine months ended September 30, 2004, ComEd retired
$768 million of its outstanding debt pursuant to an
accelerated liability management plan. ComEd plans to retire
over $400 million of long-term debt in the fourth quarter
of 2004 to complete its accelerated liability management plan.
In addition to the accelerated liability management plan,
payments of approximately $547 million were made for the
purpose of retiring PECO and ComEd transition trust long-term
debt and approximately $107 million of other net long-term
debt during 2004. In January 2004, Exelon approved a 2-for-1
split of its common stock with a distribution date of
May 5, 2004. In the second quarter of 2004, Exelons
Board of Directors approved a discretionary share repurchase
program, and Exelon purchased common stock held as
79
Regulatory Developments PJM
Integration.
On May 1, 2004,
ComEd fully integrated its transmission facilities into PJM
Interconnection (PJM). PECO and ComEds membership in
PJM supports Exelons commitment to competitive wholesale
electric markets and will provide Exelon the benefits of more
transparent, liquid and competitive markets for the sale and
purchase of electric energy and capacity. Upon joining PJM,
ComEd began incurring administrative fees, which are expected to
approximate $30 million annually. Exelon believes such
costs will ultimately be partially offset by the benefits of
full access to a wholesale competitive marketplace and increased
revenue requirements, particularly after ComEds regulatory
transition period ends in 2006; however, changes in market
dynamics could affect the ultimate financial impact on Exelon.
Through and Out
Proceeding.
ComEd and PECO currently
recognize approximately $66 million and $4 million,
respectively, of annual revenue from through and out (T&O)
rates for energy flowing across ComEds and PECOs
transmission systems. On March 19, 2004, the Federal Energy
Regulatory Commission (FERC) issued an order to eliminate
these rates effective May 1, 2004, which was subsequently
deferred until December 1, 2004. The T&O rates are to
be replaced by a new long-term transmission pricing structure
that will eliminate seams in the PJM and Midwest ISO regions.
Transmission owners in PJM, the Midwest ISO and other parties
filed various pricing proposals with the FERC on or before
October 1, 2004, with an effective date of December 1,
2004. On October 1, 2004, ComEd and PECO participated in
the filing of a Regional Pricing Proposal which, if accepted by
the FERC, could minimize ComEds and PECOs losses of
T&O revenues. Depending upon which proposal is accepted by
the FERC, or if the FERC creates a new alternative, ComEds
and PECOs results of operations could be negatively
affected.
Rate Design
Proceeding.
Additionally, certain PJM
transmission owners, including ComEd and PECO, are subject to a
rate design proceeding. One or more filings will be made in
January 2005 to address, among other items, how costs associated
with new investments should be recovered. Exelon is presently
evaluating the extent to which ComEd and PECO will participate
in this proceeding.
At this early stage, Exelon cannot predict the
outcome of either of the above proceedings; however, these
proceedings could lead to adverse impacts on Exelons
results of operations.
See ComEds Managements
Discussion and Analysis of Financial Condition and Results of
Operations Executive Overview for further
information regarding Regulatory Developments.
Operations.
Generations nuclear fleet achieved a 94.1% capacity factor
for the nine months ended September 30, 2004 compared to
94.5% in the same period of 2003 primarily as a result of
increased planned outage days.
Outlook for the Remainder of 2004 and
Beyond.
Through September 30,
2004, Exelon has purchased interests in three synthetic
fuel-producing facilities. Exelons purchase price for
these facilities included a combination of cash, notes payable
and contingent consideration dependent upon the production level
of the facilities. Synthetic fuel facilities produce fuel used
in power plants by chemically changing coal, including waste and
marginal coal. The production and sale of synthetic fuel
entitles the owner of the synthetic fuel facilities to tax
credits under Section 29 of the Internal Revenue Code.
Tax credits generated by the production of
synthetic fuel are subject to a phase-out provision that
gradually reduces tax credits as the annual average wellhead
price per barrel of domestic crude oil increases into an
inflation-adjusted phase-out range. For 2003, the tax credit
would have begun to phase-out when the annual average wellhead
price per barrel of domestic crude oil exceeded $50.14 per
barrel and would have
80
Due to the low price of domestic crude oil during
the first part of 2004, the phase-out is not expected to affect
Exelons tax credits or net income from the facilities for
2004. If domestic crude oil prices remain high in 2005, the tax
credits and net income generated by the investments may be
reduced substantially. In addition, Exelon has recorded an
intangible asset related to its investments in these facilities
that could become impaired if domestic crude oil prices continue
to increase in the future.
Results of Operations Exelon
Corporation
Operating
Revenues.
Operating revenues
decreased for the three months ended September 30, 2004 as
compared to the same period in 2003 primarily due to decreased
revenues at Enterprises due to the sale of the majority of its
businesses since the third quarter of 2003, Generations
adoption of Emerging Issues Task Force (EITF) Issue
No. 03-11, Reporting Realized Gains and Losses on
Derivative Instruments That Are Subject to FASB Statement
No. 133, Accounting for Derivative Instruments and
Hedging Activities, and Not Held for Trading
Purposes as Defined in EITF Issue No. 02-3,
Issues Involved in Accounting for Derivative Contracts
Held for Trading Purposes and Contracts Involved in Energy
Trading and Risk Management Activities
(EITF 03-11) in 2004, Generations sale of Boston
Generating during the second quarter of 2004 and unfavorable
weather conditions at Energy Delivery. Generations
adoption of EITF 03-11 during 2004 changed the presentation
of certain power transactions and decreased operating revenues
by $272 million for the three months ended
September 30, 2004 but had no effect on net income, as the
decrease in revenue was offset by a comparable decrease in
purchased power and fuel costs. The decreases in operating
revenues were partially offset by an increase in market sales at
Generation due to the acquisition of the remaining 50% of
AmerGen Energy Company, LLC (AmerGen) and the consolidation of
Sithe and higher weather-normalized delivery volume at Energy
Delivery. See further discussion of operating revenues by
segment below.
Purchased Power and Fuel Expense.
Purchased power and fuel expense
decreased during the three months ended September 30, 2004
as compared to the same period in 2003 primarily due to
Generations adoption of EITF 03-11 during 2004, which
resulted in a decrease in purchased power and fuel expense of
$272 million, the sale of Boston Generating during the
second quarter of 2004 and favorable mark-to-market adjustments.
In addition, purchased power decreased due to reduced capacity
payments to Midwest
81
Impairment of the Long-Lived Assets of
Boston Generating.
Generation
recorded a $945 million charge (before income taxes) during
the third quarter of 2003 to impair the long-lived assets of
Boston Generating.
Operating and Maintenance
Expense.
Operating and maintenance
expense decreased for the three months ended September 30,
2004 as compared to the same period in 2003 primarily due to a
decrease in severance and severance-related charges associated
with The Exelon Way, adjustments related to Generations
nuclear decommissioning accounting recorded during the third
quarter of 2004, decreased expenses at Enterprises due to the
sale of the majority of its businesses since the third quarter
of 2003 and a gain recorded in 2004 resulting from a settlement
with the Department of Energy (DOE) related to spent
nuclear fuel, partially offset by increased expenses at
Generation due to the acquisition of the remaining 50% of
AmerGen and the consolidation of Sithe and investments made by
Exelon in the fourth quarter of 2003 in synthetic fuel-producing
facilities. See further discussion of operating and maintenance
expenses by segment below.
Depreciation and Amortization
Expense.
The increase in
depreciation and amortization expense is primarily due to
additional plant placed in service after the third quarter of
2003 at Energy Delivery and Generation, the recording and
subsequent impairment of an asset retirement cost asset (ARC) at
Generation in 2004 and increased amortization expense due to
investments made in the fourth quarter of 2003 in synthetic
fuel-producing facilities. The increase is also due to increased
competitive transition charge amortization at PECO.
Operating
Income.
Exclusive of the changes
in operating revenues, purchased power and fuel expense,
operating and maintenance expense and depreciation and
amortization expense discussed above, the change in operating
income was primarily the result of increased taxes other than
income in 2004 as compared to 2003, primarily due to the
reversal of real estate tax accruals at PECO and Generation
during the third quarter of 2003.
Other Income and
Deductions.
Other income and
deductions reflects debt retirement charges of $106 million
recorded at ComEd in 2004 associated with an accelerated
liability management plan and a $55 million impairment loss
recorded in 2003 related to Generations investment in
Sithe. Equity in earnings of unconsolidated affiliates decreased
due to the acquisition of the remaining 50% of AmerGen in
December 2003 and investments made in the fourth quarter of 2003
in synthetic fuel-producing facilities.
Effective Income Tax
Rate.
Exelons effective
income tax rate decreased from 52% for the three months ended
September 30, 2003 to 33% for the same period in 2004,
primarily due to the impact on income before income taxes of the
impairment of Boston Generatings long-lived assets
recorded in 2003 and investments made in synthetic
fuel-producing facilities during the fourth quarter of 2003.
Also, the decrease in the rate is attributable to the state tax
benefits at Exelon Generation, which incurred losses for the
three months ended September 30, 2003, compared to the
state tax expense for the remainder of Exelon and its
subsidiaries. See Note 12 of the Combined Notes to the
Consolidated Financial Statements for further discussion of the
change in the effective income tax rate.
82
Exelon evaluates its performance on a business
segment basis. The comparisons of operating results and other
statistical information for the three months ended
September 30, 2004 and 2003 set forth below reflect
intercompany transactions, which are eliminated in Exelons
consolidated financial statements.
Effective January 1, 2004, Enterprises
competitive retail sales business, Exelon Energy Company, was
transferred to Generation. The information for the three months
ended September 30, 2003 related to the Generation and
Enterprises segments discussed below has been adjusted to
reflect the transfer of Exelon Energy Company from the
Enterprises segment to the Generation segment. Exelon Energy
Companys results for the three months ended
September 30, 2003 were as follows:
83
Operating Revenues.
The changes in Energy
Deliverys operating revenues for the three months ended
September 30, 2004 compared to the same period in 2003
consisted of the following:
Weather.
The demand
for electricity is affected by weather conditions. Very warm
weather in summer months and very cold weather in other months
are referred to as favorable weather conditions
because these weather conditions result in increased sales of
electricity. Conversely, mild weather reduces demand. Energy
Deliverys electric revenues were negatively affected by
unfavorable weather conditions. Cooling degree-days in the ComEd
and PECO service territories were 27% and 16% lower,
respectively, than the prior year period.
Customer Choice.
For
the three months ended September 30, 2004 and 2003, 28% and
24%, respectively, of energy delivered to Energy Deliverys
retail customers was provided by alternative energy suppliers
(AES) or under the ComEd PPO. The decrease in electric
retail revenues attributable to customer choice included a
decrease in revenues of $6 million from customers in
Illinois electing to purchase energy from an AES or under the
ComEd PPO and a decrease in revenues of $21 million from
customers in Pennsylvania being assigned to or selecting an AES.
Volume.
Both
ComEds and PECOs electric revenues increased as a
result of higher delivery volume, exclusive of the effect of
weather and customer choice, due to an increased number of
customers and increased usage per customer, primarily
residential and large and small commercial and industrial
customers for ComEd and across all customer classes for PECO.
PJM Transmission.
Energy Deliverys operating revenues and purchased power
expense each increased by $63 million in the three months
ended September 30, 2004 relative to 2003 due to
ComEds May 1, 2004 entry into PJM partially offset by
$4 million of lower transmission revenues and expenses at
PECO. The increases related to the change in control of the
transmission assets from ComEd to PJM as a result of which ComEd
receives revenues for its proportionate share of the
transmission revenues generated by PJM, but also pays PJM for
the use of its transmission assets. This is consistent with how
PECO accounts for its PJM transmission revenues and expenses.
For 2004, ComEds operating revenues are estimated to
increase by approximately $180 million, offset by a
corresponding and equal increase in purchased power expense.
Starting in 2005, on an annual basis, ComEds operating
revenues and purchased power expense are estimated to increase
between $200 to $250 million. However, there is no expected
effect on revenues net of purchased power expense.
Rate Changes and
Mix.
ComEds competitive
transition charge (CTC) is reset in the second quarter of
each year to reflect market price adjustments. As a result,
ComEds CTC revenues decreased $11 million for the
three months ended September 30, 2004 as compared to the
same period in 2003. This decrease was offset by increased
wholesale market prices that increased energy revenue received
under ComEds power purchase option (PPO) and by
increased average rates paid by small and large commercial and
industrial customers totaling $11 million.
Increased average rates paid by ComEds
residential customers resulted in a $10 million increase in
revenues. Although residential rates are frozen through 2006,
ComEds average effective residential rates fluctuate due
to the usage patterns of customers.
84
Electric revenues were unchanged at PECO as a
result of a $7 million unfavorable rate mix due to changes
in monthly usage patterns in all customer classes, offset by a
$7 million increase related to a scheduled phase-out of
merger-related rate reductions. In connection with the
Pennsylvania Public Utility Commissions
(PUC) approval of the merger of PECO and Unicom Corporation
into Exelon in 2000, PECO entered into a settlement agreement
with intervening parties and agreed to $200 million in
aggregate rate reductions for all customers over the period
January 1, 2002 through December 31, 2005.
Consequently, rates were reduced from the levels that otherwise
would have been in effect pursuant to the PUC approved
restructuring settlement by $60 million annually until
January 1, 2004 when the reduction decreased to
$40 million annually, which will be in effect through
December 31, 2005.
Energy Deliverys gas revenues reflect
increases in rates through PUC approved changes to the purchased
gas adjustment clause that became effective March 1, 2004.
The average purchased gas cost rate per million cubic feet for
the three months ended September 30, 2004 was 22% higher
than the rate for the same period in 2003. PECOs purchased
gas cost rates are subject to periodic adjustments by the PUC
and are designed to recover from or refund to customers the
difference between the actual cost of purchased gas and the
amount included in rates. PECO anticipates that its purchased
gas cost rates will be reduced effective December 1, 2004
in connection with a settlement approved by the PUC in September
2004. This decrease will have no impact on PECOs operating
income.
Purchased Power and Fuel
Expense.
The changes in Energy
Deliverys purchased power and fuel expense for the three
months ended September 30, 2004 compared to the same period
in 2003 consisted of the following:
Weather.
Energy
Deliverys purchased power and fuel expense decreased due
to the effect of unfavorable weather conditions.
Customer Choice.
An
increase in customer switching resulted in a reduction of
purchased power expense, primarily due to ComEds
non-residential customers electing to purchase energy from an
AES or under the ComEd PPO and PECOs residential and small
commercial and industrial customers selecting or being assigned
to purchase energy from an AES.
Prices.
Energy
Deliverys electric purchased power decreased primarily due
to the mix of average pricing related to ComEds PPA with
Generation. Fuel expense for gas increased due to higher gas
prices. See Operating Revenues above.
Volume.
ComEds
purchased power and fuel expense increased due to increases,
exclusive of the effect of weather and customer choice, in the
number of customers and average usage per customer, primarily
residential and large and small commercial and industrial
customers. PECOs electric purchased power and fuel expense
increased as a result of higher delivery volume, exclusive of
the effect of weather and customer choice, due to an increased
number of customers and increased usage per customer across all
customer classes.
PJM Transmission.
Energy Deliverys operating revenues and purchased power
expense each increased by $63 million in the three months
ended September 30, 2004 relative to 2003 due to
ComEds May 1, 2004
85
Operating and Maintenance
Expense.
The changes in operating
and maintenance expense for the three months ended
September 30, 2004 compared to the same period in 2003
consisted of the following:
Depreciation and Amortization
Expense.
The increase in
depreciation and amortization expense was primarily due to
increased CTC amortization of $12 million at PECO and
increased depreciation of $5 million due to capital
additions across Energy Delivery.
Operating
Income.
Operating income,
exclusive of the changes discussed above, decreased as a result
of increased taxes other than income. The increase in taxes
other than income was primarily attributable to $58 million
at PECO related to the reversal of real estate tax accruals
during 2003, partially offset by $8 million in additional
use tax payments in 2003 at ComEd and an $8 million refund
at ComEd in 2004 for Illinois Electricity Distribution Taxes.
Interest
Expense.
The reduction in interest
expense was primarily due to scheduled principal payments, debt
retirements and prepayments, and refinancings at lower rates.
Other, net.
In 2004, Exelon initiated an accelerated liability management
plan at ComEd that resulted in the retirement of approximately
$768 million of long-term debt. Exelon and ComEd recorded a
charge of $106 million associated with the retirement of
debt under the plan. The components of this charge included the
following: $63 million related to prepayment premiums;
$11 million related to net unamortized premiums, discounts
and debt issuance costs; $23 million of losses on
reacquired debt previously deferred as regulatory assets; and
$9 million related to settled cash-flow interest-rate swaps
previously deferred as regulatory assets. In 2003, PECO reversed
an accrual for interest income on Federal income taxes of
$14 million to reflect actual interest received.
Income taxes.
At ComEd, the effective income tax rate was 43% for the three
months ended September 30, 2004, compared to 39% for the
three months ended September 30, 2003. At PECO, the
effective tax rate was 37% for the three months ended
September 30, 2004 as compared to 35% for the same period
in 2003. The increases in the effective tax rates were primarily
attributable to adjustments to prior period income taxes in
connection with the completion of the 2003 tax returns. See
Note 12 of the Combined
86
Energy Deliverys electric sales statistics
and revenue detail were as follows:
87
Energy Deliverys gas sales statistics and
revenue detail were as follows:
88
Results of
Operations Generation
As previously described, effective
January 1, 2004, Exelon contributed its interest in Exelon
Energy Company to Generation. Exelon Energy Company was
previously reported as a part of the Enterprises segment. For
comparative discussion within this segment analysis, Exelon
Energy Companys results of operations have been included
within Generations results of operations as if this
transfer had occurred on January 1, 2003.
Operating
Revenues.
For the three months
ended September 30, 2004 and 2003, Generations sales
were as follows:
89
Trading volumes of 7,132 GWhs and 11,086 GWhs for
the three months ended September 30, 2004 and 2003,
respectively, are not included in the table above. The decrease
in trading volume is a result of reduced proprietary trading
activity.
Generations average margin (operating
revenue, less purchased power and fuel expenses) and other
operating data for the three months ended September 30,
2004 and 2003 were as follows:
Wholesale and Retail Electric
Sales.
The changes in
Generations wholesale and retail electric sales for the
three months ended September 30, 2004 compared to the same
period in 2003 consisted of the following:
The adoption of EITF 03-11 on
January 1, 2004 resulted in the netting of certain revenues
and the associated purchase power and fuel expense in 2004. See
Note 2 of the Combined Notes to Consolidated Financial
Statements for further discussion of EITF 03-11. The sale
of Boston Generating in May 2004 decreased wholesale and retail
sales, which was partially offset by the increase from the
acquisition of the remaining 50% of AmerGen in 2003.
The increase in other wholesale and retail
electric sales was primarily due to higher demand in the forward
wholesale market as a result of forward hedging and fuel prices,
and higher average market prices driven by coal prices in the
Midwest, and higher oil and gas prices in the Mid-Atlantic
region contributed to higher revenues.
Electric Sales to
Affiliates.
The decrease in revenue
from sales to affiliates was due to lower sales to Energy
Delivery. The lower sales to Energy Delivery were primarily due
to customers purchasing energy from
90
Retail Gas Sales.
Retail gas sales decreased $23 million as a result of the
wind down of Exelon Energys Northeast business.
Other.
Certain other
revenues increased for the three months ended September 30,
2004 as compared to the same period in 2003, primarily due to
the consolidation of Sithes operations beginning
April 1, 2004.
Purchased Power and Fuel
Expense.
Generations supply
source is summarized below:
The changes in Generations purchased power
and fuel expense for the three months ended September 30,
2004 compared to the same period in 2003 consisted of the
following:
Adoption of
EITF 03-11.
The adoption of
EITF 03-11 resulted in a decrease in reported purchased
power and fuel expense of $272 million.
Boston Generating.
The decrease in fuel and purchased power expense for Boston
Generating is due to the sale of the business in May 2004.
AmerGen.
As result
of Generations acquisition of the remaining 50% interest
in AmerGen in December 2003, purchased power decreased
$124 million, which had a significant impact on
Generations average supply cost decrease for the same
period. In prior periods, Generation reported energy purchased
from AmerGen as purchased power expense.
Hedging Activity.
Mark-to-market gains on hedging activities were $57 million
for the three months ended September 30, 2004 compared to
losses of $21 million for the same period of 2003.
91
Midwest Generation.
The volume of purchased power acquired from Midwest Generation
declined in 2004 as a result of Generation exercising its option
to reduce the capacity purchased from Midwest Generation.
Sithe.
Under the
provisions of FIN No. 46-R, the operating results of Sithe
were included in Generations results of operations
beginning April 1, 2004. See Note 4 of the Combined
Notes to Consolidated Financial Statements for further
discussion of Sithe.
Volume.
Generation
experienced increases in purchased power and fuel expense due to
increased market and retail electric sales throughout its
various sales regions. The increase in purchased power was
partially offset by decreased purchased power from Midwest
Generation (see Midwest Generation above for further
information).
Price.
The increase
reflects higher market energy prices due to higher natural gas,
oil and coal prices.
Other.
Other
decreases in purchased power and fuel expense were primarily due
to $20 million of lower fuel expense due to the wind down
of Exelon Energys northeast business and $20 million
of lower transmission expense resulting from reduced
inter-region transmission charges, primarily associated with
ComEds integration into PJM during the second quarter of
2004.
Impairment of the Long-Lived Assets of
Boston Generating.
In connection
with the decision to transition out of the ownership of Boston
Generating and the projects during the third quarter of 2003,
Generation recorded a long-lived asset impairment charge of
$945 million ($573 million net of income taxes). See
Note 3 of the Combined Notes to Consolidated Financial
Statements for further discussion of the sale of
Generations ownership interest in Boston Generating.
Operating and Maintenance
Expense.
The changes in operating
and maintenance expense for the three months ended
September 30, 2004 compared to the same period in 2003
consisted of the following:
The decrease in operating and maintenance expense
was primarily due to reductions in payroll-related costs
associated with the implementation of the programs associated
with The Exelon Way, a reduction in operating and maintenance
expense resulting from the settlement with the DOE to reimburse
Generation for costs associated with storage of spent nuclear
fuel, the sale of Boston Generating in May 2004, and a
$36 million reduction in the contractual obligation that
Generation has to ComEd related to decommissioning obligations.
Generation is required to refund ComEd the amount of
decommissioning trust fund assets in excess of the asset
retirement obligation (ARO), if any, at the completion of the
decommissioning of the former ComEd nuclear units. In the third
quarter of 2004, Generation updated the ARO for the former ComEd
plants and was required to impair an asset established during
this process (see Depreciation and Amortization discussion
below). The obligation to ComEd was reduced due to this
impairment charge and as such, operating expense was reduced by
an equal amount. These decreases in operating and maintenance
expense were partially offset by the inclusion of AmerGen and
Sithes operating results in Generations consolidated
results for 2004.
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Nuclear fleet operating data and purchased power
cost data for the three months ended September 30, 2004 and
2003 were as follows:
Higher nuclear capacity factors were primarily
due to four fewer planned refueling outage days. The four fewer
outage days resulted in a $12 million decrease in planned
outage costs for the three months ended September 30, 2004
as compared to the same period in 2003. There was one planned
outage during the three months ended September 30, 2004,
compared to two planned outages during the same period in 2003.
The three months ended September 30, 2004 included four
unplanned outages compared to nine unplanned outages during the
same period in 2003.
Lower nuclear production costs were primarily due
to higher nuclear fuel capacity and the spent fuel storage cost
settlement agreement with the DOE which resulted in the
reimbursement of $40 million in spent fuel storage costs
incurred as operating and maintenance expenses prior to
September 30, 2003, and the recording of $12 million
of spent fuel storage operating and maintenance expenses
incurred from October 1, 2003 to September 30, 2004 as
an Other Account Receivable.
In the three months ended September 30, 2004
as compared to the three months ended September 30, 2003,
the Quad Cities units operated at pre-Extended Power Uprate
(EPU) generation levels due to performance issues with
their steam dryers. Generation plans additional expenditures to
ensure safe and reliable operations at the EPU output levels by
mid-2005.
Depreciation and
Amortization.
The increase in
depreciation and amortization expense for the three months ended
September 30, 2004 as compared to the same period in 2003
was primarily due to the establishment of an ARC asset for
retired nuclear units of $36 million associated with the
third quarter 2004 update of the nuclear decommissioning ARO.
This ARC was immediately impaired through depreciation expense
as this asset was associated with retired nuclear units that do
not have any remaining useful life. The remaining increase is
due to capital additions and the consolidation of Sithe, AmerGen
and Exelon Energy. These increases were partially offset by a
decrease in depreciation expense related to the Boston
Generating facilities, which were sold in May 2004.
Effective Income Tax
Rate.
The effective income tax
rate was 38% for the three months ended September 30, 2004
compared to 40% for the same period in 2003. This decrease is
primarily attributable to the impairment charges recorded in
2003 related to Generations investment in Sithe which
resulted in a pre-tax loss. See Note 12 of the Combined
Notes to the Consolidated Financial Statements for further
discussion of the change in the effective income tax rate.
As previously described, effective
January 1, 2004, Exelon contributed its interest in Exelon
Energy Company to Generation. Exelon Energy Company was
previously reported as a part of the Enterprises
93
Divestiture of Businesses and
Investments.
Exelon is continuing
to execute its divestiture strategy for Enterprises.
Enterprises results for the three and nine months ended
September 30, 2004 compared to the three months and nine
ended September 30, 2003 were significantly affected by the
following transactions:
InfraSource, Inc.
On
September 24, 2003, Enterprises sold the electric
construction and services, underground and telecom businesses of
InfraSource.
Exelon Services,
Inc.
During 2004, Enterprises disposed
of substantially all of the operating businesses of Services,
including Exelon Solutions, most mechanical services businesses
and the Integrated Technology Group. Total expected proceeds and
the net gain on sale recorded during the three months ended
September 30, 2004 related to the disposition of these
Services businesses were $6 million and $1 million,
respectively. The gain was recorded in other income and
deductions on Exelons Consolidated Statements of Income
and Comprehensive Income. As of September 30, 2004,
Services had assets and liabilities of $66 million and
$14 million, respectively, which primarily represented the
corporate operations.
Exelon Thermal Holdings
Inc.
On June 30, 2004,
Enterprises sold its Chicago business of Thermal for proceeds of
$134 million, subject to working capital adjustments.
Enterprises repaid $37 million of debt outstanding of the
Chicago thermal operations prior to closing, which resulted in
prepayment penalties of $9 million, which were recorded as
interest expense. A pre-tax gain of $45 million was
recorded in other income and deductions on Exelons
Consolidated Statements of Income and Comprehensive Income.
On September 29, 2004, Enterprises closed on
the sale of ETT Nevada, Inc., the holding company for its
investment in Aladdin, for a net cash outflow of
$1 million, subject to working capital adjustments. A
pre-tax loss of $3 million was recorded in other income and
deductions on Exelons Consolidated Statements of Income
and Comprehensive Income inclusive of the acquisition and sale
of Aladdins third-party debt associated with the
transaction.
PECO Telcove.
On
June 30, 2004, Enterprises sold its investment in PECO
TelCove, a communications joint venture, along with certain
telecommunications assets, for proceeds of $49 million. A
pre-tax gain of $9 million was recorded in other income and
deductions on Exelons Consolidated Statements of Income
and Comprehensive Income. An impairment charge of
$5 million (before income taxes) related to the
telecommunications assets had been recorded in the fourth
quarter of 2003.
94
Operating
Revenues.
The changes in
Enterprises operating revenues for the three months ended
September 30, 2004 compared to the same period in 2003
consisted of the following:
Operating and Maintenance
Expense.
The changes in
Enterprises operating and maintenance expense for the
three months ended September 30, 2004 compared to the same
period in 2003 consisted of the following:
Other Income and
Deductions.
The decrease in other
income and deductions was primarily due to impairments of
investments recorded in 2004.
Effective Income Tax
Rate.
The effective income tax
rate was 35% for the three months ended September 30, 2004
compared to 39% for the same period in 2003. The decrease in the
effective tax rate was primarily attributable to state tax
impact on the sale of investments at ECPH, LLC.
Cumulative Effect of a Change in Accounting
Principle.
Enterprises adopted
EITF 03-16 on July 1, 2004, which required Enterprises
to account for certain of its limited liability partnerships
under the equity method of accounting. Enterprises recorded an
after-tax impairment charge of $9 million as a cumulative
effect of a change in accounting principle upon adoption of
EITF 03-16.
95
Operating
Revenues.
Operating revenues
decreased for the nine months ended September 30, 2004 as
compared to the same period in 2003 primarily due to
Generations adoption of EITF 03-11 in the first
quarter of 2004, which changed the presentation of certain power
transactions and decreased operating revenues by
$724 million, and decreased revenues at Enterprises due to
the sale of the majority of its businesses since the third
quarter of 2003. The adoption of EITF 03-11 had no impact
on net income. Operating revenues were favorably affected by
Generations acquisition of the remaining 50% of AmerGen
and the consolidation of Sithe. See further discussion of
operating revenues by segment below.
Purchased Power and Fuel Expense.
Purchased power and fuel expense
decreased during the nine months ended September 30, 2004
as compared to the same period in 2003 primarily due to
Generations adoption of EITF 03-11 during 2004 which
resulted in a decrease in purchased power expense and fuel
expense of $724 million. In addition, purchased power
decreased due to Generations acquisition of the remaining
50% of AmerGen in December 2003, which was only partially offset
by an increase in fuel expense, and the sale of Boston
Generating in the second quarter of 2004. Purchased power
represented 24% of Generations total supply for the nine
months ended September 30, 2004 compared to 37% for the
same period in 2003. See further discussion of purchased power
and fuel expense by segment below.
Impairment of Long-Lived Assets of Boston
Generating.
Generation recorded a
$945 million charge (before income taxes) during the third
quarter of 2003 to impair the long-lived assets of Boston
Generating.
Operating and Maintenance
Expense.
Operating and maintenance
expense decreased for the nine months ended September 30,
2004 as compared to the same period in 2003 primarily due to
decreased expenses at Enterprises due to the sale of the
majority of its businesses since the third quarter of 2003, a
decrease in severance and severance-related charges associated
with the Exelon Way and decreased expenses at Energy Delivery
due to a $41 million charge recorded in 2003 related to an
agreement with various Illinois retail market participants and
other interested parties, partially offset by increased expenses
at Generation due to the acquisition of the remaining 50% of
AmerGen. Operating and maintenance expense increased
$69 million due to investments made in the fourth quarter
of 2003 in synthetic fuel-producing facilities. See further
discussion of operating and maintenance expenses by segment
below.
Depreciation and Amortization
Expense.
The increase in
depreciation and amortization expense is primarily due to
additional plant placed in service after the third quarter of
2003 at Energy Delivery and Generation, the recording and
subsequent impairment of an ARC asset at Generation in 2004 and
increased
96
Operating
Income.
Exclusive of the changes
in operating revenues, purchased power and fuel expense,
operating and maintenance expense and depreciation and
amortization expense discussed above, the change in operating
income was primarily the result of increased taxes other than
income in 2004 as compared to 2003, primarily due to the
reversal of real estate tax accruals at PECO and Generation
during the third quarter of 2003.
Other Income and
Deductions.
Other income and
deductions reflects debt retirement charges of $106 million
recorded at ComEd in 2004 associated with an accelerated
liability management plan, impairment charges of
$255 million (before income taxes) recorded during 2003
related to Generations investment in Sithe, an
$85 million gain (before income taxes) on the 2004 sale of
Boston Generating and a $36 million gain on the sale of
Thermal in 2004 (before income taxes and net of debt prepayment
penalties). Equity in earnings of unconsolidated affiliates
decreased by $179 million due to the acquisition of the
remaining 50% of AmerGen in December 2003, the deconsolidation
of certain financing trusts during 2003 and investments made in
the fourth quarter of 2003 in synthetic fuel-producing
facilities.
Effective Income Tax
Rate.
Exelons effective
income tax rate decreased from 33% for the nine months ended
September 30, 2003 to 31% for the same period in 2004,
primarily due to investments made in synthetic fuel-producing
facilities during the fourth quarter of 2003. See Note 12
of the Combined Notes to the Consolidated Financial Statements
for further discussion of the change in the effective income tax
rate.
Cumulative Effect of Changes in Accounting
Principles.
Net income for the
nine months ended September 30, 2004 reflects income of
$32 million, net of income taxes, related to the
consolidation of Sithe pursuant to FIN No. 46-R and a
charge of $9 million, net of income taxes, due to the
adoption of EITF 03-16 and the resulting impairment of
certain limited liability partnerships at Enterprises. Net
income for the nine months ended September 30, 2003
reflects income of $112 million, net of income taxes, for
the adoption of SFAS No. 143. See Note 2 of the
Combined Notes to Consolidated Financial Statements for further
information regarding the adoptions of FIN No. 46-R and
SFAS No. 143.
The comparisons of operating results and other
statistical information for the nine months ended
September 30, 2004 and 2003 set forth below reflect
intercompany transactions, which are eliminated in Exelons
consolidated financial statements.
Effective January 1, 2004, Enterprises
competitive retail sales business, Exelon Energy Company, became
part of Generation. The information for the nine months ended
September 30, 2003 related to the Generation and
Enterprises segments discussed below has been adjusted to
reflect the transfer of Exelon Energy Company from the
Enterprises segment to the Generation segment. Exelon Energy
Companys results for the nine months ended
September 30, 2003 were as follows:
97
98
Operating
Revenues.
The changes in Energy
Deliverys operating revenues for the nine months ended
September 30, 2004 compared to the same period in 2003
consisted of the following:
Volume.
Both
ComEds and PECOs electric revenues increased as a
result of higher delivery volume, exclusive of the effect of
weather and customer choice, due to an increased number of
customers and increased usage per customer, primarily
residential and large and small commercial and industrial
customers for ComEd and across all customer classes for PECO.
PJM Transmission.
Energy Deliverys transmission revenues and purchased power
expense each increased by $106 million in the nine months
ended September 30, 2004 relative to 2003 due to
ComEds May 1, 2004 entry into PJM partially offset by
$13 million of lower transmission revenues and expenses at
PECO.
Rate Changes and
Mix.
Starting in the June 2003 billing
cycle, the increased wholesale market price of electricity and
other adjustments to the energy component decreased the
collection of CTCs as compared to the respective prior year
period. As a result, ComEds CTC revenues decreased by
$131 million for the nine months ended September 30,
2004 as compared to the same period in 2003. This decrease was
partially offset by increased wholesale market prices which
increased energy revenue received under the ComEd PPO and by
increased average rates paid by small and large commercial and
industrial customers totaling $58 million. For the nine
months ended September 30, 2004 and September 30,
2003, ComEd collected approximately $131 million and
$262 million, respectively, of CTC revenue. As a result of
increasing mitigation factors, changes in energy prices and the
ability of certain customers to establish fixed, multi-year CTC
rates beginning in 2003, and increases in ComEds open
access transmission tariff rates (OATT) effective May 1,
2004, ComEd anticipates that this revenue source will decline to
approximately $180 million for 2004 and range from
$100 million to $180 million annually in 2005 and
2006. Under the current restructuring statute, no CTCs will be
collected after 2006.
Electric revenues increased $2 million at
PECO as a result of a $16 million increase related to a
scheduled phase out of merger-related rate reductions, offset by
a $14 million decrease reflecting a change in rate mix due
to changes in monthly usage patterns in all customer classes
during 2004 as compared to 2003.
Energy Deliverys gas revenues increased due
to increases in rates through PUC approved changes to the
purchased gas adjustment clause that became effective
March 1, 2003, June 1, 2003, December 1, 2003 and
March 1, 2004. The average purchased gas cost rate per
million cubic feet for the nine months ended September 30,
2004 was 38% higher than the rate for the same period in 2003.
Customer Choice.
For
the nine months ended September 30, 2004 and 2003, 28% and
24%, respectively, of energy delivered to Energy Deliverys
retail customers was provided by an AES or under the ComEd PPO.
The decrease in electric retail revenues attributable to
customer choice included a decrease in revenues of
$113 million from customers in Illinois electing to
purchase energy from an AES or under the ComEd PPO and a
decrease in revenues of $63 million from customers in
Pennsylvania being assigned to or selecting an AES.
99
Weather.
Energy
Deliverys electric revenues were negatively affected by
unfavorable weather conditions. Cooling degree-days in the ComEd
and PECO service territories were 12% lower and relatively
unchanged, respectively, for the nine months ended
September 30, 2004 as compared to the same period in 2003.
Heating degree-days were 8% lower in both the ComEd and PECO
service territories for the nine months ended September 30,
2004 as compared to the same period in 2003.
Energy Deliverys gas revenues were affected
by unfavorable weather conditions.
Purchased Power and Fuel
Expense.
The changes in Energy
Deliverys purchased power and fuel expense for the nine
months ended September 30, 2004 compared to the same period
in 2003 consisted of the following:
Volume.
ComEds
purchased power and fuel expense increased due to increases,
exclusive of the effect of weather and customer choice, in the
number of customers and average usage per customer, primarily
residential and large and small commercial and industrial
customers at ComEd. PECOs electric purchased power and
fuel expense increased as a result of higher delivery volume,
exclusive of the effect of weather and customer choice, due to
an increased number of customers and increased usage per
customer across all customer classes.
PJM Transmission.
Energy Deliverys transmission revenues and purchased power
expense each increased by $106 million in the nine months
ended September 30, 2004 relative to 2003 due to
ComEds May 1, 2004 entry into PJM partially offset by
$13 million of lower transmission revenues and expenses at
PECO. See Operating Revenues above.
Prices.
Energy
Deliverys purchased power expense remained relatively
unchanged. Fuel expense for gas increased due to higher gas
prices. See Operating Revenues above.
Customer Choice.
An
increase in customer switching resulted in a reduction of
purchased power expense, primarily due to ComEds
non-residential customers electing to purchase energy from an
AES or under the ComEd PPO and PECOs residential and small
commercial and industrial customers selecting or being assigned
to purchase energy from an AES.
Weather.
Energy
Deliverys purchased power and fuel expense decreased due
to unfavorable weather conditions.
100
Operating and Maintenance
Expense.
The changes in operating
and maintenance expense for the nine months ended
September 30, 2004 compared to the same period in 2003
consisted of the following:
Depreciation and Amortization
Expense.
The increase in
depreciation and amortization expense was primarily due to
increased competitive transition charge amortization of
$26 million at PECO and increased depreciation of
$13 million due to capital additions across Energy Delivery.
Operating
Income.
Operating income,
exclusive of the changes discussed above, decreased as a result
of increased taxes other than income of $42 million, which
reflects a $58 million increase at PECO offset by a
$16 million decrease at ComEd. The increase at PECO was
primarily attributable to $58 million related to the
reversal of real estate tax accruals during 2003 and
$12 million related to the reversal of a use tax accrual in
2003 resulting from an audit settlement, partially offset by
$5 million of lower capital stock tax. The decrease at
ComEd was primarily attributable to $6 million in 2003 for
additional use tax payments, a $4 million decrease in
payroll taxes as a result of a fewer number of employees, and
refunds of $8 million for Illinois Electricity Distribution
taxes in 2004 partially offset by refunds of $5 million for
Illinois Electricity Distribution taxes in 2003.
Interest
Expense.
The reduction in interest
expense was primarily due to scheduled principal payments, debt
retirements and prepayments, and refinancings at lower rates.
101
Other, net.
In 2004, Exelon initiated an accelerated liability management
plan at ComEd that resulted in the retirement of approximately
$768 million of long-term debt. Exelon recorded a charge of
$106 million associated with the retirement of debt under
the plan. The components of this charge included the following:
$63 million related to prepayment premiums;
$11 million related to net unamortized premiums, discounts
and debt issuance costs; $23 million of losses on
reacquired debt previously deferred as regulatory assets; and
$9 million related to settled cash-flow interest-rate swaps
previously deferred as regulatory assets. In 2003, ComEd
recorded income of $12 million resulting from the reduction
of a reserve accrual for a potential plant disallowance related
to ComEds delivery services rate case. In 2003, PECO
reversed an accrual for interest on Federal income taxes of
$14 million to reflect actual interest received.
Energy Deliverys electric sales statistics
and revenue detail were as follows:
102
Energy Deliverys gas sales statistics and
revenue detail were as follows:
103
As previously described, effective
January 1, 2004, Exelon contributed its interest in Exelon
Energy Company to Generation. Exelon Energy Company was
previously reported as a part of the Enterprises segment. For
comparative discussion and analysis, Exelon Energy
Companys results of operations have been included within
Generations results of operations as if this transfer had
occurred on January 1, 2003 within this segment analysis.
Operating
Revenues.
For the nine months
ended September 30, 2004 and 2003, Generations sales
were as follows:
n.m. not meaningful
104
Trading volumes of 17,569 GWhs and 28,532 GWhs
for the nine months ended September 30, 2004 and 2003,
respectively, are not included in the table above. The decrease
in trading volume is a result of reduced proprietary trading
activity.
Generations average margin (operating
revenue, less purchased power and fuel expenses) and other
operating data for the nine months ended September 30, 2004
and 2003 were as follows:
Wholesale and Retail Electric
Sales.
The changes in
Generations wholesale and retail electric sales for the
nine months ended September 30, 2004 compared to the same
period in 2003 consisted of the following:
The adoption of EITF 03-11 on
January 1, 2004 resulted in the netting of certain revenues
and the associated purchase power and fuel expense in 2004. The
sale of Boston Generating in May 2004 decreased wholesale and
retail sales, which was partially offset by the increase from
the acquisition of the remaining 50% of AmerGen in 2003.
The remaining increase in wholesale and retail
electric sales was primarily due to higher demand in the forward
wholesale market as a result of forward hedging and fuel prices.
Higher average market prices in the Midwest region were
primarily driven by higher coal prices, and in the Mid-Atlantic
region market prices were driven higher primarily by higher oil
and gas prices.
105
Electric Sales to
Affiliates.
The decrease in revenue
from affiliates included $97 million in lower sales to
Energy Delivery. The lower sales to Energy Delivery were
primarily due to customers purchasing energy from an AES and
unfavorable weather conditions in the ComEd and PECO service
territories compared to the prior year.
Retail Gas Sales.
Retail gas sales decreased $152 million as a result of the
wind down of Exelon Energys northeast business.
Other.
Certain other
revenues increased for the nine months ended September 30,
2004 as compared to the same period in 2003 primarily due to the
consolidation of Sithes results of operations beginning
April 1, 2004.
Generations supply source is summarized
below:
The changes in Generations purchased power
and fuel expense for the nine months ended September 30,
2004 compared to the same period in 2003 consisted of the
following:
Effects of the Adoption of
EITF 03-11.
The adoption of
EITF 03-11 resulted in a decrease in purchased power and
fuel expense of $724 million.
AmerGen.
As result
of Generations acquisition of the remaining 50% interest
in AmerGen in December 2003, purchased power decreased
$284 million, which had a significant impact on
Generations average supply cost decrease for the same
period. In prior periods, Generation reported energy purchased
from AmerGen as purchased power expense.
106
Midwest Generation.
The volume of purchased power acquired from Midwest Generation
declined in 2004 as a result of Generation exercising its option
to reduce the capacity purchased from Midwest Generation, as
announced in 2003.
Boston Generating.
The decrease in fuel and purchased power expense for Boston
Generating is due to the sale of the business in May of 2004.
Hedging Activity.
Mark-to-market gains on hedging activities were $39 million
for the nine months ended September 30, 2004 compared to
losses of $18 million for the same period in 2003.
Price.
The decrease
primarily reflects lower average fossil fuel costs of
$31 million during the nine months ended September 30,
2004 as compared to the same period in 2003.
Volume.
Generation
experienced increased purchased power and fuel expense due to
increased market and retail electric sales throughout its
various sales regions. The increase in purchased power is
partially offset by decreased purchased power from Midwest
Generation (see Midwest Generation above for further
information).
Sithe.
Under the
provisions of FIN No. 46-R, the operating results of Sithe
were included in Generations results of operations
beginning April 1, 2004. See Note 4 of the Combined
Notes to Consolidated Financial Statements for further
discussion of Sithe.
Other.
Other
decreases in purchased power and fuel were primarily due to
$168 million of lower fuel expense due to the wind down of
Exelon Energys northeast business, $66 million in
lower transmission expense resulting from reduced inter-region
transmission as a result of ComEds integration into PJM in
the second quarter of 2004, and $16 million of nuclear fuel
amortization recorded in 2003 as a result of the replacement of
underperforming fuel at the Quad Cities Station.
Impairment of the Long-Lived Assets of
Boston Generating.
In connection
with the decision to transition out of the ownership of Boston
Generating and the projects during the third quarter of 2003,
Generation recorded a long-lived asset impairment charge of
$945 million ($573 million net of income taxes) in the
third quarter of 2003. See Note 3 of the Combined Notes to
Consolidated Financial Statements for further discussion of the
sale of Generations ownership interest in Boston
Generating.
Operating and Maintenance
Expense.
The changes in operating
and maintenance expense for the nine months ended
September 30, 2004 compared to the same period in 2003
consisted of the following:
The increase in operating and maintenance expense
was primarily due to the inclusion of AmerGen and Sithes
operating results in Generations consolidated results for
2004. This increase was partially offset with reductions in
payroll-related costs due to implementation of the programs
associated with The Exelon Way,
107
Nuclear fleet operating data and purchased power
costs data for the nine months ended September 30, 2004 and
2003 were as follows:
Lower nuclear capacity factors were primarily due
to 51 additional planned refueling outage days, resulting in a
$34 million increase in planned outage costs in the nine
months ended September 30, 2004 as compared to the same
period in 2003. There were six planned outages during the nine
months ended September 30, 2004, compared to five planned
outages during the same period in 2003. The nine months ended
September 30, 2004 included 16 unplanned outages compared
to 20 unplanned outages during the same period in 2003.
The lower nuclear production costs were primarily
due to the spent fuel storage cost settlement agreement with the
DOE which resulted in the reimbursement of $40 million in
spent fuel storage costs incurred as operating and maintenance
expenses prior to September 30, 2003, and the recording of
$12 million of spent fuel storage operating and maintenance
expenses incurred from October 1, 2003 to
September 30, 2004 as an Other Account Receivable.
Nuclear capacity factors were also affected by
Quad Cities operating at lower than anticipated capacity levels.
The Quad Cities units have intermittently been operating at
pre-EPU generation levels due to performance issues with their
steam dryers. Generation plans additional expenditures to ensure
safe and reliable operations at the EPU output levels by
mid-2005.
Depreciation and Amortization.
The increase in depreciation and
amortization expense for the nine months ended
September 30, 2004 as compared to the same period in 2003
was primarily due to the establishment of an ARC asset for
retired nuclear units of $36 million associated with the
third quarter 2004 update of the nuclear decommissioning ARO.
This ARC was immediately impaired through depreciation expense
as this asset was associated with retired nuclear units that do
not have any remaining useful life. The remaining increase was
due to capital additions and the consolidation of Sithe and
AmerGen. These increases were partially offset by a decrease in
depreciation expense related to the Boston Generating facilities
that were sold in May 2004.
Effective Income Tax
Rate.
The effective income tax
rate was 38% for the nine months ended September 30, 2004
compared to 38% for the same period in 2003. See Note 12 of
the Combined Notes to the Consolidated Financial Statements for
further discussion of the change in the effective income tax
rate.
Cumulative Effect of Changes in Accounting
Principles.
The cumulative effect
of changes in accounting principles recorded during the nine
months ended September 30, 2004 and 2003 included
$32 million, net of income taxes, recorded in 2004 related
to the consolidation of Sithe pursuant to FIN No. 46-R,
which resulted from the reversal of certain guarantees on behalf
of Sithe that had been recorded at Generation prior to
December 31, 2003, and income of $108 million, net of
income taxes, recorded in 2003 related to the adoption of
SFAS No. 143. See Note 2 of the Combined Notes to
Consolidated Financial Statements for further discussion of
these effects.
108
As previously described, effective
January 1, 2004, Exelon contributed its interest in Exelon
Energy Company to Generation. Exelon Energy Company was
previously reported as a part of the Enterprises segment. For
comparative discussion and analysis, the results of Exelon
Energy Company have been excluded from Enterprises 2003
results of operations discussed below.
Divestiture of Businesses and
Investments.
Exelon is continuing
to execute its divestiture strategy for Enterprises. See the
discussion of Enterprises results of operations for the
three months ended September 30, 2004 compared to the three
months ended September 30, 2003 for a description of
divestitures that affect the comparability of results between
periods.
Operating
Revenues.
The changes in
Enterprises operating revenues for the nine months ended
September 30, 2004 compared to the same period in 2003
consisted of the following:
Operating and Maintenance
Expense.
The changes in
Enterprises operating and maintenance expense for the nine
months ended September 30, 2004 compared to the same period
in 2003 consisted of the following:
109
Other Income and
Deductions.
The increase in other
income and deductions was primarily due to 2004 gains on the
sale of Thermal and Enterprises investment in PECO Telcove
of $54 million (before income taxes and net of debt
prepayment penalties) and income of $18 million recorded
during the second quarter of 2004 related to the collection of a
note receivable prior to its maturity. Other income and
deductions in 2003 included impairment charges of energy,
software and communications investments of $40 million.
Effective Income Tax
Rate.
The effective income tax
rate was 100% for the nine months ended September 30, 2004
compared to 37% for the same period in 2003. The increase in the
effective tax rate was primarily attributable to the state tax
impact of the sale of certain Capital Partners investments and
the PECOTelcove transactions.
Liquidity and Capital Resources
Exelons businesses are capital intensive
and require considerable capital resources. These capital
resources are primarily provided by internally generated cash
flows from Energy Deliverys and Generations
operations. When necessary, Exelon obtains funds from external
sources in the capital markets and through bank borrowings.
Exelons access to external financing at reasonable terms
depends on Exelon and its subsidiaries credit ratings and
general business conditions, as well as that of the utility
industry in general. If these conditions deteriorate to where
Exelon no longer has access to the capital markets at reasonable
terms, Exelon has access to revolving credit facilities with
aggregate bank commitments of $1.5 billion that it
currently utilizes to support its commercial paper programs. See
the Credit Issues section of Liquidity and
Capital Resources for further discussion. Exelon primarily
uses its capital resources to fund capital requirements,
including construction, to retire debt, to pay common stock
dividends, to fund its pension obligations and to invest in new
and existing ventures. Future acquisitions that Exelon may
undertake may require external financing, which might include
issuing Exelon common stock.
Energy Deliverys cash flows from operating
activities primarily result from sales of electricity and gas to
a stable and diverse base of retail customers at fixed prices
and are
Cash flows from operations have been and are
expected to continue to provide a reliable, steady source of
cash flow sufficient to meet operating and capital expenditures
requirements for the foreseeable future. Operating cash flows
after 2006 could be negatively affected by changes in the rate
regulatory environments of ComEd and PECO, although any effects
are not expected to hinder Exelons ability to fund its
business requirements.
Cash flows from operations for the nine months
ended September 30, 2004 and 2003 were $3,154 million
and $2,553 million, respectively. Changes in Exelons
cash flows from operations are generally consistent with changes
in its results of operations, and further adjusted by changes in
working capital in the normal course of business.
In addition to the items mentioned in
Results of Operations, the following items affected
Exelons operating cash flows for the nine months ended
September 30, 2004 and 2003:
110
Exelon, through its ComEd subsidiary, has taken
certain tax positions, which have been disclosed to the IRS, to
defer the tax gain on the 1999 sale of its fossil generating
assets. As of September 30, 2004, deferred tax liabilities
related to the fossil plant sale are reflected in Exelons
Consolidated Balance Sheets with the majority allocated to the
Consolidated Balance Sheets of ComEd and the remainder to the
Consolidated Balance Sheets of Generation. The 1999 income tax
liability deferred as a result of these transactions was
approximately $1.1 billion. Changes in IRS interpretations
of existing primary tax authority or challenges to ComEds
positions could have the impact of accelerating future income
tax payments and increasing interest expense related to the
deferred tax gain that becomes current. Any required payments
could be significant to the cash flows of Exelon. Exelons
management believes Exelons reserve for interest, which
has been established in the event that such positions are not
sustained, has been appropriately recorded in accordance with
SFAS No. 5, Accounting for Contingencies
(SFAS No. 5). However, the ultimate outcome of such
matters could result in unfavorable or favorable adjustments to
the results of operations, and such adjustments could be
material. Federal tax returns covering the period of the 1999
sale are currently under IRS audit. Final resolution of this
matter is not anticipated for several years.
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Cash flows used in investing activities for the
nine months ended September 30, 2004 and 2003 were
$1,178 million and $1,223 million, respectively. Cash
used in investing activities in 2004 compared to cash used in
investing activities in 2003 was primarily attributable to the
following:
Capital expenditures by business segment for the
nine months ended September 30, 2004 and 2003 were as
follows:
Energy Deliverys capital expenditures for
the nine months ended September 30, 2004 reflected
continuing efforts to improve the reliability of its
transmission and distribution systems and capital additions to
support new business and customer growth. ComEd estimates that
it will spend up to approximately $690 million in total
capital expenditures for 2004. This represents an increase of
approximately $75 million more than had been previously
planned, primarily as a result of expansion of the ComEd
distribution system to support new business and customer growth.
However, Exelon is continuing to evaluate its total capital
spending requirements and potential mitigating opportunities.
Exelon anticipates that Energy Deliverys capital
expenditures will be funded by internally generated funds,
borrowings and the issuance of debt or preferred securities or
capital contributions from Exelon.
112
Generations capital expenditures for the
nine months ended September 30, 2004 reflected additions
and upgrades to existing facilities (including material
condition improvements during nuclear refueling outages) and
nuclear fuel. Capital expenditures were reduced by the
settlement agreement with the DOE which resulted in the
reimbursement of $12 million in spent fuel storage costs
incurred as capital expenses prior to September 30, 2003,
and the recording of $8 million of spent fuel storage
capital expenses incurred from October 1, 2003 to
September 30, 2004 within Accounts receivable, other.
Generations capital expenditures for the nine months ended
September 30, 2003 reflected the construction of the Mystic
8 and 9 and Fore River Boston Generating facilities. During
2003, Boston Generating received $92 million of liquidated
damages from Raytheon Company (Raytheon) as a result of Raytheon
not meeting the expected completion date and certain contractual
performance criteria in connection with Raytheons
construction of these generating facilities. Exelon anticipates
that Generations capital expenditures will be funded by
internally generated funds, Generations borrowings or
capital contributions from Exelon.
Cash flows used in financing activities for the
nine months ended September 30, 2004 were
$1,885 million compared to $1,183 million for the same
period in 2003. The increase in cash used in financing
activities was primarily attributable to the retirement of
$768 million of long-term debt during the nine months ended
September 30, 2004 in accordance with an accelerated
liability management plan and the retirement of
$547 million of long-term debt due to financing affiliates.
During the nine months ended September 30, 2003, Exelon
issued debt (net of retirements during the period) and preferred
stock of approximately $33 million. See Note 9 of the
Combined Notes to Consolidated Financial Statements for further
information regarding debt issuances and retirements during the
nine months ended September 30, 2004. During the nine
months ended September 30, 2004, Exelon repaid
$1 million of commercial paper and received cash proceeds
of $31 million from the settlement of interest-rate swaps.
During the nine months ended September 30, 2003, Exelon
repaid $599 million of commercial paper and paid
$45 million to settle interest-rate swaps. Additionally,
Exelon purchased treasury shares totaling $75 million
during 2004 and received proceeds from employee stock plans of
$192 million and $139 million for the nine months
ended September 30, 2004 and 2003, respectively.
The cash dividend payments on common stock for
the nine months ended September 30, 2004 increased
$104 million over the nine months ended September 30,
2003, reflecting a 10% increase in the first quarter of 2004 and
an 11% increase in the third quarter of 2004. On July 27,
2004, the Exelon Board of Directors approved a policy of
targeting a dividend payout ratio of 50 to 60% of ongoing
earnings beginning in 2005. The actual dividend payout rate
depends on Exelon achieving its objectives, including meeting
planned cash flow targets and strengthening its balance sheet.
On October 19, 2004, the Exelon Board of Directors approved
an increased dividend of $0.40 per share, payable to
shareholders of record as of November 15, 2004. This
dividend increase is consistent with the dividend policy
approved in July 2004. The Board of Directors must approve the
dividends each quarter after review of Exelons financial
condition at the time.
From time to time and as market conditions
warrant, Exelon may engage in long-term debt repurchases via
tender offers, open market acquisitions or other viable options
to preserve the integrity of Exelons balance sheet. In the
third quarter of 2004, Exelon initiated an accelerated liability
management plan at ComEd that targets the elimination of
$1.2 billion of debt from ComEds balance sheet by the
end of 2004. Through September 30, 2004, ComEd had retired
approximately $768 million of debt under the plan and
intends to retire over $400 million of long-term debt in
the fourth quarter of 2004 to complete the accelerated liability
management plan.
Exelon Credit
Facility.
Exelon meets its short-term
liquidity requirements primarily through the issuance of
commercial paper by the Exelon corporate holding company (Exelon
Corporate) and by ComEd, PECO and Generation. At
December 31, 2003, Exelon Corporate, along with ComEd, PECO
and Generation, participated in a $750 million 364-day
unsecured revolving credit agreement and a $750 million
three-year unsecured revolving credit agreement with a group of
banks. On July 16, 2004, the $750 million
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Interest rates on the advances under the credit
facility are based on either the London Interbank Offering Rate
(LIBOR) plus an adder based on the credit rating of the
borrower as well as the total outstanding amounts under the
agreement at the time of borrowing or prime. The maximum LIBOR
adder would be 132 basis points. For the nine months ended
September 30, 2004, the average interest rate on notes
payable was approximately 1.19%.
The credit agreements require Exelon Corporate,
ComEd, PECO and Generation to maintain a minimum cash from
operations to interest expense ratio for the twelve-month period
ended on the last day of any quarter. The ratios exclude
revenues and interest expenses attributable to securitization
debt, certain changes in working capital, distributions on
preferred securities of subsidiaries and, in the case of Exelon
Corporate and Generation, revenues from Exelon New England
Holding Company, LLC (Exelon New England) and Sithe and interest
on the debt of their project subsidiaries. Exelon Corporate is
measured at the Exelon consolidated level. The following table
summarizes the minimum thresholds reflected in the credit
agreements for the twelve-month period ended September 30,
2004:
At September 30, 2004, each of Exelon
Corporate, ComEd, PECO and Generation were in compliance with
the foregoing thresholds.
Capital Structure.
At September 30, 2004, the capital structures of Exelon,
ComEd, PECO and Generation consisted of the following:
114
Boston Generating Project
Debt.
Boston Generating had a
$1.25 billion credit facility (Boston Generating Credit
Facility), which was entered into primarily to finance the
development and construction of the Mystic 8 and 9 and Fore
River generating facilities. On May 25, 2004, Exelon and
Generation completed the sale, transfer and assignment of
ownership of Boston Generating to a special purpose entity owned
by the lenders under the Boston Generating Credit Facility.
Accordingly, the Boston Generating Credit Facility was
eliminated from the consolidated financial statements of Exelon
and Generation during the second quarter of 2004.
See Note 3 of the Combined Notes to
Consolidated Financial Statements for information regarding the
sale of Generations ownership interest in Boston
Generating to the lenders under the Boston Generating Credit
Facility.
Intercompany Money
Pool.
To provide an additional
short-term borrowing option that will generally be more
favorable to the borrowing participants than the cost of
external financing, Exelon operates an intercompany money pool.
Participation in the money pool is subject to authorization by
Exelons corporate treasurer. ComEd and its subsidiary,
Commonwealth Edison of Indiana, Inc. (ComEd of Indiana), PECO,
Generation and BSC may participate in the money pool as lenders
and borrowers, and Exelon Corporate and Unicom Investment, Inc.,
a wholly owned subsidiary of Exelon, may participate as lenders.
Funding of, and borrowings from, the money pool are predicated
on whether the contributions and borrowings result in economic
benefits. Interest on borrowings is based on short-term market
rates of interest, or, if from an external source, specific
borrowing rates. Maximum amounts invested in and borrowed from
the money pool by participant during the nine months ended
September 30, 2004 are described in the following table in
addition to the net investment or borrowing as of
September 30, 2004:
Sithe Long-Term
Debt.
At September 30, 2004,
$836 million of Sithes long-term debt, including
current maturities, was included in Exelon and Generations
Consolidated Balance Sheets. See Note 2 and Note 4 of
the Combined Notes to Consolidated Financial Statements for
information regarding the consolidation of Sithe and see
Note 9 of the Combined Notes to Consolidated Financial
Statements for information regarding Sithes long-term debt
and the annual maturities.
Security Ratings.
Exelons access to the capital markets, including the
commercial paper market, and its financing costs in those
markets depend on the securities ratings of the entity that is
accessing the capital markets. On July 22, 2004,
Standard & Poors Ratings Services lowered its
rating on PECOs First Mortgage Bonds from A to A-. None of
the other securities ratings of Exelon, PECO or Exelons
other subsidiaries has changed from those set forth in the 2003
Form 10-K. None of Exelons borrowings is subject to
default or
115
Shelf Registration.
As of September 30, 2004, Exelon, ComEd and PECO have
current effective shelf registration statements for the sale of
$2.0 billion, $555 million and $550 million,
respectively, of securities. The ability of Exelon, ComEd or
PECO to sell securities off its shelf registration statement or
to access the private placement markets will depend on a number
of factors at the time of the proposed sale, including other
required regulatory approvals, the current financial condition
of the company, its securities ratings and market conditions.
PUHCA Restrictions.
On April 1, 2004, Exelon obtained an order from the SEC
under the Public Utilities Holding Company Act of 1935 (PUHCA)
authorizing, through April 15, 2007, financing
transactions, including the issuance of common stock, preferred
securities, equity-linked securities, long-term debt and
short-term debt in an aggregate amount not to exceed
$8.0 billion above the amount outstanding for Exelon
Corporate and Generation at December 31, 2003 with no
separate sublimit for short-term debt. The 2004 order replaced a
prior SEC order that expired on March 31, 2004 that had
authorized up to $4.0 billion of financing. No securities
have been issued under the above described limit. The prior
order also authorized Exelon to issue guarantees of up to
$4.5 billion outstanding at any one time. The 2004 order
gives Exelon an additional $1.5 billion of guaranty
authority. At September 30, 2004, Exelon had provided
$2.1 billion of guarantees pursuant to SEC authorization.
See Contractual Obligations and Off-Balance Sheet
Arrangements in this section for further discussion of
guarantees. The SEC order requires Exelon to maintain a ratio of
common equity to total capitalization (including securitization
debt) of not less than 30%. At September 30, 2004,
Exelons common equity ratio was 40%. Exelon expects that
it will maintain a common equity ratio of at least 30%.
Exelon is also limited by order of the SEC under
PUHCA to an aggregate investment of $4.0 billion in exempt
wholesale generators (EWGs) and foreign utility companies
(FUCOs). At September 30, 2004, Exelon had invested
$2.1 billion in EWGs, leaving $1.9 billion of
investment authority under the order. In its April 1, 2004
financing order, the SEC authorized Exelon to invest
$4 billion in EWGs and reserved jurisdiction over an
additional $3.0 billion in investments in EWGs.
Under applicable law, Exelon, ComEd, PECO and
Generation can pay dividends only from retained, undistributed
or current earnings. A significant loss recorded at ComEd, PECO
or Generation may limit the dividends that these companies can
distribute to Exelon. At September 30, 2004, Exelon had
retained earnings of $3.3 billion, including ComEds
retained earnings of $1,075 million (of which
$1,078 million had been appropriated for future dividend
payments), PECOs retained earnings of $639 million
and Generations undistributed earnings of
$1,031 million.
Contractual obligations represent cash
obligations that are considered to be firm commitments and
commercial commitments represent commitments triggered by future
events. Exelons, ComEds, PECOs and
Generations contractual obligations and commercial
commitments as of September 30, 2004 were materially
unchanged, other than in the normal course of business, from the
amounts set forth in the 2003 Form 10-K except for the
following:
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COMMONWEALTH EDISON COMPANY
General
ComEd operates in a single business segment and
its operations consist of the regulated sale of electricity and
distribution and transmission services in northern Illinois.
Executive Overview
Financial Results.
ComEds net income for the three months ended
September 30, 2004 decreased 24% as compared to the same
period in 2003 primarily due to losses recorded due to the
extinguishment of debt in 2004.
ComEd experienced an overall decline in net
income of 9% during the nine months ended September 30,
2004. This decline primarily reflects lower collections of CTCs
and losses recorded due to the extinguishment of debt in 2004,
partially offset by lower operating and maintenance expense
compared to the corresponding period in 2003 in which ComEd
recorded charges associated with an agreement with various
Illinois retail market participants and other interested parties
and due to a decrease in severance and severance-related charges
associated with The Exelon Way in 2004.
The Exelon Way.
See
Managements Discussion and Analysis of Financial
Condition and Results of Operations
ComEd Executive Summary in the 2003
Form 10-K for a discussion of ComEds implementation
of The Exelon Way.
Financing
Activities.
In 2004, ComEd redeemed
and retired $768 million of outstanding debt pursuant to an
accelerated liability management plan and repaid
$30 million of other long-term debt. ComEd also made
scheduled payments of $261 million on its long-term debt to
ComEd Transitional Funding Trust. ComEd plans to retire over
$400 million of long-term debt in the fourth quarter of
2004 to complete the accelerated liability management plan.
ComEd met its capital resource commitments primarily with
internally generated cash, a return of investments in the
intercompany money pool and the repayment of intercompany
receivables. When necessary, ComEd obtains funds from external
sources, including the capital markets, the intercompany money
pool and through bank borrowings.
Regulatory Developments PJM
Integration.
On June 2, 2003,
ComEd began receiving electric transmission reservation services
from PJM and transferred control of ComEds Open Access
Same Time Information System to PJM. On April 27, 2004, the
FERC issued its order approving ComEds application to
complete its integration into PJM, subject to certain
stipulations, including a provision to hold certain utilities in
Michigan and Wisconsin harmless from the impacts of ComEd
joining PJM. ComEd agreed to these stipulations and fully
integrated into PJM on May 1, 2004. In October 2004, ComEd
has entered into settlement agreements with nearly all the
Michigan parties calling for a payment of approximately
$2 million by ComEd. The agreements have been filed with
the FERC and are awaiting approval. Settlement talks continue
between ComEd and the remaining Wisconsin parties.
PECO and ComEds membership in PJM supports
Exelons commitment to competitive wholesale electric
markets and will provide Exelon the benefits of more
transparent, liquid and competitive markets for the sale and
purchase of electric energy and capacity. Upon joining PJM,
ComEd began incurring administrative fees, which are expected to
approximate $30 million annually. ComEd believes such costs
will ultimately be partially offset by the benefits of full
access to a wholesale competitive marketplace and increased
revenue requirements, particularly after ComEds regulatory
transition period ends in 2006; however, changes in market
dynamics could affect the ultimate financial impact on ComEd.
Through and Out
Proceeding.
ComEd currently recognizes
approximately $66 million of annual revenue from T&O
rates for energy flowing across ComEds transmission
system. On March 19, 2004, the FERC issued an order to
eliminate these rates effective May 1, 2004, which was
subsequently deferred until December 1, 2004. The T&O
rates are to be replaced by a new long-term transmission pricing
structure that will eliminate seams in the PJM and Midwest ISO
regions. Transmission owners in PJM, the Midwest ISO and other
parties filed various pricing proposals with the FERC on or
before October 1, 2004, with an effective
117
Rate Design
Proceeding.
Additionally, certain PJM
transmission owners, including ComEd, are subject to a rate
design proceeding before the FERC. One or more filings will be
made in January 2005 to address, among other items, how costs
associated with new investments should be recovered. ComEd is
presently evaluating the extent to which it will participate in
this proceeding.
At this early stage, ComEd cannot predict the
outcome of either of the above proceedings; however, these
proceedings could lead to adverse impacts on the results of
operations of ComEd.
Delivery Services
Rates.
On March 3, 2003, ComEd
entered into, and the ICC subsequently entered orders, which are
now final, that effectuated an agreement (Agreement) with
various Illinois retail market participants and other interested
parties that settled, among other things, delivery service rates
and the market value index proceeding and facilitates
competitive service declarations for large-load customers and an
extension of the PPA with Generation.
Competitive Service
Declaration.
On November 14,
2002, the ICC allowed ComEd, by operation of law, to revise its
provider of last resort obligation to be the back-up energy
supplier at market-based rates for customers with energy demands
of at lease three megawatts. About 370 of ComEds largest
energy customers are affected, representing an aggregate supply
obligation or load of approximately 2,500 megawatts. These
customers accounted for 10% of ComEds 2003 MWh
deliveries. These customers will not have a right to take
bundled service after June 2006 or to come back to bundled rates
if they choose an alternative supplier prior to June 2006. The
parties to the March 2003 Agreement have committed, if specified
market conditions exist, not to oppose a process for achieving a
similar competitive declaration for customers having energy
demands of one to three megawatts. To date, ComEd has not
requested the competitive declaration for this second set of
customers but continues to evaluate its options.
On March 28, 2003, the ICC approved changes
to ComEds real-time pricing tariff, to be available to
customers who choose not to go to the competitive market to
procure their electric power and energy. An appeal to each of
the ICCs orders was filed. On March 24, 2004, the
Illinois Appellate Court issued its opinion affirming the
ICCs orders in both cases. The Court found that the ICC
properly allowed ComEds competitive declaration for
customers with loads of more than 3 MWs to go into effect
and that the ICCs order approving the hourly rate was
lawful.
Open Access Transmission
Tariff.
On November 10, 2003, the
FERC issued an order allowing ComEd to put into effect, subject
to refund and hearing, new transmission rates designed to
reflect nearly $500 million of infrastructure investments
made since 1998. During the third quarter of 2004, a settlement
agreement was reached and approved by the FERC, on an interim
basis, which established new wholesale rates that became
effective May 1, 2004. The FERC has allowed the proposed
rates in the settlement agreement pending the final approval by
the FERC. However, because of the Illinois retail rate freeze
and the method for calculating CTCs, the increase is not
expected to have a significant effect on operating revenues
until after December 31, 2006.
Outlook for the Remainder of 2004 and
Beyond.
ComEds outlook for the
remainder of 2004 is consistent with the discussion within
Managements Discussion and Analysis of Financial
Condition and Results of Operations
ComEd Executive Summary in the 2003
Form 10-K.
118
Results of Operations
119
ComEds electric sales statistics were as
follows:
120
121
The changes in electric retail revenues for the
three months ended September 30, 2004, as compared to the
same period in 2003, are attributable to the following:
Weather.
The demand
for electricity is affected by weather conditions. Very warm
weather in summer months and very cold weather in other months
are referred to as favorable weather conditions
because these weather conditions result in increased sales of
electricity. Conversely, mild weather reduces demand. The
weather conditions for the three months ended September 30,
2004 were unfavorable compared to the same period in 2003.
Cooling degree-days decreased 27% for the three months ended
September 30, 2004 compared to the same period in 2003, and
were 30% lower than normal. Heating degree-days decreased 24%
for the three months ended September 30, 2004 compared to
the same period in 2003, and were 30% lower than normal.
Customer Choice.
All
ComEd customers have the choice to purchase energy from an AES.
This choice generally does not affect the volume of deliveries,
but affects revenue collected from customers related to energy
supplied by ComEd. As of September 30, 2004, no AES has
approval from the ICC, and no electric utilities have chosen to
enter the ComEd residential market for the supply of electricity.
For the three months ended September 30,
2004, the energy provided by AESs was 5,331 GWhs, or 23%, as
compared to 5,081 GWhs, or 21%, for the same period in 2003.
The decrease in revenues reflects customers in
Illinois electing to purchase energy from an AES or the PPO. As
of September 30, 2004, the number of retail customers that
had elected to purchase energy from an AES or the ComEd PPO was
approximately 21,600 as compared to 20,000 as of the same period
in 2003, representing less than 1% of total customers in each
period. However, MWhs delivered to such customers increased from
approximately 7.3 million for the three months ended
September 30, 2003 to 8.1 million for three months
ended September 30, 2004, or from 30% to 34% of total
quarterly retail deliveries.
Volume.
Revenues
from higher delivery volume, exclusive of weather, increased
$52 million due to an increased number of customers and
increased usage per customer, primarily residential and large
and small commercial and industrial.
Rate Changes.
ComEds CTC is reset in the second quarter of each year to
reflect market price adjustments. ComEds CTC revenues
decreased $11 million for the three months ended
September 30, 2004 as compared to the same period in 2003.
This decrease was offset by increased wholesale market prices
which increased energy revenue received under the ComEd PPO and
by increased average rates paid by small and large commercial
and industrial customers totaling $11 million.
Increased average rates paid by residential
customers resulted in a $10 million increase. Although
residential rates are frozen through 2006, average residential
rates fluctuate due to the usage patterns of customers.
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PJM Transmission.
ComEds transmission revenues and purchased power expense
each increased by $63 million in the three months ended
September 30, 2004 relative to 2003 due to ComEds
May 1, 2004 entry into PJM. The increase relates to the
change in control of the transmission assets from ComEd to PJM
whereby ComEd receives revenues for its proportionate share of
the transmission revenues generated by PJM, but also pays PJM
for the use of its transmission assets. For 2004, ComEds
operating revenues are estimated to increase by approximately
$180 million, offset by a corresponding and equal increase
in purchased power expense. Starting in 2005, on an annual
basis, ComEds operating revenues and purchased power
expense are estimated to increase between $200 to
$250 million; however, there is no expected impact on
revenues net of purchased power expense.
The increase in purchased power expense was
primarily attributable to an increase of $28 million due to
higher volume offset by a $58 million decrease due to
unfavorable weather conditions, a $6 million decrease due
to the mix of average pricing related to ComEds PPA with
Generation, and a $2 million decrease as a result of
non-residential customers choosing to purchase energy from an
AES. ComEds operating revenues and purchased power expense
each increased by $63 million in the three months ended
September 30, 2004 relative to 2003 due to ComEds
May 1, 2004 entry into PJM. See Operating
Revenues above.
The changes in operating and maintenance expense
for the three months ended September 30, 2004 compared to
the same period in 2003 consisted of the following:
123
The increase in depreciation expense is primarily
due to capital additions.
Recoverable transition costs amortization
remained constant in the three months ended September 30,
2004 compared to the same period in 2003. ComEd expects to fully
recover its remaining recoverable transition costs regulatory
asset balance of $97 million by 2006. Consistent with the
provision of the Illinois legislation, regulatory assets may be
recovered at amounts that provide ComEd an earned return on
common equity within the Illinois legislation earnings threshold.
Taxes other than income decreased for three
months ended September 30, 2004 as compared to the same
period in 2003 as a result of $8 million in 2003 for
additional use tax payments and a 2004 refund of $8 million
for Illinois Electricity Distribution Taxes.
The aggregate of interest expense and
distributions on mandatorily redeemable preferred securities
decreased as a result of scheduled principal payments, debt
retirements and prepayments, and refinancings at lower rates.
Effective December 31, 2003, upon the adoption of FIN
No. 46-R, ComEd deconsolidated its financing trusts (see
Note 2 of the Combined Notes to Consolidated Financial
Statements). ComEd no longer records distributions on
mandatorily redeemable preferred securities but records interest
expense to affiliates related to ComEds obligations to the
financing trusts.
During the three months ended September 30,
2004, ComEd has $4 million of equity in net losses of
subsidiaries as a result of deconsolidating its financing trusts.
In 2004, Exelon initiated an accelerated
liability management plan at ComEd that resulted in the
retirement of approximately $768 million of long-term debt,
of which $618 million was retired during the third quarter
of 2004. During the three months ended September 30, 2004,
ComEd recorded a charge of $106 million associated with the
retirement of debt under the plan. The components of this charge
included the following: $63 million related to prepayment
premiums; $11 million related to net unamortized premiums,
discounts and debt issuance costs; $23 million of losses on
reacquired debt previously deferred as regulatory assets; and
$9 million related to settled cash-flow interest-rate swaps
previously deferred as regulatory assets.
The change in Other, net is primarily related to
a $3 million gain on sale of investments in 2003 and
$1 million decrease in interest income on the long-term
receivable from Unicom Investments, Inc. as a result of a lower
principal balance.
The effective income tax rate was 43% for the
three months ended September 30, 2004, compared to 39% for
the three months ended September 30, 2003. The increase in
the effective income tax rate was primarily attributable to
adjustments to prior period income taxes in connection with the
completion of the 2003 tax return. See Note 12 of the
Combined Notes to the Consolidated Financial Statements for
further discussion of the change in the effective income tax
rate.
124
125
ComEds electric sales statistics were as
follows:
126
127
The changes in electric retail revenues for the
nine months ended September 30, 2004, as compared to the
same period in 2003, are attributable to the following:
Customer Choice.
As
noted, all ComEd customers have the choice to purchase energy
from an AES. This choice generally does not affect the volume of
deliveries, but affects revenue collected from customers related
to energy supplied by ComEd.
For the nine months ended September 30,
2004, the energy provided by AESs was 15,787 GWhs, or 24%, as
compared to 12,175 GWhs, or 19%, for the same period in 2003.
The decrease in revenues reflects customers in
Illinois electing to purchase energy from an AES or the PPO. As
of September 30, 2004, the number of retail customers that
had elected to purchase energy from an AES or the ComEd PPO was
approximately 21,600 as compared to 20,000 as of
September 30, 2003, representing less than 1% of total
customers in each period. However, MWhs delivered to such
customers increased from approximately 19.9 million for the
nine months ended September 30, 2003 to approximately
22.8 million for nine months ended September 30, 2004,
or from 30% to 34% of total year-to-date retail deliveries.
Weather.
The weather
conditions for the nine months ended September 30, 2004
were unfavorable compared to the same period in 2003. Cooling
degree-days decreased 12% for the nine months ended
September 30, 2004 compared to the same period in 2003 and
were 26% lower than normal. Heating degree-days decreased 8% for
the nine months ended September 30, 2004 compared to the
same period in 2003, and were 5% lower than normal.
Rate Changes.
Starting in the June 2003 billing cycle, the increased wholesale
market price of electricity and other adjustments to the energy
component, decreases the collection of CTCs as compared to the
respective prior year period. ComEds CTC revenues
decreased by $131 million for the nine months ended
September 30, 2004 as compared to the same period in 2003.
This decrease was partially offset by increased wholesale market
prices which increased energy revenue received under the ComEd
PPO and by increased average rates paid by small and large
commercial and industrial customers totaling $58 million.
For the nine months ended September 30, 2004 and
September 30, 2003, ComEd collected approximately
$131 million and $262 million, respectively, of CTC
revenue. As a result of increasing mitigation factors, changes
in energy prices and the ability of certain customers to
establish fixed, multi-year CTC rates beginning in 2003, and
increases in ComEds OATT effective May 1, 2004, ComEd
anticipates that this revenue source will decline to
approximately $180 million for 2004 and range from
$100 million to $180 million annually in 2005 and
2006. Under the current restructuring statute, no CTCs will be
collected after 2006.
Volume.
ComEds
electric revenues increased as a result of higher delivery
volume, exclusive of the effect of weather and customer choice,
due to an increased number of customers and increased usage per
customer, primarily residential and large and small commercial
and industrial.
128
PJM Transmission.
ComEds transmission revenues and purchased power expense
each increased by $106 million in the nine months ended
September 30, 2004 relative to 2003 due to ComEds
May 1, 2004 entry into PJM.
The increase in purchased power expense was
primarily attributable to an increase of $78 million due to
higher volume offset by a $94 million decrease as a result
of customers choosing to purchase energy from an AES, a
$56 million decrease due to unfavorable weather conditions,
and a $14 million decrease due to the mix of average
pricing related to ComEds PPA with Generation.
ComEds transmission revenues and purchased power expense
each increased by $106 million in the nine months ended
September 30, 2004 relative to 2003 due to ComEds
May 1, 2004 entry into PJM. See Operating
Revenues above.
The changes in operating and maintenance expense
for the nine months ended September 30, 2004 compared to
the same period in 2003 consisted of the following:
129
The increase in depreciation expense is primarily
due to capital additions.
Recoverable transition costs amortization
remained constant in the nine months ended September 30,
2004 compared to the same period in 2003. ComEd expects to fully
recover its remaining recoverable transition costs regulatory
asset balance of $97 million by 2006. Consistent with the
provision of the Illinois legislation, regulatory assets may be
recovered at amounts that provide ComEd an earned return on
common equity within the Illinois legislation earnings threshold.
Taxes other than income decreased for nine months
ended September 30, 2004 as compared to the same period in
2003 as a result of $6 million in 2003 for additional use
tax payments, a $4 million decrease in payroll taxes as a
result of a fewer number of employees and a refund of
$8 million for Illinois Electricity Distribution taxes in
2004 partially offset by a refund of $5 million for the
Illinois Electricity Distribution taxes in 2003.
The aggregate of interest expense and
distributions on mandatorily redeemable preferred securities
decreased as a result of scheduled principal payments, debt
retirements and prepayments, and refinancings at lower rates.
Effective December 31, 2003, upon the adoption of FIN
No. 46-R, ComEd deconsolidated its financing trusts (see
Note 2 of the Combined Notes to Consolidated Financial
Statements). ComEd no longer records distributions on
mandatorily redeemable preferred securities, but records
interest expense to affiliates related to ComEds
obligations to the financing trusts. This decrease was offset by
$4 million of less allowance for funds used during
construction (AFUDC) debt recorded during the nine months
ended September 30, 2004 as a result of lower construction
work in process balances.
During the nine months ended September 30,
2004, ComEd has $13 million of equity in net losses of
subsidiaries as a result of deconsolidating its financing trusts.
In 2004, Exelon initiated an accelerated
liability management plan at ComEd that resulted in the
retirement of approximately $768 million of long-term debt.
During the nine months ended September 30, 2004, ComEd
recorded a charge of $106 million associated with the
retirement of debt under the plan. The components of this charge
included the following: $63 million related to prepayment
premiums; $11 million related to net unamortized premiums,
discounts and debt issuance costs; $23 million of losses on
reacquired debt previously deferred as regulatory assets; and
$9 million related to settled cash-flow interest-rate swaps
previously deferred as regulatory assets.
The change in Other, net is primarily related to
the reversal of a $12 million reserve for potential plant
disallowance in 2003 as a result of the Agreement (see
Operating and Maintenance above), a reduction in
130
The effective income tax rate was 41% for the
nine months ended September 30, 2004, compared to 40% for
the nine months ended September 30, 2003. The increase in
the effective tax rate is primarily attributable to adjustments
to prior period income taxes in connection with the completion
of the 2003 tax return and the adoption of FSP FAS 106-2.
See Note 12 of the Combined Notes to the Consolidated
Financial Statements for further discussion of the change in the
effective income tax rate.
On January 1, 2003, ComEd adopted
SFAS No. 143, resulting in income of $5 million.
Liquidity and Capital Resources
ComEds business is capital intensive and
requires considerable capital resources. ComEds capital
resources are primarily provided by internally generated cash
flows from operations and, to the extent necessary, external
financing, including the issuance of commercial paper,
participation in the intercompany money pool or capital
contributions from Exelon. ComEds access to external
financing at reasonable terms is dependent on its credit ratings
and general business conditions, as well as that of the utility
industry in general. If these conditions deteriorate to where
ComEd no longer has access to the capital markets at reasonable
terms, ComEd has access to a revolving credit facility that
ComEd currently utilizes to support its commercial paper
program. See the Credit Issues section of
Liquidity and Capital Resources for further
discussion. Capital resources are used primarily to fund
ComEds capital requirements, including construction,
retirement of debt, the payment of dividends and contributions
to Exelons pension plans.
ComEds cash flows from operating activities
primarily results from sales of electricity to a stable and
diverse base of retail customers at fixed prices. ComEds
future cash flows will be affected by its ability to achieve
operating cost reductions and the impact of the economy, weather
and customer choice on its revenues. Cash flows from operations
have been and are expected to continue to provide a reliable,
steady source of cash flow sufficient to meet operating and
capital expenditures requirements. Operating cash flows after
2006 could be negatively affected by changes in ComEds
rate regulatory environment, although any effects are not
expected to hinder ComEds ability to fund its business
requirements.
Cash flows from operations for the nine months
ended September 30, 2004 and 2003 were $867 million
and $636 million, respectively. Changes in ComEds
cash flows from operations are generally consistent with changes
in its results of operations, as further adjusted by changes in
working capital in the normal course of business.
In addition to the items mentioned in
Results of Operations, ComEds operating cash
flows for the nine months ended September 30, 2004 and 2003
were affected by the following items:
131
ComEd has taken certain tax positions, which have
been disclosed to the IRS, to defer the tax gain on the 1999
sale of its fossil generating assets. As of September 30,
2004, the majority of the deferred tax liabilities related to
the fossil plant sale are reflected in ComEds Consolidated
Balance Sheets with the remainder having been allocated to the
Consolidated Balance Sheets of Generation in connection with
Exelons 2001 corporate restructuring. The total 1999
income tax liability deferred as a result of these transactions
was approximately $1.1 billion. Changes in IRS
interpretations of existing primary tax authority or challenges
to ComEds positions could have the impact of accelerating
future income tax payments and increasing interest expense
related to the deferred tax gain that becomes current. Any
required payments could be significant to the cash flows of
ComEd. ComEds management believes ComEds reserve for
interest, which has been established in the event that such
positions are not sustained, has been appropriately recorded in
accordance with SFAS No. 5. However, the ultimate
outcome of such matters could result in additional unfavorable
or favorable adjustments to the results of operations, and such
adjustments could be material. Federal tax returns covering the
period of the 1999 sale are currently under IRS audit. Final
resolution of this matter is not anticipated for several years.
Cash flows provided by investing activities were
$355 million for the nine months ended September 30,
2004 compared to cash flows used in investing activities of
$467 million for the same period in 2003. The change in
cash flows from investing activities was primarily attributable
to $552 million of net proceeds from an investment in and
borrowings from the Exelon intercompany money pool, an increase
of $223 million in receipts from Unicom Investments, Inc.
related to an intercompany note payable and $37 million of
net changes in restricted cash. ComEds investing
activities for the nine months ended September 30, 2004
were funded primarily through operating activities.
ComEds capital expenditures for the nine
months ended September 30, 2004 and 2003 were
$518 million and $537 million, respectively. ComEd
estimates that it will spend up to approximately
$690 million in total capital expenditures for 2004. This
represents an increase of approximately $75 million more
than had been previously planned, primarily as a result of
expansion of the ComEd distribution system to support new
business and customer growth. Although not anticipated, ComEd
believes it could obtain any needed financing through
borrowings, the issuance of debt or preferred securities, or
capital contributions from Exelon. ComEds proposed capital
expenditures and other investments are subject to periodic
review and revision to reflect changes in economic conditions
and other factors.
Cash flows used in financing activities for the
nine months ended September 30, 2004 were
$1,240 million as compared to cash flows used in financing
activities of $63 million in 2003. The increase in cash
flows used in financing activities is primarily attributable to
the net retirement of long-term debt of $1,059 million in
2004, inclusive of the debt retired as part of the liability
management plan discussed below, and net proceeds of long-term
debt and preferred securities of $288 million in 2003.
During the nine months ended September 30, 2003, ComEd also
repaid $71 million of commercial paper and paid
$45 million to settle interest-rate swaps. During the nine
months ended September 30, 2004, ComEd received
$26 million from the settlement of interest-rate swaps and
$17 million from borrowings from the Exelon intercompany
money pool. Additionally, ComEd paid $320 million in
dividends to Exelon during the nine months ended
September 30, 2004 compared to $305 million in
dividends during the same period in 2003.
From time to time and as market conditions
warrant, ComEd may engage in long-term debt repurchases via
tender offers, open market acquisitions or other viable options
to preserve the integrity of ComEds balance sheet. In the
third quarter of 2004, Exelon initiated an accelerated liability
management plan at ComEd that targets the elimination of
$1.2 billion of debt from ComEds balance sheet by the
end of 2004. Through
132
Exelon Credit
Facility.
ComEd meets its short-term
liquidity requirements primarily through the issuance of
commercial paper and borrowings from Exelons intercompany
money pool. At December 31, 2003, ComEd, along with Exelon
Corporate, PECO and Generation, participated in a
$750 million 364-day unsecured revolving credit agreement
and a $750 million three-year unsecured revolving credit
agreement with a group of banks. On July 16, 2004, the
$750 million 364-day facility was replaced with a
$1 billion five-year facility and the $750 million
three-year facility was reduced to $500 million. These
credit agreements, and ComEds participation therein, are
described above under Credit Issues Exelon
Credit Facility in Exelon Corporation
Liquidity and Capital Resources.
Capital Structure.
ComEds capital structure at September 30, 2004 is
described above under Credit Issues Capital
Structure in Exelon Corporation
Liquidity and Capital Resources.
Intercompany Money
Pool.
A description of the
intercompany money pool, and ComEds participation therein,
is set forth above under Credit Issues
Intercompany Money Pool in Exelon
Corporation Liquidity and Capital Resources.
During the nine months ended September 30, 2004, ComEd
earned $2.4 million, net in interest on its investments and
borrowings in the intercompany money pool.
Security Ratings.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources in the 2003 Form 10-K for a
discussion of ComEds security ratings.
Shelf Registration.
As of September 30, 2004, ComEd has a current effective
shelf registration statement for the sale of $555 million
of securities. ComEds ability to sell securities off its
shelf registration statement or to access the private placement
markets will depend on a number of factors at the time of the
proposed sale, including other required regulatory approvals,
ComEds current financial condition, its securities ratings
and market conditions.
Fund Transfer
Restrictions.
At September 30,
2004, ComEd had retained earnings of $1,075 million, of
which $1,078 million had been appropriated for future
dividend payments. See Liquidity and Capital
Resources Credit Issues Fund Transfer
Restrictions under Managements Discussion and
Analysis of Financial Condition and Results of
Operations ComEd in the 2003 Form 10-K
for information regarding restrictions under Federal and
Illinois law and under the agreements governing ComEd
Financing II and III regarding dividend payments by
ComEd. ComEd is precluded from lending or extending credit or
indemnity to Exelon.
Contractual obligations represent cash
obligations that are considered to be firm commitments and
commercial commitments represent commitments triggered by future
events. ComEds contractual obligations and commercial
commitments as of September 30, 2004 were materially
unchanged, other than in the normal course of business, from the
amounts set forth in the 2003 Form 10-K except for the
following:
133
PECO ENERGY COMPANY
General
PECO operates in a single business segment, and
its operations consist of the regulated sale of electricity and
distribution and transmission services in southeastern
Pennsylvania and the sale of natural gas and distribution
services in the Pennsylvania counties surrounding the City of
Philadelphia.
Executive Overview
Financial Results.
PECOs net income decreased 1% for the three months ended
September 30, 2004 as compared to the same period in 2003.
Operating income, while reflecting various changes in revenues
and operating expenses, was unchanged between periods.
PECOs net income increased 2% for the nine
months ended September 30, 2004 as compared to the same
period in 2003 and reflects higher other income. Operating
income, while reflecting various changes in revenues and
operating expenses, was unchanged between periods.
The Exelon Way.
See
Managements Discussion and Analysis of Financial
Condition and Results of Operations PECO
Executive Summary in the 2003 Form 10-K for a
discussion of PECOs implementation of The Exelon Way.
Financing
Activities.
During the nine months
ended September 30, 2004, PECO refinanced $75 million
of First and Refunding Mortgage Bonds and made scheduled
repayments of $286 million on its long-term debt to PECO
Energy Transition Trust. PECO met its capital resource
commitments primarily with internally generated cash. When
necessary, PECO obtains funds from external sources, including
the capital markets, the intercompany money pool, and through
bank borrowings.
Regulatory Developments Through
and Out Proceeding.
PECO currently
recognizes approximately $4 million of annual revenue from
T&O rates for energy flowing across PECOs transmission
system. On March 19, 2004, the FERC issued an order to
eliminate these rates effective May 1, 2004, which was
subsequently deferred until December 1, 2004. The T&O
rates are to be replaced by a new long-term transmission pricing
structure that will eliminate seams in the PJM and Midwest ISO
regions. Transmission owners in PJM, the Midwest ISO and other
parties filed various pricing proposals with the FERC on or
before October 1, 2004, with an effective date of
December 1, 2004. On October 1, 2004, PECO along with
other transmission owners in PJM, participated in the filing of
a Regional Pricing Proposal, which if accepted by the FERC,
could minimize PECOs loss of T&O revenues. Depending
upon which proposal is accepted by the FERC, or if FERC creates
a new alternative, PECOs results of operation could be
negatively affected.
Rate Design
Proceeding.
Additionally, certain PJM
transmission owners, including PECO, are subject to a rate
design proceeding before the FERC. One or more filings will be
made in January 2005 to address, among other items, how costs
associated with new investments should be recovered. PECO is
presently evaluating the extent to which it will participate in
this proceeding.
At this early stage, PECO cannot predict the
outcome of either of the above proceedings; however, these
proceedings could lead to adverse impacts on the results of
operations of PECO.
Outlook for the Remainder of 2004 and
Beyond.
PECOs outlook for the
remainder of 2004 is consistent with the discussion within
Managements Discussion and Analysis of Financial
Condition and Results of Operations PECO
Executive Summary in the 2003 Form 10-K.
134
Results of Operations
135
PECOs electric sales statistics were as
follows:
136
The changes in electric retail revenues for the
three months ended September 30, 2004, as compared to the
same period in 2003, were as follows:
Weather.
The demand
for electricity is affected by weather conditions. Very warm
weather in summer months and very cold weather in other months
are referred to as favorable weather conditions
because these weather conditions result in increased sales of
electricity. Conversely, mild weather reduces demand. The
weather impact was unfavorable compared to the prior year.
Cooling degree-days decreased 16% and heating degree-days
decreased 8%.
Customer Choice.
All
PECO customers may choose to purchase energy from an AES. This
choice does not affect kWh deliveries, but reduces revenue
collected from customers because they are not obtaining
generation supply from PECO.
For the three months ended September 30,
2004, the energy provided by AESs was 1,309 GWhs, or 13%, as
compared to 986 GWhs, or 10%, for the three months ended
September 30, 2003. As of September 30, 2004, the
number of customers served by AESs was 281,600, or 18%, as
compared to 120,300 or 8%, as of September 30, 2003. The
increases in both energy provided by AESs and the number of
customers served by AESs were due to the assignment of
residential customers to AESs in December 2003, as required by
the PUC and PECOs final electric restructuring order.
Rate Mix.
The
decrease in revenues from rate mix was due to changes in monthly
usage patterns in all customer classes.
Volume.
Exclusive of
the effect of weather conditions and customer choice, higher
delivery volume related primarily to an increased number of
customers and increased usage by all customer classes.
Rate change.
Revenues increased $7 million due to a scheduled phase-out
of merger-related rate reductions. In connection with the
PUCs approval of the merger of PECO and Unicom Corporation
into Exelon in 2000, PECO entered into a settlement agreement
with intervening parties and agreed to $200 million in
aggregate rate reductions for all customers over the period
January 1, 2002 through December 31, 2005.
Consequently, rates were reduced from the levels that otherwise
would have been in effect pursuant to the PUC approved
restructuring settlement by $60 million annually until
January 1, 2004 when the reduction decreased to
$40 million annually, which will be in effect through
December 31, 2005.
Electric wholesale and miscellaneous revenue
includes PECOs proportionate share of the transmission
revenues generated by PJMs control of the PJM network
transmission assets, including PECOs. Additionally, PECO
pays PJM for its use of these transmission assets, and this
expense is recorded in purchased power.
137
PECOs gas sales statistics for the three
months ended September 30, 2004 as compared to the same
period in 2003 were as follows:
The change in gas retail revenue for the three
months ended September 30, 2004 as compared to the same
period in 2003, was due to increases in rates through
PUC-approved changes to the purchased gas adjustment clause that
became effective March 1, 2004. The average rate per mmcf
for the three months ended September 30, 2004 was 22%
higher than the rate for the same period in 2003. PECOs
gas cost rates are subject to periodic adjustments by the PUC
and are designed to recover from or refund to customers the
difference between the actual cost of purchased gas and the
amount included in rates. PECO anticipates that its purchased
gas cost rates will be reduced effective December 1, 2004
in connection with a settlement approved by the PUC in September
2004. This decrease will have no impact on PECOs operating
income.
The decrease in purchased power expense was
primarily attributable to $29 million related to lower
sales due to unfavorable weather conditions and $21 million
from customers in Pennsylvania assigned to or selecting an AES,
partially offset by $28 million of increased sales
exclusive of the effect of weather conditions.
The increase in fuel expense was attributable to
higher gas costs.
The changes in operating and maintenance expense
for the three months ended September 30, 2004 compared to
the same period in 2003 consisted of the following:
138
The additional amortization of the CTC is in
accordance with PECOs settlement under the Pennsylvania
Competition Act.
The increase in taxes other than income was
primarily attributable to $58 million related to the
reversal of real estate tax accruals during 2003.
The aggregate of interest expense and
distributions on mandatorily redeemable preferred securities was
unchanged and reflected decreased expense due to lower
outstanding debt and refinancings at lower rates offset by a
reversal in 2003 of accrued interest expense on Federal income
taxes of $8 million to reflect actual interest paid.
Effective December 31, 2003, with the adoption of FIN
No. 46-R, PECO deconsolidated its financing trusts (see
Note 2 of the Combined Notes to Consolidated Financial
Statements). PECO no longer records distributions on mandatorily
redeemable preferred securities of subsidiaries but records
interest expense to affiliates related to PECOs
obligations to the financing trusts.
PECO had $6 million of equity in net losses
of subsidiaries as a result of deconsolidating its subsidiary
financing trusts.
The increase was primarily attributable to a
reversal in 2003 of accrued interest on Federal income taxes of
$14 million to reflect actual interest received.
The effective tax rate was 37% for the three
months ended September 30, 2004 as compared to 35% for the
same period in 2003. The increase in the effective tax rate was
primarily attributable to adjustments to prior period income
taxes in connection with the completion of the 2003 tax return.
See Note 12 of the Combined Notes to the Consolidated
Financial Statements for further discussion of the change in the
effective income tax rate.
139
Results of Operations
140
PECOs electric sales statistics were as
follows:
141
The changes in electric retail revenues for the
nine months ended September 30, 2004, as compared to the
same period in 2003, were as follows:
Volume.
Exclusive of
the effect of weather conditions and customer choice, higher
delivery volume related primarily to an increased number of
customers and increased usage by all customer classes.
Rate change.
Revenues increased $16 million due to a scheduled phase-out
of merger-related rate reductions.
Weather.
The weather
impact was unfavorable compared to the prior year. Heating
degree-days decreased 8% and cooling degree-days remained
relatively unchanged
Customer Choice.
As
noted, all PECO customers may choose to purchase energy from an
AES. This choice does not affect kWh deliveries, but reduces
revenue collected from customers because they are not obtaining
generation supply from PECO.
For the nine months ended September 30,
2004, the energy provided by AESs was 3,576 GWhs, or 12%, as
compared to 2,362 GWhs, or 8%, for the nine months ended
September 30, 2003. As of September 30, 2004, the
number of customers served by AESs was 281,600, or 18%, as
compared to 120,300, or 8%, as of September 30, 2003. The
increases in both the energy provided by AESs and the number of
customers served by AESs were due to the assignment of small
commercial and industrial customers and residential customers to
AESs in May and December 2003, respectively, as required by the
PUC and PECOs final electric restructuring order.
Rate Mix.
The
decrease in revenues from rate mix was due to changes in monthly
usage patterns in all customer classes during the nine months
ended September 30, 2004 as compared to the same period in
2003.
Electric wholesale and miscellaneous revenue
includes PECOs proportionate share of the transmission
revenues generated by PJMs control of the PJM network
transmission assets, including PECOs. Additionally, PECO
pays PJM for its use of these transmission assets, and this
expense is recorded in purchased power. Electric wholesale and
miscellaneous revenue decreased $13 million due to lower
PJM transmission revenue.
PECOs gas sales statistics for the nine
months ended September 30, 2004 as compared to the same
period in 2003 were as follows:
142
The changes in gas retail revenue for the nine
months ended September 30, 2004 as compared to the same
period in 2003, were as follows:
Rate Changes.
The
favorable variance in rates was attributable to increases in
rates through PUC-approved changes to the purchased gas
adjustment clause that became effective March 1, 2003,
June 1, 2003, December 1, 2003, and March 1,
2004. The average rate per mmcf for the nine months ended
September 30, 2004 was 38% higher than the rate for the
same period in 2003.
Weather.
The weather
conditions were unfavorable compared to the prior year. Heating
degree-days decreased 8% compared to the same period in 2003.
Volume.
Exclusive of
the effect of weather conditions, revenues were lower in the
nine months ended September 30, 2004 compared to the same
period in 2003 due primarily to decreased sales in the
residential and small commercial and industrial classes.
Resales and other revenue increased
$9 million primarily due to increased off-system sales.
The decrease in purchased power expense was
attributable to $63 million from customers in Pennsylvania
assigned to or selecting an AES, a $26 million decrease
associated with lower sales due to unfavorable weather
conditions and a $13 million decrease in PJM transmission
expense, partially offset by an increase of $59 million
related to increased sales exclusive of weather conditions and
$10 million of higher prices.
The increase in fuel expense was primarily
attributable to $89 million of higher gas costs and
$13 million related to increased off-system sales,
partially offset by a $14 million decrease associated with
lower sales due to unfavorable weather conditions.
143
The changes in operating and maintenance expense
for the nine months ended September 30, 2004 compared to
the same period in 2003 consisted of the following:
The additional amortization of the CTC is in
accordance with PECOs settlement under the Pennsylvania
Competition Act.
The increase in taxes other than income was
primarily attributable to $58 million related to the
reversal of real estate tax accruals during 2003 and
$12 million related to the reversal of a use tax accrual in
2003 resulting from an audit settlement, partially offset by
$5 million of lower capital stock tax.
The aggregate of interest expense and
distributions on mandatorily redeemable preferred securities
decreased primarily due to lower outstanding debt and
refinancings at lower rates, partially offset by a reversal in
2003 of accrued interest expense on Federal income taxes of
$8 million to reflect actual interest paid. Effective
December 31, 2003, with the adoption of FIN No. 46-R,
PECO deconsolidated its financing trusts (see Note 2 of the
Combined Notes to Consolidated Financial Statements). PECO no
longer records distributions on mandatorily redeemable preferred
securities of subsidiaries but records interest expense to
affiliates related to PECOs obligations to the financing
trusts.
144
In 2004, PECO had $19 million of equity in
net losses of subsidiaries as a result of deconsolidating its
subsidiary financing trusts.
The increase was primarily attributable to a
reversal in 2003 of accrued interest on Federal income taxes of
$14 million to reflect actual interest received, partially
offset by a $5 million decrease in interest income.
The effective tax rate was 34% for the nine
months ended September 30, 2004 as compared to 35% for the
same period in 2003. See Note 12 of the Combined Notes to
the Consolidated Financial Statements for further discussion of
the change in the effective income tax rate.
Liquidity and Capital Resources
PECOs business is capital intensive and
requires considerable capital resources. PECOs capital
resources are primarily provided by internally generated cash
flows from operations and, to the extent necessary, external
financing, including the issuance of commercial paper,
participation in the intercompany money pool or capital
contributions from Exelon. PECOs access to external
financing at reasonable terms is dependent on its credit ratings
and general business conditions, as well as that of the utility
industry in general. If these conditions deteriorate to where
PECO no longer has access to the capital markets at reasonable
terms, PECO has access to a revolving credit facility that PECO
currently utilizes to support its commercial paper program. See
the Credit Issues section of Liquidity and
Capital Resources for further discussion. Capital
resources are used primarily to fund PECOs capital
requirements, including construction, retirement of debt, the
payment of dividends and contributions to Exelons pension
plans.
PECOs cash flows from operating activities
primarily result from sales of electricity and gas to a stable
and diverse base of retail customers at fixed prices.
PECOs future cash flows will be affected by its ability to
achieve operating cost reductions and the impact of the economy
and weather on its revenues. Cash flows from operations have
been and are expected to continue to provide a reliable, steady
source of cash flow sufficient to meet operating and capital
expenditures requirements for the foreseeable future.
Cash flows from operations for the nine months
ended September 30, 2004 and 2003 were $790 million
and $757 million, respectively. Changes in PECOs cash
flows from operations are generally consistent with changes in
its results of operations, as further adjusted by changes in
working capital in the normal course of business.
In addition to the items mentioned in
Results of Operations, PECOs operating cash
flows for the nine months ended September 30, 2004 and 2003
were affected by the following items:
145
Cash flows used in investing activities for the
nine months ended September 30, 2004 and 2003 were
$186 million and $61 million, respectively. The
$125 million increase in cash used in investing activities
was primarily attributable to a change in restricted cash which
provided cash flows of $132 million in 2003 and a
$26 million investment in the Exelon intercompany money
pool in 2004, partially offset by lower construction
expenditures of $29 million in 2004. The change in
restricted cash is the result of deconsolidating the PECO Energy
Transition Trust in December 2003 in accordance with the
adoption of FIN No. 46R. PECOs investing activities
during the nine months ended September 30, 2004 were funded
by operating activities.
PECOs projected capital expenditures for
2004 are $223 million. Approximately 60% of the budgeted
2004 expenditures is for additions to or upgrades of existing
facilities, including reliability improvements. The remainder of
the capital expenditures support customer and load growth. PECO
anticipates that it will obtain financing, when necessary,
through borrowings, the issuance of preferred securities, or
capital contributions from Exelon. PECOs proposed capital
expenditures and other investments are subject to periodic
review and revision to reflect changes in economic conditions
and other factors.
Cash flows used in financing activities for the
nine months ended September 30, 2004 were $503 million
compared to $677 million for the same period in 2003. The
decrease in cash flows used in financing activities was
primarily due to a decrease in the retirement of preferred
securities of $100 million and an increase in contributions
received from Exelon of $89 million, partially offset by an
increase in net retirements of long-term debt of
$130 million. Additionally, PECO paid dividends of
$279 million and $248 million during the nine months
ended September 30, 2004 and 2003, respectively, of which
$276 million and $244 million, respectively, were
common dividends paid to Exelon.
From time to time and as market conditions
warrant, PECO may engage in long-term debt repurchases via
tender offers, open market acquisitions or other viable options
to preserve the integrity of PECOs balance sheet.
Exelon Credit
Facility.
PECO mfeets its short-term
liquidity requirements primarily through the issuance of
commercial paper and borrowings from Exelons intercompany
money pool. At December 31, 2003, PECO participated, along
with Exelon Corporate, ComEd and Generation, in a
$750 million 364-day unsecured revolving credit agreement
and a $750 million three-year unsecured revolving credit
agreement with a group of banks. On July 16, 2004, the
$750 million 364-day facility was replaced with a
$1 billion five-year facility and the $750 million
three-year facility was reduced to $500 million. These
credit agreements, and PECOs participation therein, are
described above under Credit Issues Exelon
Credit Facility in Exelon Corporation
Liquidity and Capital Resources.
Capital Structure.
PECOs capital structure at September 30, 2004 is
described above under Credit Issues Capital
Structure in Exelon Corporation
Liquidity and Capital Resources.
Intercompany Money Pool.
A description of the intercompany
money pool, and PECOs participation therein, is set forth
above under Credit Issues Intercompany Money
Pool in Exelon Corporation Liquidity and
Capital Resources. During the nine months ended
September 30, 2004, PECO earned less than $1 million
in interest from its investments in the intercompany money pool.
Security Ratings.
PECOs access to the capital markets, including the
commercial paper market, and its financing costs in those
markets depend on the securities ratings of the entity that is
accessing the capital markets. On July 22, 2004,
Standard & Poors Ratings Services lowered its
rating on PECOs First Mortgage Bonds from A to A-. None of
PECOs other securities ratings has changed from those set
forth in the 2003 Form 10-K. None of PECOs borrowings
is subject to default or prepayment as a result of a downgrading
of securities although such a downgrading could increase fees
and interest charges under Exelons credit facilities.
146
Shelf Registration.
As of September 30, 2004, PECO has a current effective
shelf registration statement for the sale of $550 million
of securities. PECOs ability to sell securities off its
shelf registration statement or to access the private placement
markets will depend on a number of factors at the time of the
proposed sale, including other required regulatory approvals,
PECOs current financial condition, its securities ratings
and market conditions.
Fund Transfer
Restrictions.
At September 30,
2004, PECO had retained earnings of $639 million. See
Liquidity and Capital Resources Credit Issues
Fund Transfer Restrictions under
Managements Discussion and Analysis of Financial
Condition and Results of Operations PECO in
the 2003 Form 10-K for information regarding fund transfer
restrictions.
Contractual obligations represent cash
obligations that are considered to be firm commitments and
commercial commitments represent commitments triggered by future
events. PECOs contractual obligations and commercial
commitments as of September 30, 2004 were materially
unchanged, other than in the normal course of business, from the
amounts set forth in the 2003 Form 10-K except for the
following:
147
EXELON GENERATION COMPANY, LLC
General
Generation operates as a single segment and
consists of owned and contracted for electric generating
facilities, energy marketing operations, a 50% interest in EXRES
SHC, Inc., the holding company of Sithe and its subsidiaries
and, effective January 1, 2004, the competitive retail
sales business of Exelon Energy Company.
Effective January 1, 2004, Enterprises
competitive retail sales business, Exelon Energy Company, became
part of Generation and has been reflected in Generations
results of operations from that day forward. Generations
results of operations have not been adjusted to reflect Exelon
Energy Company as a part of Generation for 2003. Exelon Energy
Companys results for the three and nine months ended
September 30, 2003 were as follows:
Executive Overview
Financial Results.
Generation reported net income of $319 million in the three
months ended September 30, 2004 as compared to a net loss
of $428 million for the same period in 2003, due primarily
to the impairment charge of $573 million, net of income
taxes, related to the long-lived assets of Boston Generating and
a $36 million, net of income taxes, impairment charge
related to Generations investment in Sithe, both taken in
the third quarter of 2003. Generation reported net income of
$567 million as compared to a net loss of $339 million
for the nine months ended September 30, 2004 as compared to
the same period in 2003. This increase was primarily
attributable to the impairment charges related to Boston
Generating and Sithe in 2003, a gain of $52 million, net of
income taxes, recorded on the sale of Boston Generating,
partially offset by operating net losses of $28 million,
net of income taxes, for Boston Generating incurred during the
first five months of 2004, $85 million of net income
attributable to the incremental results of AmerGen, Exelon
Energy and Sithe and $32 million of net income for the
cumulative effect of a change in accounting principle.
Generation also experienced improved results due to increased
realized margins as a result of its successful forward hedging
strategy and increased market prices.
The Exelon Way.
See
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Generation Executive Summary in the 2003
Form 10-K for a discussion of Generations
implementation of The Exelon Way.
Investment Strategy.
On May 25, 2004, Generation completed the sale, transfer
and assignment of ownership of its indirect wholly owned
subsidiary Boston Generating, which owns the companies that own
the Mystic 4-7, Mystic 8 and 9 and Fore River generating
facilities, to a special purpose entity owned by the lenders
under Boston Generatings $1.25 billion credit
facility. The resulting pre-tax gain of $85 million
($52 million after-tax) was recorded within Exelons
Consolidated Statements of Income and Comprehensive Income
during the second quarter of 2004. On September 1, 2004,
Generation completed the transfer of plant operations and power
marketing activities of Boston Generating to an entity
designated by the lenders.
On September 29, 2004, Generation exercised
its call option to acquire Reservoirs 50% interest in
Sithe for $97 million. Generations intent is to fully
divest its interest in Sithe, and Generation is actively
pursuing opportunities to dispose of Sithe. Generation believes
that exercising its call option will provide it with greater
certainty of a timely exit from Sithe on favorable terms and
conditions.
148
In connection with the consolidation of Sithe on
March 31, 2004, Generation recorded assets held for sale
related to Sithes investments in certain hydroelectric
facilities. During the nine months ended September 30,
2004, Sithe completed the sale of certain of its gas,
hydroelectric, and the Australian businesses, which represented
$160 million and $143 million of assets and
liabilities held for sale, respectively, at March 31, 2004,
which resulted in a gain on the sale of these businesses of
$6 million.
Financing
Activities.
On September 30,
2004, Generation had $17 million invested in the Exelon
money pool. Also, Generation increased its distributions to
Exelon by approximately $64 million during the first nine
months of 2004 compared to the same period in the prior year.
Generation met its capital resource commitments primarily with
internally generated cash. When necessary, Generation obtains
funds from external sources, including the capital markets, the
intercompany money pool and through bank borrowings.
Operations.
Generations nuclear fleet achieved a 94.1% capacity factor
during the nine months ended September 30, 2004 compared to
94.5% during the same period in 2003, primarily as a result of
an increased number of planned outages in 2004 as compared to
2003. As discussed above, Generation transferred plant
operations and power marketing activities of Boston Generating
to a special purpose entity designated by the lenders of the
Boston Generating credit facility on September 1, 2004.
Outlook for the Remainder of 2004 and
Beyond.
Generations outlook for
the remainder of 2004 is consistent with the discussion within
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Generation Executive Summary in the 2003
Form 10-K.
Results of Operations
149
For the three months ended September 30,
2004 and 2003, Generations sales were as follows:
n.m. not meaningful
Trading volumes of 7,132 GWhs and 11,086 GWhs for
the three months ended September 30, 2004 and 2003,
respectively, are not included in the table above. The decrease
in trading volume is a result of reduced proprietary trading
activity.
Generations average margin (operating
revenue, less purchased power and fuel expenses) and other
operating data for the three months ended September 30,
2004 and 2003 are as follows:
150
Wholesale and Retail Electric
Sales.
The changes in
Generations wholesale and retail electric sales for the
three months ended September 30, 2004 compared to the same
period in 2003 consisted of the following:
As previously described, the adoption of
EITF 03-11 on January 1, 2004 resulted in the netting
of certain revenues and the associated purchase power and fuel
expense in 2004. The sale of Boston Generating in May 2004
decreased wholesale and retail sales, which was partially offset
by the increase from the acquisition of the remaining 50% of
AmerGen in 2003 and the transfer of Exelon Energy to Generation
as of January 1, 2004.
The increase in other wholesale and retail
electric sales was primarily due to higher demand in the forward
wholesale market as a result of forward hedging and fuel prices,
and higher average market prices driven by coal prices in the
Midwest and higher oil and gas prices in the Mid-Atlantic region
contributed to higher revenues.
Electric Sales to
Affiliates.
The decrease in revenue
from sales to affiliates included $69 million in lower
sales to Energy Delivery. The lower sales to Energy Delivery
were primarily due to customers purchasing energy from
alternative electric suppliers and unfavorable weather
conditions in the ComEd and PECO service territories compared to
the prior year.
Additionally, due to the transfer of Exelon
Energy Company to Generation effective January 1, 2004,
sales to Exelon Energy Company are no longer reported as
affiliate revenue by Generation. Revenue from sales to Exelon
Energy Company for the three months ended September 30,
2003 was $51 million.
Retail Gas Sales.
Retail gas sales increased $55 million as a result of the
transfer of Exelon Energy Company to Generation as of
January 1, 2004.
Other.
Certain other
revenues increased for the three months ended September 30,
2004 as compared to the same period in 2003, primarily due to
the consolidation of Sithes results of operations
beginning April 1, 2004 and higher fuel sales.
Generations supply source is summarized
below:
151
The changes in Generations purchased power
and fuel expense for the three months ended September 30,
2004 compared to the same period in 2003 consisted of the
following:
Adoption of
EITF 03-11.
The adoption of
EITF 03-11 resulted in a decrease in purchased power and
fuel expense of $272 million.
Boston Generating.
The decrease in fuel and purchased power expense for Boston
Generating is due to the sale of the business in May 2004.
Hedging Activity.
Mark-to-market gains on hedging activities were $57 million
for the three months ended September 30, 2004 compared to
losses of $21 million for the same period of 2003.
Midwest Generation.
The volume of purchased power acquired from Midwest Generation
declined in 2004 as a result of Generation exercising its option
to reduce the capacity purchased from Midwest Generation.
AmerGen and Exelon Energy
Company.
As result of
Generations acquisition of the remaining 50% interest in
AmerGen in December 2003, and the transfer of Exelon Energy to
Generation in 2004, purchased power decreased $124 million,
net of fuel expense, which had a significant impact on
Generations average supply cost decrease for the same
period. In prior periods, Generation reported energy purchased
from AmerGen as purchased power expense. Due to the transfer of
Exelon Energy Company to Generation effective January 1,
2004, and the purchase of AmerGen, fuel expense increased
$65 million as fuel purchases made by Exelon Energy Company
and AmerGens nuclear fuel amortization did not previously
affect Generations purchased power and fuel expense.
Sithe.
Under the
provisions of FIN No. 46-R, the operating results of Sithe
were included in Generations results of operations
beginning April 1, 2004. See Note 4 of the Combined
Notes to Consolidated Financial Statements for further
discussion of Sithe.
Volume.
Generation
experienced increases in purchased power and fuel expense due to
increased market and retail electric sales throughout its
various sales regions. The increase in purchased power was
partially offset by decreased purchased power from Midwest
Generation (see Midwest Generation above for further
information).
Price.
The increase
reflects higher market energy prices due to higher natural gas,
oil and coal prices.
152
Other.
Other
decreases in purchased power and fuel expense were primarily due
to $20 million of lower transmission expense resulting from
reduced inter-region transmission charges, primarily associated
with ComEds integration into PJM during the second quarter
of 2004.
In connection with the decision to transition out
of the ownership of Boston Generating and the projects during
the third quarter of 2003, Generation recorded a long-lived
asset impairment charge of $945 million ($573 million
net of income taxes). See Note 3 of the Combined Notes to
Consolidated Financial Statements for further discussion of the
sale of Generations ownership interest in Boston
Generating.
The changes in operating and maintenance expense
for the three months ended September 30, 2004 compared to
the same period in 2003 consisted of the following:
The decrease in operating and maintenance expense
was primarily due to reductions in payroll-related costs
associated with the implementation of the programs associated
with The Exelon Way, the offset to operating and maintenance
expense resulting from the settlement with the DOE to reimburse
Generation for costs associated with storage of spent nuclear
fuel, the sale of Boston Generating in May 2004, and a
$36 million reduction in the contractual obligation
Generation has to ComEd related to decommissioning obligations.
Generation is required to refund ComEd the amount of
decommissioning trust fund assets in excess of the ARO, if any,
at the completion of the decommissioning of the former ComEd
nuclear units. In the third quarter of 2004, Generation updated
the ARO for the former ComEd plants and was required to impair
an asset established during this process (see Depreciation and
Amortization discussion below). The obligation to ComEd was
reduced as a result of this impairment charge and as such,
operating expense was reduced by an equal amount. These
decreases in operating and maintenance expense were partially
offset by the inclusion of AmerGen, Exelon Energy Company and
Sithes operating results in Generations consolidated
results for 2004.
Nuclear fleet operating data and purchased power
costs data for the three months ended September 30, 2004
and 2003 were as follows:
153
Higher nuclear capacity factors were primarily
due to four fewer planned refueling outage days. The four fewer
outage days resulted in a $12 million decrease in planned
outage costs for the three months ended September 30, 2004
as compared to the same period in 2003. There was one planned
outage during the three months ended September 30, 2004,
compared to two planned outages during the same period in 2003.
The three months ended September 30, 2004 included four
unplanned outages, compared to nine unplanned outages during the
same period in 2003.
Lower nuclear production costs were primarily due
to the spent fuel storage cost settlement agreement with the DOE
which resulted in the reimbursement of $40 million in spent
fuel storage costs incurred as operating and maintenance
expenses prior to September 30, 2003, and the recording of
$12 million of spent fuel storage operating and maintenance
expenses incurred from October 1, 2003 to
September 30, 2004 within accounts receivable, other.
In the three months ended September 30, 2004
as compared to the three months ended September 30, 2003,
the Quad Cities units operated at pre-EPU generation levels due
to performance issues with their steam dryers. Generation plans
additional expenditures to ensure safe and reliable operations
at the EPU output levels by mid-2005.
The increase in depreciation and amortization
expense for the three months ended September 30, 2004 as
compared to the same period in 2003 was primarily due to the
establishment of the ARC asset for retired nuclear units of
$36 million associated with the third quarter 2004 update
of the nuclear decommissioning ARO. This ARC was immediately
impaired through depreciation expense as this asset was
associated with retired nuclear units that do not have any
remaining useful life. The remaining increase is due to capital
additions and the consolidation of Sithe, AmerGen and Exelon
Energy. These increases were partially offset by a decrease in
depreciation expense related to the Boston Generating
facilities, which were sold in May 2004.
The increase in interest expense was primarily
related to the additional interest expense incurred from the
consolidation of Sithe, the purchase of British Energys
interest in AmerGen, and the issuance of $500 million of
Senior Notes in December 2003. This increase is partially offset
by the reduction in expense related to the sale of Boston
Generating, and its associated construction loan.
The decrease in equity in earnings of
unconsolidated affiliates was primarily due to a
$47 million decrease resulting from Generations
consolidation of AmerGen in 2004 following the purchase of
British Energys 50% interest in AmerGen in December 2003
and the consolidation of Sithe in 2004. Equity in earnings of
unconsolidated affiliates in 2004 represents equity earnings
from Sithes 49.5% investment in TEG. See Note 3 of
the Combined Notes to Consolidated Financial Statements for
further discussion of Generations purchase of British
Energys 50% interest in AmerGen.
The increase in other income for the three months
ended September 30, 2004 as compared to the same period in
the prior year was primarily due to the $55 million
impairment charge for Generations investment in Sithe
recorded during the third quarter of 2003.
154
The effective income tax rate was 38% for the
three months ended September 30, 2004 compared to 40% for
the same period in 2003. This decrease was primarily
attributable to the impairment charges recorded in 2003 related
to Generations investment in Sithe that resulted in a
pre-tax loss. See Note 12 of the Combined Notes to the
Consolidated Financial Statements for further discussion of the
change in the effective income tax rate.
Results of Operations
155
For the nine months ended September 30, 2004
and 2003, Generations sales were as follows:
n.m. not meaningful
Trading volumes of 17,569 GWhs and 28,532 GWhs
for the nine months ended September 30, 2004 and 2003,
respectively, are not included in the table above. The decrease
in trading volume is a result of reduced proprietary trading
activity.
Generations average margin (operating
revenue, less purchased power and fuel expense) and other
operating data for the nine months ended September 30, 2004
and 2003 are as follows:
156
Wholesale and Retail Electric
Sales.
The changes in
Generations wholesale and retail electric sales for the
nine months ended September 30, 2004 compared to the same
period in 2003, consisted of the following:
As previously described, the adoption of
EITF 03-11 on January 1, 2004 resulted in the netting
of certain revenues and the associated purchase power and fuel
expense in 2004. The sale of Boston Generating in May 2004
decreased wholesale and retail sales, which was partially offset
by the increase from the acquisition of the remaining 50% of
AmerGen in 2003 and the transfer of Exelon Energy to Generation
as of January 1, 2004.
The increase in other wholesale and retail
electric sales was primarily due to higher demand in the forward
wholesale market as a result of forward hedging and fuel prices.
Higher average market prices in the Midwest region were
primarily driven higher by higher coal prices, while the
Mid-Atlantic region market prices were driven primarily by
higher oil and gas prices.
Electric Sales to
Affiliates.
Revenue from sales to
affiliates decreased primarily as a result of Exelon Energy
Companys assets and operations being transferred to
Generation effective January 1, 2004. Sales to Exelon
Energy Company are no longer reported as affiliate revenue by
Generation. Revenue from sales to Exelon Energy Company for the
nine months ended September 30, 2003 was $159 million.
The decrease in revenue from sales to affiliates
included $108 million in lower sales to Energy Delivery.
The lower sales to Energy Delivery were primarily due to
customers purchasing energy from an AES and unfavorable weather
conditions in the ComEd and PECO service territories compared to
the prior year.
Retail Gas Sales.
Retail gas sales increased $315 million as a result of the
transfer of Exelon Energy Company to Generation as of
January 1, 2004.
Other.
Certain other
revenues increased for the nine months ended September 30,
2004 as compared to the same period in 2003, primarily due to
the consolidation of Sithes results of operations
beginning April 1, 2004.
Generations supply source is summarized
below:
157
The changes in Generations purchased power
and fuel expense for the nine months ended September 30,
2004 compared to the same period in 2003 consisted of the
following:
Adoption of
EITF 03-11.
The adoption of
EITF 03-11 resulted in a decrease in purchased power and
fuel expense of $724 million.
Midwest Generation.
The volume of purchased power acquired from Midwest Generation
declined in 2004 as a result of Generation exercising its option
to reduce the capacity purchased from Midwest Generation, as
announced in 2003.
Boston Generating.
The decrease in fuel and purchased power expense for Boston
Generating is due primarily to the disposition of Boston
Generating in May 2004.
Hedging Activity.
Mark-to-market gains on hedging activities were $39 million
for the nine months ended September 30, 2004 compared to
losses of $18 million for the same period in 2003.
Price.
The decrease
primarily reflects lower average fossil fuel costs of
$31 million during the nine months ended September 30,
2004 as compared to the same period in 2003. Natural gas, oil
and coal prices all decreased during this period.
Volume.
Generation
experienced increases in purchased power and fuel expense due to
increased market and retail electric sales throughout its
various sales regions.
Sithe.
Under the
provisions of FIN No. 46-R, the operating results of Sithe
were included in Generations results of operations
beginning April 1, 2004. See Note 4 of the Combined
Notes to Consolidated Financial Statements for further
discussion of Sithe.
AmerGen and Exelon Energy
Company.
As result of
Generations acquisition of the remaining 50% interest in
AmerGen in December 2003, purchased power decreased $284
million, net of fuel expense, which had a significant impact on
Generations average supply cost decrease for the same
period. In prior periods, Generation reported energy purchased
from AmerGen as purchased power expense. Due to the transfer of
Exelon Energy Company to Generation effective January 1,
2004, fuel expense increased $326 million as fuel purchases
made by Exelon Energy Company did not previously affect
Generations purchased power and fuel expense.
Other.
Other
decreases in purchased power and fuel were primarily due to
$66 million in lower transmission expense resulting from
reduced inter-region transmission as a result of ComEds
integration into PJM in the second quarter of 2004, and
$16 million of additional nuclear fuel amortization
recorded in 2003 as a result of the replacement of
underperforming fuel at the Quad Cities Station.
158
In connection with the decision to transition out
of the ownership of Boston Generating and the projects during
the third quarter of 2003, Generation recorded a long-lived
asset impairment charge of $945 million ($573 million
net of income taxes). See Note 3 of the Combined Notes to
Consolidated Financial Statements for further discussion of the
sale of Generations ownership interest in Boston
Generating.
The changes in operating and maintenance expense
for the nine months ended September 30, 2004 compared to
the same period in 2003 consisted of the following:
The increase in operating and maintenance expense
was primarily due to the inclusion of AmerGen, Exelon Energy
Company, and Sithes operating results in Generations
consolidated results for 2004. This increase was partially
offset with reductions in payroll-related costs due to
implementation of the programs associated with The Exelon Way,
and the settlement with the DOE to reimburse Generation for
costs associated with storage of spent nuclear fuel.
Nuclear fleet operating data and purchased power
costs data for the nine months ended September 30, 2004 and
2003 were as follows:
Lower nuclear capacity factors were primarily due
to 51 additional planned refueling outage days, resulting in a
$34 million increase in planned outage costs in the nine
months ended September 30, 2004 as compared to the same
period in 2003. There were six planned outages during the nine
months ended September 30, 2004, compared to five planned
outages during the same period in 2003. The nine months ended
September 30, 2004 included 16 unplanned outages compared
to 20 unplanned outages during the same period in 2003. Nuclear
capacity factors were also affected by Quad Cities operating at
lower than anticipated capacity levels.
159
The lower nuclear production cost is primarily
due to the spent fuel storage cost settlement agreement with the
DOE which resulted in the reimbursement of $40 million in
spent fuel storage costs incurred as operating and maintenance
expenses prior to September 30, 2003, and the recording of
$12 million of spent fuel storage operating and maintenance
expenses incurred from October 1, 2003 to
September 30, 2004 within accounts receivable, other.
The Quad Cities units have intermittently been
operating at pre-EPU generation levels due to performance issues
with their steam dryers. Generation plans additional
expenditures to ensure safe and reliable operations at the EPU
output levels by mid-2005.
The increase in depreciation and amortization
expense for the nine months ended September 30, 2004 as
compared to the same period in 2003 was primarily due to the
establishment of the ARC asset for retired nuclear units of
$36 million associated with the third quarter 2004 update
of the nuclear decommissioning ARO. This ARC was immediately
impaired through depreciation expense as this asset was
associated with retired nuclear units that do not have any
remaining useful life. The remaining increase is due to capital
additions and the consolidation of Sithe, AmerGen and Exelon
Energy. These increases were partially offset by a decrease in
depreciation expense related to the Boston Generating
facilities, which were sold in May 2004.
The increase in interest expense was primarily
due to the issuance of $500 million of Senior Notes in
December 2003 and additional interest expense incurred as a
result of the consolidation of Sithe. This increase is partially
offset by the reduction in expense related to the sale of Boston
Generating, and its associated construction loan.
The decrease in equity in earnings of
unconsolidated affiliates was primarily due to an
$84 million decrease resulting from Generations
consolidation of AmerGen in 2004 following the purchase of
British Energys 50% interest in AmerGen in December 2003
and the consolidation of Sithe in 2004. Equity in earnings of
unconsolidated affiliates in 2004 represents Sithes equity
earnings related to its 49.5% investment in TEG and the equity
earnings of Sithe prior to the consolidation. See Note 3 of
the Combined Notes to Consolidated Financial Statements for
further discussion of Generations purchase of British
Energys 50% interest in AmerGen.
The increase in other income for the nine months
ended September 30, 2004 as compared to the same period in
the prior year was primarily due to the $85 million gain
($52 million, net of taxes) on the disposal of Boston
Generating recorded in 2004, versus a $255 million
impairment charge related to the Generations investment in
Sithe Energies recorded in 2003.
The effective income tax rate was 38% for the
nine months ended September 30, 2004 and 2003. See
Note 12 of the Combined Notes to the Consolidated Financial
Statements for further discussion of the effective income tax
rate.
Net income for the nine months ended
September 30, 2004 reflects income of $32 million, net
of income taxes, related to the consolidation of Sithe pursuant
to FIN No. 46-R which resulted from the reversal of certain
guarantees on behalf of Sithe that had been recorded at
Generation prior to December 31, 2003, while
160
Liquidity and Capital Resources
Generations business is capital intensive
and requires considerable capital resources. Generations
capital resources are primarily provided by internally generated
cash flows from operations and, to the extent necessary,
external financing, including the issuance of commercial paper,
participation in the intercompany money pool or capital
contributions from Exelon. Generations access to external
financing at reasonable terms is dependent on its credit ratings
and general business conditions, as well as that of the utility
industry in general. If these conditions deteriorate to where
Generation no longer has access to the capital markets at
reasonable terms, Generation has access to a revolving credit
facility. See the Credit Issues section of
Liquidity and Capital Resources for further
discussion. Capital resources are used primarily to fund
Generations capital requirements, including construction,
retirement of debt, the payment of distributions to Exelon,
contributions to Exelons pension plans and investments in
new and existing ventures. Future acquisitions could require
external financing or borrowings or capital contributions from
Exelon.
Generations cash flows from operating
activities primarily result from the sale of electric energy to
wholesale customers, including Generations affiliated
companies. Generations future cash flows from operating
activities will be affected by future demand and market prices
for energy and its ability to continue to produce and supply
power at competitive costs. Cash flows from operations have been
and are expected to continue to provide a reliable, steady
source of cash flows, sufficient to meet operating and capital
expenditures requirements for the foreseeable future.
Cash flows from operations for the nine months
ended September 30, 2004 and 2003 were $1,508 million
and $1,141 million, respectively. Changes in
Generations cash flows from operations are generally
consistent with changes in its results of operations, as further
adjusted by changes in working capital in the normal course of
business and non-cash charges.
In addition to the items mentioned in
Results of Operations, Generations operating
cash flows for the nine months ended September 30, 2004 and
2003 were affected by the following items:
161
Cash flows used in investing activities were
$732 million and $797 million for the nine months
ended September 30, 2004 and 2003, respectively.
Generations capital expenditures for the nine months ended
September 30, 2004 and 2003 were $608 million and
$641 million, respectively. Generations capital
expenditures represent additions and upgrades to existing
facilities (including material condition improvements during
nuclear refueling outages) and nuclear fuel. Capital
expenditures for the nine months ended September 30, 2004
and 2003 are stated net of the settlement of litigation with the
DOE of $20 million and net of proceeds from liquidated
damages of $92 million, respectively. Generation estimates
that it will spend approximately $941 million in total
capital expenditures in 2004. Generation anticipates that
nuclear refueling outages will increase from eight in 2003 to
nine in 2004. Generations capital expenditures are
expected to be funded by internally generated funds.
Cash flows from other investing activities in
2004 were primarily attributable to the following:
Cash flows used in financing activities were
$664 million and $299 million for the nine months
ended September 30, 2004 and 2003, respectively. The
increase in cash flows used in financing activities was
primarily a result of a net repayment of intercompany borrowings
of $445 million during the nine months ended
September 30, 2004, compared to a $178 million net
repayment of intercompany borrowings during the same period in
2003, a $54 million increase in distributions to Exelon
during the nine months ended September 30, 2004 as compared
to the same period in 2003, an increase in the repayment of long
term debt of $25 million during the nine months ended
September 30, 2004 as compared to the same period in 2003,
and the partial repayment of the acquisition note payable to
Sithe of $27 million during the nine months ended
September 30, 2004.
From time to time and as market conditions
warrant, Generation may engage in long-term debt repurchases via
tender offers, open market acquisitions or other viable options
to preserve the integrity of Generations balance sheet.
Exelon Credit
Facility.
Generation meets its
short-term liquidity requirements primarily through the issuance
of commercial paper and intercompany borrowings from
Exelons intercompany money pool. At December 31,
2003, Generation participated, along with Exelon Corporate,
ComEd and PECO, in a $750 million 364-day unsecured
revolving credit agreement and a $750 million three-year
unsecured revolving credit agreement with a group of banks. On
July 16, 2004, the $750 million 364-day facility was
replaced with a $1 billion five-year facility and the
$750 million three-year facility was reduced to
$500 million. These credit agreements, and
Generations participation therein, are described above
under Credit Issues Exelon Credit
Facility in Exelon Corporation Liquidity
and Capital Resources.
Capital Structure.
Generations capital structure at September 30, 2004
is described above under Credit Issues Capital
Structure in Exelon Corporation
Liquidity and Capital Resources.
Intercompany Money
Pool.
A description of the
intercompany money pool, and Generations participation
therein, is set forth above under Credit
Issues Intercompany Money Pool in Exelon
Corporation Liquidity and Capital Resources.
For the nine months ended September 30, 2004, Generation
paid $2 million in interest to the money pool.
162
Sithe Long-Term
Debt.
A description of the Sithe
long-term debt consolidated as a result of the adoption of FIN
No. 46-R is set forth above under Credit
Issues Sithe Long-Term Debt in Exelon
Corporation Liquidity and Capital Resources.
Security Ratings.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources in the 2003 Form 10-K for a
discussion of Generations security ratings.
Fund Transfer
Restrictions.
At September 30,
2004, Generation had undistributed earnings of
$1,031 million. See Liquidity and Capital
Resources Credit Issues Fund Transfer
Restrictions under Managements Discussion and
Analysis of Financial Condition and Results of
Operations Generation in the 2003
Form 10-K for information regarding fund transfer
restrictions.
Contractual obligations represent cash
obligations that are considered to be firm commitments and
commercial commitments represent commitments triggered by future
events. Generations contractual obligations and commercial
commitments as of September 30, 2004 were materially
unchanged, other than in the normal course of business, from the
amounts set forth in the 2003 Form 10-K except for the
following:
Exelon is exposed to market risks associated with
commodity prices, credit, interest rates and equity prices. The
inherent risk in market-sensitive instruments and positions is
the potential loss arising from adverse changes in commodity
prices, counterparty credit, interest rates and equity security
prices. Exelons Risk Management Committee (RMC) sets
forth risk management policy and objectives and establishes
procedures for risk assessment, control and valuation,
counterparty credit approval, and the monitoring and reporting
of derivative activity and risk exposures. The RMC is chaired by
the chief risk officer and includes the chief financial officer,
general counsel, treasurer, vice president of corporate
planning, vice president of strategy, vice president of audit
services and officers from each of the business units. The RMC
reports to the Exelon Board of Directors on the scope of
Exelons derivative and risk management activities.
Commodity Price Risk
Commodity price risk is associated with market
price movements resulting from excess or insufficient
generation, changes in fuel costs, market liquidity and other
factors. Trading activities and non-trading marketing activities
include the purchase and sale of electric capacity, energy and
fossil fuels, including oil, gas, coal, and emission allowances.
The availability and prices of energy and energy-related
commodities are subject to fluctuations due to factors such as
weather, governmental environmental policies, changes in supply
and demand, state and Federal regulatory policies and other
events.
Electricity available from Generations
owned or contracted generation supply in excess of its
obligations to customers, including Energy Deliverys
retail load, is sold into the wholesale markets. To reduce price
risk caused by market fluctuations, Generation enters into
physical contracts as well as derivative contracts,
163
Generation uses financial contracts for
proprietary trading purposes. Proprietary trading includes all
contracts entered into purely to profit from market price
changes as opposed to hedging an exposure. These activities are
accounted for on a mark-to-market basis. The proprietary trading
activities are a complement to Generations energy
marketing portfolio but represent a very small portion of its
overall energy marketing activities. For example, the limit on
open positions in electricity for any forward month represents
less than one percent of Generations owned and contracted
supply of electricity. Generation expects this level of
proprietary trading activity to continue in the future. The
results of the trading portfolio for the nine months ended
September 30, 2004 was a loss of $1 million (before
taxes) which included a $1 million unrealized
mark-to-market loss. The daily Value-at-Risk (VaR) on
proprietary trading activity averaged $200,000 of exposure over
the last 18 months. Because of the diminutive nature of the
proprietary trading portfolio in comparison to Generations
total gross margin of $2,901 million, Generation has not
segregated proprietary trading activity in the following tables.
The trading portfolio is subject to a risk management policy
that includes stringent risk management limits, including
volume, stop-loss and VaR limits to manage exposure to market
risk. Additionally, the Exelon risk management group and
Exelons RMC monitor the financial risks of the power
marketing activities.
Generations energy contracts are accounted
for under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS No. 133). Most non-trading contracts qualify for
the normal purchases and normal sales exemption to
SFAS No. 133 discussed in Managements
Discussion and Analysis of Financial Condition and Results of
Operations Critical Accounting Policies and
Estimates in Exelons 2003 Form 10-K. Those that
do not are recorded as assets or liabilities on the balance
sheet at fair value. Changes in the fair value of qualifying
hedge contracts are recorded in Other Comprehensive Income
(OCI), and gains and losses are recognized in earnings when the
underlying transaction occurs. Changes in the fair value of
derivative contracts that do not meet hedge criteria under
SFAS No. 133 and the ineffective portion of hedge
contracts are recognized in current earnings.
The following detailed presentation of the
trading and marketing activities of Generation is included to
address the recommended disclosures by the energy
industrys Committee of Chief Risk Officers (CCRO).
The following table provides detail on changes in
Generations mark-to-market net asset or liability balance
sheet position from January 1, 2004 to September 30,
2004. It indicates the drivers behind changes in the balance
sheet amounts. This table incorporates the mark-to-market
activities that are immediately recorded in earnings as well as
the settlements from OCI to earnings and changes in fair value
for the hedging
164
The following table details the balance sheet
classification of the mark-to-market energy contract net assets
(liabilities) recorded as of September 30, 2004 and
December 31, 2003:
The majority of Generations contracts are
non-exchange-traded contracts valued using prices provided by
external sources, primarily price quotations available through
brokers or over-the-counter, on-line exchanges. Prices reflect
the average of the bid-ask midpoint prices obtained from all
sources that Generation believes provide the most liquid market
for the commodity. The terms for which such price information is
available vary by commodity, region and product. The remainder
of the assets represents contracts for which external valuations
are not available, primarily option contracts. These contracts
are valued using the Black model, an industry standard option
valuation model. The fair values in each category reflect the
level of forward prices and volatility factors as of
September 30, 2004 and may change as a result of changes in
these factors. Management uses its best estimates to determine
the fair value of commodity and derivative contracts it holds or
sells. These estimates consider various factors including
closing exchange and over-the-counter price quotations, time
value, volatility factors and credit exposure. It is possible,
however, that future market prices could vary from those used in
recording assets and liabilities from energy marketing and
trading activities and such variations could be material.
165
The following table, which presents maturity and
source of fair value of mark-to-market energy contract net
liabilities, provides two fundamental pieces of information.
First, the table provides the source of fair value used in
determining the carrying amount of Generations total
mark-to-market asset or liability. Second, the table provides
the maturity, by year, of Generations net
assets/liabilities, giving an indication of when the
mark-to-market amounts will settle and either generate or
require cash.
166
The table below provides details of effective
cash-flow hedges under SFAS No. 133 included in the
balance sheet as of September 30, 2004. The table gives an
indication of the magnitude of SFAS No. 133 hedges
Generation has in place; however, since under
SFAS No. 133 not all hedges are recorded in OCI, the
table does not provide an all-encompassing picture of
Generations hedges. The table also includes a roll-forward
of accumulated other comprehensive income related to cash-flow
hedges for the nine months ended September 30, 2004,
providing insight into the drivers of the changes (new hedges
entered into during the period and changes in the value of
existing hedges). Information related to energy merchant
activities is presented separately from interest-rate hedging
activities.
Credit Risk
Generation has credit risk associated with
counterparty performance on energy contracts which includes, but
is not limited to, the risk of financial default or slow
payment. Generation manages counterparty credit risk through
established policies, including counterparty credit limits, and
in some cases, requiring deposits or letters of credit to be
posted by certain counterparties. Generations counterparty
credit limits are based on a scoring model that considers a
variety of factors, including leverage, liquidity,
profitability, credit ratings and risk management capabilities.
Generation has entered into payment netting agreements or
enabling agreements that allow for payment netting with the
majority of its large counterparties, which reduces
Generations exposure to counterparty risk by providing for
the offset of amounts payable to the counterparty against
amounts receivable from the counterparty. The credit department
monitors current and forward credit exposure to counterparties
and their affiliates, both on an individual and an aggregate
basis.
167
The following tables provide information on
Generations wholesale credit exposure, net of collateral,
as of September 30, 2004. The tables further delineate that
exposure by the credit rating of the counterparties and provide
guidance on the concentration of credit risk to individual
counterparties and an indication of the maturity of
Generations credit risk by credit rating of its
counterparties. The figures in the tables below do not include
sales to Generations affiliates or exposure through
Independent System Operators, which are discussed below.
Dynegy.
Generation
is counterparty to Dynegy, Inc. (Dynegy) in various energy
transactions. The credit ratings of Dynegy are below investment
grade. As of September 30, 2004, Generation has credit risk
associated with Dynegy through Generations investment in
Sithe. Sithe is a 100% owner of the Independence generating
station, a 1,028-MW gas-fired facility that has an energy-only
long-term tolling agreement with Dynegy, with a related
financial swap arrangement. As of March 31, 2004,
Generation consolidated the assets and liabilities of Sithe in
accordance with the provisions of FIN No. 46-R. As a
result, Generation has recorded an asset of $127 million on
its Consolidated Balance Sheets related to the fair market value
of the financial swap agreement with Dynegy that is
marked-to-market under the terms of SFAS No. 133,
Accounting for Derivatives and Hedging Activities.
If Dynegy were unable to fulfill the terms of the financial swap
agreement, Generation would be required to impair the related
asset. Exelon estimates, as a 50% owner of Sithe, that the
impairment would result in an after-tax reduction of its net
income of approximately $23 million. See Note 4 of the
Combined Notes to Consolidated Financial Statements for
information regarding Generations exercise of a call
option to acquire the remaining 50% of Sithe.
In addition to the asset impairment, if Dynegy
were unable to fulfill its obligations under the financial swap
agreement and the tolling agreement, Generation would likely
incur an impairment of the intangible asset associated with the
Independence plant tolling agreement. Depending upon the timing
of Dynegys failure to fulfill its obligations and the
outcome of any restructuring initiatives, Generation could
realize an after-tax charge of up to $50 million. In the
event of a sale of Generations investment in Sithe to a
third party,
168
Generation had previously disclosed that the
future economic value of AmerGens purchased power
arrangement with Illinois Power Company (Illinois Power), a
subsidiary of Dynegy, could be affected by events related to
Dynegys financial condition. On September 30, 2004,
Dynegy sold Illinois Power to a third party, which has reduced
Generations credit risk associated with Dynegy.
Collateral.
As part
of the normal course of business, Generation routinely enters
into physical or financially settled contracts for the purchase
and sale of capacity, energy, fuels and emissions allowances.
These contracts either contain express provisions or otherwise
permit Generation and its counterparties to demand adequate
assurance of future performance when there are reasonable
grounds for doing so. In accordance with the contracts and
applicable law, if Generation is downgraded by a credit rating
agency, especially if such downgrade is to a level below
investment grade, it is possible that a counterparty would
attempt to rely on such a downgrade as a basis for making a
demand for adequate assurance of future performance. Depending
on Generations net position with a counterparty, the
demand could be for the posting of collateral. In the absence of
express contractual provisions that specify the collateral that
must be provided, the obligation to supply the collateral
requested will be a function of the facts and circumstances of
Generations situation at the time of the demand. If
Generation can reasonably claim that it is willing and
financially able to perform its obligations, it may be possible
to successfully argue that no collateral should be posted or
that only an amount equal to two or three months of future
payments should be sufficient.
ISOs.
Generation
participates in the following established, real-time energy
markets, which are administered by ISOs: PJM, ISO New England,
New York ISO, Midwest ISO, Inc., Southwest Power Pool, Inc. and
Texas, which is administered by the Electric Reliability Council
of Texas. In these areas, power is traded through bilateral
agreements between buyers and sellers and on the spot markets
that are operated by the ISOs. In areas where there is no spot
market, electricity is purchased and sold solely through
bilateral agreements. For sales into the spot markets
administered by the ISOs, each ISO maintains financial assurance
policies that are established and enforced by those
administrators. The credit policies of the ISOs may under
certain circumstances require that losses arising from the
default of one member on spot market transactions be shared by
the remaining participants. Non-performance or non-payment by a
major counterparty could result in a material adverse impact on
Generations financial condition, results of operations or
net cash flows.
Interest Rate Risk
As of September 30, 2004, a hypothetical 10%
increase in the interest rates associated with variable-rate
debt would not have a material impact on Exelons pre-tax
earnings.
In September 2004, Exelon entered into
forward-starting interest-rate swaps in the aggregate amount of
$160 million to lock in interest rate levels in
anticipation of a future financing. The debt issuance that swaps
are hedging was considered probable as of September 30,
2004; therefore, Exelon accounted for the swaps as cash-flow
hedges. At September 30, 2004, the swaps had an aggregate
fair market value of less than $1 million based on the
present value difference between the contract and market rates
at September 30, 2004. If these derivative instruments had
been terminated at September 30, 2004, this estimated fair
value represents the amount that would be paid by the
counterparties to Exelon.
The aggregate fair value of these interest-rate
swaps that would have resulted from a hypothetical 50 basis
point decrease in the spot yield at September 30, 2004 is
estimated to be $6 million in the counterparties
favor. If the derivative instruments had been terminated at
September 30, 2004, this estimated fair value represents
the amount Exelon would pay the counterparties.
The aggregate fair value of these interest-rate
swaps that would have resulted from a hypothetical 50 basis
point increase in the spot yield at September 30, 2004 is
estimated to be $7 million in Exelons favor. If the
derivative instrument had been terminated at September 30,
2004, this estimated fair value represents the amount the
counterparties would pay Exelon.
169
As of September 30, 2004, a hypothetical 10%
increase in the interest rates associated with variable-rate
debt would not have a material impact on ComEds pre-tax
earnings.
ComEd uses a combination of fixed-rate and
variable-rate debt to reduce interest rate exposure.
Interest-rate swaps may be used to adjust exposure when deemed
appropriate based upon market conditions. ComEd also utilizes
forward-starting interest-rate swaps and treasury rate locks to
lock in interest rate levels in anticipation of future
financing. These strategies are employed to achieve a lower cost
of capital. At September 30, 2004, ComEd did not have any
interest-rate swaps designated as cash-flow hedges.
In 2004, ComEd entered into fixed-to-floating
interest-rate swaps in order to maintain its targeted percentage
of variable-rate debt associated with fixed-rate debt issuances
in the aggregate amount of $240 million. At
September 30, 2004, these interest-rate swaps, designated
as fair-value hedges, had an aggregate fair market value of
$9 million based on the present value difference between
the contract and market rates at September 30, 2004. If
these derivative instruments had been terminated at
September 30, 2004, this estimated fair value represents
the amount that would be paid by the counterparties to ComEd.
The aggregate fair value of the interest-rate
swaps designated as fair-value hedges that would have resulted
from a hypothetical 50 basis point decrease in the spot
yield at September 30, 2004 is estimated to be
$16 million in ComEds favor. If the derivative
instrument had been terminated at September 30, 2004, this
estimated fair value represents the amount the counterparties
would pay ComEd.
The aggregate fair value of the interest-rate
swaps designated as fair-value hedges that would have resulted
from a hypothetical 50 basis point increase in the spot
yield at September 30, 2004 is estimated to be
$1 million in ComEds favor. If the derivative
instrument had been terminated at September 30, 2004, this
estimated fair value represents the amount the counterparties
would pay ComEd.
In April 2004, ComEd settled certain
interest-rate swaps designated as fair-value hedges in the
aggregate amount of $485 million for total proceeds of
approximately $32 million, which included the
$26 million settlement amount and $6 million of
accrued interest. The $26 million settlement amount will be
amortized as a reduction to interest expense over the remaining
life of the related debt.
As of September 30, 2004, a hypothetical 10%
increase in the interest rates associated with variable-rate
debt would not have a material impact on PECOs pre-tax
earnings.
In March 2004, PECO entered into a
forward-starting interest-rate swap in the aggregate amount of
$75 million to lock in interest rate levels in anticipation
of a future financing. The debt issuance that this swap was
hedging was considered probable in March 2004 and closed in
April 2004; therefore, PECO accounted for this interest-rate
swap transaction as a hedge. In April 2004, PECO settled this
interest-rate swap designated as a cash-flow hedge for net
proceeds of approximately $5 million. The proceeds were
recorded in other comprehensive income and are being amortized
over the life of the debt issuance.
Generation uses a combination of fixed-rate and
variable-rate debt to reduce interest rate exposure. Generation
also uses interest-rate swaps when deemed appropriate to adjust
exposure based upon market conditions. These strategies are
employed to achieve a lower cost of capital. As of
September 30, 2004, a hypothetical 10% increase in the
interest rates associated with variable-rate debt would not have
a material impact on Generations pre-tax earnings.
170
Equity Price Risk
Generation maintains trust funds, as required by
the Nuclear Regulatory Commission, to fund certain costs of
decommissioning its nuclear plants. As of September 30,
2004, decommissioning trust funds are reflected at fair value on
Generations Consolidated Balance Sheets. The mix of
securities in the trust funds is designed to provide returns to
be used to fund decommissioning and to compensate for
inflationary increases in decommissioning costs. However, the
equity securities in the trust funds are exposed to price
fluctuations in equity markets, and the value of fixed-rate,
fixed-income securities are exposed to changes in interest
rates. Generation actively monitors the investment performance
of the trust funds and periodically reviews asset allocation in
accordance with Generations nuclear decommissioning trust
fund investment policy. A hypothetical 10% increase in interest
rates and decrease in equity prices would result in a
$297 million reduction in the fair value of the trust
assets.
During the third quarter of 2004, each
registrants management, including its principal executive
officer and principal financial officer, evaluated that
registrants disclosure controls and procedures related to
the recording, processing, summarizing and reporting of
information in that registrants periodic reports that it
files with the SEC. These disclosure controls and procedures
have been designed by each registrant to ensure that
(a) material information relating to that registrant,
including its consolidated subsidiaries, is made known to that
registrants management, including its principal executive
officer and principal financial officer, by other employees of
that registrant and its subsidiaries, and (b) this
information is recorded, processed, summarized, evaluated and
reported, as applicable, within the time periods specified in
the SECs rules and forms. Due to the inherent limitations
of control systems, not all misstatements may be detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Additionally, controls could
be circumvented by the individual acts of some persons or by
collusion of two or more people. Each registrants controls
and procedures can only provide reasonable, not absolute,
assurance that the above objectives have been met. A
registrants access and ability to apply its disclosure
controls and procedures to unconsolidated entities and entities
that are consolidated under FIN No. 46-R may be more
limited than is the case for majority-owned subsidiaries.
Accordingly, as of September 30, 2004, the
principal executive officer and principal financial officer of
each registrant concluded that such registrants disclosure
controls and procedures were effective to accomplish their
objectives. Each registrant continually strives to improve its
disclosure controls and procedures to enhance the quality of its
financial reporting and to maintain dynamic systems that change
as conditions warrant. During the three months ended
September 30, 2004, Exelon completed the implementation of
an information technology system that supports the computation
and tracking of deferred income tax balances. Exelons
management believes this system implementation constitutes a
material change in internal control over financial reporting.
Section 404 of the Sarbanes-Oxley Act of
2002 (Section 404) requires Exelon to include a
report regarding the effectiveness of its internal control over
financial reporting, beginning with its Annual Report on
Form 10-K for the year ending December 31, 2004. That
report is to include an assessment by Exelons management
of the effectiveness of its internal control over financial
reporting as of the end of the fiscal year along with an
attestation report from Exelons independent auditors
regarding that assessment. Accordingly, Exelon has undertaken a
comprehensive effort to assess its system of internal controls
over financial reporting. Using internal resources and external
consulting assistance, Exelon has reviewed its internal controls
over financial reporting to assess their adequacy and, as
necessary, to address identified issues or inadequacies. That
review has shown that, while most controls function
appropriately, some areas require additional work and
improvement. Although Exelon has not yet completed its
assessment of its overall system of internal control,
Exelons management does not believe that any of the
identified areas constitute a material weakness.
Exelon expects that these areas will be appropriately addressed
by year-end 2004 and anticipates that they will
171
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
(In millions, except per share data)
2004
2003
2004
2003
$
3,865
$
4,441
$
11,137
$
12,236
873
1,179
2,107
2,765
133
310
407
551
1,781
1,908
945
945
815
1,203
2,921
3,362
364
293
980
842
178
131
556
489
2,637
4,435
8,345
10,621
1,228
6
2,792
1,615
(132
)
(213
)
(418
)
(652
)
(88
)
(4
)
(271
)
(9
)
(1
)
(8
)
(3
)
(30
)
(42
)
49
(97
)
82
(107
)
(44
)
121
(226
)
(370
)
(220
)
(668
)
(835
)
858
(214
)
2,124
780
280
(112
)
656
258
578
(102
)
1,468
522
(1
)
10
(3
)
577
(102
)
1,478
519
(9
)
23
112
568
(102
)
1,501
631
9
9
77
142
(68
)
58
(4
)
2
7
5
18
3
168
1
2
9
84
157
(52
)
249
$
652
$
55
$
1,449
$
880
661
652
660
650
669
652
668
655
$
0.87
$
(0.16
)
$
2.23
$
0.80
(0.01
)
0.04
.17
$
0.86
$
(0.16
)
$
2.27
$
0.97
$
0.86
$
(0.16
)
$
2.21
$
0.79
(0.01
)
0.04
0.17
$
0.85
$
(0.16
)
$
2.25
$
0.96
$
0.31
$
0.25
$
0.86
$
0.71
Nine Months
Ended
September 30,
2004
2003
(In millions)
$
1,501
$
631
1,507
1,290
(23
)
(112
)
10
295
1
950
314
(363
)
59
72
97
(82
)
(154
)
(2
)
(9
)
(35
)
62
245
24
(20
)
(55
)
82
(93
)
(165
)
113
(6
)
18
(5
)
2
(259
)
(161
)
7
(29
)
3,154
2,553
(1,295
)
(1,501
)
92
1,422
1,880
(1,624
)
(2,043
)
35
58
238
186
50
5
(48
)
11
78
19
(9
)
45
(1,178
)
(1,223
)
75
2,105
(973
)
(2,075
)
103
(547
)
(1
)
(599
)
200
(250
)
(50
)
(27
)
(210
)
(565
)
(461
)
192
139
(75
)
36
(85
)
(1,885
)
(1,183
)
91
147
493
469
584
616
(12
)
$
584
$
604
$
85
$
210
22
September 30,
December 31,
2004
2003
(In millions)
ASSETS
$
584
$
493
166
97
1,613
1,567
414
676
403
337
191
212
326
310
92
49
122
242
308
413
4,054
4,561
20,724
20,630
4,931
5,226
4,943
4,721
895
955
4,707
4,719
432
133
1,373
991
17,281
16,745
$
42,059
$
41,936
September 30,
December 31,
2004
2003
(In millions)
LIABILITIES AND SHAREHOLDERS
EQUITY
$
325
$
326
90
410
1,385
581
470
1,136
1,238
655
584
1,097
1,260
61
301
306
4,505
5,720
7,814
7,889
4,397
5,055
545
545
4,735
4,320
278
288
3,473
2,997
1,344
1,668
1,119
1,053
875
867
2,009
1,891
391
141
888
912
15,112
14,137
32,373
33,346
53
87
87
7,532
7,292
(75
)
3,256
2,320
(1,167
)
(1,109
)
9,546
8,503
$
42,059
$
41,936
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
(In millions)
$
1,720
$
1,717
$
4,441
$
4,473
20
17
49
1,720
1,737
4,458
4,522
80
6
144
17
827
885
1,870
1,984
185
261
533
691
46
38
136
90
104
97
309
287
68
87
219
235
1,310
1,374
3,211
3,304
410
363
1,247
1,218
(59
)
(107
)
(203
)
(322
)
(27
)
(85
)
(6
)
(20
)
(4
)
(13
)
6
6
16
20
(106
)
(106
)
(1
)
9
6
28
(191
)
(98
)
(385
)
(294
)
219
265
862
924
95
102
351
365
124
163
511
559
5
124
163
511
564
3
31
2
3
(1
)
(1
)
2
(1
)
5
(1
)
36
$
123
$
168
$
510
$
600
Nine Months Ended
September 30,
2004
2003
(In millions)
$
511
$
564
309
287
(5
)
157
92
25
31
13
80
46
(101
)
(55
)
(5
)
7
10
(44
)
24
(151
)
5
(12
)
(141
)
(110
)
(20
)
(14
)
867
636
(518
)
(537
)
405
(147
)
20
(17
)
436
213
12
21
355
(467
)
1,427
(798
)
(1,139
)
(261
)
200
(200
)
17
(71
)
(320
)
(305
)
94
106
26
(45
)
2
(36
)
(1,240
)
(63
)
(18
)
106
34
16
$
16
$
122
$
$
210
September 30,
December 31,
2004
2003
(In millions)
ASSETS
$
16
$
34
20
784
683
43
68
49
43
6
19
23
405
26
31
937
1,313
9,349
9,096
36
36
59
73
4,707
4,719
1,906
2,271
172
4
383
453
7,263
7,556
$
17,549
$
17,965
September 30,
December 31,
2004
2003
(In millions)
LIABILITIES AND SHAREHOLDERS
EQUITY
$
284
$
236
309
317
157
170
529
540
222
207
17
86
78
27
18
9
1,649
1,557
3,327
4,167
1,106
1,359
361
361
1,882
1,686
46
48
217
190
28
28
2,009
1,891
297
336
4,479
4,179
10,922
11,623
1,588
1,588
7
7
4,115
4,115
(156
)
(250
)
1,075
883
(2
)
(1
)
6,627
6,342
$
17,549
$
17,965
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
(In millions)
$
1,119
$
1,146
$
3,381
$
3,319
5
3
14
9
1,124
1,149
3,395
3,328
49
61
149
189
409
421
1,108
1,101
28
28
354
285
7
14
96
178
310
414
26
14
77
39
144
134
395
370
64
12
181
123
823
848
2,588
2,521
301
301
807
807
(15
)
(73
)
(42
)
(241
)
(61
)
(2
)
(187
)
(2
)
(1
)
(6
)
(6
)
(19
)
3
(10
)
8
(79
)
(86
)
(240
)
(249
)
222
215
567
558
83
74
195
193
139
141
372
365
(1
)
(1
)
(3
)
(4
)
$
138
$
140
$
369
$
361
$
139
$
141
$
372
$
365
2
2
2
1
2
1
3
4
3
$
139
$
144
$
376
$
368
Nine Months
Ended
September 30,
2004
2003
(In millions)
$
372
$
365
395
370
(72
)
(76
)
30
38
19
4
(2
)
4
25
(15
)
(44
)
52
(33
)
(49
)
(46
)
(2
)
(4
)
35
52
9
68
20
45
(12
)
(1
)
790
757
(162
)
(191
)
(26
)
132
2
(2
)
(186
)
(61
)
75
450
(75
)
(709
)
103
(286
)
(46
)
(188
)
(50
)
(50
)
(279
)
(248
)
106
17
2
(2
)
(503
)
(677
)
101
19
44
63
$
145
$
82
September 30,
December 31,
(In millions)
2004
2003
ASSETS
$
145
$
44
325
363
35
27
112
99
9
7
26
32
64
29
81
50
1
12
10
775
696
4,305
4,256
4,931
5,226
19
20
108
123
15
13
78
68
14
8
5,165
5,458
$
10,245
$
10,410
September 30,
December 31,
2004
2003
(In millions)
LIABILITIES AND SHAREHOLDERS
EQUITY
$
$
46
161
150
272
153
64
92
293
237
42
35
832
713
1,356
1,359
3,291
3,696
184
184
2,886
2,986
20
22
317
287
140
147
3,363
3,442
9,026
9,394
2,000
1,999
(1,518
)
(1,623
)
87
87
639
546
11
7
1,219
1,016
$
10,245
$
10,410
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
(In millions)
$
1,009
$
1,180
$
3,159
$
3,055
1,244
1,357
2,994
3,246
2,253
2,537
6,153
6,301
743
1,096
1,814
2,531
144
11
350
379
449
1,427
1,156
945
945
366
453
1,445
1,261
66
54
200
136
95
51
218
142
42
28
137
115
1,691
3,220
5,252
6,636
562
(683
)
901
(335
)
(44
)
(22
)
(120
)
(52
)
(1
)
(3
)
(3
)
(11
)
(5
)
53
(7
)
90
5
(53
)
129
(238
)
(45
)
(25
)
(1
)
(211
)
517
(708
)
900
(546
)
198
(280
)
343
(209
)
319
(428
)
557
(337
)
10
(2
)
319
(428
)
567
(339
)
32
108
319
(428
)
599
(231
)
77
147
(70
)
30
7
1
15
(1
)
1
(3
)
168
1
2
9
85
149
(56
)
206
$
404
$
(279
)
$
543
$
(25
)
Nine Months
Ended
September 30,
2004
2003
(In millions)
$
599
$
(231
)
745
594
(32
)
(108
)
(91
)
(2
)
255
950
159
(393
)
3
1
7
(90
)
(2
)
(9
)
(69
)
8
298
(81
)
(5
)
254
(10
)
(46
)
69
66
(16
)
(18
)
1
(89
)
(65
)
(17
)
14
1,508
1,141
(608
)
(733
)
92
1,485
1,880
(1,687
)
(2,043
)
(17
)
20
24
(8
)
(25
)
42
24
13
12
(732
)
(797
)
211
(29
)
(4
)
(27
)
(210
)
(445
)
(178
)
(170
)
(116
)
7
(2
)
(664
)
(299
)
112
45
158
58
$
270
$
103
$
85
$
(9
)
17
September 30,
December 31,
2004
2003
(In millions)
ASSETS
$
270
$
158
163
75
477
389
119
402
403
322
333
421
79
98
268
259
23
5
34
40
36
141
233
2,310
2,438
6,914
7,106
4,943
4,721
103
65
22
22
216
79
422
100
554
118
6,260
5,105
$
15,484
$
14,649
September 30,
December 31,
2004
2003
(In millions)
$
61
$
1,068
853
848
655
581
31
1
506
375
423
100
126
2,075
3,553
2,444
1,649
429
195
212
218
3,472
2,996
21
21
604
555
875
867
1,274
1,195
391
133
302
308
7,580
6,488
12,099
11,690
55
3
2,495
2,490
1,031
602
(196
)
(136
)
3,330
2,956
$
15,484
$
14,649
1.
Basis of Presentation (Exelon, ComEd, PECO,
and Generation)
2.
New Accounting Principles (Exelon, ComEd, PECO
and Generation)
New Accounting Principles with a Cumulative
Effect upon Adoption
FIN No. 46 and FIN
No. 46-R
September 30, 2004
December 31, 2003
$
5,523
$
6,070
1,776
2,037
3,747
4,033
SFAS No. 143
$
80
28
5
(1
)
$
112
Other New Accounting
Principles
EITF 03-11
Exelon
EITF 03-11
For the Three Months Ended September 30, 2003
As Reported
Impact
Pro Forma
$4,441
$
(344
)
$4,097
1,312
(330
)
982
551
(14
)
537
EITF 03-11
For the Nine Months Ended September 30, 2003
As Reported
Impact
Pro Forma
$
12,236
$
(829
)
$
11,407
3,075
(778
)
2,297
1,908
(51
)
1,857
Generation
EITF 03-11
For the Three Months Ended September 30, 2003
As Reported
Impact
Pro Forma
$2,537
$
(344
)
$2,193
1,240
(330
)
910
449
(14
)
435
EITF 03-11
For the Nine Months Ended September 30, 2003
As Reported
Impact
Pro Forma
$6,301
$
(829
)
$5,472
2,881
(778
)
2,103
1,156
(51
)
1,105
FSP FAS 106-2
Three Months
Nine Months
Ended
Ended
September 30, 2004
September 30, 2004
$
3
$
11
2
4
3
9
Three Months
Ended
March 31, 2004
$
406
6
$
412
$
0.62
$
0.63
$
0.61
$
0.62
(a)
A portion of the net periodic postretirement
benefit cost is capitalized within Exelons Consolidated
Balance Sheets. The reduction in net periodic postretirement
benefit expense due to the Prescription Drug Act is not taxable
to Exelon.
Three Months Ended March 31, 2004
ComEd
PECO
Generation
$
182
$
130
(a)
$
99
2
1
3
$
184
$
131
$
102
(a)
Represents PECOs net income on common stock.
(b)
A portion of the net periodic postretirement
benefit cost is capitalized within the Consolidated Balance
Sheets.
EITF 03-1
EITF 03-16
3.
Acquisitions and Dispositions (Exelon and
Generation)
Sale of Ownership Interest in Boston
Generating, LLC (Exelon and Generation)
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
$
$
224
$
248
$
407
(962
)
(47
)
(944
)
(581
)
24
(572
)
(a)
Net income for the nine months ended
September 30, 2004 included an after-tax gain of
$52 million related to the sale of Boston Generating in the
second quarter of 2004.
Disposition of Enterprises Entities
(Exelon)
Exelon Energy Company
(Generation)
$
119
2
13
$
134
$
126
10
(2
)
$
134
AmerGen Energy Company, LLC (Exelon and
Generation)
Synthetic Fuel-Producing Facilities
(Exelon)
Assets and Liabilities Held for Sale
(Exelon, Generation and Enterprises)
4.
Sithe (Exelon and Generation)
$
25
238
263
(13
)
(141
)
(154
)
$
109
5.
Selected Pro Forma and Consolidating Financial
Information
Exelon
Acquisition
Sale of
Pro Forma
Exelon
of 50% of
Boston
Eliminating
Exelon
Three Months Ended September 30, 2003
As Reported
AmerGen
Generating
Entries(a)
Consolidated
$4,441
$
222
$
224
$
(133
)
$4,306
6
87
(962
)
1,055
(102
)
96
(581
)
(47
)
528
(a)
Represents the elimination of intercompany
revenues at AmerGen and equity in earnings from AmerGen in 2003.
Acquisition
Sale of
Pro Forma
Exelon
of 50% of
Boston
Eliminating
Exelon
Nine Months Ended September 30, 2003
As Reported
AmerGen
Generating
Entries(a)
Consolidated
$
12,236
$
529
$
407
$
(310
)
$
12,048
1,615
146
(944
)
2,705
519
168
(572
)
(84
)
1,175
(a)
Represents the elimination of intercompany
revenues at AmerGen and equity in earnings from AmerGen in 2003.
Exelon Condensed Consolidating Balance
Sheet at September 30, 2004
Exelon
Eliminating
Consolidated
September 30, 2004
Exelon
Sithe
Entries
(As Reported)
$
3,933
$
282
$
(161
)
$
4,054
20,452
272
20,724
16,553
770
(42
)
17,281
$
40,938
$
1,324
$
(203
)
$
42,059
$
4,418
$
248
$
(161
)
$
4,505
11,953
803
12,756
14,934
179
52
15,165
9,633
94
(94
)
9,633
$
40,938
$
1,324
$
(203
)
$
42,059
(a)
Includes minority interest in consolidated
subsidiaries.
(b)
Includes preferred securities of subsidiaries.
Generation
Pro Forma
Generation
Businesses
Businesses
Eliminating
Generation
Three Months Ended September 30, 2003
As Reported
Acquired(a)
Disposed(b)
Entries(c)
Consolidated
$
2,537
$
368
$
224
$
(186
)
$
2,495
(683
)
82
(962
)
361
(428
)
93
(581
)
(47
)
199
(a)
Consists of the acquisition of the remaining 50%
interest in AmerGen and the transfer of Exelon Energy Company to
Generation.
(b)
Consists of the sale of Boston Generating.
(c)
Represents the elimination of intercompany
revenues at AmerGen and Exelon Energy and equity in earnings
from AmerGen in 2003.
Pro Forma
Generation
Businesses
Businesses
Eliminating
Generation
Nine Months Ended September 30, 2003
As Reported
Acquired(a)
Disposed(b)
Entries(c)
Consolidated
$
6,301
$
1,180
$
407
$
(472
)
$
6,602
(335
)
128
(944
)
737
(339
)
156
(572
)
(84
)
305
(a)
Consists of the acquisition of the remaining 50%
interest in AmerGen and the transfer of Exelon Energy Company to
Generation.
(b)
Consists of the sale of Boston Generating.
(c)
Represents the elimination of intercompany
revenues at AmerGen and Exelon Energy and equity in earnings
from AmerGen in 2003.
Generation Condensed Consolidating Balance
Sheet at September 30, 2004
Generation
Exelon
Eliminating
Consolidated
September 30, 2004
Generation
Sithe
Energy
Entries
(As Reported)
$
2,129
$
282
$
75
$
(176
)
$
2,310
6,641
272
1
6,914
5,521
770
11
(42
)
6,260
$
14,291
$
1,324
$
87
$
(218
)
$
15,484
$
1,934
$
248
$
69
$
(176
)
$
2,075
1,641
803
2,444
7,399
179
5
52
7,635
3,317
94
13
(94
)
3,330
$
14,291
$
1,324
$
87
$
(218
)
$
15,484
(a)
Includes minority interest in consolidated
subsidiaries.
6.
Stock-Based Compensation (Exelon, ComEd, PECO,
and Generation)
Exelon
Three Months
Ended
September 30,
2004
2003
$
568
$
(102
)
(5
)
(5
)
$
563
$
(107
)
$
0.86
$
(0.16
)
$
0.85
$
(0.16
)
$
0.85
$
(0.16
)
$
0.84
$
(0.16
)
Nine Months
Ended
September 30,
2004
2003
$
1,501
$
631
(15
)
(16
)
$
1,486
$
615
$
2.27
$
0.97
$
2.25
$
0.95
$
2.25
$
0.96
$
2.23
$
0.94
7.
Regulatory Issues (Exelon, ComEd and
Generation)
Exelon and ComEd
Exelon and Generation
8.
Intangible Assets (Exelon, ComEd and
Generation)
Exelon
Energy
Delivery
Enterprises
Total
$
4,916
$
76
$
4,992
(72
)
(72
)
(210
)
(210
)
5
5
8
8
(4
)
(4
)
4,719
4,719
(9
)
(9
)
(3
)
(3
)
$
4,707
$
$
4,707
(a)
See Notes to Consolidated Financial Statements of
Exelon in the 2003 Form 10-K for information regarding the
adoption of SFAS No. 143.
September 30, 2004
December 31, 2003
Accumulated
Accumulated
Gross
Amortization
Net
Gross
Amortization
Net
$
384
$
(18
)
$
366
$
$
$
73
(3
)
70
264
(40
)
224
241
(4
)
237
6
(5
)
1
6
6
727
(66
)
661
247
(4
)
243
186
186
186
186
$
913
$
(66
)
$
847
$
433
$
(4
)
$
429
(a)
See Note 4 Sithe for a
description of Sithes intangible assets.
(b)
See Note 3 Acquisitions and
Dispositions for a description of Exelons right to acquire
tax credits through investments in synthetic fuel-producing
facilities.
ComEd
$
4,916
(210
)
5
8
4,719
(9
)
(3
)
$
4,707
(a)
See Notes to Consolidated Financial Statements of
ComEd in the 2003 Form 10-K for information regarding the
adoption of SFAS No. 143.
Generation
September 30, 2004
December 31, 2003
Accumulated
Accumulated
Gross
Amortization
Net
Gross
Amortization
Net
$
384
$
(18
)
$
366
$
$
$
73
(3
)
70
6
(5
)
1
6
6
$
463
$
(26
)
$
437
$
6
$
$
6
(a)
See Note 4 Sithe for a
description of Sithes intangible assets.
9.
Long-Term Debt (Exelon, ComEd, PECO and
Generation)
Credit Facility (Exelon, ComEd, PECO and
Generation)
Boston Generating Credit
Facility
Long-Term Debt
Interest
Company
Type
Rate
Maturity
Amount
First Mortgage Bonds
5.90%
May 1, 2034
$
75
Note
6.00%
January 15, 2008
22
$
97
Stated Interest
Face Amount
Rate
Maturity
of Debt
8.50
%(a)
2007
$
107
9.00
%(a)
2013
409
18.00
%
2007
1
7.00
%(a)
2035
419
$
936
(100
)
(33
)
$
803
(a)
In addition to the stated interest rate, an
additional 1.97% and 0.99% of interest on the carrying amount of
the secured bonds payable is being credited due to debt premiums
and 1.63% of interest on the carrying amount of the subordinated
debt is being incurred due to the debt discount recorded at the
time of the purchase.
$
16
34
37
40
44
765
936
(100
)
$
836
10.
Severance Benefits (Exelon, ComEd, PECO and
Generation)
Energy
Exelon
Salary Continuance Severance
Delivery
Generation
Enterprises
Corporate
Consolidated
$
10
$
6
$
$
3
$
19
14
1
8
23
Energy
Exelon
Salary Continuance Severance
Delivery
Generation
Enterprises
Corporate
Consolidated
$
50
$
20
$
7
$
10
$
87
53
24
7
11
95
Salary Continuance Severance
ComEd
PECO
Generation
$
11
$
(1
)
$
6
11
3
1
Salary Continuance Severance
ComEd
PECO
Generation
$
37
$
13
$
20
37
16
24
Exelon
Salary Continuance Obligations
Consolidated
ComEd
PECO
Generation
$
39
$
15
$
$
11
135
61
16
38
(39
)
(21
)
(2
)
(9
)
4
3
139
55
14
43
23
11
3
1
(64
)
(21
)
(8
)
(23
)
(6
)
(3
)
$
92
$
42
$
9
$
21
(a)
In 2004, Generation increased the reserve for
liabilities acquired upon the transfer of the operations of
Exelon Energy Company to Generation on January 1, 2004, and
reduced the reserve for liabilities associated with Boston
Generating, which was sold in May 2004.
11.
Retirement Benefits (Exelon, ComEd, PECO and
Generation)
Other
Postretirement
Pension Benefits
Benefits
Three Months
Three Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
$
31
$
27
$
19
$
18
139
130
38
45
(152
)
(143
)
(22
)
(18
)
(1
)
(7
)
3
3
3
9
(22
)
(8
)
22
7
12
11
15
8
54
$
42
$
27
$
31
$
121
Other
Postretirement
Pension Benefits
Benefits
Nine Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
$
97
$
81
$
59
$
52
407
390
127
128
(459
)
(435
)
(68
)
(56
)
(3
)
(9
)
7
8
11
17
(60
)
(35
)
52
11
37
36
5
11
3
15
16
54
$
110
$
66
$
121
$
202
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
Pension and Postretirement Benefit Costs
2004
2003
2004
2003
$
20
$
20
$
67
$
66
8
9
25
41
30
21
89
69
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
Curtailment Charges
2004
2003
2004
2003
$
$
2
$
3
$
2
16
2
16
7
3
7
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
Special Termination Benefit Charges
2004
2003
2004
2003
$
6
$
20
$
8
$
20
12
2
12
2
20
4
20
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
Savings Plan Matching Contributions
2004
2003
2004
2003
$
15
$
15
$
43
$
42
4
5
12
14
2
2
5
6
7
6
20
18
12.
Income Taxes (Exelon, ComEd, PECO and
Generation)
Exelon
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
35.0
%
35.0
%
35.0
%
35.0
%
(6.6
)
(6.9
)
(0.4
)
1.6
(0.5
)
(1.3
)
0.4
(1.2
)
0.5
1.2
(0.1
)
1.3
(0.3
)
(1.0
)
(0.3
)
0.8
(0.4
)
(0.7
)
3.3
13.1
2.9
1.0
(0.2
)
(0.3
)
1.5
1.7
0.9
(1.1
)
32.6
%
52.3
%
30.9
%
33.1
%
(a)
See Note 3 Acquisitions and
Dispositions for further information regarding these investments.
ComEd
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
35.0
%
35.0
%
35.0
%
35.0
%
4.8
4.8
4.8
4.8
2.4
0.6
0.6
0.6
0.6
0.6
(0.3
)
(0.3
)
(0.3
)
(0.3
)
(0.3
)
(0.3
)
1.2
(1.6
)
0.3
(0.6
)
43.4
%
38.5
%
40.7
%
39.5
%
PECO
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
35.0
%
35.0
%
35.0
%
35.0
%
1.9
(0.9
)
(1.0
)
(0.2
)
1.7
(0.1
)
1.2
(0.3
)
(0.3
)
(0.3
)
(0.4
)
(0.2
)
(0.2
)
1.2
(1.0
)
(0.2
)
37.4
%
34.5
%
34.4
%
34.6
%
Generation
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
35.0
%
35.0
%
35.0
%
35.0
%
3.7
4.1
3.6
3.0
(0.5
)
0.3
(0.8
)
1.0
(0.3
)
(0.2
)
(0.3
)
0.2
(0.3
)
0.7
0.7
(0.4
)
1.3
(1.7
)
(0.4
)
0.3
0.1
38.3
%
39.5
%
38.2
%
38.1
%
13.
Asset Retirement Obligations and Nuclear
Decommissioning Trust Fund Investments (Exelon and
Generation)
Asset Retirement Obligations
Generation
Exelon
$
2,363
$
2,366
487
487
160
161
(14
)
(14
)
(3
)
2,996
2,997
325
325
154
154
6
6
(9
)
(9
)
$
3,472
$
3,473
(a)
The ARO of Thermal was removed from the balance
sheet upon Thermals sale in the second quarter of 2004.
(b)
Additional liabilities incurred are primarily due
to the consolidation of Sithe.
Nuclear Decommissioning Trust
Fund Investments
14.
Earnings Per Share and Shareholders
Equity (Exelon)
Stock Split
Earnings Per Share
Three Months Ended
Nine Months Ended
September 30,
September 30,
2004
2003
2004
2003
$
577
$
(102
)
$
1,478
$
519
(9
)
23
112
$
568
$
(102
)
$
1,501
$
631
661
652
660
650
8
8
5
669
652
668
655
$
0.87
$
(0.16
)
$
2.23
$
0.80
(0.01
)
0.04
0.17
$
0.86
$
(0.16
)
$
2.27
$
0.97
$
0.86
$
(0.16
)
$
2.21
$
0.79
(0.01
)
0.04
0.17
$
0.85
$
(0.16
)
$
2.25
$
0.96
Share Repurchase Program
Shareholders Equity
Accumulated
Other
Comprehensive
Total
Issued
Common
Treasury
Retained
Income
Shareholders
Dollars in millions, shares in thousands
Shares
Stock
Stock
Earnings
(Loss)
Equity
656,366
$
7,292
$
$
2,320
$
(1,109
)
$
8,503
1,501
1,501
8,268
233
233
243
7
7
(75
)
(75
)
(565
)
(565
)
(6
)
(6
)
(52
)
(52
)
664,877
$
7,532
$
(75
)
$
3,256
$
(1,167
)
$
9,546
15.
Commitments and Contingencies (Exelon, ComEd,
PECO and Generation)
Energy Commitments
Sithe has power-only sales commitments of
$42 million, transmission rights of $22 million and
minimum fuel purchase commitments of $109 million.
Commercial Commitments
Generation acquired a $50 million letter of
credit to support the contractual obligations of Sithe and its
subsidiaries and issued a $45 million of letter of credit
for Power Team to cover collateral calls that had previously
been met with cash collateral. Excluding the above items,
Exelons net letters of credit decreased $24 million
for the nine months ending September 30, 2004.
Mystic Development LLC (Mystic), a former
affiliate of Exelon New England has a long-term agreement
through January 2020 with Distrigas of Massachusetts Corporation
(Distrigas) for gas supply, primarily for the Boston Generating
units. Under the agreement, gas purchase prices from Distrigas
are indexed to the New England gas markets. Exelon New England
has guaranteed Mystics financial obligations to Distrigas
under the long-term supply agreement. Exelon New Englands
guarantee to Distrigas remained in effect following the transfer
of ownership interest in Boston Generating in May 2004. Under
FIN No. 45, approximately $17 million is included as a
liability within the Consolidated Balance Sheets of Exelon and
Generation as of September 30, 2004 related to this
guarantee. The terms of the guarantee do not limit the potential
future payments that Exelon New England could be required to
make under the guarantee.
On September 29, 2004, Generation exercised
its call option to acquire Reservoirs 50% interest in
Sithe for $97 million. The closing of the call is subject
to state and Federal regulatory approvals. See
Note 4 Sithe for additional information.
In connection with the transfer of Exelon Energy
Company to Generation effective January 1, 2004, Generation
acquired $162 million in energy marketing contract
guarantees. This transfer had no effect on the guarantees of
Exelon.
Environmental Liabilities
Total
Environmental
Portion of Total
Investigation and
Related
Remediation
to MGP Investigation
September 30, 2004
Reserve
and Remediation(a)
$
120
$
98
62
56
48
42
10
(a)
Discounted.
Total
Environmental
Portion of Total
Investigation and
Related
Remediation
to MGP Investigation
December 31, 2003
Reserve
and Remediation(a)
$
129
$
105
69
64
50
41
10
(a)
Discounted.
Spent Fuel Storage
Litigation
ComEd
PECO and Generation
Generation
Exelon, ComEd, PECO and Generation
Credit Contingencies
Income Tax Refund Claims
Jointly Owned Electric Utility
Plant
16.
Supplemental Financial Information (Exelon,
ComEd, PECO and Generation)
Supplemental Income Statement
Information
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
Exelon
2004
2003
2004
2003
$
12
$
7
$
38
$
27
(106
)
(106
)
85
(2
)
1
86
2
(55
)
(255
)
(7
)
(7
)
(42
)
1
5
3
11
12
(5
)
(2
)
22
19
$
(107
)
$
(44
)
$
121
$
(226
)
(a)
See Note 3 Acquisitions and
Dispositions for further information regarding Generations
sale of Boston Generating.
(b)
See Note 4 Sithe for further
information regarding impairments recorded related to
Generations investment in Sithe.
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
ComEd
2004
2003
2004
2003
$
1
$
2
$
2
$
4
(1
)
1
1
2
5
2
11
12
(1
)
1
1
(1
)
$
(1
)
$
9
$
6
$
28
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
PECO
2004
2003
2004
2003
$
$
3
$
3
$
8
2
4
1
1
(14
)
(14
)
1
6
$
3
$
(10
)
$
8
$
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
Generation
2004
2003
2004
2003
$
1
$
$
$
10
9
30
85
(55
)
(255
)
(5
)
2
14
7
$
5
$
(53
)
$
129
$
(238
)
(a)
Includes investment income and realized
gains/(losses).
(b)
See Note 3 Acquisitions and
Dispositions for further information regarding Generations
sale of Boston Generating.
(c)
See Note 4 Sithe for further
information regarding impairments recorded related to
Generations investment in Sithe.
Supplemental Balance Sheet
Information
September 30,
December 31,
ComEd
2004
2003
$
(1,259
)
$
(1,183
)
(1,002
)
(973
)
97
131
125
172
3
(61
)
27
23
$
(2,009
)
$
(1,891
)
September 30,
December 31,
PECO
2004
2003
$
4,021
$
4,303
766
762
53
58
43
49
31
34
21
26
(15
)
(12
)
11
6
4,931
5,226
29
81
$
4,960
$
5,307
September 30, 2004
Exelon
ComEd
PECO
Generation
$
6,732
$
940
$
2,131
$
3,553
97
16
58
18
December 31, 2003
Exelon
ComEd
PECO
Generation
$
6,948
$
771
$
2,048
$
4,025
110
16
72
14
17.
Segment Information (Exelon, ComEd, PECO and
Generation)
Three Months Ended September 30, 2004 and
2003
Corporate and
Energy
Intersegment
Delivery
Generation
Enterprises
Eliminations
Consolidated
$
2,844
$
2,253
$
15
$
(1,247
)
$
3,865
2,886
2,630
(b)
291
(b)
(1,366
)
4,441
$
3
$
1,244
$
$
(1,247
)
$
23
1,304
(b)
38
(b)
(1,365
)
Income (loss) before income taxes, minority
interest and cumulative effect of a change in accounting
principle:
$
440
$
517
$
(17
)
$
(82
)
$
858
479
(713
)(b)
31
(b)
(11
)
(214
)
$
178
$
198
$
(6
)
$
(90
)
$
280
176
(282
)(b)
12
(b)
(18
)
(112
)
Cumulative effect of a change in accounting
principle:
$
$
$
(9
)
$
$
(9
)
$
262
$
319
$
(20
)
$
7
$
568
303
(431
)(b)
19
(b)
7
(102
)
(a)
$55 million and $65 million in utility
taxes are included in the revenues and expenses for the three
months ended September 30, 2004 and 2003, respectively, for
ComEd. $59 million and $61 million in utility taxes
are included in the revenues and expenses for the three months
ended September 30, 2004 and 2003, respectively, for PECO.
(b)
Effective January 1, 2004, Enterprises
competitive retail sales business, Exelon Energy Company, was
transferred to Generation. Segment information for the three
months ended September 30, 2003 included in the table above
has been adjusted to reflect Exelon Energy Company as part of
the Generation segment. For the three months ended
September 30, 2003, Exelon Energy Company reported the
following:
$
146
$
(5
)
$
(2
)
$
(3
)
Nine Months Ended September 30, 2004 and
2003, September 30, 2004 and December 31,
2003
Corporate and
Energy
Intersegment
Delivery
Generation
Enterprises
Eliminations
Consolidated
$
7,853
$
6,153
$
148
$
(3,017
)
$
11,137
7,850
6,797
(b)
808
(b)
(3,219
)
12,236
$
24
$
2,994
$
$
(3,018
)
$
58
3,095
(b)
69
(b)
(3,222
)
Income (loss) before income taxes, minority
interest and cumulative effect of changes in accounting
principles:
$
1,426
$
900
$
9
$
(211
)
$
2,124
1,478
(566
)(b)
(79
)(b)
(53
)
780
$
546
$
343
$
9
$
(242
)
$
656
558
(217
)(b)
(29
)(b)
(54
)
258
Cumulative effect of changes in accounting
principles:
$
$
32
$
(9
)
$
$
23
5
108
(1
)
112
$
880
$
599
$
(9
)
$
31
$
1,501
925
(243
)(b)
(51
)(b)
631
$
27,794
$
15,484
(c)
$
278
$
(1,497
)
$
42,059
28,369
14,765
(b)
727
(b)
(1,925
)
41,936
(a)
$174 million and $178 million in
utility taxes are included in the revenues and expenses for the
nine months ended September 30, 2004 and 2003,
respectively, for ComEd. $160 million and $159 million
in utility taxes are included in the revenues and expenses for
the nine months ended September 30, 2004 and 2003,
respectively, for PECO.
(b)
Effective January 1, 2004, Enterprises
competitive retail sales business, Exelon Energy Company, was
transferred to Generation. Segment information for the nine
months ended September 30, 2003 and as of December 31,
2003 included in the table above has been adjusted to reflect
Exelon Energy Company as part of the Generation segment.
(c)
Includes $1,324 million of Sithe
consolidated assets under the provisions of FIN No. 46-R.
See Note 4 Sithe for further information
regarding the consolidation of Sithe.
$
651
$
(20
)
$
(8
)
$
(12
)
18.
Related-Party Transactions (Exelon, ComEd,
PECO and Generation)
Exelon and ComEd
Three
Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
$
21
$
$
65
$
3
10
3
10
(4
)
(13
)
September 30,
December 31,
2004
2003
$
14
$
9
43
56
10
11
6
6
10
9
3
6
4
1,415
1,676
155
155
206
206
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
$
$
16
$
16
$
42
4
1
7
827
885
1,870
1,984
46
30
136
76
8
14
5
5
13
17
1
1
2
2
1
1
17
3
45
11
10
21
112
94
320
305
September 30,
December 31,
2004
2003
$
4
$
3
6
405
1
5
635
1,071
1,259
1,183
2
8
11
11
188
171
17
20
13
2
22
22
6
6
156
250
(a)
ComEd provides electric and ancillary services to
Generation. ComEd provided electric and ancillary services to
certain Enterprises companies which were sold in 2004. Prior to
joining PJM on May 1, 2004, ComEd also provided
transmission services to Generation and Enterprises.
(b)
Effective January 1, 2001, ComEd entered
into a full-requirements purchase power agreement
(PPA) with Generation.
(c)
ComEd receives a variety of corporate support
services from BSC, including legal, human resources, financial,
information technology and supply management services.
Additionally in 2004, due to the centralization of certain
functions, certain employees were transferred from ComEd to BSC.
As a result, ComEd now receives additional services from BSC
including planning and engineering of delivery systems,
management of construction, maintenance and operations of the
transmission and delivery systems and management of other
support services. A portion of such services, provided at cost
including applicable overhead, is capitalized.
(d)
ComEd had contracted with an Enterprises company
to provide energy conservation services to ComEd customers.
Certain Enterprises companies were sold in 2004.
(e)
ComEd received substation and transmission
engineering and construction services under contracts with
InfraSource, Inc. (InfraSource). A portion of such services is
capitalized. Exelon sold InfraSource in September 2003.
(f)
ComEd has a note and interest receivable with a
variable rate of the one month forward LIBOR rate plus
50 basis points from Unicom Investments Inc.
(UII) relating to ComEds December 1999 fossil plant
sale. This note matures in December 2011.
(g)
ComEd has a short-term and long-term payable to
Generation, primarily representing ComEds legal
requirements to remit collections of nuclear decommissioning
costs from its customers to Generation.
(h)
In 2003, ComEd provided hurricane restoration
assistance to PECO.
(i)
ComEd has a non-interest bearing receivable from
Exelon related to a corporate restructuring in 2001. The
receivable is expected to be settled over the years 2004 through
2008.
(j)
ComEd participates in Exelons intercompany
money pool. ComEd earns interest on its investment in and pays
interest on its borrowings from the money pool at a market rate
of interest.
(k)
ComEd has a long-term receivable from Generation
related to a regulatory liability as a result of the adoption of
SFAS No. 143.
Exelon and PECO
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
$
2
$
$
7
$
58
178
2
5
1
2
4
2
September 30,
December 31,
2004
2003
$
88
$
104
16
16
4
3
1
12
10
2
1
3,563
3,849
81
81
103
103
(a)
PECO received a monthly service fee from PETT
based on a percentage of the outstanding balance of all series
of transition bonds.
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
$
3
$
3
$
7
$
8
1
409
421
1,108
1,101
7
14
26
14
77
36
3
6
1
15
6
10
23
96
79
276
244
September 30,
December 31,
2004
2003
$
26
$
15
12
127
115
20
15
6
3
1,518
1,623
(a)
PECO provides energy to Generation for
Generations own use.
(b)
Effective January 1, 2001, PECO entered into
a full-requirements PPA with Generation.
(c)
Effective April 1, 2004, PECO entered into a
one year gas procurement agreement with Generation.
(d)
PECO receives a variety of corporate support
services from BSC, including legal, human resources, financial,
information technology and supply management services.
Additionally in 2004, due to the centralization of certain
functions, certain employees were transferred from PECO to BSC.
As a result, PECO now receives additional services from BSC,
including planning and engineering of delivery systems,
management of construction, maintenance and operations of the
transmission and delivery systems and management of other
support services. Such services are provided at cost, including
applicable overhead. Some of these costs are capitalized.
(e)
Prior to 2004, PECO received services from
Enterprises for construction, which were capitalized, and the
deployment of automated meter reading technology, which were
expensed.
(f)
PECO participates in Exelons intercompany
money pool. PECO earns interest on its investment in the money
pool at a market rate of interest.
(g)
PECO has a long-term receivable from Generation
related to a regulatory liability as a result of the adoption of
SFAS No. 143.
(h)
In 2003, PECO received assistance from ComEd
workers during Hurricane Isabel.
(i)
PECO has a non-interest bearing receivable from
Exelon related to the 2001 corporate restructuring. The
receivable is expected to be settled over the years 2004 through
2010.
Exelon and Generation
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2004
2003
2004
2003
$
827
$
885
$
1,870
$
1,984
416
421
1,122
1,101
51
161
1
2
133
310
(2
)
11
10
31
1
1
9
5
2
5
6
11
2
3
6
8
62
46
188
117
2
7
1
1
2
1
2
2
50
85
61
71
170
116
September 30,
December 31,
2004
2003
$
188
$
171
11
11
127
115
3
18
3
8
8
92
17
1
22
22
1
28
3
1,259
1,183
15
12
115
301
90
(a)
Effective January 1, 2001, Generation
entered into full-requirements PPAs with ComEd and PECO.
Generation purchases electric and ancillary services from ComEd
and buys power from PECO for Generations own use. In order
to facilitate payment processing, ComEd processes certain
invoice payments on behalf of Generation. Prior to joining PJM
on May 1, 2004, ComEd also provided transmission services
to Generation.
(b)
Generation sells power to Exelon Energy Company.
Prior to May 1, 2004, Generation purchased excess power
from Exelon Energy Company. Prior to the transfer of Exelon
Energy Companys assets to Generation from Enterprises
effective January 1, 2004, Exelon Energy Company was an
intercompany affiliate of Generation.
(c)
Prior to Generations purchase of British
Energys 50% interest in AmerGen in December 2003, AmerGen
was an unconsolidated affiliate of Exelon and Generation and was
considered to be a related party of Exelon and Generation.
Generation entered into PPAs dated June 26, 2003,
December 18, 2001 and November 22, 1999 with AmerGen.
Under the 2003 PPA, Generation agreed to purchase from AmerGen
all the energy from Oyster Creek through April 9, 2009.
Under the 2001 PPA, Generation agreed to purchase from AmerGen
all the energy from TMI from January 1, 2002 through
December 31, 2014. Under the 1999 PPA, Generation agreed to
purchase from AmerGen all of the residual energy from Clinton
through December 31, 2004. Currently, the residual output
is approximately 31% of the total output of Clinton. Under a
service agreement dated March 1, 1999, Generation provides
AmerGen
with certain operation and support services to
the nuclear facilities owned by AmerGen. This service agreement
has an indefinite term and may be terminated by Generation or
AmerGen with 90 days notice. Generation is compensated for
these services at cost.
(d)
Under a service agreement dated December 18,
2000, Sithe provides Generation certain fuel and project
development services. Sithe is compensated for these services at
cost. In December 2003, Sithe received letter of credit proceeds
of $3 million, which Generation was billed on behalf of
Sithe. Under the terms of the agreement to acquire Exelon New
England dated November 1, 2002, Generation issued a note to
Sithe which was subsequently modified and increased to
$536 million. During 2003, Generation repaid
$446 million of this note. In the first quarter of 2004,
Generation repaid $27 million prior to consolidation of
Sithe in accordance with the provisions of FIN No. 46-R.
The balance of the note is to be paid on the earlier of
December 1, 2004, certain Sithe liquidity requirements, or
upon a change of control of Generation. The note bears interest
at the rate equal to LIBOR plus 0.875%. In connection with a
series of transactions in November 2003 that restructured the
ownership of Sithe (see Note 4 Sithe for
additional information), Generation received a $92 million
note receivable from EXRES SHC, Inc., which holds the common
stock of Sithe. Generation owns 50% of EXRES SHC, Inc and
consolidated its investment pursuant to FIN No. 46-R
effective March 31, 2004. Prior to the consolidation of
Sithe in connection with FIN No. 46-R, Sithe was an
unconsolidated affiliate of Exelon and Generation and was
considered to be a related party of Exelon and Generation.
(e)
Generation receives a variety of corporate
support services from BSC, including legal, human resources,
financial, information technology and supply management
services. Such services are provided at cost, including
applicable overhead. Some third party reimbursements due
Generation are recovered through BSC. Additionally, in 2004, due
to the centralization of certain functions, certain employees
were transferred from Generation to BSC. As a result, Generation
now receives additional services from BSC including for
inventory and IT support and management of other support
services.
(f)
Represents the outstanding balance of amounts
invested in or borrowed under the intercompany money pool and
other short-term obligations payable to Exelon. In order to
facilitate payment processing, Exelon processes certain invoice
payments on behalf of Generation.
(g)
Generation has a short-term and a long-term
receivable from ComEd, primarily representing ComEds legal
requirements to remit collections of nuclear decommissioning
costs from its customers to Generation resulting from the 2001
corporate restructuring.
(h)
Generation has long-term payables to ComEd and
PECO as a result of the nuclear decommissioning contractual
construct whereby, to the extent the assets associated with
decommissioning are greater than the applicable ARO, such
amounts are due back to ComEd and PECO, as applicable, for
payment to the ratepayers.
19.
Subsequent Events (Exelon, ComEd, PECO and
Generation)
Item 2.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Energy Delivery,
whose businesses include the regulated sale of electricity and
distribution and transmission services by Commonwealth Edison
Company (ComEd) in northern Illinois and PECO Energy Company
(PECO) in southeastern Pennsylvania and the purchase and
sale of natural gas and distribution services by PECO in the
Pennsylvania counties surrounding the City of Philadelphia.
Generation,
consisting of Exelon Generation Company, LLCs (Generation)
owned and contracted for electric generating facilities, energy
marketing operations, a 50% interest in EXRES SHC, Inc., the
holding company of Sithe Energies, Inc. and its subsidiaries,
hereafter referred to as Sithe, and, effective January 1,
2004, the competitive retail sales business of Exelon Energy
Company.
Enterprises,
consisting primarily of the remaining infrastructure and
electrical contracting services of Exelon Enterprises Company,
LLC and other investments weighted towards the communications
and energy services industries. Effective January 1, 2004,
Enterprises competitive retail sales business, Exelon
Energy Company, became part of Generation. See
Note 3 Acquisitions and Dispositions for
information regarding the disposition of businesses within the
Enterprises segment.
Accounting for Ownership Interests in
Variable Interest Entities (Exelon, ComEd, PECO and
Generation)
On May 25, 2004, Generation completed the
sale, transfer and assignment of ownership of its indirect
wholly owned subsidiary Boston Generating, which owns the
companies that own the Mystic 4-7, Mystic 8 and 9
and Fore River generating facilities, to a special purpose
entity owned by the lenders under Boston Generatings
$1.25 billion credit facility. The resulting pre-tax gain
of $85 million ($52 million after-tax) was recorded
within Exelons Consolidated Statements of Income and
Comprehensive Income during the second quarter of 2004. On
September 1, 2004, Generation completed the transfer of
plant operations and power marketing arrangements to the
lenders special purpose entity and its contractors under
Boston Generatings credit facility.
On September 29, 2004, Generation exercised
its call option to acquire Reservoirs 50% interest in
Sithe for $97 million. Generations intent is to fully
divest its interest in Sithe, and Generation is actively
pursuing opportunities to dispose of Sithe. Generation believes
that exercising its call option will provide it with greater
certainty of a timely exit from Sithe on favorable terms and
conditions.
Exelon continued to execute its divestiture
strategy for Enterprises by selling substantially all components
of Exelon Services, Inc. (Services) during the nine months ended
September 30, 2004 for total expected proceeds of
$35 million subject to post-closing adjustments, and by
selling its investment in PECO TelCove, a communications joint
venture, along with certain telecommunications assets, for
proceeds of $49 million in June 2004. Exelon closed on the
sale of Exelon Thermal Holding, Inc.s (Thermal) Chicago
business during the second quarter of 2004 for net cash proceeds
of $134 million and closed on the sale of ETT Nevada,
Inc., the holding company for its investment in Northwind
Aladdin, LLC (Aladdin), for a net cash outflow of
$1 million in September 2004.
Three Months Ended September 30, 2004
Compared To Three Months Ended September 30, 2003
Three Months
Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
3,865
$
4,441
$
(576
)
1,280
1,863
583
945
945
815
1,203
388
364
293
(71
)
1,228
6
1,222
(370
)
(220
)
(150
)
858
(214
)
1,072
577
(102
)
679
568
(102
)
670
0.85
(0.16
)
1.01
Results of Operations by Business
Segment
$
146
(5
)
(2
)
(3
)
Net Income (Loss) by Business
Segment
Three Months
Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
262
$
303
$
(41
)
319
(431
)
750
(20
)
19
(39
)
7
7
$
568
$
(102
)
$
670
Results of Operations Energy
Delivery
Three Months
Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
2,844
$
2,886
$
(42
)
1,400
1,401
1
353
491
138
248
231
(17
)
711
664
47
162
182
20
(98
)
5
(103
)
440
479
(39
)
178
176
(2
)
262
303
(41
)
Total
Increase
Electric
Gas
(Decrease)
$
(188
)
$
$
(188
)
(27
)
(27
)
114
114
59
59
11
7
18
(18
)
(18
)
$
(49
)
$
7
$
(42
)
Total
Increase
Electric
Gas
(Decrease)
$
(87
)
$
$
(87
)
(23
)
(23
)
(4
)
7
3
56
56
59
59
(9
)
(9
)
$
(8
)
$
7
$
(1
)
Increase
(Decrease)
$
(93
)
(23
)
(13
)
(12
)
(11
)
(9
)
20
7
(4
)
$
(138
)
(a)
Energy Delivery has fewer employees as a result
of The Exelon Way terminations.
(b)
After joining PJM on May 1, 2004, ComEd is
no longer charged annual fees by the FERC. PJM pays the annual
FERC fees. This represents the reversal of annual FERC fees.
(c)
Higher corporate allocations primarily result
from higher corporate governance allocations and employee fringe
benefits. Corporate governance allocations increased as a result
of the 2004 sale of certain Enterprises companies resulting in
Energy Delivery comprising a greater percentage of Exelon and an
SEC-mandated change to the methodology used to allocate
Exelons corporate governance costs.
Energy Delivery Operating Statistics and
Revenue Detail
Three Months
Ended
September 30,
Retail Deliveries (in gigawatthours (GWhs))(a)
2004
2003
Variance
% Change
10,340
11,530
(1,190
)
(10.3
)%
7,099
7,502
(403
)
(5.4
)%
5,447
5,552
(105
)
(1.9
)%
1,447
1,486
(39
)
(2.6
)%
24,333
26,070
(1,737
)
(6.7
)%
1,053
884
169
19.1
%
1,160
896
264
29.5
%
562
428
134
31.3
%
2,775
2,208
567
25.7
%
636
258
378
146.5
%
2,318
2,241
77
3.4
%
3,315
3,142
173
5.5
%
371
426
(55
)
(12.9
)%
6,640
6,067
573
9.4
%
9,415
8,275
1,140
13.8
%
33,748
34,345
(597
)
(1.7
)%
(a)
One GWh is the equivalent of one million
kilowatthours (kWh).
(b)
Full service reflects deliveries to customers
taking electric generation service under tariffed rates.
(c)
Delivery only service reflects customers
receiving electric generation service from an AES.
Three Months
Ended
September 30,
Electric Revenue
2004
2003
Variance
% Change
$
1,108
$
1,226
$
(118
)
(9.6
)%
676
698
(22
)
(3.2
)%
366
374
(8
)
(2.1
)%
97
101
(4
)
(4.0
)%
2,247
2,399
(152
)
(6.3
)%
76
65
11
16.9
%
71
56
15
26.8
%
33
26
7
26.9
%
180
147
33
22.4
%
50
20
30
150.0
%
59
62
(3
)
(4.8
)%
47
46
1
2.2
%
8
8
164
136
28
20.6
%
344
283
61
21.6
%
2,591
2,682
(91
)
(3.4
)%
193
151
42
27.8
%
$
2,784
$
2,833
$
(49
)
(1.7
)%
(a)
Full service revenue reflects deliveries to
customers taking electric service under tariffed rates, which
include the cost of energy and the delivery cost of the
transmission and the distribution of the energy. PECOs
tariffed rates also include a CTC.
(b)
Revenue from customers choosing the ComEd PPO
includes an energy charge at market rates, transmission and
distribution charges and a CTC.
(c)
Delivery only revenue reflects revenue from
customers receiving electric generation service from an AES.
Revenue from customers choosing an AES includes a distribution
charge and a CTC. Prior to ComEds full integration into
PJM on May 1, 2004, ComEds transmission charges
received from an AES were included in wholesale and
miscellaneous revenue.
(d)
Wholesale and miscellaneous revenues include
transmission revenue (including revenue from PJM), sales to
municipalities and other wholesale energy sales.
Three Months
Ended
September 30,
Deliveries to customers (in million cubic feet (mmcf))
2004
2003
Variance
% Change
3,866
3,498
368
10.5
%
6,167
6,012
155
2.6
%
10,033
9,510
523
5.5
%
Three Months
Ended
September 30,
Revenue
2004
2003
Variance
% Change
$
55
$
47
$
8
17.0
%
4
4
1
2
(1
)
(50.0
)%
$
60
$
53
$
7
13.2
%
Three Months
Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
2,253
$
2,630
$
(377
)
1,122
1,780
658
945
945
432
513
81
95
52
(43
)
562
(688
)
1,250
517
(713
)
1,230
319
(431
)
750
Three Months
Ended
September 30,
Revenue
2004
2003
Variance
% Change
$
1,218
$
1,286
$
(68
)
(5.3
)%
759
1,148
(389
)
(33.9
)%
1,977
2,434
(457
)
(18.8
)%
55
78
(23
)
(29.5
)%
1
1
220
117
103
88.0
%
$
2,253
$
2,630
$
(377
)
14.3
%
(a)
Includes sales related to tolling agreements,
including Sithe in 2004, and fossil fuel sales.
Three Months
Ended
September 30,
Sales (in GWhs)
2004(a)
2003
Variance
% Change
30,040
31,113
(1,073
)
(3.4
)%
21,894
31,177
(9,283
)
(29.8
)%
51,934
62,290
(10,356
)
(16.6
)%
(a)
Sales in 2004 do not include 6,919 GWhs, which
were netted with purchased power GWhs as a result of the
reclassification of certain hedging activities in accordance
with EITF 03-11.
Three Months
Ended
September 30,
($/MWh)
2004
2003
% Change
$
40.55
$
41.33
(1.9
)%
34.67
36.82
(5.8
)%
38.07
39.08
(2.6
)%
$
21.60
$
28.58
(24.4
)%
$
16.47
$
10.50
56.9
%
(a)
Average supply cost includes purchased power,
fuel costs and PPAs with AmerGen in 2003.
Increase
(Decrease)
$
(272
)
(213
)
77
19
$
(389
)
Three Months
Ended
September 30,
Supply Source (in GWhs)
2004
2003
Variance
% Change
35,303
30,152
5,151
17.1
%
13,563
24,502
(10,939
)
(44.6
)%
3,068
7,636
(4,568
)
(59.8
)%
51,934
62,290
(10,356
)
(16.6
)%
(a)
Excludes AmerGen in 2003. AmerGen generated 5,151
GWhs during the three months ended September 30, 2004.
(b)
6,919 GWhs were netted with purchased power GWhs
as a result of the reclassification of certain hedging
activities in accordance with EITF 03-11. Includes PPAs
with AmerGen, which represented 3,725 GWhs in 2003.
(c)
Fossil generation associated with the Boston
Generating units represented 3,570 GWhs during the three months
ended September 30, 2003.
Increase
(Decrease)
$
(272
)
(178
)
(124
)
(78
)
(62
)
52
17
42
(55
)
$
(658
)
Increase
(Decrease)
$
(51
)
(52
)
(21
)
77
18
(52
)
$
(81
)
(a)
See Note 15 of the Combined Notes to
consolidated Financial Statements for further discussion of the
spent nuclear fuel storage settlement agreement reached with the
DOE.
Three Months
Ended
September 30,
2004
2003
95.8
%
95.3
%
$
10.92
$
11.69
$
54.78
$
51.53
(a)
Includes AmerGen and excludes Salem, which is
operated by Public Service Enterprise Group Incorporated
(PSE&G).
(b)
Includes PPAs with AmerGen in 2003.
Results of Operations
Enterprises
Three Months
Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
15
$
291
$
(276
)
19
257
238
(4
)
29
(33
)
(13
)
2
(15
)
(17
)
31
(48
)
(11
)
19
(30
)
(9
)
(9
)
(20
)
19
(39
)
Increase
(Decrease)
$
(132
)
(97
)
(27
)
(20
)
$
(276
)
(a)
Primarily due to the sale of certain businesses.
(b)
For the remaining businesses of F & M
Holdings, LLC, operating revenues decreased as a result of the
sale of certain businesses and wind-down efforts.
Increase
(Decrease)
$
(79
)
(90
)
(35
)
(9
)
(25
)
$
(238
)
(a)
Primarily due to the sale of businesses.
(b)
For the remaining businesses of F & M
Holdings, LLC, operating and maintenance expense decreased as a
result of the sale of certain businesses and wind-down efforts.
Results of Operations Exelon
Corporation
Nine Months Ended September 30, 2004
Compared To Nine Months Ended September 30, 2003
Nine Months Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
11,137
$
12,236
$
(1,099
)
3,888
4,983
1,095
945
945
2,921
3,362
441
980
842
(138
)
2,792
1,615
1,177
(668
)
(835
)
167
2,124
780
1,344
1,478
519
959
23
112
(89
)
1,501
631
870
2.25
0.96
1.29
Results of Operations by Business
Segment
$
651
4
(20
)
(8
)
(12
)
Income (Loss) Before Cumulative Effect of
Change in Accounting Principle by Business Segment
Nine Months Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
880
$
920
$
(40
)
567
(351
)
918
(50
)
50
31
31
$
1,478
$
519
$
959
Net Income (Loss) by Business
Segment
Nine Months Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
880
$
925
$
(45
)
599
(243
)
842
(9
)
(51
)
42
31
31
$
1,501
$
631
$
870
Results of Operations Energy
Delivery
Nine Months Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
7,853
$
7,850
$
3
3,639
3,576
(63
)
1,056
1,234
178
704
657
(47
)
2,054
2,025
29
517
565
48
(76
)
48
(124
)
1,426
1,478
(52
)
880
920
(40
)
880
925
(45
)
Total
Increase
Electric
Gas
(Decrease)
$
272
$
(1
)
$
271
93
93
(60
)
89
29
(176
)
(176
)
(174
)
(21
)
(195
)
(27
)
8
(19
)
$
(72
)
$
75
$
3
Total
Increase
Electric
Gas
(Decrease)
$
137
$
(5
)
$
132
93
93
(4
)
89
85
(157
)
(157
)
(82
)
(14
)
(96
)
(7
)
13
6
$
(20
)
$
83
$
63
Increase
(Decrease)
$
(74
)
(41
)
(33
)
(25
)
(16
)
(15
)
(10
)
(6
)
(3
)
(1
)
62
5
(21
)
$
(178
)
(a)
In 2003, ComEd reached an agreement with various
Illinois retail market participants and other interested parties.
(b)
Energy Delivery has fewer employees as a result
of The Exelon Way terminations.
(c)
After joining PJM on May 1, 2004, ComEd is
no longer charged annual fees by the FERC. PJM pays the annual
FERC fees. This represents the reversal of annual FERC fees.
(d)
During the second quarter of 2004, ComEd and PECO
adopted the provisions of FSP FAS 106-2. Employee fringe
benefits include a $8 million reduction in net periodic
postretirement benefit cost due to the adoption of FSP
FAS 106-2.
(e)
Higher corporate allocations primarily result
from higher corporate allocations and employee fringe benefits.
Corporate governance allocations increased as a result of the
2004 sale of certain Enterprises companies resulting in Energy
Delivery comprising a greater percentage of Exelon and an
SEC-mandated change to the methodology used to allocate
Exelons corporate governance costs.
(f)
ComEd recorded a $5 million charge for
contingent fees paid to a tax consultant (see Note 15 to
the Combined Notes to Consolidated Financial Statements for more
information).
Energy Delivery Operating Statistics and
Revenue Detail
Nine Months Ended
September 30,
Retail Deliveries (in GWhs)
2004
2003
Variance
% Change
28,162
28,969
(807
)
(2.8
)%
20,393
21,555
(1,162
)
(5.4
)%
15,539
15,896
(357
)
(2.2
)%
4,339
4,710
(371
)
(7.9
)%
68,433
71,130
(2,697
)
(3.8
)%
2,653
2,546
107
4.2
%
2,784
3,646
(862
)
(23.6
)%
1,574
1,497
77
5.1
%
7,011
7,689
(678
)
(8.8
)%
1,706
708
998
141.0
%
6,707
5,371
1,336
24.9
%
9,686
7,504
2,182
29.1
%
1,264
954
310
32.5
%
19,363
14,537
4,826
33.2
%
26,374
22,226
4,148
18.7
%
94,807
93,356
1,451
1.6
%
(a)
Full service reflects deliveries to customers
taking electric generation service under tariffed rates.
(b)
Delivery only service reflects customers
receiving electric generation service from an AES.
Nine Months Ended
September 30,
Electric Revenue
2004
2003
Variance
% Change
$
2,801
$
2,900
$
(99
)
(3.4
)%
1,819
1,874
(55
)
(2.9
)%
1,047
1,065
(18
)
(1.7
)%
284
309
(25
)
(8.1
)%
5,951
6,148
(197
)
(3.2
)%
184
174
10
5.7
%
163
199
(36
)
(18.1
)%
87
81
6
7.4
%
434
454
(20
)
(4.4
)%
131
52
79
151.9
%
169
160
9
5.6
%
140
149
(9
)
(6.0
)%
25
25
465
386
79
20.5
%
899
840
59
7.0
%
6,850
6,988
(138
)
(2.0
)%
480
414
66
15.9
%
$
7,330
$
7,402
$
(72
)
(1.0
)%
(a)
Full service revenue reflects deliveries to
customers taking electric service under tariffed rates, which
include the cost of energy and the delivery cost of the
transmission and the distribution of the energy. PECOs
tariffed rates also include a CTC.
(b)
Revenue from customers choosing the ComEd PPO
includes an energy charge at market rates, transmission and
distribution charges and a CTC.
(c)
Delivery only reflects revenue from customers
receiving electric generation service from an AES. Revenue from
customers choosing an AES includes a distribution charge and a
CTC. Prior to ComEds full integration into PJM on
May 1, 2004, ComEds transmission charges received
from an AES were included in wholesale and miscellaneous revenue.
(d)
Wholesale and miscellaneous revenues include
transmission revenue (including revenue from PJM), sales to
municipalities and other wholesale energy sales.
Nine Months Ended
September 30,
Deliveries to customers (in mmcf)
2004
2003
Variance
% Change
41,831
44,183
(2,352
)
(5.3
)%
19,709
19,954
(245
)
(1.2
)%
61,540
64,137
(2,597
)
(4.0
)%
Nine Months Ended
September 30,
Revenue
2004
2003
Variance
% Change
$
485
$
418
$
67
16.0%
13
14
(1
)
(7.1
)%
25
16
9
56.3%
$
523
$
448
$
75
16.7%
Results of Operations
Generation
Nine Months
Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
6,153
$
6,797
$
(644
)
3,252
4,535
1,283
945
945
1,645
1,410
(235
)
218
142
(76
)
901
(353
)
1,254
900
(566
)
1,466
567
(351
)
918
32
108
(76
)
599
(243
)
842
Nine Months
Ended
September 30,
Revenue
2004
2003
Variance
% Change
$
2,924
$
3,030
$
(106
)
(3.5
)%
2,501
2,908
(407
)
(14.0
)%
5,425
5,938
(513
)
(8.6
)%
315
467
(152
)
(32.5
)%
(2
)
(1
)
(1
)
100.0
%
415
393
22
5.6
%
$
6,153
$
6,797
$
(644
)
(9.5
)%
(a)
Includes sales related to tolling agreements,
including Sithe in 2004, and fossil fuel sales.
Nine Months Ended
September 30,
Sales (in GWhs)
2004(a)
2003
Variance
% Change
83,637
86,242
(2,605
)
(3.0
)%
70,853
84,913
(14,060
)
(16.6
)%
154,490
171,155
(16,665
)
(9.7
)%
(a)
Sales in 2004 do not include 18,557 GWhs, which
were netted with purchased power GWhs as a result of the
reclassification of certain hedging activities in accordance
with EITF 03-11.
Nine Months
Ended
September 30,
($/MWh)
2004
2003
% Change
$
34.96
$
35.13
(0.5
)%
35.30
34.25
3.1
%
35.12
34.69
1.2
%
$
21.05
$
26.50
(20.6
)%
$
14.07
$
8.19
71.8
%
(a)
Average supply cost includes purchased power,
fuel costs and PPAs with AmerGen in 2003.
Increase
(Decrease)
$
(715
)
(159
)
148
319
$
(407
)
(a)
Does not include $9 million of
EITF 03-11 adjustments related to fuel sales that are
included in other revenues.
Purchased Power and Fuel
Expense
Nine Months Ended
September 30,
Supply Source (in GWhs)
2004
2003
Variance
% Change
102,968
89,102
13,866
15.6
%
37,158
64,012
(26,854
)
(42.0
)%
14,364
18,041
(3,677
)
(20.4
)%
154,490
171,155
(16,665
)
(9.7
)%
(a)
Excludes AmerGen in 2003. AmerGen generated
14,912 GWhs during the nine months ended September 30, 2004.
(b)
18,557 GWhs were netted with purchased power GWhs
in 2004 as a result of the reclassification of certain hedging
activities in accordance with EITF 03-11. Includes retail
electric sales of Exelon Energy in both periods.
Increase
(Decrease)
$
(724
)
(284
)
(110
)
(103
)
(57
)
(31
)
181
113
(268
)
$
(1,283
)
Increase
(Decrease)
$
266
40
28
14
(68
)
(52
)
7
$
235
(a)
Includes refueling outage expense of
$24 million at AmerGen.
(b)
See Note 15 of the Combined Notes to
Consolidated Financial Statements for further discussion of the
spent nuclear fuel storage settlement agreement reached with the
DOE.
Nine Months
Ended
September 30,
2004
2003
94.1
%
94.5
%
$
11.99
$
12.16
$
49.11
$
45.42
(a)
Includes AmerGen and excludes Salem, which is
operated by Public Service Enterprise Group Incorporated
(PSE&G).
(b)
Includes PPAs with AmerGen in 2003.
Results of Operations
Enterprises
Nine Months
Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
148
$
808
$
(660
)
189
822
633
(46
)
(42
)
(4
)
55
(37
)
92
9
(79
)
88
(50
)
50
(9
)
(51
)
42
Increase
(Decrease)
$
(394
)
(169
)
(87
)
(10
)
$
(660
)
(a)
Primarily due to the sale of certain businesses.
(b)
For the remaining businesses of F&M Holdings,
LLC, operating revenues decreased as a result of the sale of
certain businesses and wind-down efforts.
Increase
(Decrease)
$
(418
)
(146
)
(78
)
9
$
(633
)
(a)
Primarily due to the sale of certain businesses.
(b)
For the remaining businesses of F&M Holdings,
LLC, operating and maintenance expense decreased as a result of
the sale of certain businesses and wind-down efforts.
Cash Flows from Operating
Activities
At September 30, 2004, Exelon was in a net
Federal income tax receivable position as compared to a net
Federal income tax payable position at September 30, 2003.
Comparability of the cash flows for the two periods is affected
significantly by this change in the Federal income tax position.
The primary driver of the increase in cash from the changes in
receivables during the nine months ended September 30, 2004
was the Federal income tax provision of approximately
$289 million and the
receipt of a $150 million Federal income tax
refund during 2004, completely offset by the payment of
approximately $150 million of Federal income taxes.
In addition to the effects of the changes in
Federal income taxes, cash flows from customer accounts
receivables decreased $68 million and $18 million, net
of uncollectible accounts written-off of $73 million and
$83 million, respectively, during the nine months ended
September 30, 2004 and 2003, respectively. The primary
driver of the year-over-year change in customer receivables was
the unfavorable weather in Energy Deliverys service
territories in the current year.
Natural gas inventories increased
$15 million and deferred natural gas costs decreased
$52 million during the nine months ended September 30,
2004 resulting in a $37 million increase to operating cash
flows. During 2003, an increase in natural gas inventories of
$44 million and an increase in deferred natural gas costs
of $33 million resulted in a $77 million decrease to
operating cash flow. PECOs gas cost rates are subject to
periodic adjustments by the PUC and are designed to recover from
or refund to customers the difference between the actual cost of
purchased gas and the amount included in rates. During 2004,
PECO was recovering fuel revenues from customers in excess of
gas costs being incurred. During 2003, PECO was incurring gas
costs in excess of fuel revenues being recovered from customers.
An increase in required deposits for energy
trading activity of $51 million resulted from Generation
exceeding its negotiated credit positions with counterparties
during the nine months ended September 30, 2003. During
2004, required deposits for trading activity resulted in a
$59 million net cash inflow.
Discretionary tax-deductible pension plan
payments were $426 million for the nine months ended
September 30, 2004 compared to $367 million for the
same period in 2003. Exelon also contributed $8 million
during 2004 to the pension plans needed to satisfy minimum
funding requirements of the Employee Retirement Income Security
Act. Additionally, $55 million and $50 million were
contributed to the postretirement welfare benefit plans for the
nine months ended September 30, 2004 and 2003,
respectively. See Note 11 of the Combined Notes to
Consolidated Financial Statements for further information
regarding pension and postretirement benefits.
During the third quarter of 2004, Exelon paid
$63 million for call premiums on the retirement of ComEd
debt. See Cash Flows from Financing Activities for
further information regarding debt retirements pursuant to the
accelerated liability management plan.
Cash Flows from Investing
Activities
Cash proceeds of $212 million, net of
transaction costs and contingency payments on prior year
dispositions, were received during the nine months ended
September 30, 2004 from the sales of Thermal, substantially
all of the operating components of Services and
Enterprises investments in PECO TelCove and other equity
method investments. Additionally, cash proceeds of
$24 million were received during the nine months ended
September 30, 2004 from the sale of certain businesses of
Sithe. In September 2003, Exelon received approximately
$175 million of cash proceeds from the sale of InfraSource.
Cash proceeds of $42 million were received
from the sale of three gas turbines at Generation that were
classified as assets held for sale at December 31, 2003.
Capital expenditures decreased $114 million
net of the settlement of litigation with the DOE of
$20 million and liquidating damages of $92 million
received in 2003.
Net investments in nuclear decommissioning trust
funds increased $39 million.
On March 31, 2004, Exelon consolidated the
assets and liabilities of Sithe under the provisions of FIN
No. 46-R, which resulted in an increase in cash of
$19 million. See Note 2 and Note 4 of the
Combined Notes to Consolidated Financial Statements for further
information regarding the FIN No. 46-R consolidation of
Sithe.
Early settlement on an acquisition note
receivable from the 2003 disposition of InfraSource resulted in
cash proceeds of $30 million during the nine months ended
September 30, 2004.
Collection of a $20 million note receivable
during 2004 related to the sale of certain businesses of Sithe
during the fourth quarter of 2003 and the first quarter of 2004.
Nine Months
Ended
September 30,
2004
2003
$
680
$
728
608
641
19
7
21
$
1,295
$
1,409
(a)
Net of liquidating damages of $92 million in
2003.
Cash Flows from Financing
Activities
Credit Issues
Bank
Available
Outstanding
Borrower
Sublimit(a)
Capacity(b)
Commercial Paper
$
700
$
689
$
325
250
224
100
100
450
271
(a)
Sublimits under the credit agreements can change
upon written notification to the bank group.
(b)
Available capacity represents primarily the bank
sublimit net of outstanding letters of credit. The amount of
commercial paper outstanding does not reduce the available
capacity under the Exelon Credit Facility.
Exelon Corporate
ComEd
PECO
Generation
2.65 to 1
2.25 to 1
2.25 to 1
3.25 to 1
Exelon
Consolidated
ComEd(a)
PECO(a)
Generation
35
%
30
%
22
%
42
%
23
15
59
40
55
18
57
1
1
1
1
(a)
At September 30, 2004, ComEds capital
structure, excluding the deduction from shareholders
equity of the $156 million receivable from Exelon (which
amount is deducted for GAAP purposes, as reflected in the table,
but is excluded from the percentages in this footnote) to
reflect amounts expected to be received by ComEd from Exelon to
pay future taxes, consisted of 30% long-term debt, 14% long-term
debt to affiliates and 56% common equity. Likewise, PECOs
capital structure, excluding the deduction from
shareholders equity of the $1.5 billion receivable
from Exelon, consisted of 34% common equity, 1%
preferred securities and 65% long-term debt, including long-term
debt to unconsolidated affiliates.
(b)
Includes $6 billion, $2 billion and
$4 billion owed to unconsolidated affiliates of Exelon,
ComEd and PECO, respectively, that qualify as special purpose
entities under FIN No. 46-R. These special purpose entities
were created for the sole purpose of issuing debt obligations to
securitize intangible transition property and CTCs of Energy
Delivery or mandatorily redeemable preferred securities. See
Note 2 of the Combined Notes to Consolidated Financial
Statements for further information regarding FIN No. 46-R.
Maximum
Maximum
September 30, 2004
Invested
Borrowed
Contributed (Borrowed)
$
487
$
17
$
(17
)
21
21
(a)
162
36
26
17
546
17
197
(125
)
160
99
(a)
The activity at ComEd of Indiana at
September 30, 2004 was eliminated in the consolidation of
ComEd.
Contractual Obligations, Commercial
Commitments and Off-Balance Sheet Obligations
Generation acquired a $50 million letter of
credit to support the contractual obligations of Sithe and its
subsidiaries and issued a $45 million of letter of credit
for Power Team to cover collateral calls that had previously
been met with cash collateral.
On September 29, 2004, Generation exercised
its call option to acquire Reservoirs 50% interest in
Sithe for $97 million. The closing of the call is subject
to state and Federal regulatory approvals.
See Note 9 and Note 19 to the Combined
Notes to Consolidated Financial Statements for discussion of
material changes in the registrants respective debt from
the amounts set forth in the 2003 Form 10-K.
Three Months Ended September 30, 2004
Compared to Three Months Ended September 30, 2003
Three Months
Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
1,720
$
1,737
$
(17
)
907
891
(16
)
231
299
68
104
97
(7
)
68
87
19
1,310
1,374
64
410
363
47
(86
)
(107
)
21
(6
)
6
(4
)
(4
)
(106
)
(106
)
5
15
(10
)
(191
)
(98
)
(93
)
219
265
(46
)
95
102
7
$
124
$
163
$
(39
)
Operating Revenues
Three Months
Ended
September 30,
Retail Deliveries (in GWhs)
2004
2003
Variance
% Change
7,434
8,197
(763
)
(9.3
)%
5,309
5,749
(440
)
(7.7
)%
1,498
1,539
(41
)
(2.7
)%
1,213
1,269
(56
)
(4.4
)%
15,454
16,754
(1,300
)
(7.8
)%
1,053
884
169
19.1
%
1,160
896
264
29.5
%
562
428
134
31.3
%
2,775
2,208
567
25.7
%
1,874
1,721
153
8.9
%
3,086
2,934
152
5.2
%
371
426
(55
)
(12.9
)%
5,331
5,081
250
4.9
%
8,106
7,289
817
11.2
%
23,560
24,043
(483
)
(2.0
)%
(a)
Full service reflects deliveries to customers
taking electric service under tariffed rates.
(b)
Delivery only service reflects customers
receiving electric generation service from an AES.
Three Months
Ended
September 30,
Electric Revenue
2004
2003
Variance
% Change
$
699
$
760
$
(61
)
(8.0
)%
463
487
(24
)
(4.9
)%
76
82
(6
)
(7.3
)%
77
82
(5
)
(6.1
)%
1,315
1,411
(96
)
(6.8
)%
76
65
11
16.9
%
71
56
15
26.8
%
33
26
7
26.9
%
180
147
33
22.4
%
35
34
1
2.9
%
41
41
8
8
84
83
1
1.2
%
264
230
34
14.8
%
1,579
1,641
(62
)
(3.8
)%
141
96
45
46.9
%
$
1,720
$
1,737
$
(17
)
(1.0
)%
(a)
Full service revenue reflects deliveries to
customers taking electric service under tariffed rates, which
include the cost of energy and the delivery cost of the
transmission and the distribution of the energy.
(b)
Revenue from customers choosing the ComEd PPO
includes an energy charge at market rates, transmission and
distribution charges and a CTC charge.
(c)
Delivery only revenue from customers choosing an
AES includes a distribution charge and a CTC charge. Prior to
ComEds full integration into PJM on May 1, 2004,
ComEds transmission charges received from AES were
included in wholesale and miscellaneous revenue.
(d)
Wholesale and miscellaneous revenues include
transmission revenue (including revenue from PJM), sales to
municipalities and other wholesale energy sales.
Increase
(Decrease)
$
(118
)
(6
)
52
11
(1
)
(62
)
63
(18
)
45
$
(17
)
Purchased Power
Operating and Maintenance
Increase
(Decrease)
$
(48
)
(11
)
(9
)
(8
)
11
10
(13
)
$
(68
)
(a)
After joining PJM on May 1, 2004, ComEd is
no longer charged annual fees by the FERC. PJM pays the annual
FERC fees. This represents the reversal of annual FERC fees.
(b)
ComEd has fewer employees as a result of The
Exelon Way terminations.
(c)
Higher corporate allocations primarily result
from higher corporate governance allocations and employee fringe
benefits. Corporate governance allocations increased as a result
of the 2004 sale of certain Enterprises companies resulting in
ComEd comprising a greater percentage of Exelon and an
SEC-mandated change to the methodology used to allocate
Exelons corporate governance costs.
Depreciation and Amortization
Three Months
Ended
September 30,
Increase
2004
2003
(Decrease)
$
83
$
77
$
6
12
12
9
8
1
$
104
$
97
$
7
Taxes Other Than Income
Interest Expense and Distributions on
Mandatorily Redeemable Preferred Securities
Equity in Earnings (Losses) of
Unconsolidated Affiliates
Net Loss on Extinguishment of Long-Term
Debt
Other, Net
Income Taxes
Nine Months Ended September 30, 2004
Compared to Nine Months Ended September 30, 2003
Nine Months
Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
4,458
$
4,522
$
(64
)
2,014
2,001
(13
)
669
781
112
309
287
(22
)
219
235
16
3,211
3,304
93
1,247
1,218
29
(288
)
(322
)
34
(20
)
20
(13
)
(13
)
(106
)
(106
)
22
48
(26
)
(385
)
(294
)
(91
)
862
924
(62
)
351
365
14
511
559
(48
)
5
(5
)
$
511
$
564
$
(53
)
Operating Revenues
Nine Months
Ended
September 30,
Retail Deliveries (in GWhs)
2004
2003
Variance
% Change
20,240
20,246
(6
)
15,233
16,490
(1,257
)
(7.6
)%
4,269
4,706
(437
)
(9.3
)%
3,653
4,018
(365
)
(9.1
)%
43,395
45,460
(2,065
)
(4.5
)%
2,653
2,546
107
4.2
%
2,784
3,646
(862
)
(23.6
)%
1,574
1,497
77
5.1
%
7,011
7,689
(678
)
(8.8
)%
5,406
4,327
1,079
24.9
%
9,117
6,894
2,223
32.2
%
1,264
954
310
32.5
%
15,787
12,175
3,612
29.7
%
22,798
19,864
2,934
14.8
%
66,193
65,324
869
1.3
%
(a)
Full service reflects deliveries to customers
taking electric service under tariffed rates.
(b)
Delivery only service reflects customers
receiving electric generation service from an AES.
Nine Months
Ended
September 30,
Electric Revenue
2004
2003
Variance
% Change
$
1,780
$
1,778
$
2
0.1
%
1,232
1,289
(57
)
(4.4
)%
207
240
(33
)
(13.8
)%
224
247
(23
)
(9.3
)%
3,443
3,554
(111
)
(3.1
)%
184
174
10
5.7
%
163
199
(36
)
(18.1
)%
87
81
6
7.4
%
434
454
(20
)
(4.4
)%
102
106
(4
)
(3.8
)%
125
133
(8
)
(6.0
)%
25
25
252
264
(12
)
(4.5
)%
686
718
(32
)
(4.5
)%
4,129
4,272
(143
)
(3.3
)%
329
250
79
31.6
%
$
4,458
$
4,522
$
(64
)
(1.4
)%
(a)
Full service revenue reflects deliveries to
customers taking electric service under tariffed rates, which
include the cost of energy and the delivery cost of the
transmission and the distribution of the energy.
(b)
Revenue from customers choosing the ComEd PPO
includes an energy charge at market rates, transmission and
distribution charges and a CTC charge.
(c)
Delivery only revenue from customers choosing an
AES includes a distribution charge and a CTC charge. Prior to
ComEds full integration into PJM on May 1, 2004,
ComEds transmission charges received from AES were
included in wholesale and miscellaneous revenue.
(d)
Wholesale and miscellaneous revenues include
transmission revenue (including revenue from PJM), sales to
municipalities and other wholesale energy sales.
Increase
(Decrease)
$
(113
)
(112
)
(62
)
144
$
(143
)
106
(27
)
79
$
(64
)
Purchased Power
Operating and Maintenance
Increase
(Decrease)
$
(41
)
(39
)
(19
)
(10
)
(8
)
(6
)
(6
)
(4
)
(4
)
(1
)
34
5
(13
)
$
(112
)
(a)
In 2003, ComEd reached an agreement with various
Illinois retail market participants and other interested parties.
(b)
ComEd has fewer employees as a result of The
Exelon Way terminations.
(c)
After joining PJM on May 1, 2004, ComEd is
no longer charged annual fees by the FERC. PJM pays the annual
FERC fees. This represents the reversal of annual FERC fees.
(d)
During the second quarter of 2004, ComEd adopted
the provisions of FSP FAS 106-2. Employee fringe benefits
include a $5 million reduction in net periodic
postretirement benefit cost due to the adoption of FSP
FAS 106-2.
(e)
Higher corporate allocations primarily result
from higher corporate governance allocations and employee fringe
benefits. Corporate governance allocations increased as a result
of the 2004 sale of certain Enterprises companies resulting in
ComEd comprising a greater percentage of Exelon and an
SEC-mandated change to the methodology used to allocate
Exelons corporate governance costs.
(f)
ComEd recorded a $5 million charge for
contingent fees paid to a tax consultant (see Note 15 to
the Combined Notes to Consolidated Financial Statements for more
information).
Depreciation and Amortization
Nine Months
Ended
September 30,
Increase
2004
2003
(Decrease)
$
245
$
229
$
16
35
34
1
29
24
5
$
309
$
287
$
22
Taxes Other Than Income
Interest Expense and Distributions on
Mandatorily Redeemable Preferred Securities
Equity in Earnings (Losses) of
Unconsolidated Affiliates
Net Loss on Extinguishment of Long-Term
Debt
Other, Net
Income Taxes
Cumulative Effect of a Change in Accounting
Principle
Cash Flows from Operating
Activities
During 2003, ComEd made additional payments to
Generation for amounts owed under the PPA. At September 30,
2004 and December 31, 2003, ComEd had accrued payments due
to Generation under the PPA of $188 million and
$171 million, respectively. At September 30, 2003 and
December 31, 2002, ComEd had accrued payments due to
Generation under the PPA of $162 million and
$339 million, respectively.
ComEd participates in Exelons deferred
benefit pension plans. Discretionary contributions by ComEd to
the plans were $216 million for the nine months ended
September 30, 2004 compared to $174 million for the
same period in 2003. See Note 11 of the Combined Notes to
Consolidated Financial Statements for further information
regarding pension and postretirement benefits.
During the third quarter of 2004, ComEd paid
$63 million for call premiums on the retirement of debt.
See Cash Flows from Financing Activities for further
information regarding debt retirements pursuant to the
accelerated liability management plan.
Cash Flows from Investing
Activities
Cash Flows from Financing
Activities
Credit Issues
Contractual Obligations, Commercial
Commitments and Off-Balance Sheet Obligations
See Note 9 and Note 19 to the Combined
Notes to Consolidated Financial Statements for discussion of
material changes in ComEds debt from the amounts set forth
in the 2003 Form 10-K.
Three Months Ended September 30, 2004
Compared to Three Months Ended September 30, 2003
Three Months
Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
1,124
$
1,149
$
(25
)
458
482
24
35
28
(7
)
122
192
70
144
134
(10
)
64
12
(52
)
823
848
25
301
301
(76
)
(75
)
(1
)
(1
)
1
(6
)
(6
)
3
(10
)
13
(79
)
(86
)
7
222
215
7
83
74
(9
)
139
141
(2
)
(1
)
(1
)
$
138
$
140
$
(2
)
Operating Revenue
Three Months
Ended
September 30,
Retail Deliveries (in GWhs)
2004
2003
Variance
% Change
2,906
3,333
(427
)
(12.8
)%
1,790
1,753
37
2.1
%
3,949
4,013
(64
)
(1.6
)%
234
217
17
7.8
%
8,879
9,316
(437
)
(4.7
)%
636
258
378
146.5
%
444
520
(76
)
(14.6
)%
229
208
21
10.1
%
1,309
986
323
32.8
%
10,188
10,302
(114
)
(1.1
)%
(a)
Full service reflects deliveries to customers
taking electric service under tariffed rates.
(b)
Delivery only service reflects customers
receiving electric generation service from an AES.
(c)
PECOs delivery only sales to Public
Authorities and Electric Railroads were less than one GWh per
quarter.
Three Months
Ended
September 30,
Electric Revenue
2004
2003
Variance
% Change
$
409
$
466
$
(57
)
(12.2
)%
213
211
2
0.9
%
290
292
(2
)
(0.7
)%
20
19
1
5.3
%
932
988
(56
)
(5.7
)%
50
20
30
150.0
%
24
28
(4
)
(14.3
)%
6
5
1
20.0
%
80
53
27
50.9
%
1,012
1,041
(29
)
(2.8
)%
52
55
(3
)
(5.5
)%
$
1,064
$
1,096
$
(32
)
(2.9
)%
(a)
Full service revenue reflects revenue from
customers taking electric service under tariffed rates, which
includes the cost of energy, the delivery cost of the
transmission and the distribution of the energy and a CTC charge.
(b)
Delivery only revenue reflects revenue from
customers receiving generation from an AES, which includes a
distribution charge and a CTC charge.
(c)
PECOs delivery only sales to Public
Authorities and Electric Railroads were less than
$1 million per quarter.
(d)
Wholesale and miscellaneous revenues include
transmission revenue from PJM and other wholesale energy sales.
Increase
(Decrease)
$
(70
)
(21
)
(7
)
62
7
$
(29
)
Three Months
Ended
September 30,
Deliveries to customers (in mmcf)
2004
2003
Variance
% Change
3,866
3,498
368
10.5
%
6,167
6,012
155
2.6
%
10,033
9,510
523
5.5
%
Three Months
Ended
September 30,
Revenue
2004
2003
Variance
% Change
$55
$47
$ 8
17.0
%
4
4
1
2
(1
)
(50.0
)%
$60
$53
$ 7
13.2
%
Purchased Power
Fuel
Operating and Maintenance
Increase
(Decrease)
$
(45
)
(15
)
(13
)
(7
)
(3
)
9
4
$
(70
)
(a)
PECO has fewer employees as a result of The
Exelon Way.
(b)
Higher corporate allocations primarily result
from higher corporate governance allocations and employee fringe
benefits. Corporate governance allocations increased as a result
of the 2004 sale of certain Enterprises companies resulting in
PECO comprising a greater percentage of Exelon and an
SEC-mandated change to the methodology used to allocate
Exelons corporate governance costs.
(c)
During the second quarter of 2004, PECO adopted
the provisions of FSP FAS 106-2. Employee fringe benefits
include a $1 million reduction in net periodic
postretirement benefit cost due to the adoption of FSP
FAS 106-2.
Depreciation and Amortization
Three Months
Ended
September 30,
Increase
2004
2003
(Decrease)
$
108
$
96
$
12
32
33
(1
)
4
5
(1
)
$
144
$
134
$
10
Taxes Other Than Income
Interest Expense and Distributions on
Mandatorily Redeemable Preferred Securities
Equity in Losses of Unconsolidated
Affiliates
Other, Net
Income Taxes
Nine Months Ended September 30, 2004
Compared to Nine Months Ended September 30, 2003
Nine Months
Ended
September 30,
Favorable
(Unfavorable)
2004
2003
Variance
$
3,395
$
3,328
$
67
1,257
1,290
33
368
285
(83
)
387
453
66
395
370
(25
)
181
123
(58
)
2,588
2,521
(67
)
807
807
(229
)
(243
)
14
(6
)
6
(19
)
(19
)
8
8
(240
)
(249
)
9
567
558
9
195
193
(2
)
372
365
7
(3
)
(4
)
1
$
369
$
361
$
8
Operating Revenue
Nine Months
Ended
September 30,
Retail Deliveries (in GWhs)
2004
2003
Variance
% Change
7,922
8,723
(801
)
(9.2
)%
5,160
5,065
95
1.9
%
11,270
11,190
80
0.7
%
686
692
(6
)
(0.9
)%
25,038
25,670
(632
)
(2.5
)%
1,706
708
998
141.0
%
1,301
1,044
257
24.6
%
569
610
(41
)
(6.7
)%
3,576
2,362
1,214
51.4
%
28,614
28,032
582
2.1
%
(a)
Full service reflects deliveries to customers
taking electric service under tariffed rates.
(b)
Delivery only service reflects customers
receiving electric generation service from an AES.
(c)
PECOs delivery only sales to Public
Authorities and Electric Railroads were less than one GWh per
quarter.
Nine Months
Ended
September 30,
Electric Revenue
2004
2003
Variance
% Change
$
1,021
$
1,122
$
(101
)
(9.0
)%
587
585
2
0.3
%
840
825
15
1.8
%
60
62
(2
)
(3.2
)%
2,508
2,594
(86
)
(3.3
)%
131
52
79
151.9
%
67
54
13
24.1
%
15
16
(1
)
(6.3
)%
213
122
91
74.6
%
2,721
2,716
5
0.2
%
151
164
(13
)
(7.9
)%
$
2,872
$
2,880
$
(8
)
(0.3
)%
(a)
Full service revenue reflects revenue from
customers taking electric service under tariffed rates, which
includes the cost of energy, the delivery cost of the
transmission and the distribution of the energy and a CTC charge.
(b)
Delivery only revenue reflects revenue from
customers receiving generation from an AES, which includes a
distribution charge and a CTC charge.
(c)
PECOs delivery only sales to Public
Authorities and Electric Railroads were less than
$1 million per quarter.
(d)
Wholesale and miscellaneous revenues include
transmission revenue from PJM and other wholesale energy sales.
Increase
(Decrease)
$
128
16
(62
)
(63
)
(14
)
$
5
Nine Months
Ended
September 30,
Deliveries to customers (in mmcf)
2004
2003
Variance
% Change
41,831
44,183
(2,352
)
(5.3
)%
19,709
19,954
(245
)
(1.2
)%
61,540
64,137
(2,597
)
(4.0
)%
Nine Months
September 30,
Revenue
2004
2003
Variance
% Change
$
485
$
418
$
67
16.0
%
13
14
(1
)
(7.1
)%
25
16
9
56.3
%
$
523
$
448
$
75
16.7
%
Increase
(Decrease)
$
89
(21
)
(1
)
$
67
Purchased Power
Fuel
Operating and Maintenance
Increase
(Decrease)
$
(35
)
(17
)
(16
)
(14
)
(9
)
28
(3
)
$
(66
)
(a)
PECO has fewer employees as a result of The
Exelon Way terminations
(b)
Higher corporate allocations primarily result
from higher corporate governance allocations and employee fringe
benefits. Corporate governance allocations increased as a result
of the 2004 sale of certain Enterprises companies resulting in
PECO comprising a greater percentage of Exelon and an
SEC-mandated change to the methodology used to allocate
Exelons corporate governance costs.
Depreciation and Amortization
Nine Months
Ended
September 30,
Increase
2004
2003
(Decrease)
$
282
$
256
$
26
96
99
(3
)
17
15
2
$
395
$
370
$
25
Taxes Other Than Income
Interest Expense and Distributions on
Mandatorily Redeemable Preferred Securities
Equity in Losses of Unconsolidated
Affiliates
Other, Net
Income Taxes
Cash Flows from Operating
Activities
Deferred natural gas costs decreased
$52 million during the nine months ended September 30,
2004 resulting in an increase to operating cash flows. During
2003, an increase in deferred natural gas costs of
$33 million resulted in a decrease to operating cash flows.
PECOs gas cost rates are subject to periodic adjustments
by the PUC that are designed to recover from or refund to
customers the difference between the actual cost of purchased
gas and the amount included in rates. During 2004, PECO was
recovering fuel revenues from customers in excess of gas costs
being incurred. During 2003, PECO was incurring gas costs in
excess of fuel revenues being recovered from customers.
PECO participates in Exelons defined
benefit pension plans. Discretionary contributions by PECO to
the plans were $8 million during the nine months ended
September 30, 2004 compared to $18 million for the
same period in 2003. See Note 11 of the Combined Notes to
Consolidated Financial Statements for further information
regarding pension and postretirement benefits.
Cash Flows from Investing
Activities
Cash Flows from Financing
Activities
Credit Issues
Contractual Obligations, Commercial
Commitments and Off-Balance Sheet Obligations
See Note 9 and 19 to the Combined Notes to
Consolidated Financial Statements for discussion of material
changes in PECOs debt from the amounts set forth in the
2003 Form 10-K.
Three Months
Nine Months
Ended
Ended
September 30,
September 30,
2003
2003
$
146
$
651
4
(5
)
(20
)
(2
)
(8
)
(3
)
(12
)
Three Months Ended September 30, 2004
Compared to Three Months Ended September 30, 2003
Three Months
Ended
September 30,
Favorable
2004
2003
(Unfavorable)
$
2,253
$
2,537
$
(284
)
743
1,240
497
379
449
70
945
945
432
507
75
95
51
(44
)
42
28
(14
)
1,691
3,220
1,529
562
(683
)
1,245
(45
)
(25
)
(20
)
(5
)
53
(58
)
5
(53
)
58
(45
)
(25
)
(20
)
517
(708
)
1,225
198
(280
)
(478
)
$
319
$
(428
)
$
747
Operating Revenues
Three Months
Ended
September 30,
Revenue
2004
2003
Variance
% Change
$
1,218
$
1,339
$
(121
)
(9.0
)%
759
1,080
(321
)
(29.7
)%
1,977
2,419
(442
)
(18.3
)%
55
55
n.m.
1
1
220
117
103
88.0%
$
2,253
$
2,537
$
(284
)
(11.2
)%
(a)
Includes sales to Exelon Energy Company during
2003. As of January 1, 2004, Exelon Energy Company became
part of Generation and is presented as retail electric sales.
(b)
Includes retail electric sales of Exelon Energy
Company in 2004.
(c)
Includes sales related to tolling agreements,
including Sithe in 2004, and fossil fuel sales.
Three Months Ended
September 30,
Sales (in GWhs)
2004(c)
2003
Variance
% Change
30,040
32,237
(2,197
)
(6.8
)%
21,894
29,613
(7,719
)
(26.1
)%
51,934
61,850
(9,916
)
(16.0
)%
(a)
Includes sales to Exelon Energy Company during
2003. As of January 1, 2004, Exelon Energy Company became
part of Generation and is presented as retail electric sales.
(b)
Includes retail electric sales of Exelon Energy
Company in 2004.
(c)
Sales in 2004 do not include 6,919 GWhs, which
were netted with purchased power GWhs as a result of the
reclassification of certain hedging activities in accordance
with EITF 03-11.
Three Months
Ended
September 30,
($/MWh)
2004
2003
% Change
$
40.55
$
41.54
(2.4
)%
34.67
36.47
(4.9
)%
38.07
39.11
(2.7
)%
$
21.60
$
27.31
(20.9
)%
$
16.47
$
11.80
39.6
%
(a)
Includes sales to Exelon Energy Company during
2003. As of January 1, 2004, Exelon Energy Company became
part of Generation and is presented as retail electric sales.
(b)
Includes retail electric sales of Exelon Energy
Company in 2004.
(c)
Average supply cost includes purchased power,
fuel costs, and PPAs with AmerGen in 2003.
Increase
(Decrease)
$
(272
)
(213
)
143
21
$
(321
)
Purchased Power and Fuel
Three Months
Ended
September 30,
Supply Source (in GWhs)
2004
2003
Variance
% Change
35,303
30,152
5,151
17.1
%
13,563
24,062
(10,499
)
(43.6
)%
3,068
7,636
(4,568
)
(59.8
)%
51,934
61,850
(9,916
)
(16.0
)%
(a)
Excludes AmerGen for 2003. AmerGen generated
5,151 GWhs during the three months ended September 30, 2004.
(b)
6,919 GWhs of purchased power were netted with
sales in 2004 as a result of the reclassification of certain
hedging activities in accordance with EITF 03-11. Includes
PPAs with AmerGen, which represented 3,725 GWhs in 2003.
(c)
Generation associated with the Boston Generating
units represented 3,750 GWhs during the three months ended
September 30, 2003.
Increase
(Decrease)
$
(272
)
(178
)
(78
)
(62
)
(59
)
52
17
42
(29
)
$
(567
)
Impairment of the Long Lived Assets of
Boston Generating
Operating and Maintenance
Increase
(Decrease)
$
(51
)
(52
)
(21
)
80
18
(49
)
$
(75
)
(a)
See Note 15 of the Combined Notes to
Consolidated Financial Statements for further discussion of the
spent nuclear fuel storage settlement agreement reached with the
DOE.
Three Months
Ended
September 30,
2004
2003
95.8
%
95.3
%
$
10.92
$
11.69
$
54.78
$
51.53
(a)
Includes AmerGen and excludes Salem, which is
operated by Public Service Enterprise Group Incorporated
(PSE&G).
(b)
Includes PPAs with AmerGen in 2003.
Depreciation and Amortization
Interest Expense
Equity in Earnings (Losses) of
Unconsolidated Affiliates
Other, Net
Effective Income Tax Rate
Nine Months Ended September 30, 2004
Compared to Nine Months Ended September 30, 2003
Nine Months
Ended
September 30,
Favorable
2004
2003
(Unfavorable)
$
6,153
$
6,301
$
(148
)
1,825
2,881
1,056
1,427
1,156
(271
)
945
945
1,645
1,397
(248
)
218
142
(76
)
137
115
(22
)
5,252
6,636
1,384
901
(335
)
1,236
(123
)
(63
)
(60
)
(7
)
90
(97
)
129
(238
)
367
(1
)
(211
)
210
900
(546
)
1,446
343
(209
)
(552
)
557
(337
)
894
10
(2
)
12
567
(339
)
906
32
108
(76
)
$
599
$
(231
)
$
830
Operating Revenues
Nine Months
Ended
September 30,
Revenue
2004
2003
Variance
% Change
$
2,924
$
3,185
$
(261
)
(8.2
)%
2,501
2,725
(224
)
(8.2
)%
5,425
5,910
(485
)
(8.2
)%
315
315
n.m.
(2
)
(1
)
(1
)
100.0
%
415
392
23
5.9
%
$
6,153
$
6,301
$
(148
)
(2.3
)%
(a)
Includes sales to Exelon Energy Company during
2003. As of January 1, 2004, Exelon Energy Company became
part of Generation and is presented as retail electric sales.
(b)
Includes retail electric sales of Exelon Energy
Company in 2004.
(c)
Includes sales related to tolling agreements,
including Sithe in 2004, and fossil fuel sales.
Nine Months
Ended
September 30,
Sales (in GWhs)
2004
2003
Variance
% Change
83,637
89,700
(6,063
)
(6.8
)%
70,853
80,877
(10,024
)
(12.4
)%
154,490
170,577
(16,087
)
(9.4
)%
(a)
Includes sales to Exelon Energy Company during
2003. As of January 1, 2004, Exelon Energy Company became
part of Generation and is presented as retail electric sales.
(b)
Sales in 2004 do not include 18,557 GWhs which
were netted with purchased power GWhs as a result of the
reclassification of certain hedging activities in accordance
with EITF 03-11. Includes retail electric sales of Exelon
Energy Company in 2004.
Nine Months
Ended
September 30,
($/MWh)
2004
2003
% Change
$
34.96
$
35.51
(1.5
)%
35.30
33.69
4.8
%
35.12
34.65
1.4
%
$
21.05
$
23.67
(11.1
)%
$
14.07
$
10.98
28.1
%
(a)
Includes sales to Exelon Energy Company during
2003. As of January 1, 2004, Exelon Energy Company became
part of Generation and is presented as retail electric sales.
(b)
Includes retail electric sales of Exelon Energy
Company in 2004.
(c)
Average supply cost includes purchased power,
fuel costs, and PPAs with AmerGen in 2003.
Increase
(Decrease)
$
(715
)
(159
)
325
325
$
(224
)
(a)
Does not include $9 million of
EITF 03-11 adjustments related to fuel sales that are
included in other revenues.
Purchased Power and Fuel
Nine Months
Ended
September 30,
Supply Source (in GWhs)
2004
2003
Variance
% Change
102,968
89,101
13,867
15.6
%
37,158
63,435
(26,277
)
(41.4
)%
14,364
18,041
(3,677
)
(20.4
)%
154,490
170,577
(16,087
)
(9.4
)%
(a)
Excludes AmerGen for 2003. AmerGen generated
14,912 GWhs during the nine months ended September 30, 2004.
(b)
18,557 GWhs were netted with purchased power GWhs
in 2004 as a result of the reclassification of certain hedging
activities in accordance with EITF 03-11. Includes PPAs
with AmerGen, which represented 9,944 GWhs in 2003.
Increase
(Decrease)
$
(724
)
(110
)
(103
)
(57
)
(31
)
181
113
43
(97
)
$
(785
)
Impairment of the Long-Lived Assets of
Boston Generating
Operating and Maintenance
Increase
(Decrease)
$
277
40
28
14
(68
)
(52
)
9
$
248
(a)
Includes refueling outage expense of
$24 million at AmerGen.
(b)
See Note 15 of the Combined Notes to
Consolidated Financial Statements for further discussion of the
spent nuclear fuel storage settlement agreement reached with the
DOE.
Nine Months
Ended
September 30,
2004
2003
94.1
%
94.5
%
$
11.99
$
12.16
$
49.11
$
45.42
(a)
Includes AmerGen and excludes Salem, which is
operated by PSE&G.
(b)
Includes PPAs with AmerGen in 2003.
Depreciation and Amortization
Interest Expense
Equity in Earnings (Losses) of
Unconsolidated Affiliates
Other, Net
Effective Income Tax Rate
Cumulative Effect of Changes in Accounting
Principles
Cash Flows from Operating
Activities
Receivables from Exelon Delivery under the PPA
increased $57 million for the nine months ended
September 30, 2004, compared to a decrease of
$178 million during the same period in 2003.
Net cash received for collateral for power
marketing activities for the nine months ended
September 30, 2004 was $59 million, compared to
$51 million paid during the same period in 2003.
At September 30, 2004, Generation was in a
net income tax receivable position compared to a net income tax
payable position at September 30, 2003. Comparability of
the cash flows for the two periods is affected significantly by
this change in the income tax position. The primary driver of
the increase in cash from the changes in receivables during the
nine months ended September 30, 2004 was the income tax
provision of approximately $185 million and the receipt of
a $160 million income tax refund during the third quarter
of 2004, partially offset by the payment of approximately
$64 million for income taxes.
Generation participates in Exelons defined
benefit pension plans. Discretionary contributions to the plans
were $171 million for the nine months ended
September 30, 2004 compared to $147 million for the
same period in 2003. Generation also contributed $8 million
to the pension plan to satisfy ERISA minimum funding
requirements. See Note 11 of the Combined Notes to
Consolidated Financial Statements for further information
regarding pension and postretirement benefits.
Cash Flows from Investing
Activities
Proceeds from the sale of three gas turbines of
$42 million.
Collection of a $20 million note receivable
related to the sale of certain businesses of Sithe during the
fourth quarter of 2003 and the first quarter of 2004.
During the second and third quarters of 2004,
Sithe received $24 million of cash proceeds from the
disposition of businesses previously classified as held for sale.
Cash Flows from Financing
Activities
Credit Issues
Contractual Obligations, Commercial
Commitments and Off-Balance Sheet Obligations
In connection with the transfer of Exelon Energy
Company to Generation effective January 1, 2004, Generation
acquired $162 million in energy marketing contract
guarantees.
Generation acquired a $50 million letter of
credit to support the contractual obligations of Sithe and its
subsidiaries and issued a $45 million of letter of credit
for Power Team to cover collateral calls that had previously
been met with cash collateral.
On September 29, 2004, Generation exercised
its call option to acquire Reservoirs 50% interest in
Sithe for $97 million. The closing of the call is subject
to state and Federal regulatory approvals.
Item 3.
Quantitative and Qualitative Disclosure About
Market Risk
Generation
Normal Operations and Hedging
Activities
Proprietary Trading Activities
September 30,
December 31,
(In millions)
2004
2003
$
403
$
322
422
100
825
422
(655
)
(505
)
(391
)
(133
)
(1,046
)
(638
)
$
(221
)
$
(216
)
(a)
Mark-to-market energy contract liabilities at
December 31, 2003 do not reflect a $76 million
interest-rate swap which was included in current mark-to-market
derivative liabilities within Generations Consolidated
Balance Sheet.
Maturities within
2008 and
Total Fair
2004
2005
2006
2007
Beyond
Value
(In millions)
$
3
$
6
$
$
$
$
9
(83
)
(242
)
(32
)
(8
)
(365
)
$
(80
)
$
(236
)
$
(32
)
$
(8
)
$
$
(356
)
$
19
$
35
$
(2
)
$
$
$
52
(14
)
15
5
6
5
(21
)
14
11
68
77
$
10
$
29
$
17
$
11
$
68
$
135
(a)
Mark-to-market gains and losses on contracts that
qualify as cash-flow hedges are recorded in other comprehensive
income.
(b)
Mark-to-market gains and losses on other
non-trading derivative contracts that do not qualify as
cash-flow hedges are recorded in earnings.
Total Cash-Flow Hedge Other Comprehensive
Income Activity, Net of Income Tax
Normal
Interest Rate
Total
Operations and
and Other
Cash Flow
(In millions)
Hedging Activities
Hedges(a)
Hedges
$
(133
)
$
(13
)
$
(146
)
(311
)
(311
)
226
12
238
2
2
(7
)
(7
)
$
(216
)
$
(8
)
$
(224
)
(a)
Includes interest rate hedges at Generation.
Generation
Total
Number Of
Net Exposure Of
Exposure
Counterparties
Counterparties
Rating(a) (In millions, except for
Before Credit
Credit
Net
Greater than 10%
Greater than 10%
counterparties)
Collateral
Collateral
Exposure
of Net Exposure
of Net Exposure
$
199
$
28
$
171
2
$
72
73
2
71
1
48
12
12
3
3
$
287
$
30
$
257
3
$
120
(a)
Table does not include credit risk associated
with Generations retail operations.
Maturity of Credit Risk Exposure
Exposure
Total Exposure
Less than
Greater than
Before Credit
Rating(a) (In millions)
2 Years
2-5 Years
5 Years
Collateral
$
192
$
6
$
1
$
199
68
5
73
12
12
3
3
$
275
$
11
$
1
$
287
(a)
Table does not include credit risk associated
with Generations retail operations.
Exelon
ComEd
PECO
Generation
Generation
Item 4.
Controls and Procedures
PART II OTHER INFORMATION
Item 1. | Legal Proceedings |
ComEd
See Retail Rate Law within the litigation section of Note 15 of the Combined Notes to Consolidated Financial Statements for a discussion of legal proceeding developments.
Generation
See Raytheon and Mitsubishi Litigation and Oyster Creek within the litigation section of Note 15 of the Combined Notes to Consolidated Financial Statements and Cotter Corporation Litigation of Note 19 of the Combined Notes to Consolidated Financial Statements for a discussion of legal proceeding developments.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(e) Exelon
The attached table gives information on a monthly
basis regarding purchases made by Exelon of its common stock.
All share and per-share amounts included in the table below have
been adjusted to reflect the stock split.
Maximum Number
(or Approximate
Total Number of
Dollar Value) of
Shares Purchased
Shares that May
Total Number
As Part of Publicly
Yet Be Purchased
of Shares
Average Price
Announced Plans
Under the Plans
Period
Purchased(a)
Paid per Share
or Programs(b)
or Programs
1,863
$
32.84
(b
)
1,571
33.49
(b
)
(b
)
3,434
33.14
(b
)
(a) | Shares other than those purchased as a part of a publicly announced plan primarily represent restricted shares surrendered by employees to satisfy tax obligations arising upon the vesting of restricted shares. | |
(b) | In April 2004, Exelons Board of Directors approved a discretionary share repurchase program that allows Exelon to repurchase shares of its common stock on a periodic basis in the open market. The share repurchase program is intended to mitigate, in part, the dilutive effect of shares issued under Exelons employee stock option plan and Exelons Employee Stock Purchase Plan (ESPP). The aggregate shares of common stock repurchased pursuant to the program cannot exceed the economic benefit received after January 1, 2004 due to stock option exercises and share purchases pursuant to Exelons ESPP. The economic benefit consists of direct cash proceeds from purchases of stock and tax benefits associated with exercises of stock options. The share repurchase program has no specified limit and no specified termination date. |
172
Item 5. | Other Information |
(a) ComEd, PECO and Generation
Regulatory Issues (ComEd) |
See Note 7 of the Combined Notes to Consolidated Financial Statements and ComEds Managements Discussion and Analysis of Financial Condition and Results of Operations Executive Overview for a discussion of regulatory developments.
Labor Relations (PECO) |
As previously reported in the 2003 Form 10-K, on August 15, 2002, the International Brotherhood of Electrical Workers (IBEW) filed a petition with the National Labor Relations Board (NLRB) to conduct a unionization vote of certain of PECOs employees. On May 21, 2003, the PECO union election was held and a majority of PECO workers voted against union representation. The results of the election were not certified due to pending challenges and objections. On March 22, 2004, the IBEW withdrew its objections to the May 21, 2003 election, and asked the NLRB to allow for a new election at PECO. On April 22, 2004, the NLRB granted IBEWs request. A new election was held on July 21, 2004 that resulted in union representation for 1,100 employees in the Philadelphia service territory. PECO and IBEW Local 614 have not yet begun negotiations for an initial agreement.
Jointly Owned Electric Utility Plant (Generation) |
On January 28, 2004, the NRC issued a letter requesting Public Service Enterprise Group (PSEG) to conduct a review of its Salem facility, of which Generation owns 42.59%, to assess the workplace environment for raising and addressing safety issues. PSEG responded to the letter on February 28, 2004, and had independent assessments of the work environment at the facility performed. Assessment results were provided to the NRC in May. The assessments concluded that Salem was safe for continued operation, but also identified issues that needed to be addressed. At an NRC public meeting on June 16, 2004, PSEG outlined its action plans to address these issues, which focus on a safety conscious work environment, the corrective action program, and work management. A letter documenting these plans and commitments was sent to the NRC on June 25, 2004. PSEG will provide the NRC a report of its progress and discuss the progress of its actions to resolve identified issues at public meetings on December 2, 2004 and in 2005. PSEG will publish metrics to demonstrate performance commencing in the fourth quarter of 2004.
In June 2001, the New Jersey Department of Environmental Protection (NJDEP) issued a renewed National Pollutant Discharge Elimination System permit for Salem, expiring in July 2006, allowing for the continued operation of Salem with its existing cooling water system. An application for renewal of that permit, including a demonstration of compliance with the requirements of the recently published Federal Water Pollution Control Act Section 316(b) regulations, must be submitted to NJDEP by February 2, 2006 unless the agency grants additional time to collect information to comply with the new regulations. NJDEP advised PSEG in a letter dated July 12, 2004 that it strongly recommends reducing cooling water intake flow commensurate with closed-cycle cooling as a compliance option for Salem. PSEG has not made a determination regarding how it will demonstrate compliance with the Section 316(b) regulations. If application of the Section 316(b) regulations requires the retrofitting of Salems cooling water intake structure to reduce cooling water intake flow commensurate with closed-cycle cooling, the retrofit would result in material costs of compliance to the owners of the facility.
173
Item 6. | Exhibits |
(a)
Exhibits:
Amended and Restated Agreement and Plan of Merger
dated as of October 20, 2000, among PECO Energy Company,
Exelon Corporation and Unicom Corporation
(File No. 1-01401, PECO Energy Company Form 10-Q
for the quarter ended September 30, 2000, Exhibit 2-1).
Articles of Incorporation of Exelon Corporation
(Registration Statement No. 333-37082, Form S-4,
Exhibit 3-1).
Amendment to Articles of Incorporation for Exelon
Corporation effective as of April 19, 2004
(File No. 1-16169, Form 10-Q for the quarter
ended June 30, 2004, Exhibit 3-1).
Amended and Restated Bylaws of Exelon
Corporation, adopted January 27, 2004
(File No. 1-16169, 2003 Form 10-K,
Exhibit 3-2).
Amended and Restated Articles of Incorporation of
PECO Energy Company (File No. 1-01401, 2000
Form 10-K, Exhibit 3-3).
Bylaws of PECO Energy Company, adopted
February 26, 1990 and amended January 26, 1998
(File No. 1-01401, 1997 Form 10-K,
Exhibit 3-2).
Restated Articles of Incorporation of
Commonwealth Edison Company effective February 20, 1985,
including Statements of Resolution Establishing Series, relating
to the establishment of three new series of Commonwealth Edison
Company preference stock known as the $9.00 Cumulative
Preference Stock, the $6.875 Cumulative Preference
Stock and the $2.425 Cumulative Preference
Stock (File No. 1-1839, 1994 Form 10-K,
Exhibit 3-2).
Bylaws of Commonwealth Edison Company, effective
September 2, 1998, as amended through October 20, 2000
(File No. 1-1839, 2000 Form 10-K,
Exhibit 3-6).
Certificate of Formation of Exelon Generation
Company, LLC (Registration Statement No. 333-85496,
Form S-4, Exhibit 3-1).
First Amended and Restated Operating Agreement of
Exelon Generation Company, LLC executed as of January 1,
2001 (File No. 333-85496, 2003 Form 10-K,
Exhibit 3-8).
First and Refunding Mortgage dated May 1,
1923 between The Counties Gas and Electric Company (predecessor
to PECO Energy Company) and Fidelity Trust Company, Trustee
(First Union National Bank, successor), (Registration
No. 2-2281, Exhibit B-1).
Supplemental Indentures to PECO Energy
Companys First and Refunding Mortgage:
Dated as of
File Reference
Exhibit No.
2-2881
B-1(c)
2-2881
B-1(g)
2-4863
B-1(h)
2-5472
B-1(i)
2-6821
7-1(j)
2-13562
2(b)-17
2-14020
2(b)-18
2-34051
2(b)-24
2-72802
4-46
2-72802
4-47
1-01401, 1984 Form 10-K
4-2(b)
1-01401, 1991 Form 10-K
4(e)-76
1-01401, 1991 Form 10-K
4(e)-77
1-01401, June 30, 1992 Form 10-Q
4(e)-81
1-01401, 1992 Form 10-K
4(e)-86
1-01401, March 31, 1993 Form 10-Q
4(e)-88
1-01401, March 31, 1993 Form 10-Q
4(e)-89
174
Dated as of
File Reference
Exhibit No.
1-01401, Form 8-A dated August 19, 1993
4(e)-92
1-01401, Form 8-K dated May 24, 1995
4(e)-96
1-01401, September 30, 2002 Form 10-Q
4-1
1-01401, September 30, 2002 Form 10-Q
4-2 4.1
0-16844, March 31, 2003 Form 10-Q
Exelon Corporation Dividend Reinvestment and
Stock Purchase Plan (Registration Statement No. 333-84446,
Form S-3, Prospectus).
Mortgage of Commonwealth Edison Company to
Illinois Merchants Trust Company, Trustee (BNY Midwest Trust
Company, as current successor Trustee), dated July 1, 1923,
as supplemented and amended by Supplemental Indenture thereto
dated August 1, 1944. (File No. 2-60201,
Form S-7, Exhibit 2-1).
Supplemental Indentures to aforementioned
Commonwealth Edison Mortgage.
Dated as of
File Reference
Exhibit No.
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-60201, Form S-7
2-1
2-99665, Form S-3
4-3
2-99665, Form S-3
4-3
2-99665, Form S-3
4-3
2-99665, Form S-3
4-3
2-99665, Form S-3
4-3
2-99665, Form S-3
4-3
2-99665, Form S-3
4-3
2-99665, Form S-3
4-3
2-99665, Form S-3
4-3
33-6879, Form S-3
4-9
33-38232, Form S-3
4-12
33-40018, Form S-3
4-13
33-40018, Form S-3
4-14
33-48542, Form S-3
4-14
33-53766, Form S-3
4-14
1-1839, 1992 Form 10-K
4-14
175
Dated as of
File Reference
Exhibit No.
33-64028, Form S-3
4-12
33-64028, Form S-3
4-13
1-1839, Form 8-K dated May 21, 1993
4-1
1-1839, Form 10-Q for quarter ended June 30, 1993.
4-1
1-1839, 1993 Form 10-K
4-15
1-1839, 1994 Form 10-K
4-16
1-1839, 1996 Form 10-K
4-16
1-1839, 2001 Form 10-K
4-4-1
1-1839, 2001 Form 10-K
4-4-1
1-1839, 2001 Form 10-K
4-4-1
1-1839, 2001 Form 10-K
4-4-1
1-1839, Form 8-K dated January 22, 2003
4-4
1-1839, Form 8-K dated April 7, 2003
4-4
1-1839, Form 8-K dated August 25, 2003
4-4
Instrument of Resignation, Appointment and
Acceptance dated as of February 20, 2002, under the
provisions of the Mortgage dated July 1, 1923, and
Indentures Supplemental thereto, regarding corporate trustee
(File No. 1-1839, 2001 Form 10-K, Exhibit 4-4-2).
Instrument dated as of January 31, 1996,
under the provisions of the Mortgage dated July 1, 1923 and
Indentures Supplemental thereto, regarding individual trustee
(File No. 1-1839, 1995 Form 10-K, Exhibit 4-29).
Indenture dated as of September 1, 1987
between Commonwealth Edison Company and Citibank, N.A., Trustee
relating to Notes (File No. 1-1839, Form S-3,
Exhibit 4-13).
Supplemental Indentures to aforementioned
Indenture.
Dated as of
File Reference
Exhibit No.
33-32929, Form S-3
4-16
1-1839, 1999 Form 10-K
4-21
1-1839, 2000 Form 10-K
4-7-3
Indenture dated June 1, 2001 between
Generation and First Union National Bank (now Wachovia Bank,
National Association) (Registration Statement
No. 333-85496, Form S-4, Exhibit 4.1).
Indenture dated December 19, 2003 between
Generation and Wachovia Bank, National Association (File
No. 333-85496, 2003 Form 10-K, Exhibit 4-6).
Indenture to Subordinated Debt Securities dated
as of June 24, 2003 between PECO Energy Company, as Issuer,
and Wachovia Bank National Association, as Trustee (File
No. 0-16844, PECO Energy Company Form 10-Q for the
quarter ended June 30, 2003, Exhibit 4.1).
Preferred Securities Guarantee Agreement between
PECO Energy Company, as Guarantor, and Wachovia Trust Company,
National Association, as Trustee, dated as of June 24, 2003
(File No. 0-16844, PECO Energy Company Form 10-Q for
the quarter ended June 30, 2003, Exhibit 4.2).
PECO Energy Capital Trust IV Amended and
Restated Declaration of Trust among PECO Energy Company, as
Sponsor, Wachovia Trust Company, National Association, as
Delaware Trustee and Property Trustee, and J. Barry Mitchell,
George R. Shicora and Charles S. Walls as Administrative
Trustees dated as of June 24, 2003 (File No. 0-16844,
PECO Energy Company Form 10-Q for the quarter ended
June 30, 2003, Exhibit 4.3).
176
Certifications Pursuant to Rule 13a-14(a)
and 15d-14(a) of the Securities and Exchange Act of 1934 as to
the Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2004 filed by the following officers
for the following companies:
Filed by John W. Rowe for Exelon Corporation
Filed by Robert S. Shapard for Exelon Corporation
Filed by John L. Skolds for Commonwealth Edison
Company
Filed by J. Barry Mitchell for Commonwealth
Edison Company
Filed by John L. Skolds for PECO Energy Company
Filed by J. Barry Mitchell for PECO Energy Company
Filed by John F. Young for Exelon Generation
Company, LLC
Filed by J. Barry Mitchell for Exelon Generation
Company, LLC
Certifications Pursuant to Section 1350 of
Chapter 63 of Title 18 United States Code
(Sarbanes-Oxley Act of 2002) as to the Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
2004 filed by the following officers for the following companies:
Filed by John W. Rowe for Exelon Corporation
Filed by Robert S. Shapard for Exelon Corporation
Filed by John L. Skolds for Commonwealth Edison
Company
Filed by J. Barry Mitchell for Commonwealth
Edison Company
Filed by John L. Skolds for PECO Energy Company
Filed by J. Barry Mitchell for PECO Energy Company
Filed by John F. Young for Exelon Generation
Company, LLC
Filed by J. Barry Mitchell for Exelon Generation
Company, LLC
177
SIGNATURES
Pursuant to requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.
EXELON CORPORATION
October 27, 2004
Pursuant to requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.
COMMONWEALTH EDISON COMPANY
October 27, 2004
178
Pursuant to requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.
PECO ENERGY COMPANY
October 27, 2004
Pursuant to requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.
EXELON GENERATION COMPANY, LLC
October 27, 2004
/s/ JOHN W. ROWE
John W. Rowe
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ ROBERT S. SHAPARD
Robert S. Shapard
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
/s/ MATTHEW F. HILZINGER
Matthew F. Hilzinger
Vice President and Corporate Controller
(Principal Accounting Officer)
/s/ JOHN L. SKOLDS
John L. Skolds
President, Exelon Energy Delivery
(Principal Executive Officer)
/s/ J. BARRY MITCHELL
J. Barry Mitchell
Senior Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer)
/s/ MATTHEW F. HILZINGER
Matthew F. Hilzinger
Vice President and Corporate Controller, Exelon
(Principal Accounting Officer)
/s/ FRANK M. CLARK
Frank M. Clark
President, ComEd
/s/ JOHN L. SKOLDS
John L. Skolds
President, Exelon Energy Delivery
(Principal Executive Officer)
/s/ J. BARRY MITCHELL
J. Barry Mitchell
Senior Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer)
/s/ MATTHEW F. HILZINGER
Matthew F. Hilzinger
Vice President and Corporate Controller, Exelon
(Principal Accounting Officer)
/s/ DENIS P. OBRIEN
Denis P. OBrien
President, PECO
/s/ JOHN F. YOUNG
John F. Young
President
(Principal Executive Officer)
/s/ J. BARRY MITCHELL
J. Barry Mitchell
Senior Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer)
/s/ JON D. VEURINK
Jon D. Veurink
Vice President and Controller
(Principal Accounting Officer)
179
Exhibit 4-1-1
PECO ENERGY COMPANY
TO
WACHOVIA BANK, NATIONAL ASSOCIATION, TRUSTEE
(formerly, First Union National Bank)
ONE HUNDRED AND FIRST SUPPLEMENTAL
INDENTURE DATED AS OF
APRIL 15, 2004
TO
FIRST AND REFUNDING MORTGAGE
OF
THE COUNTIES GAS AND ELECTRIC
COMPANY
TO
FIDELITY TRUST COMPANY, TRUSTEE
DATED MAY 1, 1923
5.90% SERIES DUE 2034
THIS SUPPLEMENTAL INDENTURE dated as of April 15, 2004, by and between PECO ENERGY COMPANY, a corporation organized and existing under the laws of the Commonwealth of Pennsylvania (hereinafter called the Company), party of the first part, and WACHOVIA BANK, NATIONAL ASSOCIATION (formerly, First Union National Bank), a national banking association organized and existing under the laws of the United States of America (hereinafter called the Trustee), as Trustee under the Mortgage hereinafter mentioned, party of the second part, Witnesseth that
WHEREAS, The Counties Gas and Electric Company (hereinafter called Counties Company), a Pennsylvania corporation and a predecessor to the Company, duly executed and delivered to Fidelity Trust Company, a Pennsylvania corporation to which the Trustee is successor, as Trustee, a certain indenture of mortgage and deed of trust dated May 1, 1923 (hereinafter called the Mortgage), to provide for the issue of, and to secure, its First and Refunding Mortgage Bonds, issuable in series and without limit as to principal amount except as provided in the Mortgage, the initial series of Bonds being designated the 6% Series of 1923, and the terms and provisions of other series of bonds secured by the Mortgage to be determined as provided in the Mortgage; and
WHEREAS, thereafter Counties Company, Philadelphia Suburban-Counties Gas and Electric Company (hereinafter called Suburban Company), and the Company, respectively, have from time to time executed and delivered indentures supplemental to the Mortgage, providing for the creation of additional series of bonds secured by the Mortgage and for amendment of certain of the terms and provisions of the Mortgage and of indentures supplemental thereto, or evidencing the succession of Suburban Company to Counties Company and of the Company to Suburban Company, such indentures supplemental to the Mortgage, the respective dates, parties thereto, and purposes thereof, being as follows:
2
Supplemental Indenture | ||||
and Date
|
Parties
|
Providing for:
|
||
First
September 1, 1926 |
Counties Company to Fidelity-Philadelphia Trust Company (Successor to Fidelity Trust Company) | Bonds of 5% Series of 1926 | ||
|
||||
Second
May 1, 1927 |
Suburban Company to Fidelity-Philadelphia Trust Company | Evidencing succession of Suburban Company to Counties Company | ||
|
||||
Third
May 1, 1927 |
Suburban Company to Fidelity-Philadelphia Trust Company | Bonds of 4-1/2% Series due 1957; amendment of certain provisions of Mortgage | ||
|
||||
Fourth
November 1, 1927 |
Suburban Company to Fidelity-Philadelphia Trust Company | Additional Bonds of 4-1/2% Series due 1957 | ||
|
||||
Fifth
January 31, 1931 |
Company to Fidelity-Philadelphia Trust Company | Evidencing succession of Company to Suburban Company | ||
|
||||
Sixth
February 1, 1931 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 4% Series due 1971 | ||
|
||||
Seventh
March 1, 1937 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 3-1/2% Series due 1967; amendment of certain provisions of Mortgage | ||
|
||||
Eighth
December 1, 1941 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 2-3/4% Series due 1971; amendment of certain provisions of Mortgage | ||
|
||||
Ninth
November 1, 1944 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 2-3/4% Series due 1967 and 2-3/4% Series due 1974; amendment of certain provisions of Mortgage | ||
|
||||
Tenth
December 1, 1946 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 2-3/4% Series due 1981; amendment of certain provisions of Mortgage* |
3
Supplemental Indenture | ||||
and Date
|
Parties
|
Providing for:
|
||
Eleventh
February 1, 1948 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 2-7/8% Series due 1978* | ||
|
||||
Twelfth
January 1, 1952 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 3-1/4% Series due 1982* | ||
|
||||
Thirteenth
May 1, 1953 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 3-7/8% Series due 1983* | ||
|
||||
Fourteenth
December 1, 1953 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 3-1/8% Series due 1983* | ||
|
||||
Fifteenth
April 1, 1955 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 3-1/8% Series due 1985* | ||
|
||||
Sixteenth
September 1, 1957 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 4-5/8% Series due 1987; amendment of certain provisions of Mortgage* | ||
|
||||
Seventeenth
May 1, 1958 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 3-3/4% Series due 1988; amendment of certain provisions of Mortgage* | ||
|
||||
Eighteenth
December 1, 1958 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 4-3/8% Series due 1986* | ||
|
||||
Nineteenth
October 1, 1959 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 5% Series due 1989* | ||
|
||||
Twentieth
May 1, 1964 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 4-1/2% Series due 1994* | ||
|
||||
Twenty-first
October 15, 1966 |
Company to Fidelity-Philadelphia Trust Company | Bonds of 6% Series due 1968-1973* | ||
|
||||
Twenty-second
June 1, 1967 |
Company to The Fidelity Bank (formerly Fidelity-Philadelphia Trust Company) | Bonds of 5-1/4 % Series due 1968-1973 and 5-3/4 % Series due 1977* | ||
|
||||
Twenty-third
October 1, 1957 |
Company to The Fidelity Bank | Bonds of 6-1/8 % Series due 1997* |
4
Supplemental Indenture | ||||
and Date
|
Parties
|
Providing for:
|
||
Twenty-fourth
March 1, 1968 |
Company to The Fidelity Bank | Bonds of 6-1/2% Series due 1993; amendment of Article XIV of Mortgage* | ||
|
||||
Twenty-fifth
September 10, 1968 |
Company to The Fidelity Bank | Bonds of 1968 Series due 1969-1976* | ||
|
||||
Twenty-sixth
August 15, 1969 |
Company to The Fidelity Bank | Bonds of 8% Series due 1975* | ||
|
||||
Twenty-seventh
February 1, 1970 |
Company to The Fidelity Bank | Bonds of 9% Series due 1995* | ||
|
||||
Twenty-eighth
May 1, 1970 |
Company to The Fidelity Bank | Bonds of 8-1/2% Series due 1976* | ||
|
||||
Twenty-ninth
December 15, 1970 |
Company to The Fidelity Bank | Bonds of 7-3/4% Series due 2000* | ||
|
||||
Thirtieth
August 1, 1971 |
Company to The Fidelity Bank | Bonds of 8-1/4% Series due 1996* | ||
|
||||
Thirty-first
December 15, 1971 |
Company to The Fidelity Bank | Bonds of 7-3/8% Series due 2001; amendment of Article XI of Mortgage* | ||
|
||||
Thirty-second
June 15, 1972 |
Company to The Fidelity Bank | Bonds of 7-1/2% Series due 1998* | ||
|
||||
Thirty-third
January 15, 1973 |
Company to The Fidelity Bank | Bonds of 7-1/2% Series due 1999* | ||
|
||||
Thirty-fourth
January 15, 1974 |
Company to The Fidelity Bank | Bonds of 8-1/2% Series due 2004 | ||
|
||||
Thirty-fifth
October 15, 1974 |
Company to The Fidelity Bank | Bonds of 11% Series due 1980* | ||
|
||||
Thirty-sixth
April 15, 1975 |
Company to The Fidelity Bank | Bonds of 11-5/8% Series due 2000* | ||
|
||||
Thirty-seventh
August 1, 1975 |
Company to The Fidelity Bank | Bonds of 11% Series due 2000* | ||
|
||||
Thirty-eighth
March 1, 1976 |
Company to The Fidelity Bank | Bonds of 9-1/8% Series due 2006* | ||
|
||||
Thirty-ninth
August 1, 1976 |
Company to The Fidelity Bank | Bonds of 9-5/8% Series due 2002* |
5
Supplemental Indenture | ||||
and Date
|
Parties
|
Providing for:
|
||
Fortieth
February 1, 1977 |
Company to The Fidelity Bank | Bonds of Pollution Control Series A and Pollution Control Series B* | ||
|
||||
Forty-first
March 15, 1977 |
Company to The Fidelity Bank | Bonds of 8-5/8% Series due 2007* | ||
|
||||
Forty-second
July 15, 1977 |
Company to The Fidelity Bank | Bonds of 8-5/8% Series due 2003* | ||
|
||||
Forty-third
March 15, 1978 |
Company to The Fidelity Bank | Bonds of 9-1/8% Series due 2008* | ||
|
||||
Forty-fourth
October 15, 1979 |
Company to The Fidelity Bank | Bonds of 12-1/2% Series due 2005* | ||
|
||||
Forty-fifth
October 15, 1980 |
Company to The Fidelity Bank | Bonds of 13-3/4% Series due 1992* | ||
|
||||
Forty-sixth
March 1, 1981 |
Company to The Fidelity Bank | Bonds of 15-1/4% Series due 1996; amendment of Article VIII of Mortgage* | ||
|
||||
Forty
-
seventh
March 1, 1981 |
Company to The Fidelity Bank | Bonds of 15% Series due 1996; amendment of Article VIII of Mortgage* | ||
|
||||
Forty
-
eighth
July 1, 1981 |
Company to The Fidelity Bank | Bonds of 17-5/8% Series due 2011* | ||
|
||||
Forty-ninth
September 15, 1981 |
Company to The Fidelity Bank | Bonds of 18-3/4% Series due 2009* | ||
|
||||
Fiftieth
April 1, 1982 |
Company to The Fidelity Bank | Bonds of 18% Series due 2012* | ||
|
||||
Fifty
-
first
October 1, 1982 |
Company to The Fidelity Bank | Bonds of 15-3/8% Series due 2010* | ||
|
||||
Fifty
-
second
June 15, 1983 |
Company to The Fidelity Bank | Bonds of 13-3/8% Series due 2013* | ||
|
||||
Fifty
-
third
November 15, 1984 |
Company to Fidelity Bank, National Association (formerly The Fidelity Bank) | Bonds of 13.05% Series due 1994; amendment of Article VIII of Mortgage* |
6
Supplemental Indenture | ||||
and Date
|
Parties
|
Providing for:
|
||
Fifty
-
fourth
December 1, 1984 |
Company to Fidelity Bank, National Association | Bonds of 14% Series due 1988-1994; amendment of Article VIII of Mortgage* | ||
|
||||
Fifty
-
fifth
May 15, 1985 |
Company to Fidelity Bank, National Association | Bonds of Pollution Control Series C* | ||
|
||||
Fifty
-
sixth
October 1, 1985 |
Company to Fidelity Bank, National Association | Bonds of Pollution Control Series D* | ||
|
||||
Fifty
-
seventh
November 15, 1985 |
Company to Fidelity Bank, National Association | Bonds of 10-7/8% Series due 1995* | ||
|
||||
Fifty
-
eighth
November 15, 1985 |
Company to Fidelity Bank, National Association | Bonds of 11-3/4% Series due 2014* | ||
|
||||
Fifty
-
ninth
June 1, 1986 |
Company to Fidelity Bank, National Association | Bonds of Pollution Control Series E* | ||
|
||||
Sixtieth
November 1, 1986 |
Company to Fidelity Bank, National Association | Bonds of 10-1/4% Series due 2016* | ||
|
||||
Sixty
-
first
November 1, 1986 |
Company to Fidelity Bank, National Association | Bonds of 8-3/4% Series due 1994* | ||
|
||||
Sixty
-
second
April 1, 1987 |
Company to Fidelity Bank, National Association | Bonds of 9-3/8% Series due 2017* | ||
|
||||
Sixty
-
third
July 15, 1987 |
Company to Fidelity Bank, National Association | Bonds of 11% Series due 2016* | ||
|
||||
Sixty
-
fourth
July 15, 1987 |
Company to Fidelity Bank, National Association | Bonds of 10% Series due 1997* | ||
|
||||
Sixty
-
fifth
August 1, 1987 |
Company to Fidelity Bank, National Association | Bonds of 10-1/4% Series due 2007* | ||
|
||||
Sixty
-si
x
th
October 15, 1987 |
Company to Fidelity Bank, National Association | Bonds of 11% Series due 1997* | ||
|
||||
Sixty
-
seventh
October 15, 1987 |
Company to Fidelity Bank, National Association | Bonds of 12-1/8% Series due 2016* | ||
|
||||
Sixty
-
eighth
April 15, 1988 |
Company to Fidelity Bank, National Association | Bonds of 10% Series due 1998* | ||
|
||||
Sixty
-
ninth
April 15, 1988 |
Company to Fidelity Bank, National Association | Bonds of 11% Series due 2018* |
7
Supplemental Indenture | ||||
and Date
|
Parties
|
Providing for:
|
||
Seventieth
June 15, 1989 |
Company to Fidelity Bank, National Association | Bonds of 10% Series due 2019* | ||
|
||||
Seventy
-
first
October 1, 1989 |
Company to Fidelity Bank, National Association | Bonds of 9-7/8% Series due 2019* | ||
|
||||
Seventy
-
second
October 1, 1989 |
Company to Fidelity Bank, National Association | Bonds of 9-1/4% Series due 1999* | ||
|
||||
Seventy
-
third
October 1, 1989 |
Company to Fidelity Bank, National Association | Medium-Term Note Series A* | ||
|
||||
Seventy
-
fourth
October 15, 1990 |
Company to Fidelity Bank, National Association | Bonds of 10-1/2% Series due 2020* | ||
|
||||
Seventy
-
fifth
October 15, 1990 |
Company to Fidelity Bank, National Association | Bonds of 10% Series due 2000* | ||
|
||||
Seventy
-
sixth
April 1, 1991 |
Company to Fidelity Bank, National Association | Bonds of Pollution Control Series F and Pollution Control Series G* | ||
|
||||
Seventy
-
seventh
December 1, 1991 |
Company to Fidelity Bank, National Association | Bonds of Pollution Control Series H* | ||
|
||||
Seventy
-
eighth
January 15, 1992 |
Company to Fidelity Bank, National Association | Bonds of 7-1/2% 1992 Series due 1999* | ||
|
||||
Seventy
-
ninth
April 1, 1992 |
Company to Fidelity Bank, National Association | Bonds of 8% Series due 2002* | ||
|
||||
Eightieth
April 1, 1992 |
Company to Fidelity Bank, National Association | Bonds of 8-3/4% Series due 2022* | ||
|
||||
Eighty
-
first
June 1, 1992 |
Company to Fidelity Bank, National Association | Bonds of Pollution Control Series I* | ||
|
||||
Eighty
-
second
June 1, 1992 |
Company to Fidelity Bank, National Association | Bonds of 8-5/8% Series due 2022* | ||
|
||||
Eighty
-
third
July 15, 1992 |
Company to Fidelity Bank, National Association | Bonds of 7-1/2% Series due 2002* | ||
|
||||
Eighty
-
fourth
September 1, 1992 |
Company to Fidelity Bank, National Association | Bonds of 8-1/4% Series due 2022* | ||
|
||||
Eighty
-
fifth
September 1, 1992 |
Company to Fidelity Bank, National Association | Bonds of 7-1/8% Series due 2002* |
8
Supplemental Indenture | ||||
and Date
|
Parties
|
Providing for:
|
||
Eighty
-
sixth
March 1, 1993 |
Company to Fidelity Bank, National Association | Bonds of 6-5/8% Series due 2003* | ||
|
||||
Eighty
-
Seventh
March 1, 1993 |
Company to Fidelity Bank, National Association | Bonds of 7-3/4% Series due 2023* | ||
|
||||
Eighty
-
eighth
March 1, 1993 |
Company to Fidelity Bank, National Association | Bonds of Pollution Control Series J, Pollution Control Series K, Pollution Control Series L and Pollution Control Series M* | ||
|
||||
Eighty
-
ninth
May 1, 1993 |
Company to Fidelity Bank, National Association | Bonds of 6-1/2% Series due 2003* | ||
|
||||
Ninetieth
May 1, 1993 |
Company to Fidelity Bank, National Association | Bonds of 7-3/4% Series 2 due 2023* | ||
|
||||
Ninety
-
first
August 15, 1993 |
Company to First Fidelity Bank, N.A., Pennsylvania (formerly Fidelity Bank, National Association) | Bonds of 7-1/8% Series due 2023* | ||
|
||||
Ninety
-
second
August 15, 1993 |
Company to First Fidelity Bank, N.A., Pennsylvania | Bonds of 6-3/8% Series due 2005* | ||
|
||||
Ninety
-
third
August 15, 1993 |
Company to First Fidelity Bank, N.A., Pennsylvania | Bonds of 5-3/8% Series due 1998* | ||
|
||||
Ninety
-
fourth
November 1, 1993 |
Company to First Fidelity Bank, N.A., Pennsylvania | Bonds of 7-1/4% Series due 2024* | ||
|
||||
Ninety
-
fifth
November 1, 1993 |
Company to First Fidelity Bank, N.A., Pennsylvania | Bonds of 5-5/8% Series due 2001* | ||
|
||||
Ninety-sixth
May 1, 1995 |
Company to First Fidelity Bank, N.A., Pennsylvania | Medium Term Note Series B* | ||
|
||||
Ninety-seventh
October 15, 2001 |
Company to First Union National Bank (formerly First Fidelity Bank, N.A., Pennsylvania) | Bonds of 5.95% Series due 2011* | ||
|
||||
Ninety-eighth
October 1, 2002 |
Company to Wachovia Bank, National Association (formerly First Union National Bank) | Bonds of 5.95% Series Due 2011* | ||
|
||||
Ninety-ninth
September 15, 2002 |
Company to Wachovia Bank, National Association (formerly First Union National Bank) | Bonds of 4.75% Series Due 2012* |
9
Supplemental Indenture | ||||
and Date
|
Parties
|
Providing for:
|
||
One Hundredth
April 15, 2003 |
Company to Wachovia Bank, National Association (formerly First Union National Bank) | Bonds of 3.50% Series Due 2008* |
*And amendment of certain provisions of the Ninth Supplemental Indenture. |
10
WHEREAS, the respective principal amounts of the bonds of each series presently outstanding under the Mortgage and the several supplemental indentures above referred to, are as follows:
WHEREAS, the Company deems it advisable and has determined, pursuant to Article XI of the Mortgage,
(a) to convey, pledge, transfer and assign to the Trustee and to subject specifically to the lien of the Mortgage additional property not therein or in any supplemental indenture specifically described but now owned by the Company and acquired by it by purchase or otherwise; and
(b) to create a new series of bonds to be issued from time to time under, and secured by, the Mortgage, to be designated PECO Energy Company First and Refunding Mortgage Bonds, 5.90% Series due 2034, (hereinafter sometimes called the bonds of the New Series or the bonds of the 5.90% Series due 2034); and for the above-mentioned purposes to execute, deliver and record this Supplemental Indenture; and
WHEREAS, the Company has determined by proper corporate action that the terms, provisions and form of the bonds of the New Series shall be substantially as follows:
11
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (DTC), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
(Form of Face of Bond)
PECO ENERGY COMPANY
REGISTERED
NUMBER |
REGISTERED |
FIRST AND REFUNDING MORTGAGE BOND,
5.90% SERIES DUE 2034
,
DUE MAY 1, 2034
PECO Energy Company, a Pennsylvania corporation (hereinafter called the Company), for value received, hereby promises to pay to or registered assigns,
Dollars on May 1, 2034, at the office or agency of the Company, in the City of Philadelphia, Pennsylvania, or, at the option of the holder, at the office or agency of the Company, in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment shall constitute legal tender for the payment of public and private debts, and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) thereon from the date hereof at the rate of 5.90 percent per annum in like coin or currency, payable at either of the offices aforesaid on May 1 and November 1, commencing on November 1, 2004, in each year until the Companys obligation with respect to the payment of such principal shall have been discharged.
The Company may fix a date, not more than fourteen calendar days prior to any interest payment date, as a record date for determining the registered holder of this bond entitled to such interest payment, in which case only the registered holder on such record date shall be entitled to receive such payment, notwithstanding any transfer of this bond upon the registration books subsequent to such record date.
This bond shall not be valid or become obligatory for any purpose unless it shall have been authenticated by the certificate of the Trustee under said Mortgage endorsed hereon.
12
The provisions of this bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place.
IN WITNESS WHEREOF, PECO Energy Company has caused this instrument to be signed in its corporate name with the manual or facsimile signature of its President or a Vice President and its corporate seal to be impressed or a facsimile imprinted hereon, duly attested by the manual or facsimile signature of its Secretary or an Assistant Secretary.
Dated:
|
||||
|
||||
PECO ENERGY COMPANY | ||||
|
By | |||
|
|
|||
|
Senior Vice President, Treasurer and Chief Financial Officer | |||
|
||||
(SEAL)
|
||||
|
||||
|
Attest: | |||
|
|
|||
|
Assistant Secretary |
13
(Form of Reverse of New Series of Bond)
PECO ENERGY COMPANY
First and Refunding Mortgage Bond,
5.90% Series Due 2034
Due May 1, 2034
(CONTINUED)
This bond is one of a duly authorized issue of bonds of the Company, unlimited as to amount except as provided in the Mortgage hereinafter mentioned or in any indenture supplemental thereto, and is one of a series of said bonds known as First and Refunding Mortgage Bonds, 5.90% Series due 2034. This bond and all other bonds of said issue are issued and to be issued under and pursuant to and are all secured equally and ratably by an indenture of mortgage and deed of trust dated May 1, 1923, duly executed and delivered by The Counties Gas and Electric Company (to which the Company is successor) to Fidelity Trust Company, as Trustee (to which Wachovia Bank, National Association, a national banking association organized and existing under the laws of the United States of America, is successor Trustee), as amended, modified or supplemented by certain supplemental indentures from the Company or its predecessors to said successor Trustee or its predecessors, said mortgage, as so amended, modified or supplemented being herein called the Mortgage. Reference is hereby made to the Mortgage for a statement of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of said bonds and of the Trustee in respect of such security, the rights, duties and immunities of the Trustee, and the terms and conditions upon which said bonds are and are to be secured, and the circumstances under which additional bonds may be issued.
As provided in the Mortgage, the bonds secured thereby may be for various principal sums and are issuable in series, which series may mature at different times, may bear interest at different rates, and may otherwise vary. The bonds of this series mature on May 1, 2034, and are issuable only in registered form without coupons in any denomination authorized by the Company.
Any bond or bonds of this series may be exchanged for another bond or bonds of this series in a like aggregate principal amount in authorized denominations, upon presentation at the office of the Trustee in the City of Philadelphia, Pennsylvania, or, at the option of the holder, at the office or agency of the Company in the Borough of Manhattan, The City of New York, all subject to the terms of the Mortgage but without any charge other than a sum sufficient to reimburse the Company for any stamp tax or other governmental charge incident to the exchange.
The bonds of this series are redeemable at the option of the Company, as a whole or in part, at any time upon notice sent by the Company through the mail, postage prepaid, at least thirty (30) days and not more than forty-five (45) days prior to the date fixed for redemption, to the registered holder of each bond to be redeemed, addressed to such holder at his address appearing upon the registration books, at a redemption price equal to the greater of (1) 100% of the principal amount of the bonds to be redeemed, plus accrued interest to the redemption date, or (2) as determined by the Quotation Agent, the sum of the present values of the remaining
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scheduled payments of principal and interest on the bonds to be redeemed (not including any portion of payments of interest accrued as of the redemption date) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate plus 20 basis points, plus accrued interest to the redemption date. Unless the Company defaults in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the bonds of this series or portions of the bonds of this series called for redemption.
Adjusted Treasury Rate means, with respect to any redemption date, the rate per year equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for the redemption date.
Business Day means any day that is not a day on which banking institutions in New York City are authorized or required by law or regulation to close.
Comparable Treasury Issue means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the bonds of this series that would be used, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the bonds of this series.
Comparable Treasury Price means, with respect to any redemption date:
| the average of the Reference Treasury Dealer Quotations for that redemption date, after excluding the highest and lowest of the Reference Treasury Dealer Quotations; or |
| if the Trustee obtains fewer than three Reference Treasury Dealer Quotations, the average of all Reference Treasury Dealer Quotations so received. |
Quotation Agent means the Reference Treasury Dealer appointed by the Company.
Reference Treasury Dealer means (1) each of BNP Paribas Securities Corp. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and their respective successors, unless any of them ceases to be a primary U.S. Government securities dealer in New York City (a Primary Treasury Dealer), in which case the Company shall substitute another Primary Treasury Dealer; and (2) any other Primary Treasury Dealer selected by the Company.
Reference Treasury Dealer Quotations means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by that Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day preceding that redemption date.
The principal of this bond may be declared or may become due on the conditions, in the manner and with the effect provided in the Mortgage upon the happening of an event of default as in the Mortgage provided.
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This bond is transferable by the registered holder hereof in person or by attorney, duly authorized in writing, at the office of the Trustee in the City of Philadelphia, Pennsylvania, or, at the option of the holder, at the office or agency of the Company in the Borough of Manhattan, The City of New York, in books of the Company to be kept for that purpose, upon surrender and cancellation hereof, and upon any such transfer, a new registered bond or bonds, without coupons, of this series and for the same aggregate principal amount, will be issued to the transferee in exchange herefor, all subject to the terms of the Mortgage but without payment of any charge other than a sum sufficient to reimburse the Company for any stamp tax or other governmental charge incident to the transfer. The Company, the Trustee, and any paying agent may deem and treat the person in whose name this bond is registered as the absolute owner hereof for the purpose of receiving payment of or on account of the principal and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or interest on this bond to any incorporator or any past, present or future stockholder, officer or director of the Company or of any predecessor or successor corporation, either directly or indirectly, by virtue of any statute or by enforcement of any assessment or otherwise, and any and all liability of the said incorporators, stockholders, officers or directors of the Company or of any predecessor or successor corporation in respect to this bond is hereby expressly waived and released by every holder hereof, except to the extent that such liability may not be waived or released under the provisions of the Securities Act of 1933 or of the rules and regulations of the Securities and Exchange Commission thereunder.
(End of Form of Reverse of Bond)
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and
WHEREAS, on the face of each of the bonds of the New Series, there is to be endorsed a certificate of the Trustee in substantially the following form, to wit:
(Form of Trustees Certificate)
This bond is one of the bonds, of the series designated therein, provided for in the within-mentioned Mortgage and in the One Hundred and First Supplemental Indenture dated as of April 15, 2004.
WACHOVIA BANK, NATIONAL ASSOCIATION
|
||||
By | ||||
Authorized Officer | ||||
and
WHEREAS, all acts and things necessary to make the bonds of the New Series, when duly executed by the Company and authenticated by the Trustee as provided in the Mortgage and indentures supplemental thereto, and issued by the Company, the valid, binding and legal obligations of the Company, and this Supplemental Indenture a valid and enforceable supplement to the Mortgage, have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly and lawfully authorized.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
That in order to secure the payment of the principal of and interest on all bonds issued and to be issued under the Mortgage and/or under any indenture supplemental thereto, according to their tenor and effect, and according to the terms of the Mortgage and of any indenture supplemental thereto, and to secure the performance of the covenants and obligations in the bonds and in the Mortgage and any indenture supplemental thereto respectively contained, and for the proper assuring, conveying, and confirming unto the Trustee, its successors in trust and its and their assigns forever, upon the trusts and for the purposes expressed in the Mortgage and in any indentures supplemental thereto, all and singular the estates, property and franchises of the Company thereby mortgaged or intended so to be, the Company, for and in consideration of the premises and of the sum of One Dollar ($1.00) in hand paid by the Trustee to the Company upon the execution and delivery of this Supplemental Indenture, receipt whereof is hereby acknowledged, and of other good and valuable consideration, has granted, bargained, sold, conveyed, released, confirmed, pledged, assigned, transferred and set over and by these presents does grant, bargain, sell, convey, release, confirm, pledge, assign, transfer, and set over to Wachovia Bank, National Association, as Trustee, and to its successors in trust and its and their assigns forever, all the following described property, real, personal and mixed of the Company, viz.:
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The real property set forth in Schedule A, attached hereto and hereby made a part hereof, with any improvements thereon erected as may be owned by the Company but not specifically described in the Mortgage or in any indenture supplemental thereto heretofore executed, in the places set forth in Schedule A.
All of the real property with any improvements thereon erected as may be owned by the Company and described in the Mortgage or in any indenture supplemental thereto as may heretofore have been executed, delivered and recorded, but excluding therefrom all real property heretofore released from the lien of the Mortgage. The purpose of restating such prior conveyances as security is to confirm that the obligations of the Company as provided in this Supplemental Indenture are included within the lien and security of the Mortgage, and that public record be made of such purpose and fact by the recording of this Supplemental Indenture.
Together with all gas works, electric works, plants, buildings, structures, improvements and machinery located upon such real estate or any portion thereof, and all rights, privileges and easements of every kind and nature appurtenant thereto, and all and singular tenements, hereditaments and appurtenances belonging to the real estate or any part thereof hereinbefore described or referred to or intended so to be, or in any way appertaining thereto, and the reversions, remainders, rents, issues and profits thereof; also all the estate, right, title, interest, property, possession, claim and demand whatsoever, as well in law as in equity, of the Company, of, in and to the same and any and every part thereof, with the appurtenances.
Also all the Companys electric transmission and distribution lines and systems, substations, transforming stations, structures, machinery, apparatus, appliances, devices and appurtenances.
Also all the Companys gas transmission and distribution mains, pipes, pipe lines and systems, storage facilities, structures, machinery, apparatus, appliances, devices and appurtenances.
Also all plants, systems, works, improvements, buildings, structures, fixtures, appliances, engines, furnaces, boilers, machinery, retorts, tanks, condensers, pumps, gas tanks, holders, reservoirs, expansion tanks, gas mains and pipes, tunnels, service pipe, pipe lines, fittings, gates, valves, connections, gas and electric meters, generators, dynamos, fans, supplies, tools and implements, tracks, sidings, motor and other vehicles, all electric light lines, electric power lines, transmission lines, distribution lines, conduits, cables, stations, substations, and distributing systems, motors, conductors, converters, switchboards, shafting, belting, wires, mains, feeders, poles, towers, mast arms, brackets, pipes, lamps, insulators, house wiring connections and all instruments, appliances, apparatus, fixtures, fittings and equipment and all stores, repair parts, materials and supplies of every nature and kind whatsoever now or hereafter owned by the Company in connection with or appurtenant to its plants and systems for production, purchase, storage, transmission, distribution, utilization and sale of gas and its by-products and residual products, and/or for the generation, production , purchase, storage, transmission, distribution, utilization and sale of electricity, or in connection with such business.
Also all the goodwill of the business of the Company, and all rights, claims, contracts, leases, patents, patent rights, and agreements, all accounts receivable, accounts, claims, demands,
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choses in action, books of account, cash assets, franchises, ordinances, rights, powers, easements, water rights, riparian rights, licenses, privileges, immunities, concessions and consents now or hereafter owned by the Company in connection with or appurtenant to its said business.
Also all the right, title and interest of the Company in and to all contracts for the purchase, sale or supply of gas, and its by-products and residual products of electricity and electrical energy, now or hereafter entered into by the Company with the right on the part of the Trustee, upon the happening of an event of default as defined in the Mortgage as supplemented by any supplemental indenture, to require a specific assignment of any and all such contracts, whenever it shall request the Company to make the same.
Also all rents, tolls, earnings, profits, revenues, dividends and income arising or to arise from any property now owned, leased, operated or controlled or hereafter acquired, leased, operated or controlled by the Company and subject to the lien of the Mortgage and indentures supplemental thereto.
Also all the estate, right, title and interest of the Company, as lessee, in and to any and all demised premises under any and all agreements of lease now or at any time hereafter in force, insofar as the same may now or hereafter be assignable by the Company.
Also all other property, real, personal and mixed not hereinbefore specified or referred to, of every kind and nature whatsoever, now owned, or which may hereafter be owned by the Company (except shares of stock, bonds or other securities not now or hereafter specifically pledged under the Mortgage and indentures supplemental thereto or required to be pledged thereunder by the provisions of the Mortgage or any indenture supplemental thereto), together with all and singular the tenements, hereditaments and appurtenances thereunto belonging or in any way appertaining and the reversions, remainder or remainders, rents, issues and profits thereof; and also all the estate, right, title, interest, property, claim and demand whatsoever as well in law as in equity of the Company of, in and to the same and every part and parcel thereof.
It is the intention and it is hereby agreed that all property and the earnings and income thereof acquired by the Company after the date hereof shall be as fully embraced within the provisions hereof and subject to the lien hereby created for securing the payment of all bonds, together with the interest thereon, as if the property were now owned by the Company and were specifically described herein and conveyed hereby, provided nevertheless, that no shares of stock, bonds or other securities now or hereafter owned by the Company, shall be subject to the lien of the Mortgage and indentures supplemental thereto unless now or hereafter specifically pledged or required to be pledged thereunder by the provisions of the Mortgage or any indenture supplemental thereto.
TO HAVE AND TO HOLD, all and singular the property, rights, privileges and franchises hereby conveyed, transferred or pledged or intended so to be, including after-acquired property, together with all and singular the reversions, remainders, rents, revenues, income, issues and profits, privileges and appurtenances, now or hereafter belonging or in any way appertaining thereto, unto the Trustee and its successors in the trust hereby created, and its and their assigns forever;
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IN TRUST NEVERTHELESS, for the equal and pro rata benefit and security of each and every person or corporation who may be or become the holders of bonds secured by the Mortgage and indentures supplemental thereto, without preference, priority or distinction (except as provided in Section 1 of Article VIII of the Mortgage) as to lien or otherwise of any bond of any series over or from any other bond, so that (except as aforesaid) each and every of the bonds issued or to be issued, of whatsoever series, shall have the same right, lien, privilege under the Mortgage and indentures supplemental thereto and shall be equally secured thereby and hereby, with the same effect as if the bonds had all been made, issued and negotiated simultaneously on the date of the Mortgage.
AND THIS SUPPLEMENTAL INDENTURE FURTHER WITNESSETH:
It is hereby covenanted that all bonds secured by the Mortgage and indentures supplemental thereto with the coupons appertaining thereto, are issued to and accepted by each and every holder thereof, and that the property aforesaid and all other property subject to the lien of the Mortgage and indentures supplemental thereto is held by or hereby conveyed to the Trustee, under and subject to the trusts, conditions and limitations set forth in the Mortgage and indentures supplemental thereto and upon and subject to the further trusts, conditions and limitations hereinafter set forth, as follows, to wit:
ARTICLE I.
AMENDMENTS OF MORTGAGE
Article II of the Ninth Supplemental Indenture to the Mortgage, as heretofore amended, is hereby further amended as follows:
By adding to paragraph (d) of Section 5 and to the first clause of Section 9, the following:
5.90% Series due 2034
ARTICLE II.
BONDS OF THE NEW SERIES
Section 1. The bonds of the New Series shall be designated as hereinabove specified for such designation in the recital immediately preceding the form of bonds of the New Series, subject however, to the provisions of Section 2 of Article I of the Mortgage, as amended, and are issuable only as registered bonds without coupons, substantially in the form hereinbefore recited; and the issue thereof shall be limited to $75,000,000 principal amount.
The bonds of the New Series shall bear interest from the date thereof and shall be dated as of the interest payment date to which interest was paid next preceding the date of issue unless (a) such date of issue is an interest payment date to which interest was paid, in which event such bonds shall be dated as of such interest payment date, or (b) issued prior to the occurrence of the
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first interest payment date on which interest is to be paid, in which event such bonds shall be dated April 23, 2004. The bonds of the New Series shall mature on May 1, 2034.
The bonds of the New Series shall bear interest (computed on the basis of a 360-day year of twelve 30-day months) at the rate provided in the form of bond hereinbefore recited, payable on May 1 and November 1 in each year commencing on November 1, 2004 until the Companys obligation with respect to the payment of principal thereof shall have been discharged. Both principal and interest on bonds of the New Series shall be payable at the office or agency of the Company in the City of Philadelphia, Pennsylvania, or, at the option of the holder, at the office or agency of the Company in the Borough of Manhattan, The City of New York, and shall be payable in such coin or currency of the United States of America as at the time of payment shall constitute legal tender for the payment of public and private debts.
The bonds of the New Series shall be in any denomination authorized by the Company.
Any bond or bonds of the New Series shall be exchangeable for another bond or bonds of the New Series in a like aggregate principal amount. Any such exchange may be made upon presentation at the office of the Trustee in the City of Philadelphia, Pennsylvania, or, at the option of the holder, at the office or agency of the Company in the Borough of Manhattan, The City of New York, without any charge other than a sum sufficient to reimburse the Company for any stamp tax or other governmental charge incident to the exchange.
Section 2. (a) Initially, the bonds of the New Series shall be issued pursuant to a book-entry system administered by The Depository Trust Company (or its successor, referred to herein as the Depository) as a global security with no physical distribution of bond certificates to be made except as provided in this Section 2. Any provisions of the Mortgage or the bonds of the New Series requiring physical delivery of bonds shall, with respect to any bonds of the New Series held under the book-entry system, be deemed to be satisfied by a notation on the bond registration books maintained by the Trustee that such bonds are subject to the book-entry system.
(b) So long as the book-entry system is being used, one or more bonds of the New Series in the aggregate principal amount of the bonds of the New Series and registered in the name of the Depositorys nominee (the Nominee) will be issued and required to be deposited with the Depository and held in its custody. The book-entry system will be maintained by the Depository and its participants and indirect participants and will evidence beneficial ownership of the bonds of the New Series, with transfers of ownership effected on the records of the Depository, the participants and the indirect participants pursuant to rules and procedures established by the Depository, the participants and the indirect participants. The principal of and any premium on each bond of the New Series shall be payable to the Nominee or any other person appearing on the registration books as the registered holder of such bond or its registered assigns or legal representative at the office of the office or agency of the Company in the City of Philadelphia, Pennsylvania or the Borough of Manhattan, The City of New York. So long as the book-entry system is in effect, the Depository will be recognized as the holder of the bonds of the New Series for all purposes. Transfers of principal, interest and any premium payments or notices to participants and indirect participants will be the responsibility of the Depository, and transfers of principal, interest and any premium payments or notices to beneficial owners will be
21
the responsibility of participants and indirect participants. No other party will be responsible or liable for such transfers of payments or notices or for maintaining, supervising or reviewing such records maintained by the Depository, the participants or the indirect participants. While the Nominee or the Depository, as the case may be, is the registered owner of the bonds of the New Series, notwithstanding any other provisions set forth herein, payments of principal of, redemption premium, if any, and interest on the bonds of the New Series shall be made to the Nominee or the Depository, as the case may be, by wire transfer in immediately available funds to the account of such holder. Without notice to or consent of the beneficial owners, the Trustee with the consent of the Company and the Depository may agree in writing to make payments of principal, redemption price and interest in a manner different from that set forth herein. In such event, the Trustee shall make payment with respect to the bonds of the New Series in such manner as if set forth herein.
(c) The Company may at any time elect (i) to provide for the replacement of any Depository as the depository for the bonds of the New Series with another qualified depository, or (ii) to discontinue the maintenance of the bonds of the New Series under book-entry system. In such event, the Trustee shall give 30 days prior notice of such election to the Depository (or such fewer number of days acceptable to such Depository).
(d) Upon the discontinuance of the maintenance of the bonds of the New Series under a book-entry system, the Company will cause the bonds to be issued directly to the beneficial owners of the bonds of the New Series, or their designees, as further described below. In such event, the Trustee shall make provisions to notify participants and beneficial owners of the bonds of the New Series, by mailing an appropriate notice to the Depository, that bonds of the New Series will be directly issued to beneficial owners of the bonds as of a date set forth in such notice (or such fewer number of days acceptable to such Depository).
(e) In the event that bonds of the New Series are to be issued to beneficial owners of the bonds, or their designees, the Company shall promptly have bonds of the New Series prepared in certificated form registered in the names of the beneficial owners of such bonds shown on the records of the participants provided to the Trustee, as of the date set forth in the notice above. Bonds issued to beneficial owners, or their designees shall be substantially in the form set forth in this Supplemental Indenture, but will not include the provision related to global securities.
(f) If the Depository is replaced as the depository for the bonds of the New Series with another qualified depository, the Company will issue a replacement global security substantially in the form set forth in this Supplemental Indenture.
(g) The Company and the Trustee shall have no liability for the failure of any Depository to perform its obligations to any participant, any indirect participant or any beneficial owner of any bonds of the New Series, and the Company and the Trustee shall not be liable for the failure of any participant, indirect participant or other nominee of any beneficial owner or any bonds of the New Series to perform any obligation that such participant, indirect participant or other nominee may incur to any beneficial owner of the bonds of the New Series.
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(h) Notwithstanding any other provision of the Mortgage, on or prior to the date of issuance of the bonds of the New Series the Trustee shall have executed and delivered to the initial Depository a Letter of Representations governing various matters relating to the Depository and its activities pertaining to the bonds of the New Series. The terms and provisions of such Letter of Representations are incorporated herein by reference and, in the event there shall exist any inconsistency between the substantive provisions of the said Letter of Representations and any provisions of the Mortgage, then, for as long as the initial Depository shall serve as depository with respect to the bonds of the New Series, the terms of the Letter of Representations shall govern.
(i) The Company and the Trustee may rely conclusively upon (i) a certificate of the Depository as to the identity of a participant in the book-entry system; (ii) a certificate of any participant as to the identity of any indirect participant and (iii) a certificate of any participant or any indirect participant as to the identity of, and the respective principal amount of bonds of the New Series owned by, beneficial owners.
Section 3. So long as the bonds of the New Series are held by The Depository Trust Company, such bonds of the New Series shall bear the following legend:
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (DTC), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
Section 4. So long as any of the bonds of the New Series remain outstanding, the Company shall keep at its office or agency in the Borough of Manhattan, The City of New York, as well as at the office of the Trustee in the City of Philadelphia, Pennsylvania, books for the registry and transfer of outstanding bonds of the New Series, in accordance with the terms and provisions of the bonds of the New Series and the provisions of Section 8 of Article I of said Mortgage.
Section 5. So long as any bonds of the New Series remain outstanding, the Company shall maintain an office or agency in the City of Philadelphia, Pennsylvania, and an office or agency in the Borough of Manhattan, The City of New York, for the payment upon proper demand of the principal of, the interest on, or the redemption price of the outstanding bonds of the New Series, and will from time to time give notice to the Trustee of the location of such office or agency. In case the Company shall fail to maintain for such purpose an office or agency in the City of Philadelphia or shall fail to give such notice of the location thereof, then notices, presentations and demands in respect of the bonds of the New Series may be given or made to or upon the Trustee at its office in the City of Philadelphia and the principal of, the
23
interest on, and the redemption price of said bonds in such event be payable at said office of the Trustee. All bonds of the New Series when paid shall forthwith be cancelled.
Section 6. The Company may fix a date, not more than fourteen calendar days prior to any interest payment date, as a record date for determining the registered holder of each bond of the New Series entitled to such interest payment, in which case only the registered holder of such bond on such record date shall be entitled to receive such payment, notwithstanding any transfer of such bond upon the registration books subsequent to such record date.
Section 7. The bonds of the New Series shall be issued under and subject to all of the terms and provisions of the Mortgage, of the indentures supplemental thereto referred to in the recitals hereof and of this Supplemental Indenture which may be applicable to such bonds or applicable to all bonds issued under the Mortgage and indentures supplemental thereto.
ARTICLE III.
ISSUE AND AUTHENTICATION OF
BONDS OF THE NEW SERIES
In addition to any bonds of any series which may from time to time be executed by the Company and authenticated and delivered by the Trustee upon compliance with the provisions of the Mortgage and/or of any indenture supplemental thereto, bonds of the New Series of an aggregate principal amount not exceeding $75,000,000 shall forthwith be executed by the Company and delivered to the Trustee, and the Trustee shall thereupon, whether or not this Supplemental Indenture shall have been recorded, authenticate and deliver said bonds to or upon the written order of the President, a Vice President, or the Treasurer of the Company, under the terms and provisions of paragraph (c) of Section 3 of Article II of the Mortgage, as amended.
ARTICLE IV.
REDEMPTION OF BONDS OF THE
NEW SERIES
Section 1. The bonds of the New Series shall be redeemable, at the option of the Company, as a whole or in part, at any time upon notice sent by the Company through the mail, postage prepaid, at least thirty (30) days and not more than forty-five (45) days prior to the date fixed for redemption, to the registered holder of each bond to be redeemed in whole or in part, addressed to such holder at his address appearing upon the registration books, at a redemption price equal to the greater of (1) 100% of the principal amount of the bonds to be redeemed, plus accrued interest to the redemption date, or (2) as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest on the bonds to be redeemed (not including any portion of payments of interest accrued as of the redemption date) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate plus 20 basis points, plus accrued interest to the redemption date. Unless the Company defaults in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the bonds of this series or portions of the bonds of this series called for redemption.
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Adjusted Treasury Rate means, with respect to any redemption date, the rate per year equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for the redemption date.
Business Day means any day that is not a day on which banking institutions in New York City are authorized or required by law or regulation to close.
Comparable Treasury Issue means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the bonds of this series that would be used, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the bonds of the New Series.
Comparable Treasury Price means, with respect to any redemption date:
| the average of the Reference Treasury Dealer Quotations for that redemption date, after excluding the highest and lowest of the Reference Treasury Dealer Quotations; or |
| if the Trustee obtains fewer than three Reference Treasury Dealer Quotations, the average of all Reference Treasury Dealer Quotations so received. |
Reference Treasury Dealer means (1) each of BNP Paribas Securities Corp. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and their respective successors, unless any of them ceases to be a primary U.S. Government securities dealer in New York City (a Primary Treasury Dealer), in which case the Company shall substitute another Primary Treasury Dealer; and (2) any other Primary Treasury Dealer selected by the Company.
Reference Treasury Dealer Quotations means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the trustee by that Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day preceding that redemption date.
Section 2. In case the Company shall desire to exercise such right to redeem and pay off all or any part of such bonds of the New Series as hereinbefore provided it shall comply with all the terms and provisions of Article III of the Mortgage, as amended, applicable thereto, and such redemption shall be made under and subject to the terms and provisions of Article III and in the manner and with the effect therein provided, but at the time or times and upon mailing of notice, all as hereinbefore set forth in Section 1 of this Article. No publication of notice of any redemption of any bonds of the New Series shall be required.
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ARTICLE V.
CERTAIN EVENTS OF DEFAULT; REMEDIES
Section 1. So long as any bonds of the New Series remain outstanding, in case one or more of the following events shall happen, such events shall, in addition to the events of default heretofore enumerated in paragraphs (a) throughout (d) of Section 2 of Article VIII of the Mortgage, constitute an event of default under the Mortgage, as fully as if such events were enumerated therein:
(e) default shall be made in the due and punctual payment of the principal (including the full amount of any applicable optional redemption price) of any bond or bonds of the New Series whether at the maturity of said bonds, or at a date fixed for redemption of said bonds, or any of them, or by declaration as authorized by the Mortgage;
Section 2. So long as any bonds of the New Series remain outstanding, Section 10 of Article VIII of the Mortgage, as heretofore amended, is hereby further amended by inserting in the first paragraph of such Section 10, immediately after the words as herein provided, at the end of clause (2) thereof, the following:
or (3) in case default shall be made in any payment of any interest on any bond or bonds secured by this indenture or in the payment of the principal (including any applicable optional redemption price) of any bond or bonds secured by this indenture, where such default is not of the character referred to in clause (1) or (2) of this Section 10 but constitutes an event of default within the meaning of Section 2 of this Article VIII.
ARTICLE VI.
CONCERNING THE TRUSTEE
The Trustee hereby accepts the trust herein declared and provided and agrees to perform the same upon the terms and conditions set forth in the Mortgage, as amended and supplemented, and upon the following terms and conditions:
The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely.
ARTICLE VII.
MISCELLANEOUS
Section 1. Unless otherwise clearly required by the context, the term Trustee, or any other equivalent term used in this Supplemental Indenture, shall be held and construed to mean the trustee under the Mortgage for the time being whether the original or a successor trustee.
26
Section 2. The headings of the Articles of this Supplemental Indenture are inserted for convenience of reference only and are not to be taken to be any part of this Supplemental Indenture or to control or affect the meaning of the same.
Section 3. Nothing expressed or mentioned in or to be implied from this Supplemental Indenture or in or from the bonds of the New Series is intended, or shall be construed, to give any person or corporation, other than the parties hereto and their respective successors, and the holders of bonds secured by the Mortgage and the indentures supplemental thereto, any legal or equitable right, remedy or claim under or in respect of such bonds or the Mortgage or any indenture supplemental thereto, or any covenant, condition or provision therein or in this Supplemental Indenture contained. All the covenants, conditions and provisions thereof and hereof are for the sole and exclusive benefit of the parties hereto and their successors and of the holders of bonds secured by the Mortgage and indentures supplemental thereto.
Section 4. This Supplemental Indenture may be executed in several counterparts, each of which shall be an original and all collectively but one instrument.
Section 5. This Supplemental Indenture is dated and shall be effective as of April 15, 2004, but was actually executed and delivered on April 16, 2004.
[Remainder of this page intentionally left blank]
27
IN WITNESS WHEREOF, the parties of the first and second parts hereto have caused their corporate seals to be hereunto affixed and the President or a Vice President of the party of the first part and the President or a Vice President of the party of the second part, under and by the authority vested in them, have hereto affixed their signatures and their Secretaries or Assistant Secretaries have duly attested the execution hereof the 15th day of April, 2004.
PECO ENERGY COMPANY
|
||||
By | /s/ J. Barry Mitchell | |||
J. Barry Mitchell | ||||
Senior Vice President, Treasurer and Chief Financial Officer | ||||
[SEAL]
|
||||
Attest /s/ Bruce G. Wilson | ||||
Bruce G. Wilson | ||||
Assistant Secretary | ||||
WACHOVIA BANK, NATIONAL ASSOCIATION
|
||||
By | /s/ Terence C. McPoyle | |||
Terence C. McPoyle | ||||
Vice President | ||||
[SEAL]
|
||||
Attest /s/ James M. Matthews | ||||
James M. Matthews | ||||
Assistant Secretary | ||||
28
STATE OF ILLINOIS
ss.
COUNTY OF COOK
BE IT REMEMBERED, that on the day of April, 2004, before me, a Notary Public in and for said County and State, residing in Chicago, personally came Bruce G. Wilson, who being duly sworn according to law deposes and says that he was personally present and did see the common or corporate seal of the above named PECO Energy Company affixed to the foregoing Supplemental Indenture, that the seal so affixed is the common or corporate seal of the said PECO Energy Company, and was so affixed by the authority of the said corporation as the act and deed thereof; that the above named J. Barry Mitchell is a Vice President of the said corporation, and did sign the said Supplemental Indenture as such in the presence of this deponent that this deponent is Assistant Secretary of the said corporation; and the name of the deponent, above signed in attestation of the due execution of the said Supplemental Indenture, is in this deponents own proper handwriting.
Sworn to and subscribed before me the day and year aforesaid.
Notarial Seal
Notary Public,
City of Chicago, Cook County
My Commission Expires
,
[SEAL]
29
COMMONWEALTH OF PENNSYLVANIA
ss.
COUNTY OF PHILADELPHIA
BE IT REMEMBERED, that on the day of April, 2004, before me, the subscriber, a Notary Public in and for said County and Commonwealth, residing in Philadelphia, personally came James M. Matthews, who being duly sworn according to law deposes and says that he was personally present and did see the common or corporate seal of the above named Wachovia Bank, National Association, affixed to the foregoing Supplemental Indenture, that the seal so affixed is the common or corporate seal of the said Wachovia Bank, National Association, and was so affixed by the authority of the said corporation as the act and deed thereof, that the above named Terence C. McPoyle is a Vice President of the said corporation, and did sign the said Supplemental Indenture as such in the presence of this deponent; that this deponent is an Assistant Secretary of the said corporation; and that the name of this deponent, above signed in attestation of the due execution of the said Supplemental Indenture, is in this deponents own proper handwriting.
Sworn to and subscribed before me the day and year aforesaid.
I hereby certify that I am not an officer of director of said Wachovia Bank, National Association.
Notarial Seal
, Notary Public
City of Philadelphia, Philadelphia County
My Commission Expires
,
[SEAL]
30
CERTIFICATE OF RESIDENCE
Wachovia Bank, National Association, Mortgagee and Trustee within named, hereby certifies that its precise residence in the City of Philadelphia is N.E. Cor. Broad and Walnut Streets in the City of Philadelphia, Pennsylvania.
WACHOVIA BANK, NATIONAL ASSOCIATION
|
||||
By | /s/ Terecen C. McPoyle | |||
Terence C. McPoyle | ||||
Vice President | ||||
31
SCHEDULE A
COMMONWEALTH OF PENNSYLVANIA
DELAWARE COUNTY
CONCORD TOWNSHIP | (PE-10582) |
ALL that certain tract or parcel of land situate in the Township of Concord, County of Delaware, Commonwealth of Pennsylvania and being more particularly bounded and described as follows:
BEGINNING at an iron pin at the southwesternmost corner of the lands herein described on the westerly right-of-way line of Stoney Bank Road, being a corner common to the lands now and formerly owned by Michael L. and Lois R. Fiorelli and the lands herein described; thence, with the lands of said Fiorelli;
South 63º 38 59 West 308.47 feet to an iron pin on line of lands of said Fiorelli on the easterly right-of-way line of a 100 foot gas line easement; thence, with said easterly right-of-way line, through the lands of which this is part;
North 23º 09 15 West 756.24 feet to an iron pin; thence continuing through the lands of which this is part;
North 63º 59 18 East 95.22 feet to an iron pin on the westerly right-or-way line of Great Oak Drive; thence, with said westerly right-of-way line with a curve to the left having a radius of 175.00 feet, an arc length of 163.18 feet, the chord of which bears;
South 89º 17 57 East 157.34 feet to an iron pin; thence, continuing with said westerly right-of-way line;
North 63º 59 18 East 10.00 feet to a point; thence, with a curve to the right having a radius of 25.00 feet, an arc length of 39.27 feet, the chord of which bears;
South 71º 00 42 East 35.36 feet to a point on the westerly right-of-way line of aforementioned Stoney Bank Road; thence, with said westerly right-of-way line of Stoney Bank Road;
South 26º 00 42 East 657.75 feet to an iron pin the point and place of beginning. Containing 4.796 acres, more or less, as shown on a Plan of Subdivision for Edgewood Memorial Park, dated July 28, 2003 as prepared by CPS Surveys, Inc., Ebensburg, Pennsylvania.
CONTAINING 4.796 acres, more or less.
BEING part of Folio # 13-00-00007-00.
A-1
BEING the same premises which SCI Pennsylvania Funeral Services, Inc., a Pennsylvania corporation, by Deed dated September 24, 2003 and recorded in the Delaware County Recorder of Deeds Office on October 14, 2003, granted and conveyed to PECO Energy Company, in fee.
A-2
Prepared by/Return to
|
Counterpart of 27 | |||
|
Susan S. Foehl | |||
|
Assistant General Counsel | |||
|
PECO Energy Company | |||
|
2301 Market Street, S23-1 | |||
|
Philadelphia, PA 19103 | |||
|
(215)841-4261 |
PECO ENERGY COMPANY
TO
WACHOVIA BANK, NATIONAL ASSOCIATION, TRUSTEE
(formerly, First Union National Bank)
ONE HUNDRED AND FIRST SUPPLEMENTAL
INDENTURE DATED AS OF
APRIL 15, 2004
TO
FIRST AND REFUNDING MORTGAGE
OF
THE COUNTIES GAS AND ELECTRIC
COMPANY
TO
FIDELITY TRUST COMPANY, TRUSTEE
DATED MAY 1, 1923
5.90% SERIES DUE 2034
CERTIFICATION EXHIBITS
Exhibit 31-1
CERTIFICATION PURSUANT TO RULE 13a-14(a)
AND 15d-14(a) OF THE SECURITIES AND EXCHANGE ACT OF
1934
I, John W. Rowe, certify that:
1. I have reviewed this quarterly report on
Form 10-Q of Exelon Corporation;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying
officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the
registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and
material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal control over financial
reporting.
/s/ JOHN W. ROWE
Chairman and Chief Executive Officer
(Principal Executive Officer)
\
Exhibit 31-2
CERTIFICATION PURSUANT TO RULE 13a-14(a)
AND 15d-14(a) OF THE SECURITIES AND EXCHANGE ACT OF
1934
I, Robert S. Shapard, certify that:
1. I have reviewed this report on
Form 10-Q of Exelon Corporation;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying
officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the
registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and
material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal control over financial
reporting.
/s/ ROBERT S. SHAPARD
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
Exhibit 31-3
CERTIFICATION PURSUANT TO RULE 13a-14(a)
AND 15d-14(a) OF THE SECURITIES AND EXCHANGE ACT OF
1934
I, John L. Skolds, certify that:
1. I have reviewed this quarterly report on
Form 10-Q of Commonwealth Edison Company;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying
officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the
registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and
material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal control over financial
reporting.
/s/ JOHN L. SKOLDS
President, Exelon Energy Delivery
(Principal Executive Officer)
Exhibit 31-4
CERTIFICATION PURSUANT TO RULE 13a-14(a)
AND 15d-14(a) OF THE SECURITIES AND EXCHANGE ACT OF
1934
I, J. Barry Mitchell, certify that:
1. I have reviewed this quarterly report on
Form 10-Q of Commonwealth Edison Company;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying
officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the
registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and
material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal control over financial
reporting.
/s/ J. BARRY MITCHELL
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Exhibit 31-5
CERTIFICATION PURSUANT TO RULE 13a-14(a) AND 15d-14(a) OF THE SECURITIES AND EXCHANGE ACT OF 1934
I, John L. Skolds, certify that: | |
1. I have reviewed this quarterly report on Form 10-Q of PECO Energy Company; | |
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
(b) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
(c) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: October 27, 2004
|
/s/ JOHN L. SKOLDS
President, Exelon Energy Delivery (Principal Executive Officer) |
Exhibit 31-6
CERTIFICATION PURSUANT TO RULE 13a-14(a)
AND 15d-14(a) OF THE SECURITIES AND EXCHANGE ACT OF
1934
I, J. Barry Mitchell, certify that:
1. I have reviewed this quarterly report on
Form 10-Q of PECO Energy Company;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying
officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the
registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and
material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal control over financial
reporting.
/s/ J. BARRY MITCHELL
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Exhibit 31-7
CERTIFICATION PURSUANT TO RULE 13a-14(a)
AND 15d-14(a) OF THE SECURITIES AND EXCHANGE ACT OF
1934
I, John F. Young, certify that:
1. I have reviewed this quarterly report on
Form 10-Q of Exelon Generation Company, LLC;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying
officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the
registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and
material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal control over financial
reporting.
/s/ JOHN F. YOUNG
President
(Principal Executive Officer)
Exhibit 31-8
CERTIFICATION PURSUANT TO RULE 13a-14(a)
AND 15d-14(a) OF THE SECURITIES AND EXCHANGE ACT OF
1934
I, J. Barry Mitchell, certify that:
1. I have reviewed this quarterly report on
Form 10-Q of Exelon Generation Company, LLC;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying
officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the
registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and
material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal control over financial
reporting.
/s/ J. BARRY MITCHELL
Senior Vice President, Treasurer and Chief Financial
Officer
(Principal Financial Officer)
Exhibit 32-1
Certificate Pursuant to Section 1350 of
Chapter 63 of Title 18 United States Code
The undersigned officer hereby certifies, as to
the Quarterly Report on Form 10-Q of Exelon Corporation for
the quarterly period ended September 30, 2004, that
(i) the report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934, and (ii) the information contained in the report
fairly presents, in all material respects, the financial
condition and results of operations of Exelon Corporation.
/s/ JOHN W. ROWE
John W. Rowe
Chairman and Chief Executive Officer
Exhibit 32-2
Certificate Pursuant to Section 1350 of
Chapter 63 of Title 18 United States Code
The undersigned officer hereby certifies, as to
the Quarterly Report on Form 10-Q of Exelon Corporation for
the quarterly period ended September 30, 2004, that
(i) the report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934, and (ii) the information contained in the report
fairly presents, in all material respects, the financial
condition and results of operations of Exelon Corporation.
/s/ ROBERT S. SHAPARD
Robert S. Shapard
Executive Vice President and
Chief Financial Officer
Exhibit 32-3
Certificate Pursuant to Section 1350 of
Chapter 63 of Title 18 United States Code
The undersigned officer hereby certifies, as to
the Quarterly Report on Form 10-Q of Commonwealth Edison
Company for the quarterly period ended September 30, 2004,
that (i) the report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934, and (ii) the information contained in the report
fairly presents, in all material respects, the financial
condition and results of operations of Commonwealth Edison
Company.
/s/ JOHN L. SKOLDS
John L. Skolds
President
Exelon Energy Delivery
Exhibit 32-4
Certificate Pursuant to Section 1350 of
Chapter 63 of Title 18 United States Code
The undersigned officer hereby certifies, as to
the Quarterly Report on Form 10-Q of Commonwealth Edison
Company for the quarterly period ended September 30, 2004,
that (i) the report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934, and (ii) the information contained in the report
fairly presents, in all material respects, the financial
condition and results of operations of Commonwealth Edison
Company.
/s/ J. BARRY MITCHELL
J. Barry Mitchell
Senior Vice President, Treasurer and
Chief Financial Officer
Exhibit 32-5
Certificate Pursuant to Section 1350 of
Chapter 63 of Title 18 United States Code
The undersigned officer hereby certifies, as to
the Quarterly Report on Form 10-Q of PECO Energy Company
for the quarterly period ended September 30, 2004, that
(i) the report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934, and (ii) the information contained in the report
fairly presents, in all material respects, the financial
condition and results of operations of PECO Energy Company.
/s/ JOHN L. SKOLDS
John L. Skolds
President
Exelon Energy Delivery
Exhibit 32-6
Certificate Pursuant to Section 1350 of
Chapter 63 of Title 18 United States Code
The undersigned officer hereby certifies, as to
the Quarterly Report on Form 10-Q of PECO Energy Company
for the quarterly period ended September 30, 2004, that
(i) the report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934, and (ii) the information contained in the report
fairly presents, in all material respects, the financial
condition and results of operations of PECO Energy Company.
/s/ J. BARRY MITCHELL
J. Barry Mitchell
Senior Vice President, Treasurer and
Chief Financial Officer
Exhibit 32-7
Certificate Pursuant to Section 1350 of
Chapter 63 of Title 18 United States Code
The undersigned officer hereby certifies, as to
the Quarterly Report on Form 10-Q of Exelon Generation
Company, LLC for the quarterly period ended September 30,
2004, that (i) the report fully complies with the
requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934, and (ii) the information contained in
the report fairly presents, in all material respects, the
financial condition and results of operations of Exelon
Generation Company, LLC.
/s/ JOHN F. YOUNG
John F. Young
President
Exhibit 32-8
Certificate Pursuant to Section 1350 of
Chapter 63 of Title 18 United States Code
The undersigned officer hereby certifies, as to
the Quarterly Report on Form 10-Q of Exelon Generation
Company, LLC for the quarterly period ended September 30,
2004, that (i) the report fully complies with the
requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934, and (ii) the information contained in
the report fairly presents, in all material respects, the
financial condition and results of operations of Exelon
Generation Company, LLC.
/s/ J. BARRY MITCHELL
J. Barry Mitchell
Senior Vice President, Treasurer and
Chief Financial Officer