| (a) | | For uncertain tax positions of ComEd that existed at October 20, 2000, the date of the merger in which Exelon became the parent corporation of PECO and ComEd (PECO / Unicom merger), the impact of adopting FIN 48 is recorded to goodwill in accordance with GAAP and reflected the amortization of regulatory assets. Under Illinois statute, any impairment of goodwill would have had no impact on the determination of the cap on ComEd’s allowed equity return during the transition period. ComEd did not trigger the earnings sharing provision through 2006. With the end of the transition and rate freeze period, in its December 20, 2006 order the ICC authorized a return on distribution rate base of 8.01% for ComEd starting in 2007. During the first quarter of 2007, ComEd filed a transmission rate case with the FERC in which it requested a return on transmission rate base of 9.87%.PECO’s transition period included caps for its electric transmission and distribution rates that expired on December 31, 2006 and continuesEmerging Issues Task Force (EITF) IssueNo. 93-7, “Uncertainties Related to include caps on generation rates that will expire on December 31, 2010 pursuant to legislation enacted in Pennsylvania. The distribution and transmission components of PECO’s rates will continue to be regulated subsequent to its transition period. PECO’s most recently approved return on electric rate base was 11.23% (approved in 1990). PECO’s gas rates are currently not subject to caps and its most recently authorized return on gas rate base was 11.45% (approved in 1988).
Through and Out (T&O) Rates and Seams Elimination Charge/Cost Adjustment/Assignment (SECA) (Exelon, ComEd and PECO). In November 2004, FERC issued two orders authorizing ComEd and PECO to recover amounts for a limited time during a specified transitional period as a result of the elimination of T&O rates for transmission service scheduled out of, or across, their respective transmission systems and ending within territories of PJM Interconnection, LLC (PJM) or Midwest Independent Transmission System Operator (MISO). T&O rates were terminated pursuant to FERC orders, effective December 1, 2004. The new rates, known as SECA, were collected from load-serving entities and paid to transmission owners within PJM and MISO over a transitional period from December 1, 2004 through March 31, 2006, subject to refund, surcharge and hearing. As load-serving entities, ComEd and PECO were also required to pay SECA rates during the transitional period based on the benefits they received from the elimination of T&O rates of other transmission owners within PJM and MISO. Since the inception of the SECA rates in December 2004, ComEd has recorded approximately $49 million of SECA collections net of SECA charges, while PECO has recorded $11 million of SECA charges net of SECA collections. Management of each of ComEd and PECO believes that appropriate reserves have been established in the event that some portion of SECA collections are required to be refunded. A hearing was held in May 2006 and the administrative law judge (ALJ) issued an Initial Decision on August 10, 2006. The ALJ’s Initial Decision found that the transmission owners overstated their lost revenues in their compliance filings and the SECA rate design was flawed. Additionally, the ALJ recommended that the transmission owners should be ordered to refile their respective compliance filings related to SECA rates. ComEd and PECO have filed exceptions to the Initial Decision and FERC, on review, will determine whether or not to accept the ALJ’s recommendation. There is no scheduled date for FERC to act on this matter. Settlements have been reached with various parties. FERC has approved several of these settlements while others are still awaiting FERC approval. The ultimate outcome of the proceeding establishing SECA rates is uncertain, but ComEd and PECO do not believe ultimate resolution of this matter will be material to their results of operations or financial position.
PJM Transmission Design (Exelon, ComEd and PECO). On July 13, 2006, the ALJ in the case issued an Initial Decision that recommends that FERC implement the postage stamp rate suggested by FERC staff, effective as of April 1, 2006, but also allows for the potential to phase in rate changes. On April 19, 2007, FERC issued its order on review of the ALJ’s decision. FERC held that PJM’s current rate design for existing matter facilities is just and reasonable and should not be changed. That is consistent with Exelon’s position in the case. FERC also held that new facilities should be allocated under a different rate design. FERC held that new facilities 500 kilovolts (kV) and above should be socialized across the entire PJM footprint and that new facilities less than 500 kV should be
33
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
allocated to the beneficiaries of the new facilities. FERC stated that PJM’s stakeholders should develop a standard method for allocating new transmission facilities lower than 500 kV. FERC’s decision on existing facilities leaves the status quo as to existing costs, which is substantially more favorable to Exelon than the ALJ’s decision as to existing facilities. In the short term, based on new transmission facilities approved by PJM, it is likely that socializing costs across PJM will reduce costs to PECO and increase costs to ComEd, but ComEd and PECO cannot estimate the final impact on either company’s results of operations and cash flows, both because what new facilities will be built is not certain at this time and because how the smaller lower voltage new facilities will be allocated is uncertain. Moreover, FERC’s decision may be subject to a request for rehearing and review in the United States Court of Appeals. However, ComEd anticipates that all impacts of any rate design changes effective after December 31, 2006 should be recoverable through retail rates in the absence of rate freeze or similar legislation. With the expiration of PECO’s transmission and distribution rate caps on December 31, 2006, PECO has the right to file with the Pennsylvania Public Utility Commission (PAPUC) for a change in retail rates to reflect the impact of any change in wholesale transmission rates.
Alternative Energy Filing (Exelon and PECO). In November 2004, Pennsylvania adopted Act 213, the Alternative Energy Portfolio Standards Act of 2004 (AEPS Act). The AEPS Act mandates that beginning in 2007, or at the end of an electric distribution company’s restructuring cost recovery period during which competitive transition charges or intangible transition charges are being recovered, certain percentages of electric energy sold by an electric distribution company or electric generation supplier to Pennsylvania retail electric customers must come from certain alternative energy resources. In March 2007, PECO filed a request with the PAPUC for approval to acquire and bank up to 450,000 non-solar Tier I Alternative Energy Credits (equivalent to up to 240 MWs of electricity generated by wind) annually for a five-year term in order to prepare for 2011, the first year of PECO’s required compliance following the completion of its restructuring period. PECO proposes that all of the costs it incurs in connection with such procurement prior to 2011 will be deferred as a regulatory asset with a return on the unamortized balance in accordance with the AEPS Act. Those costs, and PECO’s AEPS compliance costs incurred thereafter, would be recovered through a reconcilable ratemaking mechanism as contemplated by the AEPS legislation. All deferred costs will be recovered from customers in 2011. Additionally, all AEPS related costs incurred after 2010 are recoverable from customers on a full and current basis.
Post-2006 Summary (Exelon and Generation). Generation’s power purchase agreement (PPA) with ComEd expired at the end of 2006. In September 2006, Generation participated in and won portions of the ComEd and Ameren procurement auctions. As a result of the expiration of the PPA and the results of the auctions, beginning in 2007, Generation is selling more power through bilateral agreements. 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; therefore, Generation’s credit risk profile has changed based on the credit-worthiness of the new and existing counterparties, including ComEd and Ameren. Additionally, due to the possibility of rate freeze legislation in Illinois affecting both ComEd and Ameren, Generation may be subject to the risk of default. If ComEd and Ameren seek relief through a bankruptcy filing, there would be material adverse consequences to Exelon and Generation, including, but not limited to: uncertainty in collection of Generation’s receivables from ComEd and Ameren for the electricity previously provided under the supplier forward contracts; uncertainty in the enforcement of Generation’s rights under its supplier forward contracts with ComEd and Ameren and possible rejection of the supplier forward contractsIncome Taxes in a ComEd or Ameren bankruptcy; and possible negative income tax consequences. A default by ComEd or Ameren on contracts for purchase of electricity, or a rejection of those contracts in a bankruptcy proceeding, could alter the wholesale power markets and result in Generation selling more power in spot markets.
Market-Based Rates Matters (Exelon and Generation). On May 19, 2006, FERC issued a Notice of Proposed Rule Making (NOPR) on Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and
34
Purchase Business Combination” (EITFEXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Ancillary Services by Public Utilities. The NOPR proposes a set of regulations that would modify the tests that Exelon and other market participants must satisfy to be entitled to market-based rates. Exelon is not certain as to the impact of any new rules that may be promulgated as a result of FERC’s future ruling with respect to the NOPR.
On December 15, 2006, Exelon made a Change in Status (CIS) filing with FERC. The triggering event was the end of the full-requirements PPA between Generation and ComEd and the resulting increase in Generation’s uncommitted capacity. A CIS filing is required when there is a material change in status relied upon by FERC when granting market-based rates authority. Exelon’s filing, supported by an updated market-power analysis, demonstrated that Exelon continues to be entitled to market-based rates. The time period for interventions expired on January 5, 2007, no party intervened, and on February 9, 2007, FERC accepted Exelon’s CIS filing.
Reliability Pricing Model (RPM) (Exelon and Generation). On August 31, 2005, PJM filed its RPM with FERC to replace its current capacity market rules. The RPM proposal provided for a forward capacity auction using a demand curve and locational deliverability zones for capacity phased in over a several year period beginning on June 1, 2006. On November 5, 2005, PJM proposed to delay the effective date of the RPM until June 1, 2007. On April 20, 2006, FERC issued an order generally finding aspects of PJM’s RPM filing to be just and reasonable, but FERC also established further procedures to resolve the remaining issues and encouraged the parties to seek a negotiated resolution. A final settlement was filed with FERC on September 29, 2006 and FERC issued its order approving the settlement, subject to conditions, on December 22, 2006. FERC’s adoption of the settlement proposal of September 2006 is expected to have a favorable impact for owners of generation facilities, and particularly for such facilities located in constrained zones.
FERC has also denied requests for rehearing of its April 20, 2006 order. The time for filing a petition for review of FERC’s April 2006 order expired on February 20, 2007 without any petition for review having been filed. FERC’s December 22, 2006 order approving the settlement, subject to conditions, is subject to requests for rehearing and judicial review. PJM is moving ahead to implement RPM in 2007 notwithstanding, as FERC’s orders are rarely stayed, and therefore almost always remain in effect, pending appellate review. The first auction took place in April 2007 and resulted in Generation auctioning capacity at prices ranging from $40.80/MW to$197.67/MW per day for the period from June 1, 2007 through May 31, 2008. Subsequent auctions will be conducted in July 2007, October 2007 and January 2008 to auction capacity for periods through May 2011.
| | 6. | Intangible Assets (Exelon and ComEd) |
Goodwill (Exelon and ComEd). As of March 31, 2007 and December 31, 2006, Exelon and ComEd had goodwill of approximately $2.6 billion and $2.7 billion, respectively. Under the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142), goodwill is tested for impairment at least annually or more frequently if events or circumstances indicate that it is “more likely than not” that goodwill might be impaired, such as a significant negative regulatory outcome. Exelon and ComEd perform their annual goodwill impairment assessment in the fourth quarter of each year.
The changes in the carrying amount of goodwill for the period from January 1, 2007 to March 31, 2007 were as follows:
| | | | | | | Balance as of January 1, 2007 | | $ | 2,694 | | | Uncertain tax positions(a) | | | (53 | ) | | | | | | | | Balance as of March 31, 2007 | | $ | 2,641 | | | | | | | |
35
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | (a) | | For uncertain tax positions that existed at the Unicom / PECO merger, the impact of adopting FIN 48 is recorded to goodwill in accordance with Emerging Issues Task Force (EITF) IssueNo. 93-7, “Uncertainties Related to Income Taxes in a Purchase Business Combination”(EITF 93-7). See Notes 3 and 10 for further information regarding the adoption of FIN 48. |
| | 7. | Debt and Credit Agreements (Exelon, Generation, ComEd and PECO) |
Short-Term Borrowings
Exelon, Generation and PECO meet their short-term liquidity requirements primarily through the issuance of commercial paper and ComEd meets its short-term liquidity requirements primarily through borrowings from its credit facilities and the issuance of commercial paper. Exelon, ComEd and PECO had the following amounts of commercial paper outstanding at March 31, 2007 and December 31, 2006:
| | | | | | | | | | | | | March 31,
| | | December 31,
| | Borrower | | 2007 | | | 2006 | | | | | Exelon Corporate | | $ | 196 | | | $ | 150 | | | ComEd | | | — | | | | 60 | | | PECO | | | 100 | | | | 95 | |
As of March 31, 2007, Exelon, Generation, ComEd and PECO have access to revolving credit facilities with aggregate bank commitments of $1 billion, $5 billion, $1 billion and $600 million, respectively. At March 31, 2007, ComEd had $340 million outstanding borrowings under its credit agreement. See Note 11 of Exelon’s 2006 Annual Report onForm 10-K for further information regarding these credit facilities.
Short-Term Borrowings Exelon, Generation and PECO meet their short-term liquidity requirements primarily through the issuance of commercial paper and ComEd meets its short-term liquidity requirements primarily through borrowings under its credit facility. Exelon, Generation, ComEd and PECO had the following amounts of commercial paper outstanding at June 30, 2007 and December 31, 2006: | | | | | | | | | | | | | June 30,
| | | December 31,
| | Borrower | | 2007 | | | 2006 | | | | | Exelon Corporate | | $ | 17 | | | $ | 150 | | | Generation | | | 39 | | | | — | | | ComEd | | | — | | | | 60 | | | PECO | | | 122 | | | | 95 | |
As of June 30, 2007, Exelon, Generation and PECO have access to unsecured revolving credit facilities with aggregate bank commitments of $1 billion, $5 billion and $600 million, respectively, and ComEd has access to a secured revolving credit facility with aggregate bank commitments of $1 billion. At June 30, 2007 and December 31, 2006, ComEd had $475 million and $0, respectively, of outstanding borrowings under its credit agreement. At June 30, 2007 and December 31, 2006, Exelon, Generation and PECO did not have outstanding borrowings under their credit agreements. See Note 11 of Exelon’s 2006 Annual Report onForm 10-K for further information regarding these credit facilities.
40
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Carrying Amounts and Fair Values of Long-Term Debt Fair values of long-term debt are determined by a valuation model performed by an external consultant and isare based on a conventional discounted cash flow methodology utilizing assumptions of current market pricing curves. Exelon The carrying amounts and fair values of Exelon’s long-term debt as of March 31,June 30, 2007 and December 31, 2006 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2007 | | December 31, 2006 | | | June 30, 2007 | | December 31, 2006 | | | | | Carrying
| | Fair
| | Carrying
| | Fair
| | | Carrying
| | Fair
| | Carrying
| | Fair
| | | | | Amount | | Value | | Amount | | Value | | | Amount | | Value | | Amount | | Value | | | | | Long-term debt (including amounts due within one year) | | $ | 9,428 | | | $ | 9,295 | | | $ | 9,144 | | | $ | 9,122 | | | $ | 9,412 | | | $ | 9,178 | | | $ | 9,144 | | | $ | 9,122 | | | Long-term debt to ComEd Transitional Funding Trust and PECO Energy Transition Trust (PETT) (including amounts due within one year) | | | 2,763 | | | | 2,854 | | | | 3,051 | | | | 3,149 | | | | 2,494 | | | | 2,557 | | | | 3,051 | | | | 3,149 | | | Long-term debt to other financing trusts | | | 545 | | | | 503 | | | | 545 | | | | 517 | | | | 545 | | | | 474 | | | | 545 | | | | 517 | |
Generation The carrying amounts and fair values of Generation’s long-term debt as of June 30, 2007 and December 31, 2006 were as follows: | | | | | | | | | | | | | | | | | | | | | June 30, 2007 | | | December 31, 2006 | | | | | Carrying
| | | Fair
| | | Carrying
| | | Fair
| | | | | Amount | | | Value | | | Amount | | | Value | | | | | Long-term debt (including amounts due within one year) | | $ | 1,790 | | | $ | 1,798 | | | $ | 1,790 | | | $ | 1,821 | |
ComEd The carrying amounts and fair values of ComEd’s long-term debt as of June 30, 2007 and December 31, 2006 were as follows: | | | | | | | | | | | | | | | | | | | | | June 30, 2007 | | | December 31, 2006 | | | | | Carrying
| | | Fair
| | | Carrying
| | | Fair
| | | | | Amount | | | Value | | | Amount | | | Value | | | | | Long-term debt (including amounts due within one year) | | $ | 3,722 | | | $ | 3,644 | | | $ | 3,579 | | | $ | 3,592 | | | Long-term debt to ComEd Transitional Funding Trust (including amounts due within one year) | | | 443 | | | | 445 | | | | 648 | | | | 652 | | | Long-term debt to other financing trusts | | | 361 | | | | 306 | | | | 361 | | | | 338 | |
ComEd intends to refinance maturing long-term debt and to repay a portion of its credit facility borrowings with long-term debt. As of June 30, 2007, ComEd has the capacity to issue up to approximately $460 million of additional first mortgage bonds subject to certain restrictions.
3641
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Generation
The carrying amounts and fair values of Generation’s long-term debt as of March 31, 2007 and December 31, 2006 were as follows:
| | | | | | | | | | | | | | | | | | | | | March 31, 2007 | | | December 31, 2006 | | | | | Carrying
| | | Fair
| | | Carrying
| | | Fair
| | | | | Amount | | | Value | | | Amount | | | Value | | | | | Long-term debt (including amounts due within one year) | | $ | 1,790 | | | $ | 1,816 | | | $ | 1,790 | | | $ | 1,821 | |
ComEd
The carrying amounts and fair values of ComEd’s long-term debt as of March 31, 2007 and December 31, 2006 were as follows:
| | | | | | | | | | | | | | | | | | | | | March 31, 2007 | | | December 31, 2006 | | | | | Carrying
| | | Fair
| | | Carrying
| | | Fair
| | | | | Amount | | | Value | | | Amount | | | Value | | | | | Long-term debt (including amounts due within one year) | | $ | 3,722 | | | $ | 3,668 | | | $ | 3,579 | | | $ | 3,592 | | | Long-term debt to ComEd Transitional Funding Trust (including amounts due within one year) | | | 537 | | | | 541 | | | | 648 | | | | 652 | | | Long-term debt to other financing trusts | | | 361 | | | | 325 | | | | 361 | | | | 338 | |
PECO The carrying amounts and fair values of PECO’s long-term debt as of March 31,June 30, 2007 and December 31, 2006 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2007 | | December 31, 2006 | | | June 30, 2007 | | December 31, 2006 | | | | | Carrying
| | Fair
| | Carrying
| | Fair
| | | Carrying
| | Fair
| | Carrying
| | Fair
| | | | | Amount | | Value | | Amount | | Value | | | Amount | | Value | | Amount | | Value | | | | | Long-term debt | | $ | 1,644 | | | $ | 1,629 | | | $ | 1,469 | | | $ | 1,464 | | | | Long-term debt (including amounts due within one year) | | | $ | 1,650 | | | $ | 1,611 | | | $ | 1,469 | | | $ | 1,464 | | | Long-term debt to PETT (including amounts due within one year) | | | 2,226 | | | | 2,313 | | | | 2,404 | | | | 2,496 | | | | 2,050 | | | | 2,112 | | | | 2,404 | | | | 2,496 | | | Long-term debt to other financing trusts | | | 184 | | | | 178 | | | | 184 | | | | 179 | | | | 184 | | | | 168 | | | | 184 | | | | 179 | |
Issuance of Long-Term Debt During the threesix months ended March 31,June 30, 2007, the following long-term debt was issued: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest
| | | | | | | | | Interest
| | | | | | Company | | Type | | Rate | | Maturity | | Amount(a) | | | Type | | Rate | | Maturity | | Amount(a) | | | | | ComEd | | First Mortgage Bonds | | | 5.90 | % | | | March 15, 2036 | | | $ | 300 | | | First Mortgage Bonds | | | 5.90 | % | | | March 15, 2036 | | | $ | 300 | | | PECO | | First Mortgage Bonds | | | 5.70 | % | | | March 15, 2037 | | | | 175 | | | First and Refunding Mortgage Bonds | | | 5.70 | % | | | March 15, 2037 | | | | 175 | | | Other | | | | | | | | | | | | | 1 | | | | | | | | | | | | | | 7 | |
| | | | (a) | | Excludes unamortized bond discounts. |
Retirement of Long-Term Debt During the six months ended June 30, 2007, the following long-term debt was retired: | | | | | | | | | | | | | | | | | | | Interest
| | | | | | | Company | | Type | | Rate | | | Maturity | | Amount | | | | | Exelon | | Notes payable for investments in synthetic fuel-producing facilities | | | 6.00-8.00 | % | | Various | | $ | 52 | | | ComEd | | Notes payable | | | 7.625 | % | | January 15, 2007 | | | 145 | | | ComEd | | ComEd Transitional Funding Trust | | | 5.63 | % | | June 25, 2007 | | | 138 | (a)(b) | | ComEd | | ComEd Transitional Funding Trust | | | 5.74 | % | | December 25, 2008 | | | 67 | | | ComEd | | Sinking fund debenture | | | 4.75 | % | | December 1, 2011 | | | 1 | | | PECO | | PETT | | | 6.13 | % | | September 1, 2008 | | | 354 | |
| | | | (a) | | Amount includes $17 million previously reflected in prepaid interest. This amount did not have an impact on ComEd’s Consolidated Statement of Operations or ComEd’s Consolidated Statement of Cash Flows. | | | (b) | | ComEd applied $8 million of previously prepaid balances against the long-term debt to ComEd Transitional Funding Trust. |
3742
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | (a) | | Excludes unamortized bond discounts. |
Retirement of Long-Term Debt
During the three months ended March 31, 2007, the following long-term debt was retired:
| | | | | | | | | | | | | | | | | | | Interest
| | | | | | | Company | | Type | | Rate | | | Maturity | | Amount | | | | | Exelon | | Notes payable for investments
in synthetic fuel-producing facilities | | | 6.00-8.00 | % | | Various | | $ | 34 | | | ComEd | | Notes payable | | | 7.625 | % | | January 15, 2007 | | | 145 | | | ComEd | | ComEd Transitional Funding Trust | | | 5.63 | % | | June 25, 2007 | | | 111 | (a)(b) | | PECO | | PETT | | | 6.13 | % | | September 1, 2008 | | | 178 | |
| | | (a) | | Amount includes a $17 million reallocation from prepaid interest to long-term debt to ComEd Transitional Funding Trust. This reallocation did not have an impact on ComEd’s Consolidated Statement of Operations or ComEd’s Consolidated Statement of Cash Flows. | | (b) | | ComEd applied $8 million of previously prepaid balances against the long-term debt to ComEd Transitional Funding Trust. |
| | | 8. | Derivative Financial Instruments (Exelon, Generation, ComEd and PECO) |
Interest-Rate Swaps (Exelon, Generation, ComEd and PECO) The fair values of Exelon’s, Generation’s, ComEd’s and PECO’s interest-rate swaps are determined using quoted exchange prices, external dealer prices and available market pricing curves. Fair-Value Hedges. The Registrants may utilizefixed-to-floating interest-rate swaps from time to time as a means to achieve their targeted level of variable-rate debt as a percent of total debt. At March 31,June 30, 2007 and December 31, 2006, Exelon had $100 million and $50 million, respectively, of notional amounts of fair-value hedges outstanding.Fixed-to-floating interest-rate swaps are designated as fair-value hedges, as defined in SFAS No. 133, and, as such, changes in the fair value of the swaps are recorded in earnings; however, as long as the hedge remains effective and the underlying liability remains outstanding, changes in the fair value of the swaps are offset by changes in the fair value of the hedged liabilities. Any change in the fair value of the hedge as a result of ineffectiveness is recorded immediately in earnings. During the three and six months ended March 31,June 30, 2007 and 2006, no amounts relating to fair-value hedges were recorded in earnings as a result of ineffectiveness. Cash-Flow Hedges. The Registrants utilize interest rate derivatives from time to time to lock in interest-rate levels in anticipation of future financings. Forward-starting interest-rate swaps are designated as cash-flow hedges, as defined in SFAS No. 133, and, as such, changes in the fair value of the swaps are recorded in accumulated other comprehensive income (OCI). Any change in the fair value of the hedge as a result of ineffectiveness is recorded immediately in earnings. At March 31,June 30, 2007 and 2006, the Registrants did not have any notional amounts of interest-rate related cash-flow hedges outstanding. During the three and six months ended March 31,June 30, 2007 and 2006, the Registrants did not reclassify any amounts from accumulated OCI into earnings as a result of ineffectiveness.
38
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Energy-Related Derivatives (Exelon, Generation, ComEd and PECO) Generation utilizes derivatives to manage the utilization of its available generating capacity and the provision of wholesale energy to its affiliates and others. Exelon and Generation also utilize energy option contracts and energy financial swap arrangements to limit the market price risk associated with forward energy commodity contracts. Additionally, Generation enters into certain energy-related derivatives for trading or speculative purposes. The Registrants’ energy contracts are accounted for under SFAS No. 133. Economic hedges may qualify for the normal purchases and normal sales exception to SFAS No. 133 and are accounted for under the accrual method of accounting. Those that do not meet the normal purchasepurchases and normal sales exception are recorded as assets or liabilities on the balance sheet at fair value. Changes in the derivatives recorded at fair value are recognized in earnings unless specific hedge accounting criteria are met and they are designated as cash-flow hedges, in which case those changes are recorded in OCI, and gains and losses are recognized in earnings when the underlying transaction occurs or are designated as fair-value hedges, in which case those changes are recognized in current earnings offset by changes in the fair value of the hedged item in current earnings. Changes in the fair value of derivative contracts that do not meet the hedge criteria under SFAS No. 133 (or are not designated as such) and proprietary trading contracts, in the case of Generation, are recognized in current earnings. Generation also has contracted for access to additional generation and sales to load-serving entities that are accounted for under the accrual method of accounting discussed in Note 18 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K. ComEd has derivatives related to one wholesale contract and various other contracts to manage theits market price exposures to severalcertain wholesale contracts that extend through 2007.2008. The contracts that ComEd has entered into as part of the initial ComEd auction (See Note 5 — Regulatory Issues) are deemed to be derivatives that qualify for the normal purchase and normal sale exception to SFAS No. 133. ComEd does not enter into derivatives for speculative or trading purposes. Some of PECO’s gas supply agreements are derivatives under SFAS No. 133 and accounted for as such. Due to the nature of these gas contracts and market conditions, PECO’s balance sheet reflected no fair value of energy derivatives at March 31, 2007 as the amounts were insignificant.
3943
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Issues) are deemed to be derivatives that qualify for the normal purchases and normal sales exception to SFAS No. 133. ComEd does not enter into derivatives for speculative or trading purposes. Some of PECO’s gas supply agreements are derivatives that qualify for the normal purchases and normal sales exception to SFAS No. 133. PECO does not enter into derivatives for speculative or trading purposes. At March 31,June 30, 2007, Exelon, Generation and ComEd had net liabilitiesassets (liabilities) of $316$25 million, $319$33 million and $5$(5) million, respectively, on their Consolidated Balance Sheets for the fair value of energy derivatives. The following table provides a summary of the fair value balances recorded by Exelon, Generation and ComEd as of March 31,June 30, 2007: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2007 | | | June 30, 2007 | | | | | Generation | | ComEd | | | | Exelon | | | | | | | | | | | | | | | | | | | Exelon | | | | | | | | | | | | | | | | | | | | | Energy-
| | | Generation | | ComEd | | | | Energy-
| | | | | Cash-Flow
| | Other
| | Proprietary
| | | | Cash-Flow
| | Other
| | | | | | Related
| | | Cash-Flow
| | Other
| | Proprietary
| | | | Cash-Flow
| | Other
| | | | | | Related
| | Derivatives | | Hedges | | Derivatives | | Trading | | Subtotal | | Hedge | | Derivatives | | Subtotal | | Other(a) | | Derivatives(b) | | | Hedges | | Derivatives | | Trading | | Subtotal | | Hedge | | Derivatives | | Subtotal | | Other(a) | | Derivatives(b) | | | | | Current assets | | $ | 94 | | | $ | 320 | | | $ | 83 | | | $ | 497 | | | $ | — | | | $ | 1 | | | $ | 1 | | | $ | 8 | | | $ | 506 | | | $ | 231 | | | $ | 415 | | | $ | 103 | | | $ | 749 | | | $ | — | | | $ | — | | | $ | — | | | $ | 16 | | | $ | 765 | | | Noncurrent assets | | | 67 | | | | 75 | | | | 9 | | | | 151 | | | | — | | | | — | | | | — | | | | 1 | | | | 152 | | | | 75 | | | | 105 | | | | 30 | | | | 210 | | | | — | | | | — | | | | — | | | | — | | | | 210 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Totalmark-to-market energy contract assets | | $ | 161 | | | $ | 395 | | | $ | 92 | | | $ | 648 | | | $ | — | | | $ | 1 | | | $ | 1 | | | $ | 9 | | | $ | 658 | | | $ | 306 | | | $ | 520 | | | $ | 133 | | | $ | 959 | | | $ | — | | | $ | — | | | $ | — | | | $ | 16 | | | $ | 975 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current liabilities | | $ | (333 | ) | | $ | (344 | ) | | $ | (74 | ) | | $ | (751 | ) | | $ | (2 | ) | | $ | (4 | ) | | $ | (6 | ) | | $ | — | | | $ | (757 | ) | | $ | (106 | ) | | $ | (444 | ) | | $ | (78 | ) | | $ | (628 | ) | | $ | — | | | $ | (5 | ) | | $ | (5 | ) | | $ | (16 | ) | | $ | (649 | ) | | Noncurrent liabilities | | | (114 | ) | | | (93 | ) | | | (9 | ) | | | (216 | ) | | | — | | | | — | | | | — | | | | (1 | ) | | | (217 | ) | | | (147 | ) | | | (135 | ) | | | (16 | ) | | | (298 | ) | | | — | | | | — | | | | — | | | | (3 | ) | | | (301 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Totalmark-to-market energy contract liabilities | | $ | (447 | ) | | $ | (437 | ) | | $ | (83 | ) | | $ | (967 | ) | | $ | (2 | ) | | $ | (4 | ) | | $ | (6 | ) | | $ | (1 | ) | | $ | (974 | ) | | $ | (253 | ) | | $ | (579 | ) | | $ | (94 | ) | | $ | (926 | ) | | $ | — | | | $ | (5 | ) | | $ | (5 | ) | | $ | (19 | ) | | $ | (950 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Totalmark-to-market energy contract net assets (liabilities) | | $ | (286 | ) | | $ | (42 | ) | | $ | 9 | | | $ | (319 | ) | | $ | (2 | ) | | $ | (3 | ) | | $ | (5 | ) | | $ | 8 | | | $ | (316 | ) | | $ | 53 | | | $ | (59 | ) | | $ | 39 | | | $ | 33 | | | $ | — | | | $ | (5 | ) | | $ | (5 | ) | | $ | (3 | ) | | $ | 25 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Other includes corporate operations, shared service entities, including Exelon Business Services Company (BSC), Enterprises and investments in synthetic fuel-producing facilities. | | | | (b) | | Excludes Exelon’s interest-rate swaps. |
44
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) At December 31, 2006, Exelon, Generation and ComEd had net assets (liabilities) of $496 million, $499 million and $(11) million, respectively, on their Consolidated Balance Sheets for the fair value of energy derivatives. The following table provides a summary of the fair value balances recorded by Exelon, Generation and ComEd as of December 31, 2006: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2006 | | | December 31, 2006 | | | | | Generation | | ComEd | | | | Exelon | | | | | | | | | | | | | | | | | | | Exelon | | | | | | | | | | | | | | | | | | | | | Energy-
| | | Generation | | ComEd | | | | Energy-
| | | | | Cash-Flow
| | Other
| | Proprietary
| | | | Cash-Flow
| | Other
| | | | | | Related
| | | Cash-Flow
| | Other
| | Proprietary
| | | | Cash-Flow
| | Other
| | | | | | Related
| | Derivatives | | Hedges | | Derivatives | | Trading | | Subtotal | | Hedge | | Derivatives | | Subtotal | | Other(a) | | Derivatives(b) | | | Hedges | | Derivatives | | Trading | | Subtotal | | Hedge | | Derivatives | | Subtotal | | Other(a) | | Derivatives(b) | | | | | Current assets | | $ | 460 | | | $ | 751 | | | $ | 197 | | | $ | 1,408 | | | $ | — | | | $ | — | | | $ | — | | | $ | 10 | | | $ | 1,418 | | | $ | 460 | | | $ | 751 | | | $ | 197 | | | $ | 1,408 | | | $ | — | | | $ | — | | | $ | — | | | $ | 10 | | | $ | 1,418 | | | Noncurrent assets | | | 104 | | | | 52 | | | | 15 | | | | 171 | | | | — | | | | — | | | | — | | | | — | | | | 171 | | | | 104 | | | | 52 | | | | 15 | | | | 171 | | | | — | | | | — | | | | — | | | | — | | | | 171 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Totalmark-to-market energy contract assets | | $ | 564 | | | $ | 803 | | | $ | 212 | | | $ | 1,579 | | | $ | — | | | $ | — | | | $ | — | | | $ | 10 | | | $ | 1,589 | | | $ | 564 | | | $ | 803 | | | $ | 212 | | | $ | 1,579 | | | $ | — | | | $ | — | | | $ | — | | | $ | 10 | | | $ | 1,589 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current liabilities | | $ | (119 | ) | | $ | (697 | ) | | $ | (187 | ) | | $ | (1,003 | ) | | $ | (6 | ) | | $ | (5 | ) | | $ | (11 | ) | | $ | (1 | ) | | $ | (1,015 | ) | | $ | (119 | ) | | $ | (697 | ) | | $ | (187 | ) | | $ | (1,003 | ) | | $ | (6 | ) | | $ | (5 | ) | | $ | (11 | ) | | $ | (1 | ) | | $ | (1,015 | ) | | Noncurrent liabilities | | | (30 | ) | | | (33 | ) | | | (14 | ) | | | (77 | ) | | | — | | | | — | | | | — | | | | (1 | ) | | | (78 | ) | | | (30 | ) | | | (33 | ) | | | (14 | ) | | | (77 | ) | | | — | | | | — | | | | — | | | | (1 | ) | | | (78 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Totalmark-to-market energy contract liabilities | | $ | (149 | ) | | $ | (730 | ) | | $ | (201 | ) | | $ | (1,080 | ) | | $ | (6 | ) | | $ | (5 | ) | | $ | (11 | ) | | $ | (2 | ) | | $ | (1,093 | ) | | $ | (149 | ) | | $ | (730 | ) | | $ | (201 | ) | | $ | (1,080 | ) | | $ | (6 | ) | | $ | (5 | ) | | $ | (11 | ) | | $ | (2 | ) | | $ | (1,093 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Totalmark-to-market energy contract net assets (liabilities) | | $ | 415 | | | $ | 73 | | | $ | 11 | | | $ | 499 | | | $ | (6 | ) | | $ | (5 | ) | | $ | (11 | ) | | $ | 8 | | | $ | 496 | | | $ | 415 | | | $ | 73 | | | $ | 11 | | | $ | 499 | | | $ | (6 | ) | | $ | (5 | ) | | $ | (11 | ) | | $ | 8 | | | $ | 496 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
40
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | (a) | | Other includes corporate operations, shared service entities, including BSC, Enterprises and investments in synthetic fuel-producing facilities. | | | | (b) | | Excludes Exelon’s interest-rate swaps. |
Normal Operations and Hedging Activities (Generation). Electricity available from Generation’s owned or contracted generation supply in excess of Generation’s obligations to customers, including ComEd’s contracted auction requirement and PECO’s 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, including forwards, futures, swaps and options, with approved counterparties to hedge anticipated exposures. Cash-Flow Hedges (Generation and ComEd). The tables below provide details of effective cash-flow hedges under SFAS No. 133 included on Exelon’s, Generation’s and ComEd’s Consolidated Balance Sheets as of March 31,June 30, 2007. The data in the table is indicative of the magnitude of SFAS No. 133 hedges Generation and ComEd have in place; however, since under SFAS No. 133 not all derivatives are recorded in OCI, the table does not provide an all-encompassing picture of Generation’s and ComEd’s derivatives. The tables also include the activity of accumulated OCI related to cash-flow hedges for the three and six months ended March 31,June 30, 2007 and 2006, providing information about the changes in the fair value of hedges and the reclassification from accumulated OCI into earnings. | | | | | | | | | | | | | | | | | Total Cash-Flow Hedge
| | | | | OCI Activity, Net of
| | | | | Income Tax | | March 31, 2007 | | Generation | | | ComEd | | | Exelon | | | | | Accumulated OCI derivative gain (loss) at December 31, 2006 | | $ | 250 | | | $ | (4 | ) | | $ | 246 | | | Changes in fair value | | | (411 | ) | | | 1 | | | | (410 | ) | | Reclassifications from OCI to net income | | | (13 | ) | | | 2 | | | | (11 | ) | | | | | | | | | | | | | | | | Accumulated OCI derivative gain (loss) at March 31, 2007 | | $ | (174 | ) | | $ | (1 | ) | | $ | (175 | ) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Total Cash-Flow Hedge
| | | | | OCI Activity, Net of
| | | | | Income Tax | | Three Months Ended June 30, 2007 | | Generation | | | ComEd | | | Exelon | | | | | Accumulated OCI derivative loss at March 31, 2007 | | $ | (174 | ) | | $ | (1 | ) | | $ | (175 | ) | | Changes in fair value | | | 211 | | | | — | | | | 211 | | | Reclassifications from accumulated OCI to net income | | | (4 | ) | | | 1 | | | | (3 | ) | | | | | | | | | | | | | | | | Accumulated OCI derivative gain at June 30, 2007 | | $ | 33 | | | $ | — | | | $ | 33 | | | | | | | | | | | | | | | |
45
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | | | | | | | | | | | | | Total Cash-Flow Hedge
| | | | | OCI Activity, Net of
| | | | | Income Tax | | Six Months Ended June 30, 2007 | | Generation | | | ComEd | | | Exelon | | | | | Accumulated OCI derivative gain (loss) at December 31, 2006 | | $ | 250 | | | $ | (4 | ) | | $ | 246 | | | Changes in fair value | | | (200 | ) | | | — | | | | (200 | ) | | Reclassifications from accumulated OCI to net income | | | (17 | ) | | | 4 | | | | (13 | ) | | | | | | | | | | | | | | | | Accumulated OCI derivative gain at June 30, 2007 | | $ | 33 | | | $ | — | | | $ | 33 | | | | | | | | | | | | | | | |
| | | | | | | | | Total Cash-Flow Hedge
| | | | | OCI Activity, Net of
| | | | | Income Tax | | March 31, 2006 | | Exelon and Generation | | | | | Accumulated OCI derivative loss at December 31, 2005 | | $ | (314 | ) | | Changes in fair value | | | 46 | | | Reclassifications from OCI to net income | | | 45 | | | | | | | | | Accumulated OCI derivative loss at March 31, 2006 | | $ | (223 | ) | | | | | | |
| | | | | | | | | Total Cash-Flow Hedge
| | | | | OCI Activity, Net of
| | | | | Income Tax | | Three Months Ended June 30, 2006 | | Exelon and Generation | | | | | Accumulated OCI derivative loss at March 31, 2006 | | $ | (223 | ) | | Changes in fair value | | | 117 | | | Reclassifications from accumulated OCI to net income | | | 22 | | | | | | | | | Accumulated OCI derivative loss at June 30, 2006 | | $ | (84 | ) | | | | | | |
| | | | | | | | | Total Cash-Flow Hedge
| | | | | OCI Activity, Net of
| | | | | Income Tax | | Six Months Ended June 30, 2006 | | Exelon and Generation | | | | | Accumulated OCI derivative loss at December 31, 2005 | | $ | (314 | ) | | Changes in fair value | | | 163 | | | Reclassifications from accumulated OCI to net income | | | 67 | | | | | | | | | Accumulated OCI derivative loss at June 30, 2006 | | $ | (84 | ) | | | | | | |
At March 31,June 30, 2007, Generation and ComEd had net unrealized pre-tax lossesgains on cash-flow hedges of $289 million and $2$55 million in accumulated OCI, respectively.OCI. Based on market prices at March 31,June 30, 2007, approximately $239 million and $2$125 million of these deferred net pre-tax unrealized lossesgains on derivative instruments in accumulated OCI are expected to be reclassified to earnings during the next twelve months by Generation and ComEd, respectively.Generation. However, the actual amount reclassified to earnings could vary due to future changes in market prices. Amounts recorded in accumulated OCI related to changes in energy commodity cash-flow hedges are reclassified to earnings when the forecasted purchase or sale of the energy commodity occurs. TheGeneration expects that the majority of Generation’sits cash-flow hedges are expected towill settle within the next two years, while ComEd’s cash flow hedge expires on May 31, 2007.years.
41
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Generation’s cash-flow hedge activity impact to pre-tax earnings based on the reclassification adjustment from accumulated OCI to earnings was a $21an $8 million and $29 million pre-tax gain for the three and six months ended June 30, 2007, respectively, and a $75$36 million and $112 million pre-tax loss for the three and six months ended March 31, 2007 andJune 30, 2006, respectively. During the three and six months ended March 31,June 30, 2007 and 2006, amounts reclassified from accumulated OCI into earnings as a result of ineffectiveness were not material to the financial statements. Other Derivatives (Exelon, Generation and ComEd). Exelon, Generation and ComEd enter into certain contracts that are derivatives, but do not qualify for hedge accounting under SFAS No. 133 or are not designated as cash-flow hedges. These contracts are also entered into to economically hedge and limit the market price risk associated with energy commodity prices. Changes in the fair value of these derivative contracts are recognized in current earnings. For the three and six months ended March 31,June 30, 2007 and 2006, Exelon, Generation and ComEd recognized the following net unrealizedmark-to-market gains (losses), realizedmark-to-market gains (losses) and totalmark-to- market gains (losses) (before income taxes) relating to economic hedgemark-to-market activity of certain purchase power and sale contracts pursuant to SFAS No. 133. Generation’s, ComEd’s and Exelon’s other economic hedgemark-to-market activity on purchase power and sale contracts are reported in fuel and purchased power, revenue and operating and maintenance expense, respectively. | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2007 | | | | | Generation | | | ComEd(a) | | | Other(b) | | | Exelon | | | | Unrealizedmark-to-market gains (losses) | | $ | (76 | ) | | $ | 1 | | | $ | (1 | ) | | $ | (76 | ) | Realizedmark-to-market gains (losses) | | | (39 | ) | | | 1 | | | | — | | | | (38 | ) | | | | | | | | | | | | | | | | | | | Total netmark-to-market gains (losses) | | $ | (115 | ) | | $ | 2 | | | $ | (1 | ) | | $ | (114 | ) | | | | | | | | | | | | | | | | | | |
| | | (a) | | See “Energy-Related Derivatives” above. | | (b) | | Other includes corporate operations, shared service entities, including BSC, Enterprises and investments in synthetic fuel-producing facilities. |
| | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2006 | | | | | Generation | | | ComEd(a) | | | Other(b) | | | Exelon | | | | Unrealizedmark-to-market gains (losses) | | $ | (57 | ) | | $ | (10 | ) | | $ | 13 | | | $ | (54 | ) | Realizedmark-to-market gains | | | 35 | | | | — | | | | — | | | | 35 | | | | | | | | | | | | | | | | | | | | Total netmark-to-market gains (losses) | | $ | (22 | ) | | $ | (10 | ) | | $ | 13 | | | $ | (19 | ) | | | | | | | | | | | | | | | | | | |
| | | (a) | | See “Energy-Related Derivatives” above. | | (b) | | Other includes corporate operations, shared service entities, including BSC, Enterprises and investments in synthetic fuel-producing facilities. |
Proprietary Trading Activities (Generation). Proprietary trading includes all contracts entered into purely to profit from market price changes as opposed to hedging an exposure and is subject to limits established by Exelon’s Risk Management Committee. These contracts are recognized on the Consolidated Balance Sheets at fair value and changes in the fair value of these derivative financial instruments are recognized in earnings. The proprietary trading activities, which included volumes of 5,101 GWhs and 6,985 GWhs for the three months ended March 31, 2007 and 2006, respectively, are a complement to Generation’s energy marketing portfolio but represent a very small portion of Generation’s revenue from energy marketing activities. For the three months ended March 31, 2007 and 2006, Exelon and Generation recognized the following net unrealizedmark-to-market gains, realizedmark-to-market losses and total netmark-to-market losses (before income taxes) relating tomark-to-market activity on derivative instruments entered into for trading purposes. Gains and losses associated with financial
4246
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) recognized the following net unrealized mark-to-market gains (losses), realized mark-to-market gains (losses) and total mark-to-market gains (losses) (before income taxes) relating to economic hedge mark-to-market activity of certain purchase power and sale contracts pursuant to SFAS No. 133. Generation’s, ComEd’s and Exelon’s other economic hedge mark-to-market activity on purchase power and sale contracts are reported in fuel and purchased power, revenue and operating and maintenance expense, respectively. | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2007 | | | | | Generation | | | ComEd(a) | | | Other(b) | | | Exelon | | | | | Unrealized mark-to-market losses | | $ | (5 | ) | | $ | (3 | ) | | $ | (10 | ) | | $ | (18 | ) | | Realized mark-to-market gains (losses) | | | (12 | ) | | | 1 | | | | — | | | | (11 | ) | | | | | | | | | | | | | | | | | | | | Total net mark-to-market losses | | $ | (17 | ) | | $ | (2 | ) | | $ | (10 | ) | | $ | (29 | ) | | | | | | | | | | | | | | | | | | |
| | | | (a) | | See “Energy-Related Derivatives” above. | | | (b) | | Other includes corporate operations, shared service entities, including BSC, Enterprises and investments in synthetic fuel-producing facilities. |
| | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2007 | | | | | Generation | | | ComEd(a) | | | Other(b) | | | Exelon | | | | | Unrealized mark-to-market losses | | $ | (81 | ) | | $ | (2 | ) | | $ | (11 | ) | | $ | (94 | ) | | Realized mark-to-market gains (losses) | | | (54 | ) | | | 2 | | | | — | | | | (52 | ) | | | | | | | | | | | | | | | | | | | | Total net mark-to-market losses | | $ | (135 | ) | | $ | — | | | $ | (11 | ) | | $ | (146 | ) | | | | | | | | | | | | | | | | | | |
| | | | (a) | | See “Energy-Related Derivatives” above. | | | (b) | | Other includes corporate operations, shared service entities, including BSC, Enterprises and investments in synthetic fuel-producing facilities. |
| | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2006 | | | | | Generation | | | ComEd(a) | | | Other(b) | | | Exelon | | | | | Unrealized mark-to-market gains | | $ | 30 | | | $ | 2 | | | $ | 28 | | | $ | 60 | | | Realized mark-to-market gains | | | 28 | | | | 1 | | | | — | | | | 29 | | | | | | | | | | | | | | | | | | | | | Total net mark-to-market gains | | $ | 58 | | | $ | 3 | | | $ | 28 | | | $ | 89 | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | See “Energy-Related Derivatives” above. | | | (b) | | Other includes corporate operations, shared service entities, including BSC, Enterprises and investments in synthetic fuel-producing facilities. |
| | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2006 | | | | | Generation | | | ComEd(a) | | | Other(b) | | | Exelon | | | | | Unrealized mark-to-market gains (losses) | | $ | (26 | ) | | $ | (9 | ) | | $ | 41 | | | $ | 6 | | | Realized mark-to-market gains | | | 63 | | | | 1 | | | | — | | | | 64 | | | | | | | | | | | | | | | | | | | | | Total net mark-to-market gains (losses) | | $ | 37 | | | $ | (8 | ) | | $ | 41 | | | $ | 70 | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | See “Energy-Related Derivatives” above. | | | (b) | | Other includes corporate operations, shared service entities, including BSC, Enterprises and investments in synthetic fuel-producing facilities. |
47
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Proprietary Trading Activities (Generation). Proprietary trading includes all contracts entered into purely to profit from market price changes as opposed to hedging an exposure and is subject to limits established by Exelon’s Risk Oversight Committee. These contracts are recognized on the Consolidated Balance Sheets at fair value and changes in the fair value of these derivative financial instruments are recognized in earnings. The proprietary trading activities, which included volumes of 4,775 GWhs and 9,876 GWhs for the three and six months ended June 30, 2007, respectively, and 7,769 GWhs and 14,754 GWhs for the three and six months ended June 30, 2006, respectively, are a complement to Generation’s energy marketing portfolio but represent a very small portion of Generation’s revenue from energy marketing activities. For the three and six months ended June 30, 2007 and 2006, Exelon and Generation recognized the following net unrealized mark-to-market gains, realized mark-to-market losses and total net mark-to-market gains (before income taxes) relating to mark-to-market activity on derivative instruments entered into for trading purposes. Gains and losses associated with proprietary trading are reported as revenue in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income. | | | | | | | | | | | | | Three Months
| | | | | Ended March 31, | | | | | 2007 | | | 2006 | | | | Unrealizedmark-to-market gains | | $ | — | | | $ | 2 | | Realizedmark-to-market losses | | | (3 | ) | | | (2 | ) | | | | | | | | | | | Total netmark-to-market losses | | $ | (3 | ) | | $ | — | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Three Months
| | | Six Months
| | | | | Ended
| | | Ended
| | | | | June 30, | | | June 30, | | | | | 2007 | | | 2006 | | | 2007 | | | 2006 | | | | | Unrealized mark-to-market gains | | $ | 32 | | | $ | 2 | | | $ | 32 | | | $ | 4 | | | Realized mark-to-market losses | | | (2 | ) | | | (2 | ) | | | (4 | ) | | | (4 | ) | | | | | | | | | | | | | | | | | | | | Total net mark-to-market gains | | $ | 30 | | | $ | — | | | $ | 28 | | | $ | — | | | | | | | | | | | | | | | | | | | |
Credit Risk Associated with Derivative Instruments (Exelon and Generation) The Registrants would be exposed to credit-related losses in the event of non-performance by counterparties that enter into derivative instruments. The credit exposure of derivatives contracts is represented by the fair value of contracts at the reporting date. For energy-related derivative instruments, Generation attempts to enter into enabling agreements that allow for payment netting with its counterparties, which reduces Generation’s exposure to counterparty risk by providing for the offset of amounts payable to the counterparty against amounts receivable from the counterparty. Typically, each enabling agreement is for a specific commodity and so, with respect to each individual counterparty, netting is limited to transactions involving that specific commodity product, except where master netting agreements exist with a counterparty that allows for cross product netting. In addition to payment netting language in the enabling agreement, the credit department establishes credit limits and letter of credit requirements for each counterparty, which are defined in the derivatives contracts. Counterparty credit limits are based on an internal credit review that considers a variety of factors, including the results of a scoring model, leverage, liquidity, profitability, credit ratings and risk management capabilities. To the extent that a counterparty’s credit limit and letter of credit thresholds are exceeded, the counterparty is required to post collateral with Generation as specified in each enabling agreement. Generation’s credit department monitors current and forward credit exposure to counterparties and their affiliates, both on an individual and an aggregate basis. Under the Illinois auction rules and the supplier forward contracts that Generation entered into with ComEd and Ameren, beginning in 2007, collateral postings will behave been one-sided from Generation only. That is, ifwhen market prices fallhave fallen below ComEd’s or Ameren’s contracted price levels, ComEd or Ameren arehave not been required to post collateral; however, ifwhen market prices risehave risen above contracted price levels with ComEd or Ameren, Generation may behas been required to post collateral. The notional amount of derivatives does not represent amounts that are exchanged by the parties and, thus, is not a measure of the Registrants’Registrant’s exposure. The amounts exchanged are calculated on the basis of the notional or
48
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) contract amounts, as well as on the other terms of the derivatives, which relate to interest rates and the volatility of these rates. Exelon’s and Generation’s credit exposure, net of collateral, as of March 31,June 30, 2007 and December 31, 2006 were $525$870 million and $791 million, respectively. As of March 31,June 30, 2007, Generation had $127$257 million of collateral deposit payments being held by counterparties and Generation was holding $27$6 million of collateral deposits received from counterparties. | | | 9. | Retirement Benefits (Exelon, Generation, ComEd and PECO) |
Exelon sponsors defined benefit pension plans and postretirement benefit plans for essentially all Generation, ComEd, PECO and BSCExelon Corporate employees, except for those employees of Generation’s wholly owned subsidiary,
43
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
AmerGen, who participate in the separate AmerGen-sponsored defined benefit pension plan and postretirement benefit plan. In 2006, President Bush signed into law the Pension Protection Act of 2006 (the Act), which will affect the manner in which many companies, including Exelon and Generation, administer their pension plans. This legislation will be effective as of January 1, 2008 and may require companies to, among other things, increase the amount by which they fund their pension plans, pay higher premiums to the Pension Benefit Guaranty Corporation if they sponsor defined benefit plans, amend plan documents and provide additional plan disclosures in regulatory filings and to plan participants. The Registrants are currently unable to determine whether the Act or possible further regulation will have a material impact on their liquidity and capital resources. The Registrants are currently assessing the potential impact of the Act. Defined Benefit Pension and Other Postretirement Benefits — Consolidated Plans (Exelon, Generation, ComEd and PECO) In the second quarter of 2007, Exelon received the final valuations of its pension and other postretirement benefit obligations to reflect actual census data as of December 31, 2006. This valuation resulted in an increase to the pension obligations of $17 million and a decrease to other postretirement obligations of $75 million. Additionally, OCI increased by approximately $19 million. The impact to the Consolidated Statement of Operations and Comprehensive Income is not material. The following table presentstables present the components of Exelon’s net periodic benefit costs for the three and six months ended March 31,June 30, 2007 and 2006. The 2007 pension benefit cost is calculated using an expected long-term rate of return on plan assets of 8.75%. The 2007 other postretirement benefit cost is calculated using an expected long-term rate of return on plan assets of 7.87%. A portion of the net periodic benefit cost is capitalized within the Consolidated Balance Sheets. Exelon calculates the expected return on pension and other postretirement benefit plan assets by multiplying the expected long-term rate of return on plan assets by the market-related value (MRV) of plan assets at the beginning of the year, taking into consideration anticipated contributions and benefit payments that are to be made during the year. SFAS No. 87, “Employer’s Accounting for Pensions” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions” allow the MRV of plan assets to be either fair value or a calculated value that recognizes changes in fair value in a systematic and rational manner over not more than five years. Exelon uses a calculated value when determining the MRV of the pension plan assets that adjusts for 20% of the difference between fair value and expected MRV of plan assets. This calculated value has the effect of stabilizing variability in assets to which Exelon applies that expected return. Exelon uses fair value when determining the MRV of the other postretirement benefit plan assets. | | | | | | | | | | | | | | | | | | | | | | | | Other
| | | | | Pension
| | | Postretirement
| | | | | Benefits
| | | Benefits
| | | | | Three Months
| | | Three Months
| | | | | Ended
| | | Ended
| | | | | March 31, | | | March 31, | | | | | 2007 | | | 2006 | | | 2007 | | | 2006 | | | | | Service cost | | $ | 41 | | | $ | 41 | | | $ | 25 | | | $ | 25 | | | Interest cost | | | 151 | | | | 142 | | | | 49 | | | | 47 | | | Expected return on assets | | | (204 | ) | | | (204 | ) | | | (28 | ) | | | (26 | ) | | Amortization of: | | | | | | | | | | | | | | | | | | Transition obligation | | | — | | | | — | | | | 2 | | | | 2 | | | Prior service cost (benefit) | | | 4 | | | | 4 | | | | (14 | ) | | | (23 | ) | | Actuarial loss | | | 37 | | | | 40 | | | | 17 | | | | 23 | | | | | | | | | | | | | | | | | | | | | Net periodic benefit cost | | $ | 29 | | | $ | 23 | | | $ | 51 | | | $ | 48 | | | | | | | | | | | | | | | | | | | |
49
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | | | | | | | | | | | | | | | | | | | | Other
| | | | | Pension
| | | Postretirement
| | | | | Benefits
| | | Benefits
| | | | | Three Months
| | | Three Months
| | | | | Ended
| | | Ended
| | | | | June 30, | | | June 30, | | | | | 2007 | | | 2006 | | | 2007 | | | 2006 | | | | | Service cost | | $ | 40 | | | $ | 38 | | | $ | 28 | | | $ | 25 | | | Interest cost | | | 151 | | | | 139 | | | | 47 | | | | 44 | | | Expected return on assets | | | (204 | ) | | | (204 | ) | | | (30 | ) | | | (27 | ) | | Amortization of: | | | | | | | | | | | | | | | | | | Transition obligation | | | — | | | | — | | | | 3 | | | | 3 | | | Prior service cost (benefit) | | | 4 | | | | 4 | | | | (14 | ) | | | (23 | ) | | Actuarial loss | | | 37 | | | | 34 | | | | 15 | | | | 21 | | | | | | | | | | | | | | | | | | | | | Net periodic benefit cost | | $ | 28 | | | $ | 11 | | | $ | 49 | | | $ | 43 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Other
| | | | | Pension
| | | Postretirement
| | | | | Benefits
| | | Benefits
| | | | | Six Months
| | | Six Months
| | | | | Ended
| | | Ended
| | | | | June 30, | | | June 30, | | | | | 2007 | | | 2006 | | | 2007 | | | 2006 | | | | | Service cost | | $ | 81 | | | $ | 79 | | | $ | 53 | | | $ | 50 | | | Interest cost | | | 302 | | | | 281 | | | | 96 | | | | 91 | | | Expected return on assets | | | (408 | ) | | | (408 | ) | | | (58 | ) | | | (53 | ) | | Amortization of: | | | | | | | | | | | | | | | | | | Transition obligation | | | — | | | | — | | | | 5 | | | | 5 | | | Prior service cost (benefit) | | | 8 | | | | 8 | | | | (28 | ) | | | (46 | ) | | Actuarial loss | | | 74 | | | | 74 | | | | 32 | | | | 44 | | | | | | | | | | | | | | | | | | | | | Net periodic benefit cost | | $ | 57 | | | $ | 34 | | | $ | 100 | | | $ | 91 | | | | | | | | | | | | | | | | | | | |
The following approximate amounts were included in capital and operating and maintenance expense during the three and six months ended March 31,June 30, 2007 and 2006, respectively, for Generation’s, ComEd’s, PECO’s and Exelon Corporate’s allocated portion of the Exelon-sponsored and AmerGen-sponsored pension and postretirement benefit plans: | | | | | | | | | | | | | | | | | | | | | Three Months
| | | Six Months
| | | | | Ended
| | | Ended
| | | | | June 30, | | | June 30, | | Pension and Postretirement Benefit Costs | | 2007 | | | 2006 | | | 2007 | | | 2006 | | | | | Generation | | $ | 35 | | | $ | 26 | | | $ | 71 | | | $ | 57 | | | ComEd | | | 27 | | | | 19 | | | | 51 | | | | 38 | | | PECO | | | 6 | | | | 5 | | | | 16 | | | | 15 | | | Exelon Corporate(a) | | | 9 | | | | 4 | | | | 19 | | | | 15 | |
4450
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Corporate’s allocated portion of the Exelon-sponsored and AmerGen-sponsored pension and postretirement benefit plans:
| | | | | | | | | | | | | Three Months
| | | | | Ended
| | | | | March 31, | | Pension and Postretirement Benefit Costs | | 2007 | | | 2006 | | | | | Generation | | $ | 36 | | | $ | 31 | | | ComEd | | | 24 | | | | 19 | | | PECO | | | 10 | | | | 10 | | | Exelon Corporate(a) | | | 10 | | | | 11 | |
| | | | (a) | | Represents amounts billed to Exelon’s subsidiaries through intercompany allocations. |
Pension and Other Postretirement Benefits — AmerGen Plans (Generation) The following table presentstables present the components of net periodic benefit costs for the three and six months ended March 31,June 30, 2007 and 2006 for the AmerGen-sponsored plans. The 2007 pension benefit cost is calculated using an expected long-term rate of return on plan assets of 8.75%. A portion of the net periodic benefit cost is capitalized within the Consolidated Balance Sheets. AmerGen uses fair value for purposes of determining the MRV of the pension and other postretirement benefit plan assets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other
| | | | | Other
| | | | | Pension
| | Postretirement
| | | Pension
| | Postretirement
| | | | | Benefits
| | Benefits
| | | Benefits
| | Benefits
| | | | | Three Months
| | Three Months
| | | Three Months
| | Three Months
| | | | | Ended
| | Ended
| | | Ended
| | Ended
| | | | | March 31, | | March 31, | | | June 30, | | June 30, | | | | | 2007 | | 2006 | | 2007 | | 2006 | | | 2007 | | 2006 | | 2007 | | 2006 | | | | | Service cost | | $ | 3 | | | $ | 3 | | | $ | 2 | | | $ | 2 | | | $ | 3 | | | $ | 3 | | | $ | 2 | | | $ | 2 | | | Interest cost | | | 2 | | | | 2 | | | | 1 | | | | 1 | | | | 2 | | | | 1 | | | | 2 | | | | 2 | | | Expected return on assets | | | (2 | ) | | | (2 | ) | | | — | | | | — | | | | (2 | ) | | | (1 | ) | | | — | | | | — | | | Amortization of prior service cost | | | | — | | | | — | | | | (1 | ) | | | (1 | ) | | | | | | | | | | | | | | | | | | | | | | Net periodic benefit cost | | $ | 3 | | | $ | 3 | | | $ | 3 | | | $ | 3 | | | $ | 3 | | | $ | 3 | | | $ | 3 | | | $ | 3 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Other
| | | | | Pension
| | | Postretirement
| | | | | Benefits
| | | Benefits
| | | | | Six Months
| | | Six Months
| | | | | Ended
| | | Ended
| | | | | June 30, | | | June 30, | | | | | 2007 | | | 2006 | | | 2007 | | | 2006 | | | | | Service cost | | $ | 6 | | | $ | 6 | | | $ | 4 | | | $ | 4 | | | Interest cost | | | 4 | | | | 3 | | | | 3 | | | | 3 | | | Expected return on assets | | | (4 | ) | | | (3 | ) | | | — | | | | — | | | Amortization of prior service cost | | | — | | | | — | | | | (1 | ) | | | (1 | ) | | | | | | | | | | | | | | | | | | | | Net periodic benefit cost | | $ | 6 | | | $ | 6 | | | $ | 6 | | | $ | 6 | | | | | | | | | | | | | | | | | | | |
51
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 401(k) Savings Plan (Exelon, Generation, ComEd and PECO) Exelon, Generation, ComEd and PECO participate in a 401(k) savings plan sponsored by Exelon. The plan allows employees to contribute a portion of their pre-tax income in accordance with specified guidelines. Exelon, Generation, ComEd and PECO match a percentage of the employee contribution up to certain limits. The following table presents, by registrant,Registrant, the matching contribution to the savings plans during the three and six months ended March 31,June 30, 2007 and 2006: | | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | Three Months
| | Six Months
| | | | | Ended
| | | Ended
| | Ended
| | | | | March 31, | | | June 30, | | June 30, | | Savings Plan Matching Contributions | | 2007 | | 2006 | | | 2007 | | 2006 | | 2007 | | 2006 | | | | | Exelon | | $ | 16 | | | $ | 15 | | | $ | 16 | | | $ | 15 | | | $ | 32 | | | $ | 30 | | | Generation | | | 8 | | | | 8 | | | | 7 | | | | 8 | | | | 15 | | | | 16 | | | ComEd | | | 4 | | | | 4 | | | | 5 | | | | 4 | | | | 9 | | | | 8 | | | PECO | | | 2 | | | | 2 | | | | 2 | | | | 1 | | | | 3 | | | | 3 | |
45
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | 10. | Income Taxes (Exelon, Generation, ComEd and PECO) |
The Registrants’ effective income tax rate from continuing operations for the three and six months ended March 31,June 30, 2007 and 2006 varied from the U.S. Federal statutory rate principally due to the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2007 | | | Three Months Ended June 30, 2007 | | | | | Exelon | | Generation | | ComEd | | PECO | | | Exelon | | Generation | | ComEd | | PECO | | | | | U.S. Federal statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | Increase (decrease) due to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | State income taxes, net of Federal income tax benefit | | | 5.4 | | | | 5.4 | | | | 4.3 | | | | (0.9 | ) | | | 3.9 | | | | 4.3 | | | | 4.7 | | | | (0.2 | ) | | Qualified nuclear decommissioning trust fund income | | | 0.4 | | | | 0.5 | | | | — | | | | — | | | | 0.8 | | | | 0.9 | | | | — | | | | — | | | Plant basis differences | | | — | | | | — | | | | — | | | | 0.4 | | | | — | | | | — | | | | — | | | | 0.1 | | | Synthetic fuel-producing facilities credit(a) | | | (4.7 | ) | | | — | | | | — | | | | — | | | | (6.5 | ) | | | — | | | | — | | | | — | | | Domestic production activities deduction | | | (1.4 | ) | | | (1.5 | ) | | | — | | | | — | | | | (1.5 | ) | | | (1.9 | ) | | | — | | | | — | | | Tax exempt income | | | (0.3 | ) | | | (0.3 | ) | | | — | | | | — | | | | (0.4 | ) | | | (0.4 | ) | | | — | | | | — | | | Amortization of investment tax credit | | | (0.3 | ) | | | (0.1 | ) | | | (9.6 | ) | | | (0.3 | ) | | | (0.3 | ) | | | (0.2 | ) | | | (1.6 | ) | | | (0.4 | ) | | Nontaxable postretirement benefits | | | (0.3 | ) | | | (0.1 | ) | | | (8.9 | ) | | | (0.2 | ) | | | (0.3 | ) | | | (0.2 | ) | | | (1.6 | ) | | | (0.5 | ) | | Allowance for funds used during construction (AFUDC), equity | | | — | | | | — | | | | (3.6 | ) | | | — | | | | — | | | | — | | | | (0.5 | ) | | | — | | | Lobbying activities | | | 0.1 | | | | — | | | | 9.7 | | | | — | | | | — | | | | — | | | | 2.2 | | | | — | | | Forecasted annual tax rate adjustment | | | (0.3 | ) | | | (0.1 | ) | | | 11.0 | | | | — | | | | Investment tax credit charge | | | | 0.3 | | | | — | | | | — | | | | 2.3 | | | Other | | | (0.7 | ) | | | (1.1 | ) | | | (0.4 | ) | | | — | | | | (0.1 | ) | | | 0.1 | | | | 0.1 | | | | 0.1 | | | | | | | | | | | | | | | | | | | | | | | Effective income tax rate | | | 32.9 | % | | | 37.7 | % | | | 37.5 | % | | | 34.0 | % | | | 30.9 | % | | | 37.6 | % | | | 38.3 | % | | | 36.4 | % | | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | See Notes 2 and 12 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for further information regarding investments in synthetic fuel-producing facilities. |
| | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2006 | | | | | Exelon | | | Generation | | | ComEd | | | PECO | | | | | U.S. Federal statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | Increase (decrease) due to: | | | | | | | | | | | | | | | | | | State income taxes, net of Federal income tax benefit | | | 3.4 | | | | 4.4 | | | | 4.8 | | | | (0.6 | ) | | Qualified nuclear decommissioning trust fund income | | | 0.5 | | | | 0.7 | | | | — | | | | — | | | Amortization of regulatory asset | | | 0.7 | | | | — | | | | 0.7 | | | | — | | | Plant basis differences | | | 0.1 | | | | — | | | | — | | | | 0.1 | | | Synthetic fuel-producing facilities credit(a) | | | (4.4 | ) | | | — | | | | — | | | | — | | | Domestic production activities deduction | | | (0.8 | ) | | | (1.1 | ) | | | — | | | | — | | | Tax exempt income | | | (0.5 | ) | | | (0.7 | ) | | | — | | | | — | | | Amortization of investment tax credit | | | (0.5 | ) | | | (0.3 | ) | | | (0.8 | ) | | | (0.4 | ) | | Nontaxable postretirement benefits | | | (0.4 | ) | | | (0.3 | ) | | | (0.7 | ) | | | (0.3 | ) | | Lobbying activities | | | 0.6 | | | | — | | | | 0.3 | | | | — | | | Forecasted annual tax rate adjustment | | | 0.5 | | | | — | | | | 0.9 | | | | 0.1 | | | Other | | | (0.7 | ) | | | (0.2 | ) | | | 0.5 | | | | 0.1 | | | | | | | | | | | | | | | | | | | | | Effective income tax rate | | | 33.5 | % | | | 37.5 | % | | | 40.7 | % | | | 34.0 | % | | | | | | | | | | | | | | | | | | |
4652
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2007 | | | | | Exelon | | | Generation | | | ComEd | | | PECO | | | | | U.S. Federal statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | Increase (decrease) due to: | | | | | | | | | | | | | | | | | | State income taxes, net of Federal income tax benefit | | | 4.7 | | | | 4.8 | | | | 4.7 | | | | (0.6 | ) | | Qualified nuclear decommissioning trust fund income | | | 0.5 | | | | 0.7 | | | | — | | | | — | | | Plant basis differences | | | — | | | | — | | | | — | | | | 0.3 | | | Synthetic fuel-producing facilities credit(a) | | | (5.6 | ) | | | — | | | | — | | | | — | | | Domestic production activities deduction | | | (1.5 | ) | | | (1.7 | ) | | | — | | | | — | | | Tax exempt income | | | (0.3 | ) | | | (0.4 | ) | | | — | | | | — | | | Amortization of investment tax credit | | | (0.3 | ) | | | (0.1 | ) | | | (1.6 | ) | | | (0.3 | ) | | Nontaxable postretirement benefits | | | (0.3 | ) | | | (0.2 | ) | | | (1.6 | ) | | | (0.3 | ) | | AFUDC, equity | | | — | | | | — | | | | (0.4 | ) | | | — | | | Lobbying activities | | | 0.1 | | | | — | | | | 2.0 | | | | — | | | Investment tax credit charge | | | 0.2 | | | | — | | | | — | | | | 1.0 | | | Other | | | (0.6 | ) | | | (0.5 | ) | | | 0.8 | | | | — | | | | | | | | | | | | | | | | | | | | | Effective income tax rate | | | 31.9 | % | | | 37.6 | % | | | 38.9 | % | | | 35.1 | % | | | | | | | | | | | | | | | | | | |
| | | | (a) | | See Notes 2 and 12 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for further information regarding investments in synthetic fuel-producing facilities. |
| | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2006 | | | | | Exelon | | | Generation | | | ComEd | | | PECO | | | | | U.S. Federal statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | Increase (decrease) due to: | | | | | | | | | | | | | | | | | | State income taxes, net of Federal income tax benefit | | | 3.7 | | | | 4.4 | | | | 4.9 | | | | (2.1 | ) | | Qualified nuclear decommissioning trust fund income | | | 0.3 | | | | 0.4 | | | | — | | | | — | | | Amortization of regulatory asset | | | — | | | | — | | | | 0.7 | | | | — | | | Plant basis differences | | | 0.1 | | | | — | | | | — | | | | 0.8 | | | Domestic production activities deduction | | | (0.5 | ) | | | (0.6 | ) | | | — | | | | — | | | Tax exempt income | | | (0.3 | ) | | | (0.4 | ) | | | — | | | | — | | | Amortization of investment tax credit | | | (0.3 | ) | | | (0.1 | ) | | | (0.3 | ) | | | (0.4 | ) | | Nontaxable postretirement benefits | | | (0.3 | ) | | | (0.2 | ) | | | (0.3 | ) | | | (0.3 | ) | | Other | | | (1.5 | ) | | | (1.3 | ) | | | 0.4 | | | | (0.4 | ) | | | | | | | | | | | | | | | | | | | | Effective income tax rate | | | 36.2 | % | | | 37.2 | % | | | 40.4 | % | | | 32.6 | % | | | | | | | | | | | | | | | | | | |
53
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2006 | | | | | Exelon | | | Generation | | | ComEd | | | PECO | | | | | U.S. Federal statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | Increase (decrease) due to: | | | | | | | | | | | | | | | | | | State income taxes, net of Federal income tax benefit | | | 3.6 | | | | 4.4 | | | | 4.8 | | | | (1.3 | ) | | Qualified nuclear decommissioning trust fund income | | | 0.4 | | | | 0.5 | | | | — | | | | — | | | Amortization of regulatory asset | | | — | | | | — | | | | 0.7 | | | | — | | | Plant basis differences | | | 0.1 | | | | — | | | | — | | | | 0.4 | | | Synthetic fuel-producing facilities credit(a) | | | (1.6 | ) | | | — | | | | — | | | | — | | | Domestic production activities deduction | | | (0.6 | ) | | | (0.8 | ) | | | — | | | | — | | | Tax exempt income | | | (0.4 | ) | | | (0.5 | ) | | | — | | | | — | | | Amortization of investment tax credit | | | (0.4 | ) | | | (0.2 | ) | | | (0.5 | ) | | | (0.4 | ) | | Nontaxable postretirement benefits | | | (0.3 | ) | | | (0.2 | ) | | | (0.4 | ) | | | (0.3 | ) | | Lobbying activities | | | — | | | | — | | | | 0.2 | | | | — | | | Other | | | (0.7 | ) | | | (1.0 | ) | | | 0.7 | | | | (0.1 | ) | | | | | | | | | | | | | | | | | | | | Effective income tax rate | | | 35.1 | % | | | 37.2 | % | | | 40.5 | % | | | 33.3 | % | | | | | | | | | | | | | | | | | | |
| | | | (a) | | See Notes 2 and 12 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for further information regarding investments in synthetic fuel-producing facilities. |
Accounting for Uncertainty in Income Taxes (Exelon, Generation, ComEd and PECO) The Registrants adopted the provisions of FIN 48 on January 1, 2007. The following table shows the effect of adopting FIN 48 on the Registrants’ Consolidated Balance Sheets as of January 1, 2007. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase (decrease) | | Exelon | | Generation | | ComEd | | PECO | | | Exelon | | Generation | | ComEd | | PECO | | | | | Accounts receivable, net — Other | | $ | 72 | | | $ | — | | | $ | 72 | | | $ | 1 | | | $ | 83 | | | $ | — | | | $ | 72 | | | $ | 12 | | | Goodwill | | | (53 | ) | | | — | | | | (53 | ) | | | — | | | | (53 | ) | | | — | | | | (53 | ) | | | — | | | Other deferred debits and other assets | | | 378 | | | | 22 | | | | 137 | | | | 208 | | | | 381 | | | | 22 | | | | 137 | | | | 208 | | | Accrued expenses | | | (211 | ) | | | (2 | ) | | | (186 | ) | | | — | | | | (197 | ) | | | 5 | | | | (186 | ) | | | — | | | Deferred income taxes and unamortized investment tax credits | | | (86 | ) | | | 28 | | | | (299 | ) | | | 185 | | | | (83 | ) | | | 30 | | | | (299 | ) | | | 186 | | | Other deferred credits and other liabilities | | | 710 | | | | 31 | | | | 642 | | | | 11 | | | | 705 | | | | 31 | | | | 642 | | | | 11 | | | Retained earnings | | | (16 | ) | | | (35 | ) | | | (1 | ) | | | 13 | | | | (14 | ) | | | (44 | ) | | | (1 | ) | | | 23 | |
As a result of the implementation of FIN 48, Exelon, Generation, ComEd, and PECO have identified unrecognized tax benefits of $1.5 billion, $311 million, $797 million and $318 million, respectively, as of January 1, 2007. Generation has identified $51 million of its unrecognized tax expense at January 1, 2007 that, if recognized, would increase the effective tax rate. ComEd has identified $21 million of its unrecognized tax benefit at January 1, 2007 that, if recognized, would decrease the effective tax rate. Generation has identified $51 million of its unrecognized tax expense at January 1, 2007 that, if recognized, would increase the effective tax rate. Generation and PECO have reflected in their Consolidated Balance Sheets as of January 1, 2007 a net interest receivable of $1 million and $20$21 million, respectively, related to their uncertain income tax positions. Exelon and 54
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) ComEd have reflected in their Consolidated Balance Sheets as of January 1, 2007 a net interest liability of $134$130 million and $167 million, respectively, related to their uncertain income tax positions. The Registrants have not accrued any penalties with respect to unrecognized income tax benefits. The Registrants recognize accrued interest related to unrecognized tax benefits in interest expense or interest income and penalties, if any, in operating and maintenance expense on their Consolidated Statements of Operations. Exelon and ComEd havehas reflected in theirits Consolidated Statement of Operations as of March 31, 2007 net interest expense of $4$6 million and $8$10 million respectively, related to theirits uncertain income tax positions.positions for the three and six months ended June 30, 2007, respectively. ComEd has reflected in its Consolidated Statement of Operations net interest expense of $8 million and $17 million related to its uncertain income tax positions for the three and six months ended June 30, 2007, respectively. PECO has reflected in its Consolidated Income Statement as of March 31, 2007 net interest income of $3$2 million and $5 million related to its uncertain income tax positions.positions for the three and six months ended June 30, 2007, respectively. Exelon and its subsidiaries file a consolidated U.S. Federal income tax return as well as unitary and combined income tax returns in several state jurisdictions with Illinois being the most significant. Exelon and its subsidiaries also file separate company income tax returns in several states with Pennsylvania being the most significant. Exelon and its subsidiaries have completed examinations by the Internal Revenue Service (IRS) for taxable years prior to 1999; however several tax issues remain unresolved for tax years prior to 1999 and have been protested to IRS Appeals, the next administrative level within the IRS. In the second quarter of 2004, the IRS commenced an audit of Exelon and its subsidiaries for taxable years 1999 through 2001 and is expected to complete the audit by the end of 2007. Exelon and its subsidiaries have also completed examinations by the state of Illinois for taxable years prior to 1999 and by the Commonwealth of Pennsylvania on the separate company income tax returns for taxable years ending from 2000 to 2003. However, to the extent adjustments are made to these prior years as either part of a settlement at IRS Appeals or IRS Examination, the state taxable income may also be adjusted.
47
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
It is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease in the next twelve months as a result of settling several uncertain tax positions. ComEd is in the process of negotiating with IRS Appeals a settlement related to research and development refund claims filed by ComEd for taxable years 1989 through 1998. At this point, an estimate of a change, if any, to the unrecognized tax benefit amount cannot be made. A majority of the refund claim relates to ComEd’s formerly owned generation property. Pursuant to the asset transfer agreement between ComEd and Generation, any current tax benefit related to this unrecognized tax benefit as well as a portion of the related interest income would be recorded to ComEd’s goodwill as it relates to taxable periods prior to the PECO /Unicom/ Unicom merger as required underEITF 93-7. Generation would record the offsetting future deferred tax effects, which would impact future period earnings. ComEd and PECO also have several other issues at the IRS Appeals for taxable years 1996 through 1998 that, if settled, would not significantly increase or decrease the total amount of unrecognized tax benefits. Exelon filed refund claims for investment tax credits with respect to its utility property with the Illinois Department of Revenue. Although those claims were denied by the Illinois Department of Revenue, Exelon has filed a suit for a refund. The case is now before the Illinois Appellate Court and a decision is likely to occur within the next twelve months. It is reasonably possible that the amount of unrecognized tax benefit will decrease by as much as $71 million, $16 million and $55 million for Exelon, Generation and ComEd, respectively. As part of the Federal examination of taxable years 1999 through 2001, the IRS has issued proposed adjustments related to ComEd’s deferral of gain on the 1999 sale of its fossil plants. See “1999 Sale of Fossil Generating Assets” below for details. ComEd’s management is in the process of evaluating its options with respect to the proposed tax deficiency. Those options include either protesting the disallowance to the IRS Appeals Division or possible litigation. If ComEd’s management decides to litigate the matter, ComEd may be required to pay the tax and related interest due on the deficiency and file for refund. PayingUpon payment of the tax liability and related interest, ComEd
55
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) would reassess its tax position with respect to the gain deferral of the fossil plant sale and its related issues maysale. As a result in a decrease inof this reassessment, the amount of unrecognized tax benefits may decrease by as much as $433$428 million. The IRS has also proposed an adjustment requiring the capitalization of certain merger costs previously deducted, associated with the PECO / Unicom merger. Management is currently reviewingIn the proposedsecond quarter of 2007, management agreed to accept the IRS’ adjustment to determine if it agrees, but if accepted,capitalize the merger costs. Exelon and PECO would reducereduced the amount of its unrecognized tax benefits by approximately $16 million and $10 million, respectively. Generation and ComEd filed refund claims related to taxable years 1999 through 2004 for research and development expenditures. The IRS is in the early stages of the audit of those claims. At this point, an estimate of a change, if any, to the unrecognized tax benefit amount cannot be made. Certain of ComEd and PECO’s tax positions evaluated under FIN 48 are dependent on ComEd and PECO having sufficient tax basis in its fixed assets. Should ComEd and PECO obtain any future benefit associated with the Simplified Service Cost Method (SSCM) accounting method change (discussed fully below), it will require a reduction to the tax basis of assets. As a result, the SSCM could have an effect on the unrecognized tax benefits associated with other tax positions that are dependent on tax basis.
Simplified Service Cost Method (Exelon, ComEd and PECO)
In 2001, ComEd and PECO filed a request with the IRS to change their tax method of accounting for certain capitalized overhead costs. The requested tax method of accounting, the SSCM,Simplified Service Cost Method (SSCM), is expressly permitted under IRS regulations. The effect of the tax method change results in the immediate expensing of certain overhead costs that were previously capitalized to self-constructed property. During the first quarter of 2007, the IRS granted the tax method change. In April 2007, ComEd and PECO signed the consent agreements, thus making the tax method change effective as of that date. The consent agreement has terms and conditions that subject the change to certain published guidance as well as future guidelines and directives to be issued by the IRS. As a result of the uncertainty of forthcoming IRS settlement guidelines, ComEd and PECO are currently unable to estimate the tax benefit associated with the SSCM. ComEd and PECO have entered into an agreement with a tax consultant related to the filing of this tax method change request. The fee for this agreement is contingent upon receiving consent from the IRS and is based upon a percentage of the refunds recovered from the IRS, if any. The ultimate net cash impacts to
48
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ComEd and PECO related to this agreement will either be positive or neutral depending upon the outcome of the refund claim with the IRS. A portion of the tax refund, if any, will likely relate to ComEd and PECO’s formerly owned generation property and thus the current tax benefits will be recorded by ComEd and PECO with partially offsetting deferred tax effects at Generation. These potential tax benefits and associated fees would be recorded in accordance with FIN 48 and SFAS No. 5, “Accounting for Contingencies” (SFAS No. 5), respectively, and could be material to the financial position, results of operations and cash flows of Generation, ComEd and PECO. Certain of ComEd and PECO’s tax positions evaluated under FIN 48 are dependent on ComEd and PECO having sufficient tax basis in their fixed assets. Should ComEd and PECO obtain any future benefit associated with the SSCM accounting method change, it will require a reduction to the tax basis of assets. As a result, the SSCM could have an effect on the unrecognized tax benefits associated with other tax positions that are dependent on tax basis. 1999 Sale of Fossil Generating Assets (Exelon, Generation and ComEd) 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 March 31,June 30, 2007 and December 31, 2006, deferred tax liabilities related to the fossil plant sale are reflected in Exelon’s Consolidated Balance Sheets with the majority allocated to ComEd and the remainder to Generation. The Federal tax returns and related tax return disclosures covering the period of the 1999 sale are currently under IRS audit. Exelon’s ability to continue to defer all or a portion of this liability depends on whether its treatment of the sales proceeds, as having been received in connection with an involuntary conversion is proper pursuant to applicable law. In November 2006, ComEd received from the IRS a notice of proposed adjustment disallowing the deferral of gain associated with its position that proceeds from the fossil plant sales resulted from an “involuntary conversion.”
56
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Exelon’s and ComEd’s ability to continue to defer the remainder of the tax liability on the fossil plant sale may depend in part on whether its tax characterization of a sale leaseback transaction into which Exelon entered into in connection with the fossil plant sale is proper pursuant to applicable law. In February 2007, Exelon received from the IRS a notice of proposed adjustment disallowing the deferral of gain associated with its sale leasebacksale-leaseback transaction. The IRS has indicated its position that the Exelon sale leaseback transaction is substantially similar to a leasing transaction, a sale-in, lease-out (SILO), the IRS is treating as a “listed transaction” pursuant to guidance it issued in 2005. A listed transaction is one, which the IRS considers to be a potentially abusive tax shelter. Exelon disagrees with the IRS’s characterization of its sale leasebacksale-leaseback as a SILO and believes its position is correctjustified and will continue to aggressively defend that position upon audit and any subsequent appeals or litigation. In final form, both the noticedisallowance for the involuntary conversion and the like kind exchange transactions will be in the IRS’ audit report expected to be issued in the second or third quarter of 2007. Upon receipt of the final IRS report, Exelon will have the opportunity to either appeal the disallowance to the IRS Appeals, the next administrative level of the IRS, or litigate the matter. If Exelon’s and ComEd’s management decidesdecide to litigate the matter, it may be required to pay the tax and related interest due on the deficiency and file for refund. A successful IRS challenge to ComEd’s positions would accelerate future income tax payments and increase interest expense related to the deferred tax gain that becomes currently payable. As of March 31,June 30, 2007, Exelon’s and ComEd’s potential cash outflow, including tax and interest (after tax), could be as much as $978$983 million. If the deferral were successfully challenged by the IRS, it could negatively impact Exelon’s and ComEd’s results of operations by as much as $146$153 million (after tax) related to interest expense. Exelon’s and ComEd’s management believe aan appropriate reserve for interest has been appropriately recorded in accordance with FIN 48; however, the ultimate outcome of such matters could result in unfavorable or favorable adjustmentsimpacts to the results of operations, and such adjustments could be material. Final resolution of this matter is not anticipated for several years. Investments in Synthetic Fuel-Producing Facilities (Exelon) Exelon, through three separate wholly owned subsidiaries, owns interests in two limited liability companies and one limited partnership (the(collectively, the Sellers) that own synthetic fuel-producing facilities. Section 45K (formerly Section 29) of the Internal Revenue Code provides tax credits for the sale of synthetic fuel produced from coal. However, Section 45K contains a provision under which the tax credits are phased out (i.e., eliminated) in the event crude oil prices for a year exceed certain thresholds. Exelon is required to pay for tax credits based on the production
49
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of the facilities regardless of whether or not a phase-out of the tax credits is anticipated. However, Exelon has the legal right to recover a portion of the payments made to the Sellers related to phased-out tax credits. In April 2007, the IRS published the 2006 oil Reference Price which resulted in a 33% phase-out of tax credits for calendar year 2006 which reduced Exelon’s earned after-tax credits of $164 million to $110 million for the year ended December 31, 2006. At December 31, 2006, Exelon had estimated the 2006 phase-out to be 38% and had receivables on its Consolidated Balance Sheet from the Sellers totaling $63 million associated with the portion of the payments previously made to the Sellers related to tax credits that were anticipated to be phased out for 2006. The difference between the actual 2006 phase-out and the 2006 phase-out previously estimated at December 31, 2006 resulted in a $9 million increase in 2006 tax credits for 2006 and a corresponding $6 million decrease, net of the related tax benefit, in the receivables due from the Sellers, as of December 31, 2006, which will behas been reflected in Exelon’s operating results infor the second quarter ofthree and six months ended June 30, 2007.
57
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table (in dollars) provides the estimated phase-out range for 2007 based on the per barrel price of oil as of March 31,June 30, 2007. The table also contains the estimated 2007 annual average New York Mercantile Exchange, Inc. index (NYMEX) price per barrel at March 31,June 30, 2007 based onyear-to-date and futures prices. | | | | | | | | | Estimated
| | | | | 2007 | | | | | Beginning of Phase-Out Range(a) | | $ | 62 | | | End of Phase-Out Range(a) | | | 78 | | | 2007 Annual Average NYMEX | | | 66 | |
| | | | (a) | | The estimated 2007 phase-out range as of March 31,June 30, 2007 is based upon the actual 2006 phase-out range. The actual 2006 phase-out range was determined using the inflation adjustment factor published by the IRS in April 2007. The actual 2006 phase-out range was increased by 2% (Exelon’s estimate of inflation) to arrive at the estimated 2007 phase-out range. |
At March 31,June 30, 2007, Exelon had receivables on its Consolidated Balance Sheet from the Sellers totaling $18$34 million associated with the portion of the payments previously made to the Sellers related to tax credits that are anticipated to be phased out in 2007. As of March 31,June 30, 2007, Exelon has estimated the 2007 phase-out to be 27%25%, which has reduced Exelon’s earned after-tax credits of $65$139 million to $48$105 million for the threesix months ended March 31,June 30, 2007. These credits may be further phased out during the remainder of 2007 depending on the price of oil; however, as these tax credits are phased out, Exelon anticipates recording income through the establishment of additional receivables from the Sellers or from derivatives entered into in 2005 (as more fully described below) depending on the magnitude of the credits phased-out. In 2005, Exelon and Generation entered into certain derivatives in the normal course of trading operations to economically hedge a portion of the exposure to a phase-out of the tax credits. One of the Sellers has security interests in these derivatives. Including the relatedmark-to-market gains and losses on these derivatives, interests in synthetic fuel-producing facilities increased Exelon’s net income by $25$27 million and $12reduced Exelon’s net income by $55 million during the three months ended March 31,June 30, 2007 and 2006, respectively. Additionally, interests in synthetic fuel-producing facilities increased Exelon’s net income by $52 million and reduced Exelon’s net income by $43 million during the six months ended June 30, 2007 and 2006, respectively. Exelon anticipates that it will continue to record income or losses related to themark-to-market gains or losses on its derivative instruments and changes to the tax credits earned by Exelon during the period of production as a result of volatility in oil prices. Net income from interests in synthetic fuel-producing facilities is reflected in the Consolidated Statements of Operations and Comprehensive Income within income taxes, operating and maintenance expense, depreciation and amortization expense, interest expense, equity in losses of unconsolidated affiliates and investments and other, net. There are provisions in the agreements between the parties, such as low production volume, unanimous consents between the parties and defaults by the parties, which would allow or cause an early termination of the partnerships. If none of the parties to the agreements takes action to terminate the partnerships early, the partnerships will terminate in 2008. The non-recourse notes payable principal balance was $56 million and $108 million at June 30, 2007 and December 31, 2006, respectively. The non-recourse notes payable can be relieved either through eventual payments or possibly through extinguishment, which may occur subsequent to termination of the partnership pursuant to the agreements between the parties.
5058
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) partnerships. If none of the parties to the agreements takes action to terminate the partnerships early, the partnerships will terminate in 2008.
The non-recourse notes payable principal balance was $74 million and $108 million at March 31, 2007 and December 31, 2006, respectively. The non-recourse notes payable can be relieved either through eventual payments or possibly through extinguishment which may occur subsequent to termination of the partnership pursuant to the agreements between the parties.
| | | 11. | Asset Retirement Obligations (Exelon and Generation) |
Nuclear Decommissioning Asset Retirement Obligations (ARO) Exelon, Generation and AmerGen have legal obligations to decommission their nuclear power plants following the expiration of their operating licenses. Exelon, Generation and AmerGen will pay for their respective obligations using trust funds that have been established for this purpose. The following table provides a rollforward of the nuclear decommissioning ARO reflected on Exelon’s and Generation’s Consolidated Balance Sheets, from January 1, 2007 to March 31,June 30, 2007: | | | | | | | | | | | | | Exelon and Generation | | | Exelon and Generation | | | | | Nuclear decommissioning AROs at January 1, 2007 | | $ | 3,533 | | | $ | 3,533 | | | Accretion expense | | | 57 | | | | 115 | | | Payments to decommission retired plants | | | (3 | ) | | | (4 | ) | | | | | | | | | | Nuclear decommissioning AROs at March 31, 2007 | | $ | 3,587 | | | | Nuclear decommissioning AROs at June 30, 2007 | | | $ | 3,644 | | | | | | | | | |
Exelon and Generation update their nuclear decommissioning AROs on a periodic basis; however, there were no changes in the underlying assumptions that would result in a significant change to the estimated future cash flows during the firstsix months ended June 30, 2007. During the second quarter of 2007 or 2006.2006, Generation recorded a net decrease in the ARO of approximately $604 million and pre-tax income of $149 million resulting from revisions to estimated future nuclear decommissioning cash flows, primarily due to revised management assumptions concerning an increased likelihood of successful nuclear license renewal efforts due to an increasingly favorable environment for nuclear power and, therefore, an increased likelihood of operating the nuclear plants through a full license extension period, and also due to a change in management’s expectation of when the U.S. Department of Energy (DOE) will establish a repository for and begin accepting spent nuclear fuel. The recognition of other operating income by Exelon and Generation of $149 million (pre-tax) was included in operating and maintenance expense in Exelon’s and Generation’s Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2006, representing the reduction in the ARO in excess of the existing ARC balance primarily for the AmerGen units. Nuclear Decommissioning Trust Fund Investments The trust funds that have been established to satisfy Exelon’s and Generation’s nuclear decommissioning obligations were originally funded with amounts collected from customers. Certain of these trust funds will continue to be funded by future collections from PECO customers. At March 31,June 30, 2007 and December 31, 2006, Exelon and Generation had nuclear decommissioning trust fund investments totaling $6,540$6,777 million and $6,415 million, respectively. At March 31,June 30, 2007, Exelon and Generation had gross unrealized gains of $1,532 million, related to the nuclear decommissioning trust fund investments, of which $1,218 million associated with the former ComEd and former PECO trusts was included in regulatory liabilities on Exelon’s Consolidated Balance Sheets and in noncurrent payables to affiliates on Generation’s Consolidated Balance Sheets. The remaining $314 million gross unrealized gains associated with the unregulated portions of Peach Bottom and AmerGen trusts are included in accumulated OCI on Exelon’s and Generation’s Consolidated Balance Sheets. At December 31, 2006, Exelon and Generation had gross unrealized gains of $1,353 million and $1,287 million, respectively, related to the nuclear decommissioning trust fund investments, of which were$1,037 million associated with the former ComEd and former PECO trusts was included in regulatory liabilities or accumulated other comprehensive income inon Exelon’s Consolidated Balance Sheets and in noncurrent payables to affiliates or accumulated other comprehensive income inon Generation’s Consolidated Balance Sheets. Exelon and Generation consider all nuclear decommissioning trust fund investments in an unrealized loss position to beother-than-temporarily impaired. As a result of certain Nuclear Regulatory Commission restrictions, Exelon and Generation are unable to demonstrate the ability and intent to hold the nuclear decommissioning trust fund investments through a recovery period and accordingly recognizes any unrealized holding losses immediately. For the three months ended March 31, 2007, Generation recorded impairment charges totaling $8 million and $2 million associated with the nuclear decommissioning trust funds for the former ComEd and the AmerGen units, respectively. For the three months ended March 31, 2006, Generation recorded impairment charges totaling $3 million associated with the nuclear decommissioning trust funds for the former ComEd units.
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EXELON CORPORATION AND SUBSIDIARY COMPANIES
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PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Consolidated Balance Sheets. The remaining $250 million gross unrealized gains associated with the unregulated portions of Peach Bottom and AmerGen trusts are included in accumulated OCI on Exelon’s and Generation’s Consolidated Balance Sheets. Exelon and Generation consider all nuclear decommissioning trust fund investments in an unrealized loss position to be other-than-temporarily impaired. As a result of certain Nuclear Regulatory Commission restrictions, Exelon and Generation are unable to demonstrate the ability and intent to hold the nuclear decommissioning trust fund investments through a recovery period and accordingly recognize any unrealized holding losses immediately. For the three months ended June 30, 2007, Generation recorded impairment charges totaling $12 million, $1 million and $1 million associated with the nuclear decommissioning trust funds for the former ComEd, the former PECO and the AmerGen units, respectively. For the six months ended June 30, 2007, Generation recorded impairment charges totaling $20 million, $1 million and $3 million associated with the nuclear decommissioning trust funds for the former ComEd, the former PECO and the AmerGen units, respectively. Generation recorded impairment charges totaling $7 million and $10 million associated with the nuclear decommissioning trust funds for the former ComEd units for the three and six months ended June 30, 2006, respectively. As a result of the sale of nuclear decommissioning trust fund investments, Exelon and Generation realized net gains of $9$10 million and $19 million for the three and six months ended March 31,June 30, 2007, respectively, and realized net losses of $2$9 million and $11 million for the three and six months ended March 31,June 30, 2006, respectively, on nuclear decommissioning trust funds. Refer to Notes 9 and 13 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for a full discussion of the accounting for nuclear decommissioning obligations, nuclear decommissioning trust funds and the corresponding accounting implications resulting from agreements entered into with ComEd and PECO at the time of the corporate restructuring effective January 1, 2001. In addition, see Note 16 — Related Party Transactions for information regarding intercompany balances between Generation, ComEd and PECO reflecting the obligation to refund to customers any decommissioning-related assets in excess of the related decommissioning obligations. | | | 12. | Earnings Per Share and Shareholders’ Equity (Exelon) |
Earnings per Share Diluted earnings per share areis 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, performance share awards and restricted stock outstanding under Exelon’s long-term incentive plans considered to be common stock equivalents. The following table sets forth the components of basic and diluted earnings per share and shows the effect of these stock options, performance share awards and restricted stock on the weighted average number of shares outstanding used in calculating diluted earnings per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | Three Months
| | Six Months
| | | | | Ended
| | | Ended
| | Ended
| | | | | March 31, | | | June 30, | | June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | 2007 | | 2006 | | | | | Income from continuing operations | | $ | 681 | | | $ | 399 | | | $ | 703 | | | $ | 641 | | | $ | 1,384 | | | $ | 1,041 | | | Income from discontinued operations | | | 10 | | | | 1 | | | | Income (loss) from discontinued operations | | | | (1 | ) | | | 3 | | | | 9 | | | | 3 | | | | | | | | | | | | | | | | | | | Net income | | $ | 691 | | | $ | 400 | | | $ | 702 | | | $ | 644 | | | $ | 1,393 | | | $ | 1,044 | | | | | | | | | | | | | | | | | | | Average common shares outstanding — basic | | | 672 | | | | 669 | | | | 675 | | | | 670 | | | | 674 | | | | 669 | | | Assumed exercise of stock options, performance share awards and restricted stock | | | 5 | | | | 6 | | | | 5 | | | | 6 | | | | 5 | | | | 6 | | | | | | | | | | | | | | | | | | | Average common shares outstanding — diluted | | | 677 | | | | 675 | | | | 680 | | | | 676 | | | | 679 | | | | 675 | | | | | | | | | | | | | | | | | |
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) There were no stock options excluded from the calculation of diluted common shares outstanding due to their antidilutive effect for the three and six months ended June 30, 2007. The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was 3 million and 4 million for the three and six months ended March 31, 2007 andJune 30, 2006, respectively. Share Repurchases In April 2004, Exelon’s 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. See Note 16 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for further information regarding Exelon’s share repurchase program. Repurchased shares are held as treasury shares and recorded at cost. As of March 31,June 30, 2007, 13 million shares of common stock have been purchased under the share repurchase program for $652 million. During the threesix months ended March 31,June 30, 2007 and 2006, Exelon repurchased 0.6 million shares and 0.9 million shares, respectively, of common stock under the share repurchase program for $37 million and $54$53 million, respectively.
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Long-Term Incentive Plans The following table presents the stock-based compensation expense included in Exelon’s Consolidated Statements of Income and Comprehensive Income during the three and six months ended March 31,June 30, 2007 and 2006: | | | | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | Three Months
| | Six Months
| | | | | Ended
| | | Ended
| | Ended
| | | | | March 31, | | | June 30, | | June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | 2007 | | 2006 | | | | | Stock options | | $ | 15 | | | $ | 17 | | | $ | 7 | | | $ | 8 | | | $ | 22 | | | $ | 25 | | | Performance shares | | | 17 | | | | 21 | | | | 19 | | | | 20 | | | | 36 | | | | 41 | | | Restricted stock units | | | 6 | | | | 1 | | | | 2 | | | | 1 | | | | 8 | | | | 2 | | | Employee stock purchase plan | | | | 1 | | | | 1 | | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | Total stock-based compensation included in operating and maintenance expense | | | 38 | | | | 39 | | | | 29 | | | | 30 | | | | 67 | | | | 69 | | | Income tax benefit | | | (15 | ) | | | (15 | ) | | | 12 | | | | 11 | | | | 27 | | | | 26 | | | | | | | | | | | | | | | | | | | Total after-tax stock-based compensation expense | | $ | 23 | | | $ | 24 | | | $ | 17 | | | $ | 19 | | | $ | 40 | | | $ | 43 | | | | | | | | | | | | | | | | | |
Stock Options and Performance Shares For information regarding stock options and performance shares, see Notes 1 and 16 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K. Restricted Stock Units Beginning in January 2007, Exelon began granting key managers restricted stock units in lieu of stock options through its long-term incentive plans. During the three and six months ended March 31,June 30, 2007, Exelon granted 0 and 331,745 restricted stock units, respectively, which will vest and settle over a three-year period. Prior to 2007, Exelon utilized restricted stock on a limited basis primarily to compensate executive management. In accordance with SFAS No. 123 (revised 2004), “Share-Based Payment”(SFAS No. 123-R), the cost of services received from employees in exchange for the issuance of restricted stock units is required to be measured
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) based on the grant-date fair value of the restricted stock unit issued. The value of the restricted stock units at the date of grant is either amortized through expense over the requisite service period using the straight-line method or capitalized. For non-retirement eligible individuals, the substantive service period was determined to be the three-year vesting period. The cost associated with restricted stock units granted to employees who are retirement eligible is recognized immediately upon the date of grant, as the employees are not required to render any further service to earn the restricted stock units. For employees who become retirement eligible during the substantive servicevesting period, the cost of the restricted stock units is recognized on a straight-line basis overfrom the requisite service period.grant date until they become retirement eligible. The holders of the restricted stock units will be paidissued shares of common stock annually during the vesting period of three years. During the three and six months ended March 31,June 30, 2007, Exelon had costs of $5$2 million and $7 million, respectively, related to outstanding awards not yet settled.restricted stock units granted to key managers in lieu of stock options. | | | 13. | Commitments and Contingencies (Exelon, Generation, ComEd and PECO) |
For information regarding capital commitments and nuclear decommissioning at December 31, 2006, see Notes 13 and 18 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K. All significant contingencies are disclosed below.
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Energy Commitments Generation’s long-term commitments relating to the purchase from and sale to unaffiliated utilities and others of energy, capacity and transmission rights as of March 31,June 30, 2007 did not change significantly from December 31, 2006, except for the following: | | | | | • | Generation’s total commitments for future sales of energy to unaffiliated third-party utilities and others increaseddecreased by approximately $149$760 million during the threesix months ended March 31,June 30, 2007, reflecting increases of approximately $578$819 million, $346$495 million and $121$124 million inrelated to 2008, 2009 and 2010 sales commitments, respectively, offset by the fulfillment of approximately $896$2,198 million of 2007 commitments during the threesix months ended March 31,June 30, 2007. The increases were primarily due to increased forward sales of energy to counterparties other than ComEd as a result of the expiration of the PPA with ComEd on December 31, 2006, as well as increased overall hedging activity in the normal course of business. | | | • | On April 4, 2007, Generation agreed to sell its rights to 942 MWs of capacity, energy, and ancillary services supplied from its existing long-term contract with Tenaska Georgia Partners, LP through a tolling agreement with Georgia Power, a subsidiary of Southern Company, commencing June 1, 2010 and lasting for 15 or 20 years. The transaction between Generation and Georgia Power is subject to approval by the Georgia Public Service Commission (GPSC). Upon approval of the transaction by the GPSC, Exelon and Generation will recognize a non-cash after-tax loss of up to $75 million. Generation expects to receive approval from the GPSC during the third quarter of 2007. The transaction provides Generation with approximately $43 million in annual revenue in the form of capacity payments over the term of the tolling agreement. |
As a result of the first reverse-auction competitive bidding process, ComEd is procuring substantially all of its supply under supplier forward contracts with various suppliers. See Note 5 — Regulatory Issues4 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for further information.
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Fuel Purchase Obligations Generation’s and PECO’s fuel purchase obligations as of March 31,June 30, 2007 did not change significantly from December 31, 2006, except for the following: | | | | | • | Generation’s total fuel purchase obligations for nuclear and fossil generation as of March 31,June 30, 2007 increased by $58$108 million, $120 million, $95 million, $102 million, and $293 million for 2008, $89 million for 2009, and 2010, and $270 million for 2011, 2012 and beyond, respectively, as compared to December 31, 2006 due to contracts entered into in the normal course of business. | | | | | • | PECO’s total fuel purchase obligations increased by approximately $105$134 million during the threesix months ended March 31,June 30, 2007, reflecting an increase of $19$18 million, $36$63 million, $31$34 million and $19 million in 2007, 2008, 2009 and 2010, respectively, primarily related to the purchase of natural gas and related transportation services. |
Commercial and Construction Commitments Exelon’s, Generation’s, ComEd’s and PECO’s commercial commitments as of March 31,June 30, 2007, representing commitments potentially triggered by future events, did not change significantly from December 31, 2006, except for the following: | | | | | • | Exelon’s letters of credit increased $42 million and guarantees increased by $211$209 million primarily as a result of leasing activities, energy trading and performance guarantees. | | | | | • | Generation’s letters of credit increased by $6$41 million and its guarantees (outside the scope of FIN 45) increased by $175$176 million primarily as a result of energy trading activities and the performance guaranty agreement entered into in connection with the sale of TEG and TEP. |
Under their operating agreements with PJM, ComEd and PECO are committed to construct transmission facilities. ComEd and PECO will work with PJM to continue to evaluate the scope and timing of any required construction projects. ComEd’s and PECO’s estimated commitments are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | July to
| | | | | | | | | | | | | | | | | | | | | | | December
| | | | | | | | | | | | | | | | | | | | Total | | | 2007 | | | 2008 | | | 2009 | | | 2010 | | | 2011 | | | 2012 | | | | | ComEd | | $ | 151 | | | $ | 64 | | | $ | 32 | | | $ | 9 | | | $ | 13 | | | $ | 15 | | | $ | 18 | | | PECO | | | 151 | | | | 4 | | | | 28 | | | | 58 | | | | 28 | | | | 26 | | | | 7 | |
Rate Relief Commitments In connection with the Settlement agreement reached on July 24, 2007 between legislative leaders in Illinois, ComEd, Generation and other utilities and generators in Illinois, Exelon has committed to contributing approximately $800 million to rate relief programs over four years and funding for the Illinois Power Agency. ComEd will continue to execute upon its $64 million rate relief package announced April 23, 2007, whereby $11 million of rate relief credits had been provided by ComEd to its customers prior to June 14, 2007. Generation would contribute an aggregate of up to $747 million, of which $435 million would be available to reimburse ComEd for rate relief programs for ComEd customers, $307.5 million would be available for rate relief programs for customers of other Illinois utilities, and $4.5 million would be available for funding operations of the Illinois Power Agency. The
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) following table shows the $800 million to be contributed to rate relief by Generation and ComEd by year. See Note 5 — Regulatory Issues for more information. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | June 14 to
| | | July to
| | | | | | | | | | | | | | | | | June 30,
| | | December
| | | | | | | | | | | | | | Total | | | 2007(a) | | | 2007 | | | 2008 | | | 2009 | | | 2010 | | | | | Generation | | $ | 747 | | | $ | — | | | $ | 426 | | | $ | 212 | | | $ | 95 | | | $ | 14 | | | ComEd(a) | | | 53 | | | | 7 | | | | 26 | | | | 10 | | | | 10 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 800 | | | $ | 7 | | | $ | 452 | | | $ | 222 | | | $ | 105 | | | $ | 14 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | During the six months ended June 30, 2007, ComEd has credited approximately $18 million to its customers, including $11 million prior to June 14, 2007. |
Nuclear Insurance Generation is a member of an industry mutual insurance company, Nuclear Electric Insurance Limited (NEIL), which provides property damage, decontamination and premature decommissioning insurance for each station for losses resulting from damage to its nuclear plants, either due accidents or acts of terrorism. In the event that one or more acts of terrorism cause accidental property damage within a twelve-month period from the first accidental property damage under one or more policies for all insured plants, the maximum recovery for all losses by all insureds will be an aggregate of $3.2 billion plus such additional amounts as the insurer may recover for all such losses from reinsurance, indemnity and any other source, applicable to such losses. The $3.2 billion maximum recovery limit is not applicable, however, in the event of a “certified act of terrorism” as defined in the Terrorism Risk Insurance Act of 2002, as extended, as a result of government indemnity. Generally, a “certified act of terrorism” is defined in the Terrorism Risk Insurance Act to be an act of terrorism committed on behalf of a foreign person or interest, as certified by the U.S. government. The Terrorism Risk Insurance Act expires on December 31, 2007, which, if not extended, could have an impact on the insurance coverages available to Generation. Additionally, the expiration of the Terrorism Risk Insurance Act could have an impact on the non-nuclear insurance coverages available to the Registrants. Refer to Note 18 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for a full discussion of nuclear insurance. Environmental Liabilities The Registrants’ operations have in the past and may in the future require substantial expenditures in order to comply with environmental laws. Additionally, under Federal and state environmental laws, the Registrants are generally liable for the costs of remediating environmental contamination of property now or formerly owned by them and of property contaminated by hazardous substances generated by them. The Registrants own or lease a
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
number of real estate parcels, including parcels on which their operations or the operations of others may have resulted in contamination by substances that are considered hazardous under environmental laws. ComEd and PECO have identified 42 and 27 sites, respectively, where former manufactured gas plant (MGP) activities have or may have resulted in actual site contamination. For almost all of these sites, ComEd or PECO is one of several Potentially Responsible Parties (PRPs), which may be responsible for ultimate remediation of each location. Of these 42 sites identified by ComEd, the Illinois Environmental Protection Agency has approved the clean up of nine9 sites and of the 27 sites identified by PECO, the Pennsylvania Department of Environmental Protection has approved the cleanup of 1213 sites. Of the remaining sites identified by ComEd and PECO, 20 and 109 sites, respectively, are currently under some degree of active studyand/or remediation. ComEd and PECO anticipate that
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) the majority of the remediation at these sites will continue through at least 2015 and 2012,2013, respectively. In addition, the Registrants are currently involved in a number of proceedings relating to sites where hazardous substances have been deposited and may be subject to additional proceedings in the future. ComEd and Nicor Gas Company, a subsidiary of Nicor Inc. (Nicor), are parties to an interim agreement under which they cooperatecooperated in remediation activities at 38 former MGP sites for which ComEd or Nicor, or both, may have responsibility. Under the interim agreement, costs arewere split evenly between ComEd and Nicor pending their final agreement on allocation of costs at each site, but either party may demand arbitration if the parties cannot agree on a final allocation of costs.site. For most of the sites, the interim agreement contemplatescontemplated that neither party willwould pay less than 20%, noror more than 80% of the final costs for each site. ComEd’s accrual for these environmental liabilities is based on ComEd’s estimateThrough June 30, 2007, ComEd has incurred approximately $110 million associated with remediation of its 50% share of costs under the interim agreement with Nicor.sites in question. On April 17, 2006, Nicor submitted a demand for arbitration of the cost allocation for 38 MGP sites. Through March 31,In July 2007, ComEd has incurred approximately $117 million associated with remediation ofand Nicor reached an agreement on the sites in question. Although ComEd believes that the arbitration proceedings will not result in an allocation of costs materially different fromfor the MGP sites. The agreement is contingent upon ICC approval and the execution of definitive written agreements. ComEd’s current estimateaccrual as of its aggregate remediation costsJune 30, 2007 for MGP sites,these environmental liabilities has been adjusted to reflect the outcome ofcost allocations contemplated in the arbitration proceedings is not certain and could result in a material increase or decrease of ComEd’s estimate of its share of the aggregate remediation costs.agreement. Based on the final order received in ComEd’s Rate Case, beginning in 2007, ComEd is recovering MGP remediation costs from customers for which it established a regulatory asset (see ComEd Rate Case below).asset. Pursuant to a PAPUC 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 14 — Supplemental Financial Information for further information regarding regulatory assets and liabilities. As of March 31,June 30, 2007 and December 31, 2006, Exelon, Generation, ComEd and PECO had accrued the following amounts for environmental liabilities: | | | | | | | | | | | | | | | | | | | | | Total
| | | | | Total
| | | | | | | Environmental
| | | | | Environmental
| | | | | | | Investigation and
| | Portion of Total Related
| | | Investigation and
| | Portion of Total Related
| | | | | Remediation
| | to MGP Investigation
| | | Remediation
| | to MGP Investigation
| | March 31, 2007 | | Reserve | | and Remediation | | | June 30, 2007 | | | Reserve | | and Remediation | | | | | Exelon | | $ | 114 | | | $ | 86 | | | $ | 127 | | | $ | 101 | | | Generation | | | 19 | | | | — | | | | 17 | | | | — | | | ComEd | | | 56 | | | | 49 | | | | 72 | | | | 65 | | | PECO | | | 39 | | | | 37 | | | | 38 | | | | 36 | |
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | Total
| | | | | | | | Environmental
| | | | | | | | Investigation and
| | | Portion of Total Related
| | | | | Remediation
| | | to MGP Investigation
| | December 31, 2006 | | Reserve | | | and Remediation | | | | | Exelon | | $ | 119 | | | $ | 88 | | | Generation | | | 20 | | | | — | | | ComEd | | | 58 | | | | 49 | | | PECO | | | 41 | | | | 39 | |
The Registrants 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.
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Section 316(b) of the Clean Water Act In July 2004, the United States Environmental Protection Agency (EPA) issued the final Phase II rule implementing Section 316(b) of the Clean Water Act. The Clean Water Act requires that the cooling water intake structures at electric power plants reflect the best technology available to minimize adverse environmental impacts. The Phase II rule established national performance standards for reducing entrainment and impingement of aquatic organisms at existing power plants. The rule provided each facility with a number of compliance options and permitted site-specific variances based on a cost-benefit analysis. The requirements were intended to be implemented through state-level National Pollutant Discharge Elimination System (NPDES) permit programs. All of Generation’s power generation facilities with cooling water systems are subject to the regulations. Facilities without closed-cycle recirculating systems (e.g., cooling towers) are potentially most affected. Those facilities are Clinton, Cromby, Dresden, Eddystone, Fairless Hills, Handley, Mountain Creek, New Boston, Oyster Creek, Peach Bottom, Quad Cities, Salem and Schuylkill. Since promulgation of the rule, Generation has been evaluating compliance options at each of its affected plants to achieve interim compliance deadlines. On January 25, 2007, the U.S. Court of Appeals for the Second Circuit issued its opinion in a challenge to the final Phase II rule brought by environmental groups and several states. The court found that, with respect to a number of significant provisions of the rule, the EPA either exceeded its authority under the Clean Water Act, failed to adequately set forth its rationale for the rule, or failed to follow required procedures for public notice and comment. The court remanded the rule back to the EPA for revisions consistent with the court’s opinion. By its action, the court invalidated compliance measures that the utility industry supported because they were cost-effective and provided existing plants with needed flexibility in selecting the compliance option appropriate to its location and operations. For example, the court found that environmental restoration does not qualify as a compliance option and site-specific compliance variances based on a cost-benefit analysis are impermissible. The court’s decision has created significant uncertainty about the specific nature, scope and timing of the final compliance requirements. It is not yet known whetherSeveral industry parties to the EPA, or any of the industry petitioners, will seek anen bancrehearinglitigation sought review by the entire U.S. Court of Appeals for the Second Circuit, panel, orwhich was denied on July 5, 2007. Parties to the litigation have until October 3, 2007 to file a petition forcertiorariseeking review by the U.S. Supreme Court. In the interim,On July 9, 2007, the EPA has announced the suspension offormally suspended the Phase II rule due to the uncertainty about the specific compliance requirements created by the court’s remand of significant provisions of the rule. Until the EPA finalizes the rule on remand (which could take several years), the state permitting agencies will continue the current practice of applying their best professional judgment to address impingement and entrainment requirements at plant cooling water intake structures. Due to this uncertainty, Generation cannot estimate the effect that compliance with the Phase II rule requirements will have on the operation of its generating facilities and its future results of operations, financial condition and cash flows. If the final rule, hasor interim state requirements under best professional judgment, have performance standards that require the reduction of cooling 56
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
water intake flow at the plants consistent with closed loop cooling systems, then the impact on the operation of the facilities and Exelon’s and Generation’s future results of operations, financial position and cash flows could be material. In a pre-draft permit dated May 13, 2005 and a draft permit issued on July 19, 2005, as part of the NPDES permit renewal process for Oyster Creek that has been pending since 1999, the New Jersey Department of Environmental Protection (NJDEP) preliminarily determined that closed-cycle cooling and environmental restoration are the only viable compliance options for Section 316(b) compliance at Oyster Creek. The final permit has not been issued, and Oyster Creek has continued to operate under the 1999 permit. Generation cannot predict with any certainty how the NJDEP will implement its best professional judgment. AmerGen has not made a determination regarding how it will comply with the Section 316(b) regulations and must first evaluate the final regulations issued by the EPA as a result of the decision of the U.S. Court of Appeals for the Second Circuit,
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) discussed above. In addition, the cost required to retrofit Oyster Creek with closed cycle cooling could be material and could therefore negatively impact Generation’s decision to renew the plant’s operating license. In June 2001, the NJDEP issued a renewed NPDES permit for Salem which expired in July 2006, allowing for the continued operation of Salem with its existing cooling water system. The NPDES permit expired in July 2006. NJDEP advised Public Service Enterprise Group Incorporated (PSEG), the plant operator, in a letter dated July 12, 2004 that it strongly recommended reducing cooling water intake flow commensurate with closed-cycle cooling as a compliance option for Salem. PSEG submitted an application for a renewal of the permit on February 1, 2006. In the permit renewal application, PSEG analyzed closed-cycle cooling and other options and demonstrated that the continuation of the Estuary Enhancement Program, an extensive environmental restoration program at Salem, along with continued operation of the existing intake, is the best available technology to meet the Section 316(b) requirements. PSEG continues to operate Salem under the approved June 2001 NPDES permit while the NPDES permit renewal application is being reviewed. PSEG must evaluate the final Phase II rule after remand, particularly whether the restoration done under the Estuary Enhancement Project remains a compliance option. If application of the final Section 316(b) regulations or the NJDEP as a result of the Phase II ruling discussed above ultimately requires the retrofitting of Salem’s cooling water intake structure to reduce cooling water intake flow commensurate with closed-cycle cooling, Exelon’s and Generation’s share of the total cost of the retrofit and any resulting interim replacement power would likely be in excess of $500 million and could result in increased depreciation expense related to the retrofit investment. Nuclear Generating Station Groundwater On December 16, 2005 and February 27, 2006, the Illinois EPA issued violation notices to Generation alleging violations of state groundwater standards as a result of historical discharges of liquid tritium from a line at the Braidwood Nuclear Generating Station (Braidwood). In November 2005, Generation discovered that spills from the line in 1996, 1998 and 2000 have resulted in a tritium plume in groundwater that is both on and off the plant site. Levels in portions of the plume exceed Federal limits for drinking water. However, samples from drinking water wells on property adjacent to the plant showed that, with one exception, tritium levels in these wells were at levels that naturally occur. The tritium level in one drinking water well was elevated above levels that occur naturally, but was significantly below the state and Federal drinking water standards, and Generation believes that this level posed no threat to human health. Generation has investigated the causes of the releases and has taken the necessary corrective actions to prevent another occurrence. Generation notified the owners of 14 potentially affected adjacent properties that, upon sale of their property, Generation will reimburse the owners for any diminution in property value caused by the tritium release. As of March 31,June 30, 2007, Generation has purchased four of the 14 adjacent properties. On March 13, 2006, a class action lawsuit was filed against Exelon, Generation and ComEd (as the prior owner of Braidwood) in Federal District Court for the Northern District of Illinois on behalf of all persons who live or own
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
property within 10 miles of Braidwood. Initially, the plaintiffs primarily sought compensation for diminished property values, but in February 2007, they amended their complaint to seek punitive damages. The U.S. District Court for the Northern District of Illinois denied the class action status of the lawsuit on March 19, 2007. Plaintiffs have requested reconsideration and are seekingsought certification of a class of approximately 200 persons whose property allegedly hashad tritium at levels below detection level, along with a class of adjacent property owners (unspecified in number) that havehad allegedly been impactedaffected by tritium from the plant. Exelon, Generation and ComEd will oppose class certification on these bases.On June 8, 2007, the plaintiffs voluntarily dismissed the lawsuit with prejudice. On March 14 and 23, 2006, 37 area residents filed two separate but identical lawsuits against Exelon, Generation and ComEd in the Circuit Court of Will County, Illinois alleging property contamination and seeking compensation for diminished property values. Exelon removed these cases to Federal court, and all three cases were
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) assigned to the same District Court judge. Subsequently, seven plaintiffs withdrew from the cases, and 18 additional plaintiffs were added. On May 17, 2007, the plaintiffs voluntarily dismissed the cases without prejudice. On October 11, 2006, two area residents filed a lawsuit in the U.S. District Court for the Northern District of Illinois against Exelon, Generation and ComEd. The allegations in the complaint are substantially similar to the lawsuits described above, and the case has been transferred to the judge overseeing the other Federal cases. This is the only remaining lawsuit brought by local residents. Exelon, Generation and ComEd have tendered the defense for all of these lawsuits described abovethis lawsuit to their insurance carrier, ANI, and ANI has agreed to defend the suitssuit subject to a reservation of rights. Exelon, Generation and ComEd continue to believe that these lawsuits arethis lawsuit is without merit and will continue to vigorously defend them.oppose it. On March 16, 2006, the Attorney General of the Statestate of Illinois and the State’s Attorney for Will County, Illinois filed a civil enforcement action against Exelon, Generation and ComEd in the Circuit Court of Will County relating to the releases of tritium discussed above and alleging that, beginning on or before 1996, and with additional events in 1998, 2000 and 2005, there have been tritium and other non-radioactive wastes discharged from Braidwood in violation of Braidwood’s NPDES permit, the Illinois Environmental Protection Act and regulations of the Illinois Pollution Control Board. The lawsuit seeks injunctive relief relating to the discontinuation of the liquid tritium discharge line until further court order, soil and groundwater testing, prevention of future releases and off-site migration and to provide potable drinking water to area residents. The action also seeks the maximum civil penalties allowed by the statute and regulations, $10,000 or $50,000 for each violation (depending on the specific violation), and $10,000 for each day during which a violation continues. On May 24, 2006, the Circuit Court of Will County, Illinois entered an order resulting in Generation commencing remediation efforts in June 2006 for tritium in groundwater off of plant property. Among other things, the May 24, 2006 order requires Generation to conduct certain studies and implement measures to ensure that tritium does not leave plant property at levels in excess of the United States EPA safe drinking water standard. Any civil penalty will not be determined until the consent decree is finalized. Furthermore, the Circuit Court of Will County may exercise its discretion in determining the final penalty, if any, taking into account a number of factors, including corrective actions taken by Generation and other mitigating circumstances. As of March 31,June 30, 2007 and December 31, 2006, Generation had reserves of $3$2 million and $3 million, (pre-tax), respectively, related to the matters described above, which Generation deems adequate to cover the costs of remediation and potential related corrective measures. As a result of intensified monitoring and inspection efforts in 2006, Generation detected small underground tritium leaks at the Dresden Nuclear Generating Station (Dresden) and at the Byron Nuclear Generating Station (Byron). Neither of these discharges occurred outside the property lines of the plant, nor does Generation believe either of these matters poses health or safety threats to employees or to the public. Generation identified the source
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of the leaks and implemented repairs. On March 31, 2006 and April 12, 2006, the Illinois EPA issued a violation notice to Generation in connection with the Dresden and Byron leaks, respectively, alleging various violations, including those related to (1) Illinois groundwater standards, (2) non-permitted discharges, and (3) each station’s NPDES permit. Generation has analyzed the remediation options related to these matters and submitted its response and proposed remediation plan to the Illinois EPA. On July 10, 2006, the Illinois EPA rejected the remediation plan for Dresden and on July 12, 2006, the Illinois EPA sent a Notice of Intention to Pursue Legal Action. On July 17, 2006, the Illinois EPA rejected the remediation plan for Byron and has referred the matter to the Illinois Attorney General for consideration of formal enforcement action and the imposition of penalties. Generation is actively discussing the violation notices and Attorney General civil enforcement matters for Braidwood, Dresden and Byron, discussed above, with the Illinois EPA and the Attorneys General for Illinois and the Counties in which the plants are located. While Generation is unable to determine the amount of the civil
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) penalties that will be included in a final consent decree, it is probable that they will exceed $100,000 in the aggregate for all three stations but will not be material to Exelon’s and Generation’s financial position,positions, results of operations and cash flows. Generation expects these matters to be resolved during 2007. Exelon, Generation or ComEd cannot determine the outcome of the above-described matters but believe their ultimate resolution should not, after consideration of reserves established, have a significant impact on Exelon’s, Generation’s or ComEd’s financial position, results of operations or cash flows. Cotter Corporation The EPA has advised Cotter Corporation (Cotter), a former ComEd subsidiary, that it is potentially liable in connection with radiological contamination at a site known as the West Lake Landfill in Missouri. 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 any liability arising in connection with the West Lake Landfill. In connection with Exelon’s 2001 corporate restructuring, this responsibility to indemnify Cotter was transferred to Generation. 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 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. The estimated costs of the anticipated remediation strategy for the site range up to $24 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. Greenhouse Gas Emissions Reductions Exelon announced on May 6, 2005 that it has established a voluntary goal to reduce its greenhouse gas (GHG) emissions by 8% from 2001 levels by the end of 2008. The 8% reduction goal represents a decrease of an estimated 1.3 million metric tons of GHG emissions. Exelon will incorporate recognition of GHG emissions and their potential cost into its business analyses as a means to promote internal investment in activities that result in the reduction or avoidance of GHG emissions. Exelon made this pledge under the United States EPA’s Climate Leaders program, a voluntary industry-government partnership addressing climate change. Exelon believes that its planned GHG management efforts, including increased use of renewable energy, its current energy and process efficiency initiatives and its efforts in the areas of carbon sequestration, will allow it to achieve this goal. The anticipated cost of achieving the voluntary GHG emissions reduction goal will not have a material effect on Exelon’s future results of operations, financial condition or cash flows. On April 2, 2007, the U.S. Supreme Court issued a decision in the case of Massachusetts v. U.S. Environmental Protection Agency holding that carbon dioxide and other GHG emissions are pollutants subject to regulation under the new motor vehicle provisions of the Clean Air Act. The case was remanded to the EPA for further rulemaking to determine whether GHG emissions may reasonably be anticipated to endanger public health or welfare, or in the alternative provide a reasonable explanation why GHG emissions should not be regulated. Possible outcomes from this decision include regulation of GHG emissions from manufacturing plants, including electric generation, transmission and distribution facilities, under a new EPA rule and Federal or state legislation. Exelon continues to support the enactment, through federal legislation, of acap-and-trade system for GHG emissions that is mandatory, economy-wide and designed in a way to limit potential harm to the economy and the competitiveness of the manufacturing base in the U.S. Due to the uncertainty as to any of these potential outcomes, Exelon cannot estimate the effect of the decision on its operations and its future results of operations, financial condition and cash flows.
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) On April 2, 2007, the U.S. Supreme Court issued a decision in the case of Massachusetts v. U.S. Environmental Protection Agency holding that carbon dioxide and other GHGs are pollutants subject to regulation under the new motor vehicle provisions of the Clean Air Act. The case was remanded to the EPA for further rulemaking to determine whether GHGs may reasonably be anticipated to endanger public health or welfare, or in the alternative provide a reasonable explanation why GHGs should not be regulated. Possible outcomes from this decision include regulation of GHGs from manufacturing plants, including electric generation, transmission and distribution facilities, under a new EPA rule, and Federal or state legislation. Due to the uncertainty as to any of these potential outcomes, Exelon cannot estimate the effect of the decision on its operations and its future results of operations, financial condition and cash flows.
Leases
The Registrants’ lease commitments as of March 31, 2007 did not change significantly from December 31, 2006. See Note 18 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for information regarding leases.
Litigation and Regulatory Matters Exelon, Generation and PECO PJM Billing Dispute. In December 2004, Exelon filed a complaint with FERC against PJM and PPL Electric (PPL) alleging that PJM had overcharged Exelon from April 1998 through May 2003 as a result of a billing error. Specifically, the complaint allegesalleged that PJM mistakenly identified PPL’s Elroy substation transformer as belonging to Exelon and that, as a consequence, during times of congestion, Exelon’s bills for transmission congestion from PJM erroneously reflected energy that PPL took from the Elroy substation and used to serve PPL load. Beginning in September of 2005 and throughout 2006, Exelon and PPL filed multiple settlement proposals with FERC, with each new proposal superceding the prior, in attempts to resolve this matter. On March 20, 2007, FERC issued an order accepting the settlement in which PPL agreed to directly pay Exelon approximately $43 million in a lump-sum payment (comprised of $38 million of erroneous charges, plus interest of $5 million). At that time, Exelon established a receivable due from PPL and recognized the corresponding gain in current earnings.earnings during the first quarter of 2007. Approximately $32 million and $11 million of the settlement amount willwere to be received by Generation and PECO, respectively, and recorded as a reduction to purchased power expense and interest income. In April 2007, this receivable amount was paid in full, including interest. Real Estate Tax Appeals. Generation and PECO each have been challenging real estate taxes assessed on certain nuclear plants. PECO has been involved in litigation in which it has contested 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 Peach Bottom Atomic Power Station (York County, PA) (Peach Bottom). On March 27, 2007, PECO prevailed in a unanimous decision by the Pennsylvania Supreme Court in its contesting of taxes assessed in 1997 under PURTA. The Commonwealth of Pennsylvania (Commonwealth) had contended that PECO owed more in real estate taxes in 1997 than had previously been remitted by PECO, while PECO contended that it owed less than what it had previously remitted. PECO received a favorable ruling in this case, which is expected to resultresulted in the eventual refunding ora credit to PECO of approximately $38 million of real estate taxes previously remitted plusremitted. That credit was received in May 2007. PECO also received a credit for approximately $17 million in interest. PECO has recorded a receivable for the $55 million expected to be receivedinterest from the Commonwealth.Commonwealth in July 2007. PECO had previously reserved approximately $17 million for the difference between the Commonwealth’s assessment and the amount previously remitted by PECO. This reserve was reversed as a result of the favorable ruling PECO received. PECO is in the process of determining the ultimate use and ratemaking treatment of these amounts and has recorded the total of these amounts of $72 million as a regulatory liability. The balance of this regulatory liability as of June 30, 2007 is $71 million, which also reflects $1 million in legal costs already incurred in connection with the tax recovery. See Note 14 — Supplemental Financial
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Information for a listing of PECO’s regulatory assets and liabilities. As of March 31,June 30, 2007, Generation was involved in real estate tax appeals for the 2005 and 2006 and 2005 fortax years concerning the valuationvalue of its Byron plant and isfor real estate tax purposes. Also, Generation was involved in real estate tax appeals regardingand related litigation for the 2006 valuationtax year concerning the value for real estate tax purposes of its Braidwood, Clinton and Dresden plants. The ultimate outcome of these matters remains uncertain and could result in unfavorable or favorable impacts to the consolidated financial statements of Exelon, Generation and PECO. Generation and PECO believe their reserve balances for exposures associated with real estate taxes as of March 31,June 30, 2007 reflect their best estimates of the probable expected outcome of these appeals and related proceedings in accordance with SFAS No. 5.
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Exelon and Generation Asbestos Personal Injury Claims. In the second quarter of 2005, Generation engaged independent actuaries to determine if, based on historical claims data and other available information, a reasonable estimate of future losses could be calculated associated with asbestos-related personal injury actions in certain facilities that are currently owned by Generation or were previously owned by ComEd and PECO. Based on the actuaries’ analyses, management’s review of current and expected losses, and the view of counsel regarding the assumptions used in estimating the future losses, Generation recorded an undiscounted $43 million pre-tax charge for its estimated portion of all estimated future asbestos-related personal injury claims estimated to be presented through 2030. This amount did not include estimated legal costs associated with handling these matters, which could be material. Generation’s management determined that it was not reasonable to estimate future asbestos-related personal injury claims past 2030 based on only three years of historical claims data and the significant amount of judgment required to estimate this liability. The $43 million pre-tax charge was recorded as part of operating and maintenance expense in Generation’s Consolidated Statements of Operations and Comprehensive Income in 2005 and reduced net income by $27 million after tax. At March 31,June 30, 2007 and December 31, 2006, Generation had reserved approximately $48$51 and $48 million, respectively, in total for asbestos-related bodily injury claims. As of March 31,June 30, 2007, approximately $12 million of this amount relates to 138144 open claims presented to Generation, while the remaining $36$39 million of the reserve is for estimated future asbestos-related bodily injury claims anticipated to arise through 2030 based on actuarial assumptions and analysis. Generation plans to obtainobtains annual actuarial study updates of the estimate of future losses. On a quarterly basis, Generation monitors actual experience against the number of forecasted claims to be received and expected claim payments. During 2006 and the first quarterand second quarters of 2007, Generation performed a periodic updateupdates to this reserve, which did not result in a material adjustment. Oil Spill Liability Trust Fund Claim. In December 2004, the two Salem nuclear generation units were taken offline due to an oil spill from a tanker in the Delaware River near the facilities. The units, which draw water from the river for cooling purposes, were taken offline for approximately two weeks to avoid intake of the spilled oil and for an additional two weeks relating to start up issues arising from the oil spill shutdown. The total shutdown period resulted in lost sales from the plant. Generation and PSEG subsequently filed a joint claim for losses and damages with the Oil Spill Liability Trust Fund. In January 2007, ExelonGeneration and PSEG submitted a revised damages calculation to the Oil Spill Liability Trust Fund identifying approximately $46 million in total damages and losses, of which approximately $20 million would be paid to Exelon. As this matter represents a contingent gain, Generation has not recorded any income. Generation expects this matter to be resolved in 2007. Supply Agreement Non-performance Claims. Generation enters into long-term supply agreements to procure uranium concentrates. In 2007, Generation initiated claims asserting non-performance by certain counterparties. As a result of this non-performance, Generation will be required to procure uranium concentrates at higher prices than originally anticipated. Generation has filed suit against two counterparties asserting breach of uranium supply agreement against one counterparty and breach of performance guarantee and fraudulent inducement against the other counterparty. As these matters represent contingent gains, Generation has not recorded any income. The cases are scheduled for trial in 2008. Exelon Pension Claim. On July 11, 2006, a former employee of ComEd filed a purported class action lawsuit against the Exelon Corporation Cash Balance Pension Plan (Plan) in the FederalU.S. District Court for the Northern District of Illinois. The complaint alleges that the Plan, which covers certain management employees of Exelon’s subsidiaries, calculates lump sum distributions in a manner that does not comply with the Employee Retirement Income Security
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) calculated lump sum distributions in a manner that does not comply with the Employee Retirement Income Security Act (ERISA). The plaintiff seeks compensatory relief from the Plan on behalf of participants who received lump sum distributions since 2001 and injunctive relief with respect to future lump sum distributions. It remains to be determined whether this case will proceed as a class action and how many Plan participants may be part of the proposed class, if a class is certified. However, the lawsuit is not expected to have a material financial impact on Exelon.
Savings Plan Claim. On September 11, 2006, five individuals claiming to be participants in the Exelon Corporation Employee Savings Plan, Plan #003 (Savings Plan), filed a putative class action lawsuit in the United States District Court for the Northern District of Illinois. The complaint names as defendants Exelon, its Director of Employee Benefit Plans and Programs, the Employee Savings Plan Investment Committee, the Compensation and the Risk Oversight Committees of Exelon’s Board of Directors and members of those committees. The complaint alleges that the defendants breached fiduciary duties under ERISA by, among other things, permitting fees and expenses to be incurred by the Savings Plan that allegedly were unreasonable and for purposes other than to benefit the Savings Plan and participants, and failing to disclose purported “revenue sharing” arrangements among the Savings Plan’s service providers. The plaintiffs seek declaratory, equitable and monetary relief, on behalf of the Savings Plan and participants, including alleged investment losses. On February 21, 2007 the district court granted the defendants’ motion to strike the plaintiffs’ claim for investment losses. On June 27, 2007, the district court granted the plaintiffs’ motion for class certification. On June 28, 2007, the district court granted the defendants’ motion to stay proceedings in this action pending the outcome of the forthcoming appeal to the U.S. Seventh Circuit Court of Appeals in another case not involving Exelon. In that case, an appeal is expected to be taken from the June 20, 2007 decision of the U.S. District Court for the Western District of Wisconsin, which dismissed with prejudice substantially similar claims. Exelon, Generation, ComEd and PECO General. The Registrants are involved in various other litigation matters that are being defended and handled in the ordinary course of business. The Registrants 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 the Registrants’ financial condition, results of operations or cash flows. Fund Transfer Restrictions The Federal Power Act declares it to be unlawful for any officer or director of any public utility “to participate in the making or paying of any dividends of such public utility from any funds properly included in capital account.” What constitutes “funds properly included in capital account” is undefined in the Federal Power Act or the related regulations; however, the FERC has consistently interpreted the provision to allow dividends to be paid as long as (i)(1) the source of the dividends is clearly disclosed, (ii)(2) the dividend is not excessive and (iii)(3) there is no self-dealing on the part of corporate officials. While these restrictions may limit the absolute amount of dividends that a particular subsidiary may pay, Exelon does not believe these limitations are materially limiting because, under these limitations, the subsidiaries are allowed to pay dividends sufficient to meet Exelon’s actual cash needs. See Note 18 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for additional information regarding fund transfer restrictions. Income Taxes ComEd and PECO have entered into several agreements with a tax consultant related to the filing of refund claims with the IRS. The fees for these agreements are contingent upon a successful outcome of the claims and are based upon a percentage of the refunds recovered from the IRS, if any. The ultimate net cash impacts to ComEd and
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) PECO related to these agreements and the associated refund claims will either be positive or neutral depending upon the outcome of the refund claim 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. If a settlement is reached, a portion of ComEd’s tax benefits,
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
including any associated interest for periods prior to the PECO/Unicom Merger,merger, would be recorded as a reduction of goodwill under the provisions ofEITF 93-7. Exelon cannot predict the timing of the final resolution of these refund claims.claims or the potential payment of any contingent fees. See Note 10 — Income Taxes for information regarding the Registrants’ income tax refund claims and certain tax positions, including the 1999 sale of fossil generating assets. | | | 14. | Supplemental Financial Information (Exelon, Generation, ComEd and PECO) |
Supplemental Statement of Operations Information The following tables provide additional information regarding the components of other, net within the Consolidated Statements of Operations and Comprehensive Income of Exelon, Generation, ComEd and PECO for the three and six months ended March 31,June 30, 2007 and 2006: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2007 | | | Three Months Ended June 30, 2007 | | | | | Exelon | | Generation | | ComEd | | PECO | | | Exelon | | Generation | | ComEd | | PECO | | | | | Investment income | | $ | 2 | | | $ | — | | | $ | 1 | | | $ | 1 | | | $ | 3 | | | $ | — | | | $ | 1 | | | $ | 2 | | | Gain on sale of investments, net | | | 15 | | | | 15 | | | | — | | | | — | | | | Gain on disposition of assets and investments, net | | | | 4 | | | | 3 | | | | 1 | | | | — | | | Decommissioning-related activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Decommissioning trust fund income(a) | | | 46 | | | | 46 | | | | — | | | | — | | | | 58 | | | | 58 | | | | — | | | | — | | | Decommissioning trust fund income — AmerGen(a) | | | 11 | | | | 11 | | | | — | | | | — | | | | 15 | | | | 15 | | | | — | | | | — | | Other-than-temporary impairment of decommissioning trust funds(b) | | | (8 | ) | | | (8 | ) | | | — | | | | — | | | | (12 | ) | | | (12 | ) | | | — | | | | — | | Other-than-temporary impairment of decommissioning trust funds — AmerGen | | | (2 | ) | | | (2 | ) | | | — | | | | — | | | | (2 | ) | | | (2 | ) | | | — | | | | — | | | Regulatory offset to non-operating decommissioning-related activities(c) | | | (37 | ) | | | (37 | ) | | | — | | | | — | | | | (45 | ) | | | (45 | ) | | | — | | | | — | | | Net direct financing lease income | | | 6 | | | | — | | | | — | | | | — | | | | 4 | | | | — | | | | — | | | | — | | | AFUDC, equity | | | 1 | | | | — | | | | 1 | | | | — | | | | 1 | | | | — | | | | 1 | | | | — | | | Recovery of tax credits related to Exelon’s investments in synthetic fuel-producing facilities(d) | | | 20 | | | | — | | | | — | | | | — | | | | 9 | | | | — | | | | — | | | | — | | | Interest income related to settlement of PJM billing dispute(e) | | | 5 | | | | 4 | | | | — | | | | 1 | | | | Interest income related to uncertain income tax positions under FIN 48(f) | | | 1 | | | | — | | | | — | | | | 3 | | | | Interest income related to uncertain income tax positions under FIN 48(e) | | | | — | | | | — | | | | — | | | | 2 | | | Other | | | 3 | | | | 3 | | | | — | | | | — | | | | 8 | | | | 5 | | | | 2 | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | Other, net | | $ | 63 | | | $ | 32 | | | $ | 2 | | | $ | 5 | | | $ | 43 | | | $ | 22 | | | $ | 5 | | | $ | 5 | | | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Includes investment income and realized gains and losses. | | | | (b) | | For the three months ended March 31, 2007, includesIncludes other-than-temporary impairments totaling $8$12 million on nuclear decommissioning trust funds for the former ComEd units. | | | | (c) | | Includes the elimination of non-operating decommissioning-related activity for those units that are subject to regulatory accounting, including the elimination of decommissioning trust fund income andother-than-temporary impairments. See |
6373
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | Notes 9 and 13 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for additional information regarding the accounting for nuclear decommissioning. | | | | (d) | | Receivable for the contractual recovery of unrealized income tax credits related to Exelon’s investment in synthetic fuel-producing facilities. See Note 10 — Income Taxes for additional information. | | | | (e) | | See Note 3 — New Accounting Pronouncements and Note 10 — Income Taxes for additional information. |
| | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2007 | | | | | Exelon | | | Generation | | | ComEd | | | PECO | | | | | Investment income | | $ | 5 | | | $ | — | | | $ | 2 | | | $ | 3 | | | Gain on disposition of assets and investments, net | | | 19 | | | | 18 | | | | 1 | | | | — | | | Decommissioning-related activities: | | | | | | | | | | | | | | | | | | Decommissioning trust fund income(a) | | | 104 | | | | 104 | | | | — | | | | — | | | Decommissioning trust fund income — AmerGen(a) | | | 26 | | | | 26 | | | | — | | | | — | | | Other-than-temporary impairment of decommissioning trust funds(b) | | | (20 | ) | | | (20 | ) | | | — | | | | — | | | Other-than-temporary impairment of decommissioning trust funds — AmerGen | | | (4 | ) | | | (4 | ) | | | — | | | | — | | | Regulatory offset to non-operating decommissioning-related activities(c) | | | (82 | ) | | | (82 | ) | | | — | | | | — | | | Net direct financing lease income | | | 10 | | | | — | | | | — | | | | — | | | AFUDC, equity | | | 2 | | | | — | | | | 2 | | | | — | | | Recovery of tax credits related to Exelon’s investments in synthetic fuel-producing facilities(d) | | | 29 | | | | — | | | | — | | | | — | | | Interest income related to settlement of PJM billing dispute(e) | | | 5 | | | | 4 | | | | — | | | | 1 | | | Interest income related to uncertain income tax positions under FIN 48(f) | | | — | | | | — | | | | — | | | | 5 | | | Other | | | 12 | | | | 8 | | | | 2 | | | | 1 | | | | | | | | | | | | | | | | | | | | | Other, net | | $ | 106 | | | $ | 54 | | | $ | 7 | | | $ | 10 | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Includes investment income and realized gains and losses. | | | (b) | | Includes other-than-temporary impairments totaling $20 million on nuclear decommissioning trust funds for the former ComEd units. | | | (c) | | Includes the elimination of non-operating decommissioning-related activity for those units that are subject to regulatory accounting, including the elimination of decommissioning trust fund income and other-than-temporary impairments. See Notes 9 and 13 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for additional information regarding the accounting for nuclear decommissioning. | | | (d) | | Receivable for the contractual recovery of unrealized income tax credits related to Exelon’s investment in synthetic fuel-producing facilities. See Note 10 — Income Taxes for additional information. | | | (e) | | See Note 13 — Commitments and Contingencies for additional information. | | | | (f) | | See Note 3 — New Accounting Pronouncements and Note 10 — Income Taxes for additional information. |
| | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2006 | | | | | Exelon | | | Generation | | | ComEd | | | PECO | | | | | Investment income | | $ | 3 | | | $ | — | | | $ | — | | | $ | 2 | | | Decommissioning-related activities: | | | | | | | | | | | | | | | | | | Decommissioning trust fund income(a) | | | 29 | | | | 29 | | | | — | | | | — | | | Decommissioning trust fund income — AmerGen(a) | | | 9 | | | | 9 | | | | — | | | | — | | Other-than-temporary impairment of decommissioning trust funds(b) | | | (3 | ) | | | (3 | ) | | | — | | | | — | | | Regulatory offset to non-operating decommissioning-related activities(c) | | | (26 | ) | | | (26 | ) | | | — | | | | — | | | Net direct financing lease income | | | 6 | | | | — | | | | — | | | | — | | | Unrealized income tax credits(d) | | | 29 | | | | — | | | | — | | | | — | | | Other | | | (2 | ) | | | (2 | ) | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | | | Other, net | | $ | 45 | | | $ | 7 | | | $ | 1 | | | $ | 3 | | | | | | | | | | | | | | | | | | | |
74
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2006 | | | | | Exelon | | | Generation | | | ComEd | | | PECO | | | | | Investment income | | $ | 2 | | | $ | — | | | $ | — | | | $ | 2 | | | Loss on disposition of assets and investments, net | | | (3 | ) | | | — | | | | (2 | ) | | | (1 | ) | | Decommissioning-related activities: | | | | | | | | | | | | | | | | | | Decommissioning trust fund income(a) | | | 37 | | | | 37 | | | | — | | | | — | | | Decommissioning trust fund income — AmerGen(a) | | | 10 | | | | 10 | | | | — | | | | — | | | Other-than-temporary impairment of decommissioning trust funds(b) | | | (7 | ) | | | (7 | ) | | | — | | | | — | | | Regulatory offset to non-operating decommissioning-related activities(c) | | | (31 | ) | | | (31 | ) | | | — | | | | — | | | Net direct financing lease income | | | 6 | | | | — | | | | — | | | | — | | | Recovery of tax credits related to Exelon’s investments in synthetic fuel-producing facilities(d) | | | 24 | | | | — | | | | — | | | | — | | | Other | | | 8 | | | | 5 | | | | 3 | | | | 1 | | | | | | | | | | | | | | | | | | | | | Other, net | | $ | 46 | | | $ | 14 | | | $ | 1 | | | $ | 2 | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Includes investment income and realized gains and losses. | | | | (b) | | For the three months ended March 31, 2006, includesIncludes other-than-temporary impairments totaling $3$7 million on nuclear decommissioning trust funds for the former ComEd units. | | | | (c) | | Includes the elimination of non-operating decommissioning-related activity for those units that are subject to regulatory accounting, including the elimination of decommissioning trust fund income andother-than-temporary impairments. See Notes 9 and 13 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for additional information regarding the accounting for nuclear decommissioning. | | | | (d) | | Receivable for the contractual recovery of unrealized income tax credits related to Exelon’s investment in synthetic fuel-producing facilities. See Note 10 — Income Taxes for further information. |
| | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2006 | | | | | Exelon | | | Generation | | | ComEd | | | PECO | | | | | Investment income | | $ | 4 | | | $ | — | | | $ | — | | | $ | 4 | | | Loss on disposition of assets and investments, net | | | (2 | ) | | | — | | | | (2 | ) | | | — | | | Decommissioning-related activities: | | | | | | | | | | | | | | | | | | Decommissioning trust fund income(a) | | | 66 | | | | 66 | | | | — | | | | — | | | Decommissioning trust fund income — AmerGen(a) | | | 19 | | | | 19 | | | | — | | | | — | | | Other-than-temporary impairment of decommissioning trust funds(b) | | | (10 | ) | | | (10 | ) | | | — | | | | — | | | Regulatory offset to non-operating decommissioning-related activities(c) | | | (57 | ) | | | (57 | ) | | | — | | | | — | | | Net direct financing lease income | | | 12 | | | | — | | | | — | | | | — | | | Unrealized income tax credits(d) | | | 53 | | | | — | | | | — | | | | — | | | Other | | | 6 | | | | 2 | | | | 3 | | | | 1 | | | | | | | | | | | | | | | | | | | | | Other, net | | $ | 91 | | | $ | 20 | | | $ | 1 | | | $ | 5 | | | | | | | | | | | | | | | | | | | |
6475
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | (a) | | Includes investment income and realized gains and losses. | | | (b) | | Includes other-than-temporary impairments totaling $10 million on nuclear decommissioning trust funds for the former ComEd units. | | | (c) | | Includes the elimination of non-operating decommissioning-related activity for those units that are subject to regulatory accounting, including the elimination of decommissioning trust fund income and other-than-temporary impairments. See Notes 9 and 13 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for additional information regarding the accounting for nuclear decommissioning. | | | (d) | | Receivable for the contractual recovery of unrealized income tax credits related to Exelon’s investment in synthetic fuel-producing facilities. See Note 10 — Income Taxes for further information. |
Supplemental Cash Flow Information The following tables provide additional information regarding the components of other non-cash operating activities and other assets and liabilities within the Registrants’ Consolidated Statements of Cash Flows for the threesix months ended March 31,June 30, 2007 and 2006: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2007 | | | Six Months Ended June 30, 2007 | | | | | Exelon | | Generation | | ComEd | | PECO | | | Exelon | | Generation | | ComEd | | PECO | | | | Other non-cash operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pension and non-pension postretirement benefits costs | | $ | 80 | | | $ | 36 | | | $ | 24 | | | $ | 10 | | | $ | 157 | | | $ | 71 | | | $ | 51 | | | $ | 16 | | | Equity in (earnings) losses of unconsolidated affiliates and investments | | | 26 | | | | (2 | ) | | | 2 | | | | 2 | | | | 69 | | | | (1 | ) | | | 4 | | | | 4 | | | Provision for uncollectible accounts | | | 19 | | | | — | | | | 7 | | | | 12 | | | | 44 | | | | — | | | | 24 | | | | 20 | | | Stock-based compensation costs | | | 27 | | | | — | | | | — | | | | — | | | | 41 | | | | — | | | | — | | | | — | | | Net realized gains on nuclear decommissioning trust funds | | | (9 | ) | | | (9 | ) | | | — | | | | — | | | | (19 | ) | | | (19 | ) | | | — | | | | — | | | Gain on sale of investments, net | | | (15 | ) | | | (15 | ) | | | — | | | | — | | | | (18 | ) | | | (18 | ) | | | — | | | | — | | | Amortization of energy-related options | | | 33 | | | | 33 | | | | — | | | | — | | | | 66 | | | | 66 | | | | — | | | | — | | | Non-cash accounts receivable activity | | | (18 | ) | | | — | | | | — | | | | — | | | | (25 | ) | | | — | | | | — | | | | — | | | Spent nuclear fuel interest expense | | | 12 | | | | 12 | | | | — | | | | — | | | | Spent nuclear fuel expense | | | | 24 | | | | 24 | | | | — | | | | — | | | Amortization of regulatory asset related debt costs | | | 9 | | | | — | | | | 7 | | | | 2 | | | | 16 | | | | — | | | | 13 | | | | 3 | | | Other | | | 6 | | | | 1 | | | | 11 | | | | 3 | | | | 14 | | | | 7 | | | | 15 | | | | 4 | | | | | | | | | | | | | | | | | | | | | | | Total other non-cash operating activities | | $ | 170 | | | $ | 56 | | | $ | 51 | | | $ | 29 | | | $ | 369 | | | $ | 130 | | | $ | 107 | | | $ | 47 | | | | | | | | | | | | | | | | | | | | | | Changes in other assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Under/over-recovered energy costs | | $ | (55 | ) | | $ | — | | | $ | (67 | ) | | $ | 12 | | | $ | (96 | ) | | $ | — | | | $ | (104 | ) | | $ | 8 | | | Other current assets | | | (281 | ) | | | (100 | )(a) | | | 1 | | | | (147 | )(c) | | | (198 | ) | | | (91 | )(a) | | | — | | | | (86 | )(b) | | Other noncurrent assets and liabilities | | | (29 | ) | | | (19 | )(b) | | | 8 | | | | (4 | ) | | | (53 | ) | | | (55 | )(a) | | | 11 | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | Total changes in other assets and liabilities | | $ | (365 | ) | | $ | (119 | ) | | $ | (58 | ) | | $ | (139 | ) | | $ | (347 | ) | | $ | (146 | ) | | $ | (93 | ) | | $ | (77 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Relates primarily to the purchase of energy-related options and prepaid assets.options. | | | | (b) | | Relates primarily to the purchase of long-term fuel options. | | (c) | | Relates primarily to prepaid utility taxes. |
6576
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2006 | | | Six Months Ended June 30, 2006 | | | | | Exelon | | Generation | | ComEd | | PECO | | | Exelon | | Generation | | ComEd | | PECO | | | | Other non-cash operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pension and non-pension postretirement benefits costs | | $ | 71 | | | $ | 31 | | | $ | 19 | | | $ | 10 | | | $ | 125 | | | $ | 57 | | | $ | 38 | | | $ | 15 | | | Equity in losses of unconsolidated affiliates and investments | | | 39 | | | | 3 | | | | 3 | | | | 3 | | | | 61 | | | | 5 | | | | 5 | | | | 6 | | | Provision for uncollectible accounts | | | 25 | | | | — | | | | 4 | | | | 19 | | | | 42 | | | | — | | | | 11 | | | | 31 | | | Stock-based compensation costs | | | 32 | | | | — | | | | — | | | | — | | | | 53 | | | | — | | | | — | | | | — | | | Amortization of energy-related options | | | 33 | | | | 33 | | | | — | | | | — | | | | 39 | | | | 39 | | | | — | | | | — | | | Amortization of deferred revenue | | | | (34 | ) | | | (34 | ) | | | — | | | | — | | | Non-cash accounts receivable activity | | | (33 | ) | | | — | | | | — | | | | — | | | | (57 | ) | | | — | | | | — | | | | — | | | Spent nuclear fuel expense | | | 9 | | | | 9 | | | | | | | | | | | | 20 | | | | 20 | | | | | | | | | | | Other decommissioning-related activities | | | (6 | ) | | | (6 | ) | | | — | | | | — | | | | (149 | ) | | | (149 | ) | | | — | | | | — | | | Amortization of regulatory asset related debt costs | | | 6 | | | | — | | | | 5 | | | | 1 | | | | 7 | | | | — | | | | 5 | | | | 2 | | | Other | | | — | | | | — | | | | 6 | | | | 3 | | | | 17 | | | | 6 | | | | 13 | | | | 7 | | | | | | | | | | | | | | | | | | | | | | | Total other non-cash operating activities | | $ | 176 | | | $ | 70 | | | $ | 37 | | | $ | 36 | | | $ | 124 | | | $ | (56 | ) | | $ | 72 | | | $ | 61 | | | | | | | | | | | | | | | | | | | | | | Changes in other assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Under/over-recovered energy costs | | $ | 50 | | | $ | — | | | $ | — | | | $ | 50 | | | $ | 61 | | | $ | — | | | $ | — | | | $ | 61 | | | Other current assets | | | (189 | ) | | | (24 | )(a) | | | (7 | ) | | | (139 | )(c) | | | (197 | ) | | | (70 | )(a) | | | (10 | ) | | | (84 | )(b) | | Other noncurrent assets and liabilities | | | (88 | ) | | | (72 | )(b) | | | (1 | ) | | | (5 | ) | | | (159 | ) | | | (148 | )(a) | | | 3 | | | | 3 | | | | | | | | | | | | | | | | | | | | | | | Total changes in other assets and liabilities | | $ | (227 | ) | | $ | (96 | ) | | $ | (8 | ) | | $ | (94 | ) | | $ | (295 | ) | | $ | (218 | ) | | $ | (7 | ) | | $ | (20 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Relates primarily to the purchase of energy-related options and prepaid assets.options. | | | | (b) | | Relates primarily to the purchase of long-term fuel options. | | (c) | | Relates primarily to prepaid utility taxes. |
6677
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Supplemental Balance Sheet Information The following tables provide information about the regulatory assets and liabilities of Exelon, ComEd and PECO as of March 31,June 30, 2007 and December 31, 2006: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2007 | | | June 30, 2007 | | | | | Exelon | | ComEd | | PECO | | | Exelon | | ComEd | | PECO | | | | Regulatory assets | | | | | | | | | | | | | | | | | | | | | | | | | | Competitive transition charge | | $ | 2,836 | | | $ | — | | | $ | 2,836 | | | $ | 2,688 | | | $ | — | | | $ | 2,688 | | | Pension and other postretirement benefits | | | 1,363 | | | | — | | | | — | | | | 1,352 | | | | — | | | | 36 | | | Deferred income taxes | | | 803 | | | | 11 | | | | 792 | | | | 806 | | | | 11 | | | | 795 | | | Debt costs | | | 200 | | | | 172 | | | | 28 | | | | 193 | | | | 166 | | | | 27 | | | Severance | | | 153 | | | | 153 | | | | — | | | | 147 | | | | 147 | | | | — | | | Conditional asset retirement obligations | | | 110 | | | | 96 | | | | 14 | | | | 112 | | | | 98 | | | | 14 | | | MGP remediation costs | | | 65 | | | | 45 | | | | 20 | | | | 80 | | | | 59 | | | | 21 | | | Non-pension postretirement benefits | | | 37 | | | | — | | | | 37 | | | | Rate case costs | | | 7 | | | | 7 | | | | — | | | | 6 | | | | 6 | | | | — | | | Department of Energy facility decommissioning | | | 5 | | | | — | | | | 5 | | | | 3 | | | | — | | | | 3 | | | Procurement case costs | | | 5 | | | | 5 | | | | — | | | | 4 | | | | 4 | | | | — | | | Other | | | 45 | | | | 28 | | | | 17 | | | | 47 | | | | 28 | | | | 19 | | | | | | | | | | | | | | | | | | | Noncurrent regulatory assets | | | 5,629 | | | | 517 | | | | 3,749 | | | | 5,438 | | | | 519 | | | | 3,603 | | | Under-recovered energy costs current asset(a) | | | 73 | | | | 73 | | | | — | | | | 104 | | | | 104 | | | | — | | | | | | | | | | | | | | | | | | | Total regulatory assets | | $ | 5,702 | | | $ | 590 | | | $ | 3,749 | | | $ | 5,542 | | | $ | 623 | | | $ | 3,603 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2007 | | | June 30, 2007 | | | | | Exelon | | ComEd | | PECO | | | Exelon | | ComEd | | PECO | | | | Regulatory liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | Nuclear decommissioning | | $ | 1,945 | | | $ | 1,781 | | | $ | 164 | | | $ | 2,048 | | | $ | 1,856 | | | $ | 192 | | | Removal costs | | | 1,068 | | | | 1,068 | | | | — | | | | 1,077 | | | | 1,077 | | | | — | | | Deferred taxes | | | 50 | | | | — | | | | — | | | | 44 | | | | — | | | | — | | | Refund of PURTA taxes(b) | | | 72 | | | | — | | | | 72 | | | | 71 | | | | — | | | | 71 | | | Other | | | 5 | | | | 4 | | | | 1 | | | | | | | | | | | | | | | | | | | | Noncurrent regulatory liabilities | | | 3,140 | | | | 2,853 | | | | 237 | | | | 3,240 | | | | 2,933 | | | | 263 | | | Over-recovered energy costs current liability(a) | | | 24 | | | | 6 | | | | 18 | | | | 14 | | | | — | | | | 14 | | | | | | | | | | | | | | | | | | | Total regulatory liabilities | | $ | 3,164 | | | $ | 2,859 | | | $ | 255 | | | $ | 3,254 | | | $ | 2,933 | | | $ | 277 | | | | | | | | | | | | | | | | | |
| | | | (a) | | Starting in 2007, the ComEd costs represent electricity and transmission costs recoverable (refundable) under ComEd’s ICC-approved rates. ComEd’s deferred energy costs are earning (paying) a rate of return. See Note 5 — Regulatory Issues. The PECO costs represent gas supply related costs recoverable (refundable) under PECO’s PAPUC-approved rates. PECO’s deferred energy costs are earning (paying) a rate of return. | | | | (b) | | See Note 13 — Commitments and Contingencies for additional information. |
6778
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2006 | | | December 31, 2006 | | | | | Exelon | | ComEd | | PECO | | | Exelon | | ComEd | | PECO | | | | Regulatory assets | | | | | | | | | | | | | | | | | | | | | | | | | | Competitive transition charge | | $ | 2,982 | | | $ | — | | | $ | 2,982 | | | $ | 2,982 | | | $ | — | | | $ | 2,982 | | | Pension and other postretirement benefits | | | 1,380 | | | | — | | | | — | | | | 1,419 | | | | — | | | | 39 | | | Deferred income taxes | | | 801 | | | | 11 | | | | 790 | | | | 801 | | | | 11 | | | | 790 | | | Debt costs | | | 209 | | | | 179 | | | | 30 | | | | 209 | | | | 179 | | | | 30 | | | Severance | | | 158 | | | | 158 | | | | — | | | | 158 | | | | 158 | | | | — | | | Conditional asset retirement obligations | | | 109 | | | | 95 | | | | 14 | | | | 109 | | | | 95 | | | | 14 | | | MGP remediation costs | | | 73 | | | | 47 | | | | 26 | | | | 73 | | | | 47 | | | | 26 | | | Non-pension postretirement benefits | | | 39 | | | | — | | | | 39 | | | | Rate case costs | | | 7 | | | | 7 | | | | — | | | | 7 | | | | 7 | | | | — | | | Department of Energy facility decommissioning | | | 6 | | | | — | | | | 6 | | | | 6 | | | | — | | | | 6 | | | Procurement case costs | | | 5 | | | | 5 | | | | — | | | | 5 | | | | 5 | | | | — | | | Other | | | 39 | | | | 30 | | | | 9 | | | | 39 | | | | 30 | | | | 9 | | | | | | | | | | | | | | | | | | | Total regulatory assets | | $ | 5,808 | | | $ | 532 | | | $ | 3,896 | | | $ | 5,808 | | | $ | 532 | | | $ | 3,896 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2006 | | | December 31, 2006 | | | | | Exelon | | ComEd | | PECO | | | Exelon | | ComEd | | PECO | | | | Regulatory liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | Nuclear decommissioning | | $ | 1,911 | | | $ | 1,760 | | | $ | 151 | | | $ | 1,911 | | | $ | 1,760 | | | $ | 151 | | | Removal costs | | | 1,059 | | | | 1,059 | | | | — | | | | 1,059 | | | | 1,059 | | | | — | | | Deferred taxes | | | 50 | | | | — | | | | — | | | | 50 | | | | — | | | | — | | | Other | | | 5 | | | | 5 | | | | — | | | | 5 | | | | 5 | | | | — | | | | | | | | | | | | | | | | | | | Noncurrent regulatory liabilities | | | 3,025 | | | | 2,824 | | | | 151 | | | | 3,025 | | | | 2,824 | | | | 151 | | Over-recovered energy costs current liability | | | 6 | | | | — | | | | 6 | | | | 6 | | | | — | | | | 6 | | | | | | | | | | | | | | | | | | | Total regulatory liabilities | | $ | 3,031 | | | $ | 2,824 | | | $ | 157 | | | $ | 3,031 | | | $ | 2,824 | | | $ | 157 | | | | | | | | | | | | | | | | | |
| | | | (a) | | The PECO costs represent gas supply related costs recoverable (refundable) under PECO’s PAPUC-approved rates. PECO’s deferred energy costs are earning (paying) a rate of return. |
The following tables provide information regarding accumulated depreciation and the allowance for uncollectible accounts as of March 31,June 30, 2007 and December 31, 2006: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2007 | | | June 30, 2007 | | | | | Exelon | | Generation | | ComEd | | PECO | | | Exelon | | Generation | | ComEd | | PECO | | | | Property, plant and equipment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated depreciation | | $ | 7,392 | (a) | | $ | 3,498 | (a) | | $ | 1,492 | | | $ | 2,239 | | | $ | 7,442 | (a) | | $ | 3,456 | (a) | | $ | 1,542 | | | $ | 2,266 | | Accounts receivable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for uncollectible accounts | | | 94 | | | | 17 | | | | 21 | | | | 55 | | | | 110 | | | | 16 | | | | 35 | | | | 57 | |
| | | | (a) | | Includes accumulated amortization of nuclear fuel of $1,089 million. |
79 68
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | | | | | | | | | | | | | | | | | December 31, 2006 | | | | | Exelon | | | Generation | | | ComEd | | | PECO | | | | Property, plant and equipment: | | | | | | | | | | | | | | | | | | Accumulated depreciation | | $ | 7,250 | (a) | | $ | 3,414 | (a) | | $ | 1,445 | | | $ | 2,228 | | Accounts receivable: | | | | | | | | | | | | | | | | | | Allowance for uncollectible accounts | | | 91 | | | | 17 | | | | 20 | | | | 51 | |
| | | | (a) | | Includes accumulated amortization of nuclear fuel of $1,078 million. |
The following tables provide information regarding counterparty margin deposit accounts and option premiums as of June 30, 2007 and December 31, 2006: | | | | | | | | | | | | | | | | | June 30, 2007 | | | | | Exelon | | | Generation | | | ComEd | | | | Other current assets: | | | | | | | | | | | | | | Counterparty collateral deposits paid | | $ | 257 | | | $ | 257 | | | $ | — | | | Option premiums | | | 166 | | | | 166 | | | | — | | Other current liabilities: | | | | | | | | | | | | | | Counterparty collateral deposits received | | | 9 | | | | 6 | | | | 3 | (a) |
| | | | (a) | | ComEd has received counterparty collateral deposits from suppliers under its supplier forward contracts for the procurement of electricity. |
| | | | | | | | | December 31, 2006 | | | | | Exelon and
| | | | | Generation | | | | Other current assets: | | | | | | Counterparty collateral deposits paid | | $ | 26 | | | Option premiums | | | 179 | | Other current liabilities: | | | | | | Counterparty collateral deposits received | | | 273 | |
The following table provides information regarding dividends payable as of June 30, 2007 and December 31, 2006: | | | | | | | | | | | | | June 30,
| | December 31,
| Exelon | | 2007 | | 2006 | | | Other current liabilities: | | | | | | | | | | Dividends payable | | $ | 1 | | | $ | 295 | |
| | | 15. | Segment Information (Exelon, Generation, ComEd and PECO) |
Exelon has three reportable and operating segments: Generation, ComEd and PECO. Exelon evaluates the performance of its segments based on net income. Generation, ComEd and PECO each operate in a single business segment; as such, no separate segment information is provided for these Registrants.
80
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Three Months Ended June 30, 2007 and 2006 | | | (a) | | Includes accumulated amortization of nuclear fuel of $1,126 million. |
Exelon’s segment information for the three months ended June 30, 2007 and 2006 is as follows: | | | | | | | | | | | | | | | | | | | | | December 31, 2006 | | | | | Exelon | | | Generation | | | ComEd | | | PECO | | | | Property, plant and equipment: | | | | | | | | | | | | | | | | | | Accumulated depreciation | | $ | 7,250 | (a) | | $ | 3,414 | (a) | | $ | 1,445 | | | $ | 2,228 | | Accounts receivable: | | | | | | | | | | | | | | | | | | Allowance for uncollectible accounts | | | 91 | | | | 17 | | | | 20 | | | | 51 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Intersegment
| | | | | | | | Generation | | | ComEd | | | PECO | | | Other(a) | | | Eliminations | | | Consolidated | | | | Total revenues(b): | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 | | $ | 2,641 | | | $ | 1,420 | | | $ | 1,269 | | | $ | 183 | | | $ | (1,012 | ) | | $ | 4,501 | | | 2006 | | | 2,214 | | | | 1,453 | | | | 1,148 | | | | 203 | | | | (1,321 | ) | | | 3,697 | | Intersegment revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 | | $ | 828 | | | $ | — | | | $ | 2 | | | $ | 183 | | | $ | (1,013 | ) | | $ | — | | | 2006 | | | 1,114 | | | | 2 | | | | 2 | | | | 203 | | | | (1,321 | ) | | | — | | Income (loss) from continuing operations before income taxes: | | 2007 | | $ | 927 | | | $ | 47 | | | $ | 151 | | | $ | (108 | ) | | $ | — | | | $ | 1,017 | | | 2006 | | | 791 | | | | 213 | | | | 138 | | | | (138 | ) | | | — | | | | 1,004 | | Income taxes: | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 | | $ | 349 | | | $ | 18 | | | $ | 55 | | | $ | (108 | ) | | $ | — | | | $ | 314 | | | 2006 | | | 294 | | | | 86 | | | | 45 | | | | (62 | ) | | | — | | | | 363 | | Income (loss) from continuing operations: | | 2007 | | $ | 578 | | | $ | 29 | | | $ | 96 | | | $ | — | | | $ | — | | | $ | 703 | | | 2006 | | | 497 | | | | 127 | | | | 93 | | | | (76 | ) | | | — | | | | 641 | | Income (loss) from discontinued operations: | | 2007 | | $ | — | | | $ | — | | | $ | — | | | $ | (1 | ) | | $ | — | | | $ | (1 | ) | | 2006 | | | 3 | | | | — | | | | — | | | | — | | | | — | | | | 3 | | Net income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 | | $ | 578 | | | $ | 29 | | | $ | 96 | | | $ | (1 | ) | | $ | — | | | $ | 702 | | | 2006 | | | 500 | | | | 127 | | | | 93 | | | | (76 | ) | | | — | | | | 644 | |
| | | | (a) | | Includes accumulated amortizationOther includes corporate operations, shared service entities, including BSC, Enterprises and investments in synthetic fuel-producing facilities. | | | (b) | | For the three months ended June 30, 2007 and 2006, utility taxes of nuclear fuel$60 million and $57 million, respectively, are included in revenues and expenses for ComEd. For the three months ended June 30, 2007 and 2006, utility taxes of $1,078 million.$65 million and $58 million, respectively, are included in revenues and expenses for PECO. |
The following table provides information regarding counterparty margin deposit accounts and option premiums as of March 31, 2007 and December 31, 2006:
| | | | | | | | | | | | | March 31,
| | | December 31,
| | Exelon and Generation | | 2007 | | | 2006 | | | | Other current assets: | | | | | | | | | | Counterparty collateral deposits paid | | $ | 127 | | | $ | 26 | | | Option premiums | | | 172 | | | | 179 | | Other current liabilities: | | | | | | | | | | Counterparty collateral deposits received | | | 27 | | | | 273 | |
The following table provides information regarding dividends payable as of March 31, 2007 and December 31, 2006:
| | | | | | | | | | | | | March 31,
| | | December 31,
| | Exelon | | 2007 | | | 2006 | | | | Other current liabilities: | | | | | | | | | | Dividends payable | | $ | 294 | | | $ | 295 | |
6981
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | 15. | Segment Information (Exelon, Generation, ComEd and PECO) |
Exelon has three reportable segments: Generation, ComEd and PECO. Exelon evaluates the performance of its segments based on net income. Generation, ComEd and PECO each operate in a single business segment; as such, no separate segment information is provided for these registrants.
ThreeSix Months Ended March 31,June 30, 2007 and 2006
Exelon’s segment information for the threesix months ended March 31,June 30, 2007 and 2006 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Intersegment
| | | | | | | | | | | | | Intersegment
| | | | | | | Generation | | ComEd | | PECO | | Other(a) | | Eliminations | | Consolidated | | | Generation | | ComEd | | PECO | | Other(a) | | Eliminations | | Consolidated | | | | Total revenues(b): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 | | $ | 2,703 | | | $ | 1,490 | | | $ | 1,500 | | | $ | 194 | | | $ | (1,058 | ) | | $ | 4,829 | | | $ | 5,344 | | | $ | 2,911 | | | $ | 2,769 | | | $ | 377 | | | $ | (2,071 | ) | | $ | 9,330 | | | 2006 | | | 2,220 | | | | 1,426 | | | | 1,407 | | | | 205 | | | | (1,397 | ) | | | 3,861 | | | | 4,434 | | | | 2,880 | | | | 2,554 | | | | 410 | | | | (2,719 | ) | | | 7,559 | | Intersegment revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 | | $ | 860 | | | $ | 1 | | | $ | 2 | | | $ | 195 | | | $ | (1,058 | ) | | $ | — | | | $ | 1,689 | | | $ | 2 | | | $ | 4 | | | $ | 377 | | | $ | (2,072 | ) | | $ | — | | | 2006 | | | 1,188 | | | | 2 | | | | 2 | | | | 205 | | | | (1,397 | ) | | | — | | | | 2,302 | | | | 4 | | | | 4 | | | | 409 | | | | (2,719 | ) | | | — | | Income (loss) from continuing operations before income taxes: | Income (loss) from continuing operations before income taxes: | Income (loss) from continuing operations before income taxes: | | 2007 | | $ | 890 | | | $ | 8 | | | $ | 194 | | | $ | (77 | ) | | $ | — | | | $ | 1,015 | | | $ | 1,817 | | | $ | 54 | | | $ | 345 | | | $ | (184 | ) | | $ | — | | | $ | 2,032 | | | 2006 | | | 429 | | | | 91 | | | | 141 | | | | (61 | ) | | | — | | | | 600 | | | | 1,219 | | | | 304 | | | | 279 | | | | (197 | ) | | | — | | | | 1,605 | | Income taxes: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 | | $ | 335 | | | $ | 3 | | | $ | 66 | | | $ | (70 | ) | | $ | — | | | $ | 334 | | | $ | 684 | | | $ | 21 | | | $ | 121 | | | $ | (178 | ) | | $ | — | | | $ | 648 | | | 2006 | | | 161 | | | | 37 | | | | 48 | | | | (45 | ) | | | — | | | | 201 | | | | 454 | | | | 123 | | | | 93 | | | | (106 | ) | | | — | | | | 564 | | Income (loss) from continuing operations: | Income (loss) from continuing operations: | Income (loss) from continuing operations: | | 2007 | | $ | 555 | | | $ | 5 | | | $ | 128 | | | $ | (7 | ) | | $ | — | | | $ | 681 | | | $ | 1,133 | | | $ | 33 | | | $ | 224 | | | $ | (6 | ) | | $ | — | | | $ | 1,384 | | | 2006 | | | 268 | | | | 54 | | | | 93 | | | | (16 | ) | | | — | | | | 399 | | | | 765 | | | | 181 | | | | 186 | | | | (91 | ) | | | — | | | | 1,041 | | Income from discontinued operations: | Income from discontinued operations: | Income from discontinued operations: | | 2007 | | $ | 5 | | | $ | — | | | $ | — | | | $ | 5 | | | $ | — | | | $ | 10 | | | $ | 5 | | | $ | — | | | $ | — | | | $ | 4 | | | $ | — | | | $ | 9 | | | 2006 | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | | | | 3 | | | | — | | | | — | | | | — | | | | — | | | | 3 | | Net income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 | | $ | 560 | | | $ | 5 | | | $ | 128 | | | $ | (2 | ) | | $ | — | | | $ | 691 | | | $ | 1,138 | | | $ | 33 | | | $ | 224 | | | $ | (2 | ) | | $ | — | | | $ | 1,393 | | | 2006 | | | 268 | | | | 54 | | | | 93 | | | | (15 | ) | | | — | | | | 400 | | | | 768 | | | | 181 | | | | 186 | | | | (91 | ) | | | — | | | | 1,044 | | Total assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2007 | | $ | 18,588 | | | $ | 18,189 | | | $ | 10,077 | | | $ | 14,616 | | | $ | (16,759 | ) | | $ | 44,711 | | | | June 30, 2007 | | | $ | 19,035 | | | $ | 18,466 | | | $ | 9,933 | | | $ | 14,856 | | | $ | (16,985 | ) | | $ | 45,305 | | | December 31, 2006 | | | 18,909 | | | | 17,774 | | | | 9,773 | | | | 14,295 | | | | (16,432 | ) | | | 44,319 | | | | 18,909 | | | | 17,774 | | | | 9,773 | | | | 14,295 | | | | (16,432 | ) | | | 44,319 | |
| | | | (a) | | Other includes corporate operations, shared service entities, including BSC, Enterprises and investments in synthetic fuel-producing facilities. | | | | (b) | | For the threesix months ended March 31,June 30, 2007 and 2006, utility taxes of $66$126 million and $62$119 million, respectively, are included in revenues and expenses for ComEd. For the threesix months ended March 31,June 30, 2007 and 2006, utility taxes of $63$128 million and $57$115 million, respectively, are included in revenues and expenses for PECO. |
7082
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | 16. | Related-Party Transactions (Exelon, Generation, ComEd and PECO) |
Exelon The financial statements of Exelon include related-party transactions as presented in the tables below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
| | | Three Months
| | Six Months
| | | | | March 31, | | | Ended June 30, | | Ended June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | 2007 | | 2006 | | | | | Operating revenues from affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | ComEd Transitional Funding Trust | | $ | 1 | | | $ | 1 | | | $ | 1 | | | $ | 1 | | | $ | 2 | | | $ | 2 | | | PETT | | | 2 | | | | 2 | | | | 1 | | | | 2 | | | | 3 | | | | 4 | | | | | | | | | | | | | | | | | | | Total operating revenues from affiliates | | $ | 3 | | | $ | 3 | | | $ | 2 | | | $ | 3 | | | $ | 5 | | | $ | 6 | | | | | | | | | | | | | | | | | | | Fuel purchases from related parties | | | | | | | | | | | | | | | | | | | | | | | | | | Keystone Fuels, LLC | | $ | 9 | | | $ | 11 | | | $ | 12 | | | $ | 11 | | | $ | 21 | | | $ | 22 | | | Conemaugh Fuels, LLC | | | 11 | | | | 11 | | | | 9 | | | | 11 | | | | 21 | | | | 22 | | | | | | | | | | | | | | | | | | | Total fuel purchases from related parties | | $ | 20 | | | $ | 22 | | | $ | 21 | | | $ | 22 | | | $ | 42 | | | $ | 44 | | | | | | | | | | | | | | | | | | | Interest expense to affiliates, net | | | | | | | | | | | | | | | | | | | | | | | | | | ComEd Transitional Funding Trust | | $ | 9 | | | $ | 14 | | | $ | 7 | | | $ | 12 | | | $ | 15 | | | $ | 26 | | | ComEd Financing II | | | 3 | | | | 3 | | | | 4 | | | | 4 | | | | 7 | | | | 7 | | | ComEd Financing III | | | 3 | | | | 3 | | | | 3 | | | | 3 | | | | 6 | | | | 6 | | | PETT | | | 39 | | | | 48 | | | | 36 | | | | 46 | | | | 75 | | | | 95 | | | PECO Trust III | | | 2 | | | | 2 | | | | 1 | | | | 1 | | | | 3 | | | | 3 | | | PECO Trust IV | | | 1 | | | | 1 | | | | 2 | | | | 2 | | | | 3 | | | | 2 | | | | | | | | | | | | | | | | | | | Total interest expense to affiliates, net | | $ | 57 | | | $ | 71 | | | $ | 53 | | | $ | 68 | | | $ | 109 | | | $ | 139 | | | | | | | | | | | | | | | | | | | Equity in earnings (losses) of unconsolidated affiliates and investments | | | | | | | | | | | | | | | | | | | | | | | | | | ComEd Funding LLC | | $ | (2 | ) | | $ | (3 | ) | | $ | (2 | ) | | $ | (3 | ) | | $ | (4 | ) | | $ | (5 | ) | | PETT | | | (2 | ) | | | (3 | ) | | | (2 | ) | | | (2 | ) | | | (4 | ) | | | (6 | ) | | TEG and TEP | | | 3 | | | | (2 | ) | | | — | | | | (2 | ) | | | 3 | | | | (4 | ) | | Investment in synthetic fuel-producing facilities | | | (24 | ) | | | (30 | ) | | | (39 | ) | | | (16 | ) | | | (63 | ) | | | (46 | ) | | Other | | | (1 | ) | | | (1 | ) | | | — | | | | 1 | | | | (1 | ) | | | — | | | | | | | | | | | | | | | | | | | Total equity in earnings (losses) of unconsolidated affiliates and investments | | $ | (26 | ) | | $ | (39 | ) | | $ | (43 | ) | | $ | (22 | ) | | $ | (69 | ) | | $ | (61 | ) | | | | | | | | | | | | | | | | |
7183
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | | | | | | | | | | | | | | | | | March 31,
| | December 31,
| | | June 30,
| | December 31,
| | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Receivables from affiliates (current) | | | | | | | | | | | | | | | | | | ComEd Transitional Funding Trust | | $ | — | | | $ | 17 | | | $ | — | | | $ | 17 | | | Investments in affiliates | | | | | | | | | | | | | | | | | | ComEd Funding LLC | | $ | 2 | | | $ | 4 | | | $ | (4 | ) | | $ | 4 | | | ComEd Financing II | | | 10 | | | | 10 | | | | 10 | | | | 10 | | | ComEd Financing III | | | 6 | | | | 6 | | | | 6 | | | | 6 | | | PETT | | | 53 | | | | 54 | | | | 51 | | | | 54 | | | PECO Energy Capital Corporation | | | 4 | | | | 4 | | | | 4 | | | | 4 | | | PECO Trust IV | | | 6 | | | | 6 | | | | 6 | | | | 6 | | | Other | | | (1 | ) | | | 1 | | | | — | | | | 1 | | | | | | | | | | | | | | | Total investments in affiliates | | $ | 80 | | | $ | 85 | | | $ | 73 | | | $ | 85 | | | | | | | | | | | | | | | Receivable from affiliates (noncurrent) | | | | | | | | | | | | | | | | | | ComEd Transitional Funding Trust | | $ | 8 | | | $ | 14 | | | $ | 15 | | | $ | 14 | | | Payables to affiliates (current) | | | | | | | | | | | | | | | | | | ComEd Financing II | | $ | 3 | | | $ | 6 | | | $ | 6 | | | $ | 6 | | | ComEd Financing III | | | 1 | | | | 4 | | | | 4 | | | | 4 | | | PECO Trust III | | | 2 | | | | 1 | | | | 1 | | | | 1 | | | PECO Trust IV | | | 2 | | | | — | | | | | | | | | | | | | | | | Total payables to affiliates (current) | | $ | 8 | | | $ | 11 | | | $ | 11 | | | $ | 11 | | | | | | | | | | | | | | | Long-term debt to ComEd Transitional Funding Trust, PETT and other financing trusts (including due within one year) | | | | | | | | | | | | | | | | | | ComEd Transitional Funding Trust | | $ | 537 | | | $ | 648 | | | $ | 444 | | | $ | 648 | | | ComEd Financing II | | | 155 | | | | 155 | | | | 155 | | | | 155 | | | ComEd Financing III | | | 206 | | | | 206 | | | | 206 | | | | 206 | | | PETT | | | 2,226 | | | | 2,403 | | | | 2,050 | | | | 2,403 | | | PECO Trust III | | | 81 | | | | 81 | | | | 81 | | | | 81 | | | PECO Trust IV | | | 103 | | | | 103 | | | | 103 | | | | 103 | | | | | | | | | | | | | | | Total long-term debt due to financing trusts | | $ | 3,308 | | | $ | 3,596 | | | $ | 3,039 | | | $ | 3,596 | | | | | | | | | | | | | |
7284
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Generation The financial statements of Generation include related-party transactions as presented in the tables below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
| | | Three Months Ended
| | Six Months Ended
| | | | | | | March 31, | | | June 30, | | June 30, | | | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | 2007 | | 2006 | | | | | | | Operating revenues from affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ComEd(a) | | $ | 380 | | | $ | 771 | | | $ | 330 | | | $ | 685 | | | $ | 710 | | | $ | 1,456 | | | | | | | PECO(b) | | | 480 | | | | 416 | | | | 497 | | | | 429 | | | | 978 | | | | 845 | | | | | | | BSC(c) | | | — | | | | 1 | | | | 1 | | | | — | | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | Total operating revenues from affiliates | | $ | 860 | | | $ | 1,188 | | | $ | 828 | | | $ | 1,114 | | | $ | 1,689 | | | $ | 2,302 | | | | | | | | | | | | | | | | | | | | | | | Fuel purchases from related parties | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Keystone Fuels, LLC | | $ | 9 | | | $ | 11 | | | $ | 12 | | | $ | 11 | | | $ | 21 | | | $ | 22 | | | | | | | Conemaugh Fuels, LLC | | | 11 | | | | 11 | | | | 9 | | | | 11 | | | | 21 | | | | 22 | | | | | | | | | | | | | | | | | | | | | | | Total fuel purchases from related parties | | $ | 20 | | | $ | 22 | | | $ | 21 | | | $ | 22 | | | $ | 42 | | | $ | 44 | | | | | | | | | | | | | | | | | | | | | | | Operating and maintenance from affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ComEd(d) | | $ | 1 | | | $ | 2 | | | $ | — | | | $ | 2 | | | $ | 1 | | | $ | 3 | | | | | | | PECO(d) | | | 2 | | | | 2 | | | | 2 | | | | 2 | | | | 4 | | | | 4 | | | | | | | BSC(c) | | | 75 | | | | 71 | | | | 71 | | | | 74 | | | | 146 | | | | 146 | | | | | | | | | | | | | | | | | | | | | | | Total operating and maintenance from affiliates | | $ | 78 | | | $ | 75 | | | $ | 73 | | | $ | 78 | | | $ | 151 | | | $ | 153 | | | | | | | | | | | | | | | | | | | | | | | Interest expense to affiliates, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exelon intercompany money pool(e) | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | | | | | Equity in earnings (losses) of investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | TEG and TEP | | | 3 | | | | (2 | ) | | | — | | | | (2 | ) | | | 3 | | | | (4 | ) | | | | | | NuStart Energy Development, LLC | | | (1 | ) | | | (1 | ) | | | (1 | ) | | | 1 | | | | (2 | ) | | | (1 | ) | | | | | | | | | | | | | | | | | | | | | | Total equity in earnings (losses) of investments | | $ | 2 | | | $ | (3 | ) | | $ | (1 | ) | | $ | (1 | ) | | $ | 1 | | | $ | (5 | ) | | | | | | | | | | | | | | | | | | | | | | Cash distribution paid to member | | $ | 295 | | | $ | 165 | | | $ | 370 | | | $ | 157 | | | $ | 665 | | | $ | 322 | | | | | | | Cash contribution received from member | | $ | — | | | $ | 5 | | |
7385
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | | | | | | | | | | | | | | | | | March 31,
| | December 31,
| | | June 30,
| | December 31,
| | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Receivables from affiliates (current) | | | | | | | | | | | | | | | | | | Exelon(f) | | $ | — | | | $ | 85 | | | $ | — | | | $ | 85 | | | ComEd(a) | | | 53 | | | | 197 | | | | 68 | | | | 197 | | | PECO(b) | | | 186 | | | | 153 | | | | 146 | | | | 153 | | | BSC(c) | | | — | | | | 2 | | | | — | | | | 2 | | | | | | | | | | | | | | | Total receivables from affiliates (current) | | $ | 239 | | | $ | 437 | | | $ | 214 | | | $ | 437 | | | | | | | | | | | | | | | Contributions to Exelon intercompany money pool(e) | | $ | 130 | | | $ | 13 | | | $ | — | | | $ | 13 | | | Payables to affiliates (current) | | | | | | | | | | | | | | | | | | Exelon(f) | | $ | 4 | | | $ | — | | | $ | 5 | | | $ | — | | | BSC(c) | | | 55 | | | | — | | | | 25 | | | | — | | | | | | | | | | | | | | | Total payables to affiliates (current) | | $ | 59 | | | $ | — | | | $ | 30 | | | $ | — | | | | | | | | | | | | | | | Payables to affiliates (noncurrent) | | | | | | | | | | | | | | | | | | ComEd decommissioning(g) | | $ | 1,781 | | | $ | 1,760 | | | $ | 1,856 | | | $ | 1,760 | | | PECO decommissioning(g) | | | 164 | | | | 151 | | | | 192 | | | | 151 | | | | | | | | | | | | | | | Total payables to affiliates (noncurrent) | | $ | 1,945 | | | $ | 1,911 | | | $ | 2,048 | | | $ | 1,911 | | | | | | | | | | | | | |
| | | | (a) | | Effective January 1, 2007, Generation has a supplier forward agreement with ComEd to provide up to 35% of ComEd’s electricity supply requirements. Prior to 2007, Generation had a PPA with ComEd, which expired December 31, 2006. As a result of the expiration of the PPA with ComEd and the results of the Illinois procurement auctions, Generation is selling more power through bilateral agreements. See Note 13 — Commitments and Contingencies for further detail. | | | | (b) | | Generation has a PPA with PECO, as amended, to provide the full energy requirements of PECO.PECO through 2010. | | | | (c) | | Generation receives a variety of corporate support services from BSC, including legal, human resources, financial, information technology and supply management services. All services are provided at cost, including applicable overhead. A portion of such services is capitalized. Some third-party reimbursements due to Generation are recovered through BSC. | | | | (d) | | Generation purchasesrequires electricity from ComEd and PECO for Generation’sits own use at its generationgenerating stations. Generation purchases electricity and distribution and transmission services from PECO. Starting in 2007, Generation purchases only distribution and transmission services from ComEd for the delivery of electricity to its generating stations. In 2006, Generation purchased both electricity and distribution and transmission services from ComEd. Generation’s PPA with ComEd expired December 31, 2006. See Note 13 — Commitments and Contingencies for further detail regarding the PPAs. | | | | (e) | | Generation participates in Exelon’s intercompany money pool. Generation earns interest on its contributions to the money pool, and pays interest on its borrowings from the money pool at a market rate of interest. | | | | (f) | | In order to facilitate payment processing, Exelon processes certain invoice payments on behalf of Generation. In addition, Generation has a receivable from Exelon for the allocation of certain tax benefits related to a capital loss carryback. | | | | (g) | | 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 customers. See Note 11 — Asset Retirement Obligations for additional information. |
7486
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) ComEd The financial statements of ComEd include related-party transactions as presented in the tables below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
| | | Three Months Ended
| | Six Months Ended
| | | | | March 31, | | | June 30, | | June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | 2007 | | 2006 | | | | | Operating revenues from affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | Generation(a) | | $ | 1 | | | $ | 2 | | | $ | — | | | $ | 2 | | | $ | 1 | | | $ | 3 | | | ComEd Transitional Funding Trust | | | 1 | | | | 1 | | | | 1 | | | | 1 | | | | 2 | | | | 2 | | | Other | | | | — | | | | — | | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | Total operating revenues from affiliates | | $ | 2 | | | $ | 3 | | | $ | 1 | | | $ | 3 | | | $ | 4 | | | $ | 6 | | | | | | | | | | | | | | | | | | | Purchased Power from affiliate | | | | | | | | | | | Purchased power from affiliate | | | | | | | | | | | | | | | | | | | Generation(b) | | $ | 380 | | | $ | 771 | | | $ | 330 | | | $ | 685 | | | $ | 710 | | | $ | 1,456 | | | Operation and maintenance from (to) affiliates | | | | | | | | | | | Operation and maintenance from affiliates | | | | | | | | | | | | | | | | | | | BSC(c) | | $ | 49 | | | $ | 52 | | | $ | 45 | | | $ | 53 | | | $ | 95 | | | $ | 105 | | | Interest expense to affiliates, net | | | | | | | | | | | | | | | | | | | | | | | | | | ComEd Transitional Funding Trust(e) | | $ | 9 | | | $ | 14 | | | $ | 7 | | | $ | 12 | | | $ | 16 | | | $ | 26 | | | ComEd Financing II | | | 3 | | | | 3 | | | | 4 | | | | 4 | | | | 7 | | | | 7 | | | ComEd Financing III | | | 3 | | | | 3 | | | | 3 | | | | 3 | | | | 6 | | | | 6 | | | | | | | | | | | | | | | | | | | Total interest expense to affiliates, net | | $ | 15 | | | $ | 20 | | | $ | 14 | | | $ | 19 | | | $ | 29 | | | $ | 39 | | | | | | | | | | | | | | | | | | | Equity in losses of unconsolidated affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | ComEd Funding LLC | | $ | 2 | | | $ | 3 | | | $ | 2 | | | $ | 3 | | | $ | 4 | | | $ | 5 | | | Capitalized costs | | | | | | | | | | | | | | | | | | | | | | | | | | BSC(c) | | $ | 17 | | | $ | 17 | | | $ | 16 | | | $ | 19 | | | $ | 33 | | | $ | 36 | | | Cash contributions received from parent | | $ | — | | | $ | 23 | | | $ | — | | | $ | — | | | $ | — | | | $ | 23 | |
7587
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | | | | | | | | | | | | | | | | | March 31,
| | December 31,
| | | June 30,
| | December 31,
| | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Receivables from affiliates (current) | | | | | | | | | | | | | | | | | | ComEd Transitional Funding Trust | | $ | — | | | $ | 17 | | | $ | — | | | $ | 17 | | | Other | | | — | | | | 1 | | | | — | | | | 1 | | | | | | | | | | | | | | | Total receivables from affiliates (current) | | $ | — | | | $ | 18 | | | $ | — | | | $ | 18 | | | | | | | | | | | | | | | Investments in affiliates | | | | | | | | | | | | | | | | | | ComEd Funding LLC | | $ | 2 | | | $ | 4 | | | $ | (4 | ) | | $ | 4 | | | ComEd Financing II | | | 10 | | | | 10 | | | | 10 | | | | 10 | | | ComEd Financing III | | | 6 | | | | 6 | | | | 6 | | | | 6 | | | | | | | | | | | | | | | Total investments in affiliates | | $ | 18 | | | $ | 20 | | | $ | 12 | | | $ | 20 | | | | | | | | | | | | | | | Receivable from affiliates (noncurrent) | | | | | | | | | | | | | | | | | | Generation(d) | | $ | 1,781 | | | $ | 1,760 | | | $ | 1,856 | | | $ | 1,760 | | | ComEd Transitional Funding Trust | | | 8 | | | | 14 | | | | 15 | | | | 14 | | | Other | | | 4 | | | | — | | | | 2 | | | | — | | | | | | | | | | | | | | | Total receivable from affiliates (noncurrent) | | $ | 1,793 | | | $ | 1,774 | | | $ | 1,873 | | | $ | 1,774 | | | | | | | | | | | | | | | Payables to affiliates (current) | | | | | | | | | | | | | | | | | | Generation(b) | | $ | 53 | | | $ | 197 | | | $ | 68 | | | $ | 197 | | | BSC(c) | | | 22 | | | | 10 | | | | 18 | | | | 10 | | | ComEd Financing II | | | 3 | | | | 6 | | | | 6 | | | | 6 | | | ComEd Financing III | | | 1 | | | | 4 | | | | 4 | | | | 4 | | | Other | | | — | | | | 2 | | | | — | | | | 2 | | | | | | | | | | | | | | | Total payables to affiliates (current) | | $ | 79 | | | $ | 219 | | | $ | 96 | | | $ | 219 | | | | | | | | | | | | | | | Long-term debt to ComEd Transitional Funding Trust and other financing trusts (including due within one year) | | | | | | | | | | | | | | | | | | ComEd Transitional Funding Trust(e) | | $ | 537 | | | $ | 648 | | | $ | 443 | | | $ | 648 | | | ComEd Financing II | | | 155 | | | | 155 | | | | 155 | | | | 155 | | | ComEd Financing III | | | 206 | | | | 206 | | | | 206 | | | | 206 | | | | | | | | | | | | | | | Total long-term debt due to financing trusts | | $ | 898 | | | $ | 1,009 | | | $ | 804 | | | $ | 1,009 | | | | | | | | | | | | | |
| | | | (a) | | Starting in 2007, ComEd providesis delivering electricity to Generation for Generation’s own use at its generation stations. In 2006, ComEd delivered and provided electricity to Generation. | | | | (b) | | ComEd’s full-requirements PPA, as amended, with Generation expired December 31, 2006. Starting January 2007, ComEd began procuring electricity from Generation under the supplier forward contract resulting from the reverse-auction procurement process. See Note 5 — Regulatory Issues for more information. | | | | (c) | | ComEd receives a variety of corporate support services from BSC, including legal, human resources, financial, information technology, supply management services, planning and engineering of delivery systems, management of construction, maintenance and operations of the transmission and delivery systems and management of other support services. All services are provided at cost, including applicable overhead. A portion of such services is capitalized. |
7688
EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | (d) | | ComEd has a long-term receivable from Generation as a result of the nuclear decommissioning contractual construct, whereby, to the extent the assets associated with decommissioning are greater than the applicable ARO at the end of decommissioning, such amounts are due back to ComEd for payment to ComEd’s customers. See Note 11 — Asset Retirement Obligations for additional information. | | | | (e) | | Amount includes a $17 million reallocation from prepaid interest to long-term debt. This reallocation did not have an impact on ComEd’s Consolidated Statement of Operations or ComEd’s Consolidated Statement of Cash Flows. |
PECO The financial statements of PECO include related-party transactions as presented in the tables below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
| | | Three Months Ended
| | Six Months Ended
| | | | | March 31, | | | June 30, | | June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | 2007 | | 2006 | | | | | Operating revenues from affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | Generation(a) | | $ | 2 | | | $ | 2 | | | $ | 2 | | | $ | 2 | | | $ | 4 | | | $ | 4 | | | PETT(b) | | | 2 | | | | 2 | | | | 1 | | | | 2 | | | | 3 | | | | 4 | | | | | | | | | | | | | | | | | | | Total operating revenues from affiliates | | $ | 4 | | | $ | 4 | | | $ | 3 | | | $ | 4 | | | $ | 7 | | | $ | 8 | | | | | | | | | | | | | | | | | | | Purchased power from affiliate | | | | | | | | | | | | | | | | | | | | | | | | | | Generation(c) | | $ | 480 | | | $ | 416 | | | $ | 497 | | | $ | 429 | | | $ | 977 | | | $ | 845 | | | Operating and maintenance from affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | BSC(d) | | $ | 29 | | | $ | 31 | | | $ | 27 | | | $ | 32 | | | $ | 55 | | | $ | 63 | | | Generation | | | | — | | | | — | | | | 1 | | | | — | | | Other | | | | — | | | | — | | | | — | | | | 1 | | | | | | | | | | | | | | | Total operating and maintenance from affiliates | | | $ | 27 | | | $ | 32 | | | $ | 56 | | | $ | 64 | | | | | | | | | | | | | | | Interest expense to affiliates, net | | | | | | | | | | | | | | | | | | | | | | | | | | PETT | | $ | 39 | | | $ | 48 | | | $ | 36 | | | $ | 46 | | | $ | 75 | | | $ | 95 | | | PECO Trust III | | | 2 | | | | 2 | | | | 1 | | | | 1 | | | | 3 | | | | 3 | | | PECO Trust IV | | | 1 | | | | 1 | | | �� | 2 | | | | 2 | | | | 3 | | | | 3 | | | Other | | | 1 | | | | — | | | | 1 | | | | — | | | | 1 | | | | — | | | | | | | | | | | | | | | | | | | Total interest expense to affiliates, net | | $ | 43 | | | $ | 51 | | | $ | 40 | | | $ | 49 | | | $ | 82 | | | $ | 101 | | | | | | | | | | | | | | | | | | | Equity in losses of unconsolidated affiliates | | | | | | | | | | | | | | | | | | | | | | | | | | PETT | | $ | 2 | | | $ | 3 | | | $ | 2 | | | $ | 2 | | | $ | 4 | | | $ | 6 | | | Capitalized costs | | | | | | | | | | | | | | | | | | | | | | | | | | BSC(d) | | $ | 9 | | | $ | 17 | | | $ | 6 | | | $ | 12 | | | $ | 14 | | | $ | 29 | | | Cash dividends paid to parent | | $ | 155 | | | $ | 116 | | | $ | 121 | | | $ | 135 | | | $ | 276 | | | $ | 251 | | | Cash contributions received from parent | | $ | 65 | | | $ | 48 | | | $ | 100 | | | $ | 35 | | | $ | 165 | | | $ | 83 | |
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EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) | | | | | | | | | | | | | | | | | | | | | March 31,
| | December 31,
| | | June 30,
| | December 31,
| | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Investments in affiliates | | | | | | | | | | | | | | | | | | PETT | | $ | 53 | | | $ | 54 | | | $ | 51 | | | $ | 54 | | | PECO Energy Capital Corporation | | | 4 | | | | 4 | | | | 4 | | | | 4 | | | PECO Trust IV | | | 6 | | | | 6 | | | | 6 | | | | 6 | | | | | | | | | | | | | | | Total investments in affiliates | | $ | 63 | | | $ | 64 | | | $ | 61 | | | $ | 64 | | | | | | | | | | | | | | | Receivable from affiliate (noncurrent) | | | | | | | | | | | | | | | | | | Generation decommissioning(e) | | $ | 164 | | | $ | 151 | | | $ | 192 | | | $ | 151 | | | Borrowings from Exelon intercompany money pool(f) | | $ | 13 | | | $ | 45 | | | $ | — | | | $ | 45 | | | Payables to affiliates (current) | | | | | | | | | | | | | | | | | | Generation(c) | | $ | 186 | | | $ | 153 | | | $ | 146 | | | $ | 153 | | | BSC(d) | | | 21 | | | | 48 | | | | 23 | | | | 48 | | | Exelon | | | 1 | | | | 1 | | | | 1 | | | | 1 | | | PECO Trust III | | | 2 | | | | 1 | | | | 1 | | | | 1 | | | PECO Trust IV | | | 2 | | | | — | | | | | | | | | | | | | | | | Total payables to affiliates (current) | | $ | 212 | | | $ | 203 | | | $ | 171 | | | $ | 203 | | | | | | | | | | | | | | | Long-term debt to PETT and other financing trusts (including due within one year) | | | | | | | | | | | | | | | | | | PETT | | $ | 2,226 | | | $ | 2,404 | | | $ | 2,050 | | | $ | 2,404 | | | PECO Trust III | | | 81 | | | | 81 | | | | 81 | | | | 81 | | | PECO Trust IV | | | 103 | | | | 103 | | | | 103 | | | | 103 | | | | | | | | | | | | | | | Total long-term debt to financing trusts | | $ | 2,410 | | | $ | 2,588 | | | $ | 2,234 | | | $ | 2,588 | | | | | | | | | | | | | | | Shareholders’ equity — receivable from parent(g) | | $ | 1,025 | | | $ | 1,090 | | | $ | 925 | | | $ | 1,090 | |
| | | | (a) | | PECO provides energy to Generation for Generation’s own use primarily at its generation stations. | | | | (b) | | PECO receives a monthly service fee from PETT based on a percentage of the outstanding balance of all series of transition bonds. | | | | (c) | | PECO has entered into a PPA with Generation. See Note 18 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for more information regarding the PPA. | | | | (d) | | PECO receives a variety of corporate support services from BSC, including legal, human resources, financial, information technology, supply management services, planning and engineering of delivery systems, management of construction, maintenance and operations of the transmission and delivery systems and management of other support services. All services are provided at cost, including applicable overhead. A portion of such services is capitalized. | | | | (e) | | PECO has a long-term receivable from Generation as a result of the nuclear decommissioning contractual construct, whereby, to the extent the assets associated with decommissioning are greater than the applicable ARO at the end of decommissioning, such amounts are due back to PECO for payment to PECO’s customers. See Note 11 — Asset Retirement Obligations. | | | | (f) | | PECO participates in Exelon’s intercompany money pool. PECO earns interest on its contributions to the money pool and pays interest on its borrowings from the money pool at a market rate of interest. | | | | (g) | | 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 2007 through 2010. |
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EXELON CORPORATION AND SUBSIDIARY COMPANIES
EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | 17. | Subsequent Events (Exelon and Generation)ComEd) |
On April 4,July 24, 2007, Generation agreed to sell its rights to 942 MWs of capacity, energy, and ancillary services supplied from its existing long-term contractfollowing extensive discussions with Tenaska Georgia Partners, LP through a tolling agreement with Georgia Power, a subsidiary of Southern Company, commencing June 1, 2010 and lasting for 15 or 20 years. The transaction betweenlegislative leaders in Illinois, ComEd, Generation, and Georgia Power is subjectother utilities and generators in Illinois reached an oral agreement (the Settlement) with various representatives from the State of Illinois concluding discussions of measures to approval byaddress concerns about higher electric bills in Illinois without rate freeze, generation tax or other legislation that Exelon believes would be harmful to consumers of electricity, electric utilities, generators of electricity and the Georgia Public Service Commission (GPSC). Upon approvalState of Illinois. The Settlement was recorded in a confirming letter to the Speaker of the transaction byIllinois House of Representatives, the GPSC, Exelon and Generation will recognize a non-cash after-tax loss of up to $75 million. Generation expects to receive approval from the GPSC during the third quarter of 2007. The transaction provides Generation with approximately $43 million in annual revenue in the form of capacity payments over the termPresident of the tolling agreement.Illinois Senate, the minority leaders of the Illinois House and Senate, and the Attorney General of the State of Illinois from ComEd, Generation, and other utilities and generators in Illinois. The Settlement will be effective only upon enactment of Proposed Legislation, which was drafted as part of the Settlement and attached as an exhibit to the Letter. See Note 5 — Regulatory Issues for more information.
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| | | Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
(Dollars in millions except per share data, unless otherwise noted) General Exelon is a utility services holding company. It operates through subsidiaries in the following operating segments: | | | | | • | Generation, whose business consists of its owned and contracted electric generating facilities, its wholesale energy marketing operations and competitive retail sales operations. | | | | | • | ComEd, whose business consists of the purchase and regulated retail and wholesale sale of electricity and the provision of distribution and transmission services to retail and wholesale customers in northern Illinois, including the City of Chicago. | | | | | • | PECO, whose businesses consists of the purchase and regulated retail sale of electricity and the provision of distribution and transmission services to retail customers in southeastern Pennsylvania, including the City of Philadelphia, as well as the purchase and regulated retail sale of natural gas and the provision of distribution services to retail customers in Pennsylvania in the Pennsylvania counties surrounding the City of Philadelphia. |
See Note 15 of the Combined Notes to Consolidated Financial Statements for segment information. Exelon’s corporate operations, which are performed through its business services subsidiary, Exelon Business Services Company (BSC), provide Exelon’s business segments with a variety of support services. The costs of these services are directly charged or allocated to the applicable business segments. Additionally, the results of Exelon’s corporate operations include costs for corporate governance and interest costs and income from various investment and financing activities. EXELON CORPORATION Executive Overview Financial Results. Exelon’s net income was $691$702 million for the three months ended March 31,June 30, 2007 as compared to $400$644 million for the three months ended March 31,June 30, 2006 and diluted earnings per average common share were $1.02$1.03 for the three months ended March 31,June 30, 2007 as compared to $0.59$0.95 for the three months ended March 31,June 30, 2006. Exelon’s net income was $1,393 million for the six months ended June 30, 2007 as compared to $1,044 million for the six months ended June 30, 2006 and diluted earnings per average common share were $2.05 for the six months ended June 30, 2007 as compared to $1.55 for the six months ended June 30, 2006. The increases wereincrease for both the three and six-month periods ended June 30, 2007 was primarily due to the following: | | | | | • | higher average margins on Generation’s wholesale market sales primarily due to the end of the below-market power purchase agreement (PPA) with ComEd; | | | • | increased nuclear output at Generation reflecting fewer outage days; | | | • | decreased nuclear refueling outage costs; | | | • | favorable PJM Interconnection, LLC (PJM) billing settlement with PPL Electric (PPL); | | | | | • | favorable weather conditions in the ComEd and PECO service territories; | | | | | • | increased delivery volume, excluding the effects of weather, at ComEd and PECO; | | | | | • | increased pricing for delivery services and increased transmission revenues at ComEd;ComEd as a result of the 2007 transmission rate case; and | | | | | • | increased earnings associatedrates for delivery services at ComEd. |
In addition to the items listed above, the six-month period ended June 30, 2007 increased due to the following: | | | | • | a favorable PJM Interconnection, LLC (PJM) billing settlement with investments in synthetic fuel-producing facilities.PPL Electric (PPL); | | | • | increased nuclear output at Generation reflecting fewer outage days; and | | | • | decreased nuclear refueling outage costs. |
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The factors driving the overall increase in net income for the three and six month periods ended June 30, 2007 were partially offset by the following: | | | | | • | unrealizedmark-to-market losses on contracts not yet settled; | | | | | • | lower margins (operating revenues less purchased power expense) at ComEd due to the end of the regulatory transition period and associated transition revenues; |
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| | • | the impact of ComEd’s 2007 rate relief program and other post rate freeze period transition expenses; | | | | • | higher operating and maintenance expenses, including wage-related inflation;primarily associated with an update of the nuclear decommissioning asset retirement obligation recorded in the second quarter of 2006, labor-related inflation, and increased allowance for uncollectible accounts expense; | | | | | • | increased depreciation and amortization expense, primarily related to competitive transition charge (CTC) amortization at PECO.PECO; and | | | • | the impact of favorable tax settlements at PECO in 2006. |
Financing Activities. During the threesix months ended March 31,June 30, 2007, Exelon met its capital resource requirements primarily with internally generated cash as well as funds from external sources, including the capital markets, and through bank borrowings. During the three months ended March 31, 2007, ComEd and PECO issued $300 million and $175 million, respectively, of First Mortgage Bonds. In addition, induring the first quarter ofsix months ended June 30, 2007, ComEd borrowed $340$475 million fromunder its credit facilities and repaid all outstanding commercial paper. During the first quarter ofsix months ended June 30, 2007, certain rating agencies downgraded ComEd’sComEd and PECO’s debt ratings. PECO’s downgrade reflects a change in a rating agency’s short-term and long-term rating linkage practices. Regulatory and Environmental Developments. The following significant regulatory and environmental developments occurred during the three months ended March 31, 2007. See Notes 5 and 13 of the Combined Notes to Consolidated Financial Statements for further information. | | | | | • | Rate Freeze Extension Proposal — On March 6, 2007, the Illinois House of Representatives (House) passed a rate freeze extension bill that, if enacted into law, would roll back the current electricity rates of ComEd and other Illinois utilities to rates that were in effect prior to 2007, exclusive of 2006 CTC rates. Also, the Illinois State Senate’s (Senate) Environment and Energy Committee (the Senate Committee) approved a bill, that, if enacted into law as amended, would roll back rates, exclusive of 2006 CTC rates, of certain Illinois utilities, not including ComEd, for a period of at least one year. On March 22, 2007, the Senate Committee approved for consideration by the full Senate an amendment that would make the legislation applicable to all Illinois utilities, including ComEd. On April 20,23, 2007, ComEd announced the Senate passed legislation that would rollbackimplementation of a new $64 million rate relief package to be provided to ComEd customers most affected by recent electricity rate increases. The rate relief package is expected to provide benefits to ComEd’s customers of $44 million in 2007 and freeze the rates$10 million per year during 2008 and 2009. Approximately $18 million of certain Illinois utilities, not including ComEd. This bill now movescredits were issued to the House. As of April 24, 2007, the Senate has not passed any legislation rolling back or freezing ComEd’s rates.customers through June 30, 2007. |
To become lawOn July 24, 2007, ComEd, Generation, and other utilities and generators in Illinois reached an oral agreement (the Settlement) with various representatives from the government of the State of Illinois concluding discussions of measures to address concerns about higher electric bills in Illinois without rate freeze, generation tax or other legislation that would needbe harmful to be passed byconsumers of electricity, electric utilities, generators of electricity and the State of Illinois. The Settlement was recorded in a confirming letter (the Letter) to the Speaker of the Illinois House of Representatives, the President of the Illinois Senate, the minority leaders of the Illinois House and Senate, and signed by the GovernorAttorney General of Illinois.the State of Illinois (the Attorney General) from ComEd, Generation, and other interested parties have been actively engagedutilities and generators in discussions with membersIllinois. The Settlement will be effective only upon enactment of proposed legislation (Proposed Legislation) attached as an exhibit to the Letter.
Under the Settlement and the Proposed Legislation, Illinois General Assemblyelectric utilities, their affiliates, and other leadersgenerators of electricity in Illinois would be expected to explore alternative measures, in lieumake voluntary contributions of rate freeze legislation,approximately $1 billion over a period of four years to programs that would provide financial assistancerate relief to Illinois electricity customers and funding for the new Illinois electric customers with unusually high electric billsPower Agency. Generation and other customers in needComEd have committed to contributing an aggregate of financial assistance. The outcome of these discussions of alternativesover $800 million to rate freeze legislation or the ultimate outcome of the legislative process and the coverage or content of any legislation that may be adopted are all uncertain. ComEd plans to move forward with the customer relief programs affecting its customers provided that no rate rollback and freeze legislation applicable to ComEd is enacted into law. Inclusive of ComEd’s funding of its Customers’ Affordable Reliable Energy (CARE) initiative, ComEd anticipates that these customer rate relief programs may cost approximately $44and funding for the new Illinois Power Agency. ComEd would continue executing upon its $64 million rate relief package announced April 23, 2007. Generation would contribute an aggregate of up to $747 million, of which $435 million would be available to reimburse ComEd for rate relief programs for ComEd customers, and $307.5 million would be available for rate relief programs for customers of other Illinois utilities and $4.5 million would be available for funding for the Illinois Power Agency. ComEd, Generation, and the Illinois Attorney General have also entered into a release and settlement agreement releasing and dismissing with prejudice all litigation, claims and
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regulatory proceedings and appeals related to the procurement of power, including ICC and FERC proceedings. In the event that legislation is passed prior to August 1, 2011 that would freeze or reduce electric rates or impose a generation tax on any party to the Settlement, the contributors to the rate relief funds would be allowed to terminate their funding commitments and would be allowed to recover any undisbursed funds set aside for rate relief. The Proposed Legislation would also establish a new state agency, known as the Illinois Power Agency, which would be authorized to design annual five-year electricity supply portfolio plans for electric utilities and administer a competitive procurement process for utilities to procure the electricity supply resources identified in 2007the supply portfolio plans. Additionally, ComEd and approximately $20 millionGeneration have entered into a five-year financial swap arrangement whereby ComEd will pay fixed prices and Generation will pay a market price for a portion of ComEd’s load. The financial swap arrangement will become effective upon the effective date of the Proposed Legislation. The Proposed Legislation would deem this arrangement prudent and ComEd would receive full recovery of its costs in additional funds duringits rates. Other provisions in the Proposed Legislation would extend the ability of utilities to engage in divestiture and other restructuring transactions without prior ICC approval and would ensure that until at least June 30, 2022, the state would not prohibit an electric utility from maintaining its membership in a FERC-approved regional transmission organization chosen by the utility. Furthermore, the procurement plans implemented by electric utilities would require inclusion of cost-effective renewable energy resources in amounts that equal or exceed 2% of the total electricity that each electric utility supplies to its customers by June 1, 2008, and 2009.increasing to 10% by June 1, 2015, with a goal of 25% by June 1, 2025. Utilities would be allowed to pass through any costs or savings from the procurement of these renewable resources. | | | | | • | Illinois Procurement Case and Related Proceedings — In January 2007, ComEd began procuring electricity under supplier forward contracts with various suppliers, including Generation. The supplier forward contracts resulted from a “reverse-auction” competitive bidding process, which was approved by the ICCIllinois Commerce Commission (ICC) on January 24, 2006 and permits recovery by ComEd of its electricity procurement costs from retail customers with no markup. The first auction took place in September 2006. The ICC order approving the auction process is under appeal.appeal by various parties; the Illinois Attorney General has agreed to dismiss its appeal in connection with the Settlement. Consistent with the process previously approved by the ICC, the ICC has opened a proceeding to consider improvements to the competitive procurement process. It is anticipated that a final order will be entered in that proceeding with sufficient time to incorporate changes into the process for the February 2008 auction.procurement process. | | | | | • | Residential Rate Stabilization Program — In January 2007, ComEd launched the rate stabilization program approved by the ICC that allows residential customers the choice to limit the impact of any rate increases over the next three years. The program has an “opt-in” feature that gives customers the choice to participate, beginningwhich began with the April 2007 billing period. Under the program, residential customers choosing to participate would seewill have their average annual rate increases capped at 10% in 2007, 2008 and 2009. Costs that exceed the cap would beare deferred and charged to customers over the following three years, 2010 to 2012. A |
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| | | | | carrying charge at a rate of 3.25% per year will beis assessed to participants to partially cover ComEd’s cost of financing the program. As of March 31,June 30, 2007, approximately 34,00036,000 or 1% of ComEd’s residential customers havehad enrolled in the program. |
| | | | • | CARE − In July 2006,program, and ComEd implemented CARE, an initiative to help customers prepare for electricity rate increases after the expiration of the rate freeze in Illinois. In addition to the residential rate stabilization program discussed above, CARE includes a variety of energy efficiency, low-income and senior citizen programs to help mitigate the impacts of the rate increase on customers’ bills.had deferred less than $1 million under this program. | | | | | • | Illinois Rate Design Investigation — On March 2, 2007, the ICC voted to initiate investigations into ComEd’s and the Ameren Corporation (Ameren) utilities’ rate designs, particularly for residential and residential space-heating customers. The ICC has a schedule that contemplates a final order by September 2007, which would allow implementation of changes, if any, prior to the next winter heating season. | | | | | • | Transmission Rate Case — On March 1, 2007, ComEd filed a request with the FERC,Federal Energy Regulatory Commission (FERC), seeking approval to increase the rate ComEd receives for transmission services. ComEd also requested incentive rate treatment for certain transmission projects. If approved byOn June 5, 2007, FERC issued an order that conditionally approves ComEd’s proposal to implement a formula-based transmission rate effective as of May 1, 2007, but subject to refund, hearing procedures and conditions. The FERC order provides that further hearing and settlement procedures be conducted to determine the FERC,reasonableness of |
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| | | | | certain elements of ComEd’s formula-based rate. The order denied ComEd’s request for incentive rate treatment on investment in two transmission projects and the total proposed increaseinclusion of $147 millionconstruction work in the annual revenue requirement, including incentives, wouldprogress in rate base. The order directed ComEd to file a revised formula reflecting these findings within 30 days. The new rate will increase an average residential customer bill by about 1.5%.1% and will result in an annual increase in the transmission revenue requirement of $116 million, although the rate increase is subject to further adjustment and refund depending on the outcome of the settlement and hearing procedures. On July 5, 2007, ComEd is requesting thatfiled a request for rehearing, asking FERC to reconsider the denial of incentive rate treatment on the two new transmission projects and the denial of construction work in progress in rate if accepted by FERC, be effective asbase and certain other elements of May 2007.the June 5, 2007 order. |
| | | | | • | PECO AEPS Filing — On March 19, 2007, PECO filed a request with the Pennsylvania Public Utility Commission (PAPUC) for approval to acquire and bank up to 450,000 non-solar Tier I Alternative Energy Credits (equivalent to up to 240 MW of electricity generated by wind) annually for a five-year term in order to prepare for 2011, the first year of PECO’s required compliance under the Alternative Energy Portfolio Standards Act of 2004 (AEPS Act) following the completion of its restructuringtransition period. On July 16, 2007, the Pennsylvania legislature modified the previously proposed AEPS Act in House Bill (HB) 1203. The modification did not affect PECO’s request for acquiring and banking Alternative Energy Credits or the proposed deferral of related costs. | | | • | On May 19, 2006, FERC issued a Notice of Proposed Rule Making (NOPR) on Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and Ancillary Services by Public Utilities. The NOPR proposes a set of regulations that would modify the tests that Generation and other market participants must satisfy to be entitled to market-based rates. On June 21, 2007, FERC issued a Final Rule. Generation is currently evaluating the impact of the Final Rule. |
Outlook for 2007 and Beyond. Exelon’s future financial results will be affected by a number of factors, including the following: | | | | | • | As a resultLegislation proposed in the State of Illinois in July 2007 in connection with the Settlement has significantly reduced the probability of rate freeze legislation orand other legislative or regulatory action,actions proposed in previous periods. The Proposed Legislation contemplated by the Settlement, if the price at which ComEd is allowed to sell electricity beginning in 2007 is set below ComEd’s cost to procure and deliver electricity, there will be material adverse consequences to ComEd, including possible bankruptcy, which could result in material adverse consequences to Exelon and, in the event of a ComEd bankruptcy filing, possibly material adverse consequences to Generation. The ICC’s unanimous approval of the reverse-auction process, barring any adverse decision in the pending appeals or change in law,enacted, should provide ComEd with greater stability and greater certainty that it will be able to procure electricity and pass through the costs of that electricity to ComEd’s customers beginningits customers. The Proposed Legislation would establish a new competitive procurement model developed by the new Illinois Power Agency, by which ComEd would procure its energy supply. ComEd would stabilize a portion of its costs of procurement pursuant to a five-year financial swap arrangement with Generation. ComEd would be allowed to fully recover the costs of procuring energy, including the impacts of the swap agreement, in 2007 through a transparent market mechanismits rates. In the event that legislation is passed in the reverse-auction competitive bidding process.Illinois General Assembly prior to August 1, 2011 that freezes or reduces electric rates or imposes a generation tax, ComEd and Generation, as contributors to certain rate relief programs, would be allowed to terminate their funding commitments to such programs and recover any undisbursed funds set aside for rate relief. |
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| | | | | • | PECO was subject to electric rate caps on its transmission and distribution rates through December 31, 2006 and is subject to caps on its generation rates through December 31, 2010. PECO’s transmission and distribution rates will continue in effect until PECO files a rate case or there is some other specific regulatory action to adjust the rates. There are no current proceedings to do so. PECO is or will be involved in proceedings involving annual changes in its electric and gas universal service fund cost charges, its electric CTC/intangible transition charge reconciliation mechanism, and its purchased gas cost rate, all of which are designedrelate to recover PECO’s recovery of the applicable costs. | | | | | • | Effective for customer bills for electric generation service delivered after customers’ January 2007 meter readings, and in accordance with its 1998 restructuring settlement with the PAPUC, PECO implemented ana scheduled electric generation rate increase that will result in approximately $190 million of additional operating revenues in 2007 as compared to 2006 and a corresponding increase in purchased power, in accordance with PECO’s PPA with Generation, with no resulting impact on pre-tax operating income. The impact of this rate increase on Exelon and Generation will be an increase in operating revenues and pre-tax operating income of approximately $190 million. | | | | | • | Generation is exposed to commodity price risk associated with the unhedged portion of its electricity portfolio. Generation enters into derivative contracts, including forwards, futures, swaps, and options, with |
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| | | | | approved counterparties to hedge this anticipated exposure. Generation has hedges in place that significantly mitigate this risk for 2007 and 2008. However, Generation is exposed to relatively greater commodity price risk in the subsequent years for which a larger portion of its electricity portfolio may be unhedged. Generation has been and will continue to be proactive in using hedging strategies to mitigate this risk in subsequent years as well. |
| | | | | • | Generation depends onprocures coal natural gas and the production of nuclear fuel assemblies to operate its generating facilities. Coal is procured for coal-fired plants through annual, short-term and spot-market purchases. Naturalpurchases and natural gas is procured through annual, monthly and spot-market purchases. The production of nuclearNuclear fuel assemblies requiresare obtained through long-term contracts for uranium concentrate inventoryconcentrates, and supplylong term contracts contractedfor conversion services, contracted enrichment services and fuel fabrication services. The supply markets for coal, natural gas, uranium concentrates and uraniumcertain nuclear fuel services are subject to price fluctuations and availability restrictions thatrestrictions. Supply market conditions may negatively affectmake Generation’s procurement contracts subject to credit risk related to the potential non-performance of counterparties to deliver the contracted commodity or service at the contracted prices. Non-performance by these counterparties could have a material impact on Exelon’s and Generation’s results of operations, for Generation. It is not possible to predict the ultimate cost or availability of these commodities.cash flows and financial position. Generation uses long-term contracts and financial instruments such asover-the-counter and exchange-traded instruments to mitigate price risk associated with these commodity price exposures. | | | | | • | The PPA between Generation and PECO expires at the end of 2010. Current market prices for electricity have increased significantly over the past few years due to the rise in natural gas and other fuel prices. As a result, PECO customers’ generation rates are below current wholesale energy market prices and Generation’s margins on sales in excess of PECO’s requirements have improved historically. Generation’s ability to maintain those margins following the expiration of the PPA will partially depend on future wholesale market prices and its ability to obtain high capacity factors at its nuclear plants.prices. | | | | | • | Select northeast and mid-Atlantic statesMid-Atlantic States have developed a model rule, via the Regional Greenhouse Gas Initiative, to regulate carbon emissions from fossil-fired generation in participating states starting in 2009. Federaland/or state legislation to regulate carbon emissions could occur in the future. If these planssuch state regulationand/or legislation become effective, Exelon may incur costs in further limiting the emissions from certain of its fossil-fuel fired facilities or in procuring emission allowance credits issued by various governing bodies. However, Exelon may benefit from stricter emission standards due to its significant nuclear capacity, which is not anticipated to be affected by the proposed emission standards. | | | | | • | Exelon anticipates that it will be subject to the ongoing pressures of rising operating expenses due to increases in costs, such as medical benefits and rising payroll costs due to inflation. Also, Exelon will continue to incur significant capital costs associated with its commitment to produce and deliver energy reliably to its customers. Increasing capital costs may include the price of uranium, which fuels the nuclear facilities, and continued capital investment in Exelon’s aging distribution infrastructure and generating |
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| | | | | facilities. Exelon is determined to operate its businesses responsibly and to appropriately manage its operating and capital costs while serving its customers and producing value for its shareholders. |
| | | | | • | Exelon pursues growth opportunities that are consistent with its disciplined approach to investing to maximize earnings and cash flows. On September 29, 2006, Generation notified the Nuclear Regulatory Commission (NRC) that Generation will begin the application process for a combined construction and operating license that would allow for the possible construction of a new nuclear plant at an as-yet unnamed location in Texas. The filing of the letter with the NRC launches a process that preserves for Exelon the option to develop a new nuclear plant in Texas without immediately committing to the full project. Exelon has not decidedThe decision to build a new nuclear plant.plant has not been made at this time; however on June 28, 2007, Generation announced that it has selected primary and secondary sites, both in southeast Texas, for a federal license application that, if obtained, would allow construction and operation of a new nuclear plant should Generation decide to build one. Among the various conditions that must be resolved before any formal decision to build is made are a permanent solution to spent nuclear fuel disposal, broad public acceptance of a new nuclear plant and assurances that a new plant using new technology can be financially successful. ExelonGeneration expects to submit the application to the NRC for the combined construction and operating license in 2008. | | | | | • | During 2006, FERC issued its order approving PJM’s settlement proposal related to its Reliability Pricing Model (RPM) to provide for a forward capacity auction using a demand curve and locational deliverability zones for capacity phased in over a several year period beginning on June 1, 2006. FERC’s adoption of the settlement proposal is expected to havehas had a favorable impact for owners of generation facilities, particularly |
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| | | | | for such facilities located in constrained zones. The first auction took place in April 2007 and resulted in Generation auctioning capacity at prices ranging from $40.80/MW to $197.67/MW per day for the regions in which Generation has capacity for the period from June 1, 2007 through May 31, 2008. The second auction took place in July 2007 and resulted in Generation auctioning capacity at prices ranging from $111.92/MW to $148.80/MW per day for the regions in which Generation has capacity for the period from June 1, 2008 through May 31, 2009. Subsequent auctions will be conducted in July 2007, October 2007 and January 2008 to auction capacity for periods through May 2011. |
| | | | | • | On April 2, 2007, the U.S. Supreme Court issued a decision in the case of Massachusetts v. U.S. Environmental Protection Agency (EPA) holding that carbon dioxide and other greenhouse gas (GHG) emissions are pollutants subject to regulation under the new motor vehicle provisions of the Clean Air Act. The case was remanded to the Environmental Protection AgencyEPA for further rulemaking to determine whether GHG emissions may reasonably be anticipated to endanger public health or welfare, or in the alternative provide a reasonable explanation why GHG emissions should not be regulated. Possible outcomes from this decision include regulation of GHG emissions from manufacturing plants, including electric generation, transmission and distribution facilities, under a new Environmental Protection AgencyEPA rule, and Federal or state legislation. | | | | | • | On January 25, 2007, the U.S. Court of Appeals for the Second Circuit issued its opinion in a challenge to the final Phase II rule implementing Section 316(b) of the Clean Water Act. By its action, the court invalidated compliance measures that the utility industry supported because they were cost-effective and provided existing plants with needed flexibility in selecting the compliance option appropriate to its location and operations. The court’s opiniondecision has created significant uncertainty about the specific nature, scope and timing of the final compliance requirements. InSeveral industry parties to the interim,litigation sought review by the Environmental Protection Agency has announcedentire U.S. Court of Appeals for the suspension ofSecond Circuit, which was denied on July 5, 2007. Parties to the litigation have until October 3, 2007 to file a petition seeking review by the U.S. Supreme Court. On July 9, 2007, the EPA formally suspended the Phase II rule due to the uncertainty about the specific compliance requirements created by the court’s remand of significant provisions of the rule. Until the Environmental Protection AgencyEPA finalizes the rule on remand (which could take up to several years), the state permitting agencies will continue the current practice of applying their best professional judgment to address impingement and entrainment requirements at plant cooling water intake structures. Due to this uncertainty, Generation cannot estimate the effect that compliance with the Phase II rule requirements will have on the operation of its generating facilities and its future results of operations, financial condition and cash flows. If the final rule, or interim state requirements under best professional judgment, have performance standards that require the reduction of cooling water |
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| | | | | | intake flow at the plants consistent with closed loop cooling systems, then the impact on the operation of the facilities and Exelon’s and Generation’s future results of operations, financial position and cash flows could be material. |
| | | | | • | AfterOn May 10, 2007, after completion of a two year rulemakingrule making process, the PAPUC is likely to issueadopted final Default Supplier (Provider of Last Resort) regulations, inan accompanying policy statement, and a price mitigation policy statement. The regulations allow for competitive procurement by distribution companies through auctions or Requests for Proposals, with full cost recovery and no retrospective prudence review. According to the second quarterpolicy statement, the PAPUC expects companies to procure power, on a customer-class basis, using contracts of 2007. These regulationsvarying expiration dates, and prefers contracts with a duration of one year or less, except for contracts for compliance with the AEPS Act. The PAPUC also expects companies to reconcile costs and adjust rates at least quarterly for most customers, but hourly or monthly for larger energy users. The PAPUC believes this combination will provide clear guidancestimulate competition, send market-price signals and avoid price spikes following long periods of fixed, capped rates. The PAPUC also ordered the elimination of (1) declining-block rates, while allowing rates to electric distribution companies,be phased out if the resulting rate increase is greater than 25%; and (2) demand charges for large customers, while entertaining requests to retain those charges on a case-by-case basis. Default service providers such as PECO on acceptable methodswill be required to make their implementation filings a minimum of procuring electric energy supplies for default service customers when their generation rate caps expire at12 months prior to the end of their electric restructuring transition periods (e.g.,the generation rate cap period, which for PECO, expires December 31, 2010. The final Default Service Regulations adopted by the post-2010 period). PECO has generally supportedPAPUC will become effective once approved by Pennsylvania’s Independent Regulatory Review Commission (such approval being received on July 19, 2007), and after subsequent review by the Pennsylvania Office of Attorney General, the Pennsylvania Governor’s Budget Office and the standing committees of both houses of the Pennsylvania General Assembly. Once that review and approval process is completed, the regulations but has offered comments requesting clarificationwould become final once published in certain respects. PECO believes that the regulations, if adopted and applied in their present form, would allow it to fully recover its cost of procuring electric energy through competitive procurement methods such as an energy auction.Pennsylvania Bulletin. | | | | | • | In Illinois, Pennsylvania and other states where transition periods have ended or rate caps have expired, there is growing pressure forfrom state regulatoryregulators and political processespoliticians to take steps to reducemitigate the potential impact of generation price increases on retail customers. Associated with the end of the rate freeze period in Illinois in January 2007, various Illinois legislative attempts have been made to roll back and freeze ComEd’s rates for an additional period or to control the rate at which the rate increases are phased in. As a result of such experiences in Illinois and similarThe experiences in other states following the end of a regulatory transition period there ishas led to a heightened riskstate of political pressure followingconcern that significant generation price increases also will occur after the expiration of rate caps in Pennsylvania. While PECO’s caps on its generation rates throughregulatory transition period does not end until December 31, 2010. In2010, these transition periods have ended for six Pennsylvania electric distribution companies and, in some instances, generations price increases have ensued. Partly in response to the rate increases and as part of his environmental agenda, Pennsylvania Governor Edward Rendell has issuedannounced an Energy Independence PlanStrategy earlier this year that has given rise to three legislative bills now pending before the General Assembly.included a package of proposed legislation. Provisions of that legislation would, materially affect the PAPUC’s proposed rules governing howamong other things, require default suppliers such as PECO wouldto procure electricity for their default servicedefault-service customers, and satisfy their obligations under the AEPS legislation when their generation rate caps expire atafter the end of their electric restructuring transition periods. PECO cannot predictperiod (post-2010 for PECO), through a least-cost portfolio approach, with preferences for conservation and renewable power. The legislation also would require installation of metering technology to provide time-of-use rates to retail customers, provide for a phase-in of increased generation rates after expiration of rate caps, permit distribution companies to enter into long-term contracts with large industrial customers, and create a fee on electric consumption that the likelihoodstate would direct toward conservation and renewable technologies. On July 18, 2007, Governor Rendell signed into law HB1203, amending the AEPS Act (amending the force majeure and solar provisions), and HB1530, which amends Title 66 of the Pennsylvania Utility Code, allowing electric distribution companies to negotiate special contracts for larger customers. Other elements of the Governor’s proposed energy package will be considered further at a special legislative session to be held beginning September 17, 2007. | | | • | Prior to June 30, 2007, the Illinois House and Senate passed Senate Bill (SB) 1544 which provides for market based sourcing of generation and the sale of electricity for Illinois tax purposes. SB1544 is currently awaiting signature by the Governor of Illinois to become law. The Governor of Illinois has 60 days from June 29, 2007 to act on SB1544 before such legislation beingautomatically becomes law. If enacted, the legislation becomes effective January 1, 2008. Exelon and Generation are currently assessing the potential impact SB1544 may have on PECO’s operating results.their results of operations or cash flows. |
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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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in Exelon’s 2006 Annual Report on
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Form 10-K for a discussion of the estimates and judgments necessary in the Registrants’ accounting for asset retirement obligations, asset impairments, depreciable lives of property, plant and equipment, defined benefit pension and other postretirement welfare benefits, regulatory accounting, derivative instruments, contingencies, severance and revenue recognition. Taxation The Registrants are required to make judgments regarding the potential tax effects of various financial transactions and results of operations in order to estimate their obligations to taxing authorities. Beginning January 1, 2007, the Registrants began accounting for uncertain income tax positions using a benefit recognition model with a two-step approach, a more-likely-than-not recognition criterion and a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon ultimate settlement in accordance with Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (FIN 48). If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit will be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold. Prior to January 1, 2007, the Registrants estimated their uncertain income tax obligations in accordance with SFAS No. 109, “Accounting for Income Taxes” (SFAS No. 109), SFAS No. 5, “Accounting for Contingencies” (SFAS No. 5) and Statement of Financial Accounting Concepts No. 6,“Elements “Elements of Financial Statements — a replacement of FASB Concepts Statement No. 3 (incorporating an amendment of FASB Concepts Statement No. 2)” (CON 6). The Registrants also have non-income tax obligations related to real estate, sales and use and employment-related taxes and ongoing appeals related to these tax matters that are outside the scope of FIN 48 and accounted for under SFAS No. 5 and CON 6. Accounting for tax obligations requires judgments, including estimating reserves for potential adverse outcomes regarding tax positions that have been taken. The Registrants also assess their ability to utilize tax attributes, including those in the form of carryforwards, for which the benefits have already been reflected in the financial statements. The Registrants do not record valuation allowances for deferred tax assets related to capital losses that the Registrants believe will be realized in future periods. While the Registrants believe the resulting tax reserve balances as of March 31,June 30, 2007 and December 31, 2006 are appropriately accounted for in accordance with FIN 48, SFAS No. 5, SFAS No. 109 and CON 6 as applicable, the ultimate outcome of such matters could result in favorable or unfavorable adjustments to their consolidated financial statements and such adjustments could be material. New Accounting Pronouncements See Note 3 of the Combined Notes to Consolidated Financial Statements for discussion of new accounting pronouncements.
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Results of Operations — Exelon Corporation Three Months Ended March 31,June 30, 2007 Compared To Three Months Ended March 31,June 30, 2006 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | Three Months
| | | | | | | Ended
| | Favorable
| | | Ended
| | Favorable
| | | | | March 31, | | (Unfavorable)
| | | June 30, | | (Unfavorable)
| | Exelon Corporation | | 2007 | | 2006 | | Variance | | | 2007 | | 2006 | | Variance | | | | Operating revenues | | $ | 4,829 | | | $ | 3,861 | | | $ | 968 | | | $ | 4,501 | | | $ | 3,697 | | | $ | 804 | | Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | | Purchased power and fuel expense | | | 2,015 | | | | 1,462 | | | | (553 | ) | | | 1,640 | | | | 1,073 | | | | (567 | ) | | Operating and maintenance expense | | | 1,058 | | | | 1,024 | | | | (34 | ) | | | 1,062 | | | | 881 | | | | (181 | ) | | Depreciation and amortization | | | 369 | | | | 363 | | | | (6 | ) | | | 369 | | | | 371 | | | | 2 | | | Taxes other than income | | | 196 | | | | 194 | | | | (2 | ) | | | 199 | | | | 170 | | | | (29 | ) | | | | | | | | | | | | | | | | | | Total operating expenses | | | 3,638 | | | | 3,043 | | | | (595 | ) | | | 3,270 | | | | 2,495 | | | | (775 | ) | | | | | | | | | | | | | | | | | Operating income | | | 1,191 | | | | 818 | | | | 373 | | | | 1,231 | | | | 1,202 | | | | 29 | | | | | | | | | | | | | | | | | | Other income and deductions | | | | | | | | | | | | | | | | | | | | | | | | | | Interest expense | | | (156 | ) | | | (153 | ) | | | (3 | ) | | | (161 | ) | | | (154 | ) | | | (7 | ) | | Interest expense to affiliates, net | | | (57 | ) | | | (71 | ) | | | 14 | | | | (53 | ) | | | (68 | ) | | | 15 | | | Equity in losses of unconsolidated affiliates and investments | | | (26 | ) | | | (39 | ) | | | 13 | | | | (43 | ) | | | (22 | ) | | | (21 | ) | | Other, net | | | 63 | | | | 45 | | | | 18 | | | | 43 | | | | 46 | | | | (3 | ) | | | | | | | | | | | | | | | | | | Total other income and deductions | | | (176 | ) | | | (218 | ) | | | 42 | | | | (214 | ) | | | (198 | ) | | | (16 | ) | | | | | | | | | | | | | | | | | Income from continuing operations before income taxes | | | 1,015 | | | | 600 | | | | 415 | | | | 1,017 | | | | 1,004 | | | | 13 | | Income taxes | | | 334 | | | | 201 | | | | (133 | ) | | | 314 | | | | 363 | | | | 49 | | | | | | | | | | | | | | | | | | Income from continuing operations | | | 681 | | | | 399 | | | | 282 | | | | 703 | | | | 641 | | | | 62 | | Income from discontinued operations, net of income taxes | | | 10 | | | | 1 | | | | 9 | | | Income (loss) from discontinued operations, net of income taxes | | | | (1 | ) | | | 3 | | | | (4 | ) | | | | | | | | | | | | | | | | | Net income | | $ | 691 | | | $ | 400 | | | $ | 291 | | | $ | 702 | | | $ | 644 | | | $ | 58 | | | | | | | | | | | | | | | | | | Diluted earnings per share | | $ | 1.02 | | | $ | 0.59 | | | $ | 0.43 | | | $ | 1.03 | | | $ | 0.95 | | | $ | 0.08 | | | | | | | | | | | | | | | | | |
Net Income. Exelon’s net income for the three months ended March 31,June 30, 2007 reflects higher average margins on wholesale market sales; higher nuclear output at Generation; decreased nuclear refueling outage costs; a favorable PJM billing settlement with PPL; favorable weather conditions in the ComEd and PECO service territories; increased electric and gas deliveries, excluding the effects of weather, at ComEd and PECO; increased pricing for delivery services at ComEd and PECO; and increased transmission revenues at ComEd; and increased earnings associated with investments in synthetic fuel-producing facilities.ComEd. These increases were partially offset by unrealizedmark-to-market losses on contracts not yet settled; decreased energy margins at ComEd; higher operating and maintenance expenses, including wage-related inflation;higher nuclear refueling outage expenses, labor-related inflation and increased depreciationallowance for uncollectible accounts expense at ComEd; the impact of ComEd’s 2007 rate relief program and amortization expense, primarily related to CTC amortizationother post rate freeze period transition expenses; an update of the nuclear decommissioning asset retirement obligation recorded in the second quarter of 2006; and favorable tax settlements at PECO.PECO in 2006. Operating Revenues. Operating revenues increased due to an increase in wholesale and retail electric sales at Generation due to higher volumes of generation sold to the market as a result of the expiration of the ComEd PPA in 2006,2006; higher market prices, higher delivery volume, excluding the effects of weather and customer choice, reflecting electric and gas load growth at PECO andprices; favorable weather conditions in the ComEd and PECO service territories. These increases were partially offset by decreased energy marginsterritories; higher electric and gas delivery volumes, excluding the effects of weather and customer choice, at ComEd and PECO; rate changes and mix at ComEd due to the end of its regulatory transition periodthe rate freeze and implementation of market-based rates for electricity; impact of the distribution rate increase; and increased transmission revenues at ComEd resulting from the 2007 transmission rate case. These increases were partially offset by ComEd customers switching to competitive electric generation suppliers and the endimpact of the below-market price PPA with Generation in 2006.ComEd’s 2007 rate relief program. See further analysis and discussion of operating revenues by segment below.
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Purchased Power and Fuel Expense. Purchased power and fuel expense increased due to higher volumes of power purchased in the market and higher market energy prices. Purchased power represented 18%19% of Generation’s total supply for both the three months ended March 31,June 30, 2007 and March 31,compared to 17% for the three months ended June 30, 2006. This increase was partially offset by a favorable PJM billing settlement with PPL. See further analysis and discussion of purchased power and fuel expense by segment below.
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Operating and Maintenance Expense. Operating and maintenance expense increased primarily due to increased labor costs and the impacts from inflation, which were partially offset by decreasedimpact of higher nuclear refueling outage costs.costs; labor-related inflation; the impact of ComEd’s 2007 rate relief program and other post rate freeze period transition expenses; increased allowance for uncollectible accounts expense at ComEd; and a decrease in Generation’s nuclear decommissioning obligation related to the AmerGen nuclear plants recorded in the second quarter of 2006. See further discussion of operating and maintenance expenses by segment below. Depreciation and Amortization Expense. Depreciation and amortization expense increaseddecreased primarily due to lower amortization related to investments in synthetic fuel-producing facilities. This decrease was partially offset by additional CTC amortization at PECO. Taxes Other Than Income. Taxes other than income remained relatively constant for the three months ended March 31, 2007 comparedincreased due to the same periodfavorable tax settlements in 2006.2006 and higher taxes on utility revenues at PECO in 2007. Other Income and Deductions. The change in other income and deductions reflects interest income related to the favorable PJM billing settlement with PPL, a gain related to the sale of investments by Generation,reduced earnings associated with investments in synthetic fuel-producing facilities and expenses recorded in 2006 related to the now terminated merger proposal with Public Service Enterprise Group Incorporated (PSEG) recorded during the three months ended March 31, 2006.. Effective Income Tax Rate. The effective income tax rate from continuing operations was 32.9%30.9% for the three months ended March 31,June 30, 2007 compared to 33.5%36.2% for the three months ended March 31,June 30, 2006. SeeThe synthetic-fuel producing facilities credit decreased the effective income tax rate from continuing operations by 6.5% for the three months ended June 30, 2007. Note 10 of the Combined Notes to Consolidated Financial Statements for further discussion of the change in the effective income tax rate. Discontinued Operations. On January 31, 2005, subsidiaries of Generation completed a series of transactions that resulted in Generation’s sale of its investment in Sithe Energies, Inc. (Sithe). In addition, Exelon has sold or wound down substantially all components of Enterprises. Accordingly, the results of operations and any gain or loss on the sale of these entities have been presented as discontinued operations within Exelon’s (for Sithe and Enterprises) and Generation’s (for Sithe) Consolidated Statements of Operations and Comprehensive Income. See Notes 2 and 4 of the Combined Notes to Consolidated Financial Statements for further information regarding the presentation of Sithe and certain Enterprises businesses as discontinued operations. During the three months ended March 31, 2007, Exelon’s Consolidated Statement of Income and Comprehensive Income included $5 million (after-tax) of income from discontinued operations related to a favorable legal settlement at Enterprises and $5 million (after-tax) of income from discontinued operations related primarily to Sithe, resulting from a settlement agreement between a subsidiary of Sithe, the Pennsylvania Attorney General’s Office and the Pennsylvania Department of Revenue regarding a previously disputed tax position asserted for the 2000 tax year.
Results of Operations by Business Segment The comparisons of operating results and other statistical information for the three months ended March 31,June 30, 2007 compared to the same period in 2006 set forth below include intercompany transactions, which are eliminated in Exelon’s consolidated financial statements. Income (Loss) from Continuing Operations by Business Segment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
| | Favorable
| | | Three Months Ended
| | Favorable
| | | | | March 31, | | (Unfavorable)
| | | June 30, | | (Unfavorable)
| | | | | 2007 | | 2006 | | Variance | | | 2007 | | 2006 | | Variance | | | | | Generation | | $ | 555 | | | $ | 268 | | | $ | 287 | | | $ | 578 | | | $ | 497 | | | $ | 81 | | | ComEd | | | 5 | | | | 54 | | | | (49 | ) | | | 29 | | | | 127 | | | | (98 | ) | | PECO | | | 128 | | | | 93 | | | | 35 | | | | 96 | | | | 93 | | | | 3 | | | Other(a) | | | (7 | ) | | | (16 | ) | | | 9 | | | | — | | | | (76 | ) | | | 76 | | | | | | | | | | | | | | | | | | | Total | | $ | 681 | | | $ | 399 | | | $ | 282 | | | $ | 703 | | | $ | 641 | | | $ | 62 | | | | | | | | | | | | | | | | | |
| | | | (a) | | Other includes corporate operations, shared service entities, including BSC, Enterprises, investments in synthetic fuel-producing facilities and intersegment eliminations. |
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Net Income (Loss) by Business Segment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
| | Favorable
| | | Three Months Ended
| | Favorable
| | | | | March 31, | | (Unfavorable)
| | | June 30, | | (Unfavorable)
| | | | | 2007 | | 2006 | | Variance | | | 2007 | | 2006 | | Variance | | | | | Generation | | $ | 560 | | | $ | 268 | | | $ | 292 | | | $ | 578 | | | $ | 500 | | | $ | 78 | | | ComEd | | | 5 | | | | 54 | | | | (49 | ) | | | 29 | | | | 127 | | | | (98 | ) | | PECO | | | 128 | | | | 93 | | | | 35 | | | | 96 | | | | 93 | | | | 3 | | | Other(a) | | | (2 | ) | | | (15 | ) | | | 13 | | | | (1 | ) | | | (76 | ) | | | 75 | | | | | | | | | | | | | | | | | | | Total | | $ | 691 | | | $ | 400 | | | $ | 291 | | | $ | 702 | | | $ | 644 | | | $ | 58 | | | | | | | | | | | | | | | | | |
| | | | (a) | | Other includes corporate operations, shared service entities, including BSC, Enterprises, investments in synthetic fuel-producing facilities and intersegment eliminations. |
Results of Operations — Generation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
| | Favorable
| | | Three Months Ended
| | Favorable
| | | | | March 31, | | (Unfavorable)
| | | June 30, | | (Unfavorable)
| | | | | 2007 | | 2006 | | Variance | | | 2007 | | 2006 | | Variance | | | | Operating revenues | | $ | 2,703 | | | $ | 2,220 | | | $ | 483 | | | $ | 2,641 | | | $ | 2,214 | | | $ | 427 | | Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | | Purchased power and fuel | | | 1,065 | | | | 974 | | | | (91 | ) | | | 974 | | | | 843 | | | | (131 | ) | | Operating and maintenance | | | 639 | | | | 668 | | | | 29 | | | | 618 | | | | 440 | | | | (178 | ) | | Depreciation and amortization | | | 67 | | | | 67 | | | | — | | | | 65 | | | | 72 | | | | 7 | | | Taxes other than income | | | 41 | | | | 43 | | | | 2 | | | | 47 | | | | 41 | | | | (6 | ) | | | | | | | | | | | | | | | | | | Total operating expenses | | | 1,812 | | | | 1,752 | | | | (60 | ) | | | 1,704 | | | | 1,396 | | | | (308 | ) | | | | | | | | | | | | | | | | | Operating income | | | 891 | | | | 468 | | | | 423 | | | | 937 | | | | 818 | | | | 119 | | | | | | | | | | | | | | | | | | Other income and deductions | | | | | | | | | | | | | | | | | | | | | | | | | | Interest expense | | | (35 | ) | | | (43 | ) | | | 8 | | | | (31 | ) | | | (40 | ) | | | 9 | | | Equity in earnings (losses) of investments | | | 2 | | | | (3 | ) | | | 5 | | | | Equity in losses of investments | | | | (1 | ) | | | (1 | ) | | | — | | | Other, net | | | 32 | | | | 7 | | | | 25 | | | | 22 | | | | 14 | | | | 8 | | | | | | | | | | | | | | | | | | | Total other income and deductions | | | (1 | ) | | | (39 | ) | | | 38 | | | | (10 | ) | | | (27 | ) | | | 17 | | | | | | | | | | | | | | | | | | Income from continuing operations before income taxes | | | 890 | | | | 429 | | | | 461 | | | | 927 | | | | 791 | | | | 136 | | Income taxes | | | 335 | | | | 161 | | | | (174 | ) | | | 349 | | | | 294 | | | | (55 | ) | | | | | | | | | | | | | | | | | Income from continuing operations | | | 555 | | | | 268 | | | | 287 | | | | 578 | | | | 497 | | | | 81 | | Income from discontinued operations, net of income taxes | | | 5 | | | | — | | | | 5 | | | | — | | | | 3 | | | | (3 | ) | | | | | | | | | | | | | | | | | Net income | | $ | 560 | | | $ | 268 | | | $ | 292 | | | $ | 578 | | | $ | 500 | | | $ | 78 | | | | | | | | | | | | | | | | | |
Net Income. FirstSecond quarter 2007 net income was $560$578 million compared with $268$500 million in the firstsecond quarter of 2006. Generation’s net income in the firstsecond quarter of 2007 increased compared with the same quarter last year primarily due to higher revenue, net of purchased power and fuel expense, and loweroffset by increased operating and maintenance expense, resulting from lowerprimarily associated with an update of the nuclear decommissioning asset retirement obligation recorded in the second quarter of 2006, higher nuclear refueling outage expenses, which was partially offset by inflationary expense pressures.and wage-related inflation. Generation’s revenue, net of purchased power and fuel expense, increased by $392$296 million in the firstsecond quarter of 2007 compared with the firstsecond quarter of 2006, which was driven by higher average margins primarily due to the end of the below-market price PPA with ComEd at the end of 2006, the contractual increase in the prices associated with Generation’s PPA with PECO, and partially offset by lower nuclear generation due to a PJM billing settlement with PPL. In addition to these impacts, first quarter 2007 net income included (all after tax) a gain on the salehigher number of investments of $9 million andrefueling outage days.
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earnings of $5 million associated with the settlement of a tax matter related to Generation’s previous investment in Sithe.
Operating Revenues. For the three months ended March 31,June 30, 2007 and 2006, Generation’s sales were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | Three Months
| | | | | | | | | Ended
| | | | | | | Ended
| | | | | | | | | March 31, | | | | | | | June 30, | | | | | | Revenue | | 2007 | | 2006 | | Variance | | % Change | | | 2007 | | 2006 | | Variance | | % Change | | | | | Electric sales to affiliates | | $ | 860 | | | $ | 1,172 | | | $ | (312 | ) | | | (26.6 | )% | | $ | 828 | | | $ | 1,098 | | | $ | (270 | ) | | | (24.6 | )% | | Wholesale and retail electric sales | | | 1,636 | | | | 746 | | | | 890 | | | | 119.3 | % | | | 1,680 | | | | 943 | | | | 737 | | | | 78.1 | % | | | | | | | | | | | | | | | | | | Total electric sales revenue | | | 2,496 | | | | 1,918 | | | | 578 | | | | 30.1 | % | | | 2,508 | | | | 2,041 | | | | 467 | | | | 22.9 | % | | Retail gas sales | | | 182 | | | | 249 | | | | (67 | ) | | | (26.9 | )% | | | 87 | | | | 91 | | | | (4 | ) | | | (4.4 | )% | | Trading portfolio | | | 1 | | | | 2 | | | | (1 | ) | | | (50.0 | )% | | | 32 | | | | 3 | | | | 29 | | | | n.m. | | | Other operating revenue(a) | | | 24 | | | | 51 | | | | (27 | ) | | | (52.9 | )% | | | 14 | | | | 79 | | | | (65 | ) | | | (82.3 | )% | | | | | | | | | | | | | | | | | | Total operating revenue | | $ | 2,703 | | | $ | 2,220 | | | $ | 483 | | | | 21.8 | % | | $ | 2,641 | | | $ | 2,214 | | | $ | 427 | | | | 19.3 | % | | | | | | | | | | | | | | | | |
| | | | (a) | | Includes sales relating to fossil fuel sales, operating service agreements and decommissioning revenue from PECO in 2007 and tolling agreements, fossil fuel sales, operating service agreements and decommissioning revenue from ComEd and PECO in 2006. |
n.m. Not meaningful | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | | | | | Ended
| | | | | | | | | | | March 31, | | | | | | | | Sales (in GWhs) | | 2007 | | | 2006 | | | Variance | | | % Change | | | | | Electric sales to affiliates | | | 16,205 | | | | 29,924 | | | | (13,719 | ) | | | (45.8 | )% | | Wholesale and retail electric sales | | | 30,829 | | | | 14,308 | | | | 16,521 | | | | 115.5 | % | | | | | | | | | | | | | | | | | | | | Total electric sales | | | 47,034 | | | | 44,232 | | | | 2,802 | | | | 6.3 | % | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | | | | | Ended
| | | | | | | | | | | June 30, | | | | | | | | Sales (in GWhs) | | 2007 | | | 2006 | | | Variance | | | % Change | | | | | Electric sales to affiliates | | | 14,878 | | | | 27,947 | | | | (13,069 | ) | | | (46.8 | )% | | Wholesale and retail electric sales | | | 30,911 | | | | 18,744 | | | | 12,167 | | | | 64.9 | % | | | | | | | | | | | | | | | | | | | | Total electric sales | | | 45,789 | | | | 46,691 | | | | (902 | ) | | | (1.9 | )% | | | | | | | | | | | | | | | | | | |
Trading volumes of 5,1014,775 GWhs and 6,9857,769 GWhs for the three months ended March 31,June 30, 2007 and 2006 respectively, are not included in the table above. Electric sales to affiliates. Revenue from sales to affiliates decreased $312$270 million for the three months ended March 31,June 30, 2007, as compared to the same period in 2006. The decrease was primarily due to a $503$464 million decrease from lower electric sales volume, partially offset by higher prices resulting in a $191$194 million increase in revenues. In the ComEd territories, lower volumes resulted in a $532$485 million decrease in revenues.revenues, partially offset by a $146 million increase in revenues due to higher prices. Generation’s PPA with ComEd expired December 31, 2006. As a result of the expiration of the PPA and the results of the auctions, beginning in 2007, Generation is selling more power through bilateral agreements, which resulted in higher prices, but a decrease in volumes to ComEd. Prices were higher resulting in a $156 million increase in revenues. In the PECO territories, higher prices resulted in increased revenues of $35$48 million due to a scheduled electric generation rate increase that took effect January 1, 2007. Additionally, volumes increased resulting in increased revenues of $29$21 million. Wholesale and retail electric sales. The increase in Generation’s wholesale and retail electric sales for the three months ended March 31,June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | | | | | Increase
| | | Increase
| | | | | (Decrease) | | | (Decrease) | | | | | Volume | | $ | 874 | | | $ | 615 | | | Price | | | 16 | | | | 122 | | | | | | | | | | | Increase in wholesale and retail electric sales | | $ | 890 | | | $ | 737 | | | | | | | | | |
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Wholesale and retail electric sales increased $890$737 million for the three months ended March 31,June 30, 2007 as compared to the same period in 2006. The increase was the result of higher volumes of generation sold to the market at higher prices as a result of the expiration of the ComEd PPA in 2006. Retail gas sales. Retail gas sales decreased $67$4 million for the three months ended March 31,June 30, 2007 as compared to the same period in 2006, of which $46 million was due to lower realized prices and $21$8 million was due to lower volumes as a result of lower demand.demand, offset by a $4 million increase due to higher realized prices. Other revenue. The decrease in other revenues for the three months ended June 30, 2007 compared to the same period in 20072006 was due to a $16 million decrease related to the termination of decommissioning collections from ComEd in accordance with the terms and conditions of the ICC Order which only permitted such collections through December 31, 2006. There was a decrease of $36 million due to the cessation of a tolling agreement. Additionally, an $11a $13 million decrease in other revenues was attributable to the sale of TEGTermoeléctrica del Golfo (TEG) and TEPTermoeléctrica Peñoles (TEP) on February 9, 2007 and the resulting absence of revenue thereafter. Purchased Power and Fuel Expense. Generation’s supply sources are summarized below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | Three Months
| | | | | | | | | Ended
| | | | | | | Ended
| | | | | | | | | March 31, | | | | | | | June 30, | | | | | | Supply Source (in GWhs) | | 2007 | | 2006 | | Variance | | % Change | | | 2007 | | 2006 | | Variance | | % Change | | | | | Nuclear generation(a) | | | 35,357 | | | | 33,491 | | | | 1,866 | | | | 5.6 | % | | | 34,350 | | | | 35,442 | | | | (1,092 | ) | | | (3.1 | )% | | Purchases — economic hedge portfolio | | | 8,683 | | | | 7,770 | | | | 913 | | | | 11.8 | % | | | 8,580 | | | | 8,101 | | | | 479 | | | | 5.9 | % | | Fossil and hydroelectric generation | | | 2,994 | | | | 2,971 | | | | 23 | | | | 1.0 | % | | | 2,859 | | | | 3,148 | | | | (289 | ) | | | (9.2 | )% | | | | | | | | | | | | | | | | | | Total supply | | | 47,034 | | | | 44,232 | | | | 2,802 | | | | 6.3 | % | | | 45,789 | | | | 46,691 | | | | (902 | ) | | | 1.9 | % | | | | | | | | | | | | | | | | |
| | | | (a) | | Represents Generation’s proportionate share of the output of its nuclear generating plants, including Salem, which is operated by PSEG Nuclear, LLC. |
The changes in Generation’s purchased power and fuel expense for the three months ended March 31,June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase
| | | | | | | Increase
| | | | | Price | | Volume | | (Decrease) | | | Price | | Volume | | (Decrease) | | | | | Purchased power costs | | $ | (22 | ) | | $ | 66 | | | $ | 44 | | | $ | 30 | | | $ | 56 | | | $ | 86 | | | Generation cost | | | 13 | | | | 12 | | | | 25 | | | | (23 | ) | | | (9 | ) | | | (32 | ) | | Fuel resale cost | | | (50 | ) | | | (21 | ) | | | (71 | ) | | | 5 | | | | (8 | ) | | | (3 | ) | | Mark-to-market | | | n.m. | | | | n.m. | | | | 93 | | | | n.m. | | | | n.m. | | | | 80 | | | | | | | | | | | Increase in purchased power and fuel expense | | | | | | | | | | $ | 91 | | | | | | | | | | | $ | 131 | | | | | | | | | |
n.m. Not meaningful Purchased Power Cost. Purchased power cost includes all costs associated with the procurement of electricity including capacity, energy and fuel costs associated with tolling agreements. Generation experienced overallhad higher purchased power volumes that were attributableprimarily due to increased purchases from PPAs and to serve load commitments. These increases werelower nuclear output, partially offset by lower purchased power volumes needed to supply ComEd due to the expiration of the PPA at December 31, 2006. Further,Additionally, Generation realized overall lowerhigher prices for purchased power. Additionally, Generation’s purchased power cost decreased $28 million due to the PJM billing dispute settlement with PPL. See Note 13 of the Combined Notes to Consolidated Financial Statements. Generation Cost. Generation cost includes fuel cost for internally generated energy. Generation experienced overall higherlower generation costs for the three months ended March 31,June 30, 2007 as compared to the same period in 2006 due to increaseddecreased prices related to fossil fuel generation. The increaseddecreased volume of $12$9 million was primarily due to higherlower nuclear and fossil fuel generation. Fuel Resale Cost. Fuel resale cost includes retail gas purchases and wholesale fossil fuel expenses. The changes in Generation’s fuel resale costs for the three months ended March 31,June 30, 2007 as compared to quarter ended
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2006 consisted of overall lowerhigher prices resulting in a decreasean increase of $50$5 million. Additionally, a decrease of $21$8 million was the result of lower volumes caused by lower demand. Mark-to-market. Mark-to-market losses gains on power hedging activities were $161$16 million for the three months ended March 31,June 30, 2007 compared to gains of $38$50 million for the same period in 2006.Mark-to-market gains losses on fuel hedging activities were $46$38 million for the three months ended March 31,June 30, 2007 compared to lossesgains of $60$8 million for the same period in 2006. Generation’s average marginmargins per MWh of electricity sold during the three months ended March 31,June 30, 2007 and 2006 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
| | | | | Three Months Ended
| | | | | | | March 31, | | | | | June 30, | | | | ($/MWh) | | 2007 | | 2006 | | % Change | | | 2007 | | 2006 | | % Change | | | | | Average electric revenue | | | | | | | | | | | | | | | | | | | | | | | | | | Electric sales to affiliates | | $ | 53.07 | | | $ | 39.17 | | | | 35.5 | % | | $ | 55.65 | | | $ | 39.29 | | | | 41.6 | % | | Wholesale and retail electric sales | | | 53.07 | | | | 52.14 | | | | 1.8 | % | | | 54.35 | | | | 50.31 | | | | 8.0 | % | | Total — excluding the trading portfolio | | | 53.07 | | | | 43.36 | | | | 22.4 | % | | | 54.77 | | | | 43.71 | | | | 25.3 | % | | Average electric supply cost(a) — excluding the trading portfolio | | | 18.90 | | | | 16.44 | | | | 15.0 | % | | | 19.27 | | | | 16.04 | | | | 20.1 | % | | Average margin — excluding the trading portfolio | | | 34.17 | | | | 26.92 | | | | 26.9 | % | | | 35.50 | | | | 27.67 | | | | 28.3 | % |
| | | | (a) | | Average supply cost includes purchased power and fuel costs associated with electric sales. Average electric supply cost does not include fuel costs associated with retail gas sales and other sales. |
Nuclear fleet operating data for the three months ended March 31,June 30, 2007 and 2006 were as follows: | | | | | | | | | | | | | | | | | | | | | Three Months
| | | Three Months
| | | | | Ended
| | | Ended
| | | | | March 31, | | | June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Nuclear fleet capacity factor(a) | | | 96.4 | % | | | 91.0 | % | | | 93.6 | % | | | 95.5 | % | | Nuclear fleet production cost per MWh(a) | | $ | 14.27 | | | $ | 15.51 | | | $ | 14.29 | | | $ | 12.94 | |
| | | | (a) | | Excludes Salem, which is operated by PSEG Nuclear, LLC. |
The nuclear fleet capacity factor increaseddecreased primarily due to fewer scheduledmore planned refueling outage and non-refueling outage days during the three months ended March 31,June 30, 2007 compared to the same period in 2006. This increase in planned refueling outage days was partially offset by a decrease in non-refueling outage days. For the three months ended March 31,June 30, 2007 and 2006, refueling outage days totaled 55 and 35, respectively, while non-refueling outage days totaled 118 and 25, respectively, and refueling outage days totaled 40 and 79,24, respectively. Additionally, during the three months ended March 31, 2007, both Quad Cities units operated at Extended Power Uprate (EPU) generation levels as compared to the three months ended March 31, 2006, when the generation levels of both Quad Cities units were reduced to pre-EPU generation levels to address vibration related equipment issues. The higherlower number of net MWh’s generated due to the higher number of planned refueling outage days along with the associated refueling outage costs, resulted in a lowerhigher production cost per MWh for the three months ended March 31,June 30, 2007 as compared to the same period in 2006. Operating and Maintenance Expense. The decreaseincrease in operating and maintenance expense for the three months ended March 31,June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | | | | | Increase
| | | Increase
| | | | | (Decrease) | | | (Decrease) | | | | | Decommissioning-related activities | | | $ | 133 | | | Nuclear refueling outage costs | | $ | (29 | ) | | | 19 | | | Decommissioning-related activities | | | (14 | ) | | | Pension, payroll and benefit costs | | | 22 | | | | 19 | | | Other | | | (8 | ) | | | 7 | | | | | | | | | | | Decrease in operating and maintenance expense | | $ | (29 | ) | | | Increase in operating and maintenance expense | | | $ | 178 | | | | | | | | | |
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The net $29 million decrease was primarily attributable to the following:
| | | | | • | A $29The $133 million decreaseincrease in the nuclear refueling outage costsdecommissioning-related activities was associated with the fewer planned refueling outage days duringrecognition of a credit totaling $149 million which represented the three months ended March 31, 2007 as compared toreduction in the asset retirement |
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| | | | | obligation in excess of the asset retirement cost balance for the AmerGen units recorded in the same period in 2006. | | | • | A $142006, offset by a $16 million decrease in decommissioning related activities was the result ofresulting from the termination of revenue collections from ComEd, which likewise no longer required an offset through operating and maintenance expense. |
| | | | • | The $19 million increase in nuclear fueling outage costs was associated with more planned refueling outage days during the three months ended June 30, 2007 as compared to the same period 2006. | | | | | • | A $22The $19 million increase in pension, payroll and benefit costs reflected the impact of inflation as well as an increase in various direct and allocated fringe costs. | | | | | • | An $8The $7 million decreaseincrease in other operating and maintenance expense was primarily due to a decrease in service agreement-related expenses duringfor the three months ended March 31,June 30, 2007 as compared to the same period in 2006.2006 was primarily due to an increase in contracting charges resulting from increased outage costs for fossil and hydroelectric facilities, offset primarily by a decrease in service agreement-related expenses. |
Depreciation and Amortization. DepreciationThe decrease in depreciation and amortization expense for the three months ended March 31,June 30, 2007 compared to the same period in 2006 was relatively unchanged.primarily due to the reassessment of the useful lives, for accounting purposes, of several fossil facilities. Interest Expense. The decrease in net interest expense for the three months ended March 31,June 30, 2007 as compared to the same period in 2006 was primarily attributable to an interest payment madea decline in 2006the amount of commercial paper that was outstanding during the three months ended June 30, 2007 as compared to the Internal Revenue Service (IRS)same period in settlement of a tax matter.2006. Other, Net. The change in other, net reflects a gain on sale of investments recognized in the firstsecond quarter of 2007. Effective Income Tax Rate. There was not a significant change in the effective income tax rate for the three months ended March 31,June 30, 2007 compared to the same period in 2006. See Note 10 of the Combined Notes to Consolidated Financial Statements for further discussion of the change in the effective income tax rate. Discontinued Operations. On January 31, 2005, subsidiaries of Generation completed a series of transactions that resulted in Generation’s sale of its investment in Sithe.Sithe Energies, Inc (Sithe). Accordingly, the results of operations and the gain on the sale of Sithe have been presented as discontinued operations within Generation’s Consolidated Statements of Operations and Comprehensive Income. For the three months ended March 31,June 30, 2007, there was no significant activity related to discontinued operations included in Generation’s Consolidated Statement of Income and Comprehensive Income. For the three months ended June 30, 2006, Generation’s Consolidated Statement of Income and Comprehensive Income included $5$3 million (after-tax) gain on disposal of discontinued operations related primarily to Sithe, resulting from a settlement agreement between a subsidiary of Sithe, the Pennsylvania Attorney General’s Office and the Pennsylvania Department of Revenue regarding a previously disputed tax position asserted for the 2000 tax year. There was no significant activity related to the discontinued operations for Sithe during the three months ended March 31, 2006.operations. See Notes 2 and 4 of the Combined Notes to Consolidated Financial Statements for further information regarding the presentation of Sithe as discontinued operations.
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Results of Operations — ComEd | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
| | Favorable
| | | Three Months Ended
| | Favorable
| | | | | March 31, | | (Unfavorable)
| | | June 30, | | (Unfavorable)
| | | | | 2007 | | 2006 | | Variance | | | 2007 | | 2006 | | Variance | | | | Operating revenues | | $ | 1,490 | | | $ | 1,426 | | | $ | 64 | | | $ | 1,420 | | | $ | 1,453 | | | $ | (33 | ) | Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | | Purchased power | | | 968 | | | | 862 | | | | (106 | ) | | | 838 | | | | 766 | | | | (72 | ) | | Operating and maintenance | | | 244 | | | | 216 | | | | (28 | ) | | | 266 | | | | 218 | | | | (48 | ) | | Depreciation and amortization | | | 107 | | | | 98 | | | | (9 | ) | | | 109 | | | | 106 | | | | (3 | ) | | Taxes other than income | | | 80 | | | | 81 | | | | 1 | | | | 76 | | | | 71 | | | | (5 | ) | | | | | | | | | | | | | | | | | | Total operating expenses | | | 1,399 | | | | 1,257 | | | | 142 | | | | 1,289 | | | | 1,161 | | | | (128 | ) | | | | | | | | | | | | | | | | | Operating income | | | 91 | | | | 169 | | | | (78 | ) | | | 131 | | | | 292 | | | | (161 | ) | | | | | | | | | | | | | | | | | Other income and deductions | | | | | | | | | | | | | | | | | | | | | | | | | | Interest expense, net | | | (83 | ) | | | (76 | ) | | | (7 | ) | | | (87 | ) | | | (77 | ) | | | (10 | ) | | Equity in losses of unconsolidated affiliates | | | (2 | ) | | | (3 | ) | | | 1 | | | | (2 | ) | | | (3 | ) | | | 1 | | | Other, net | | | 2 | | | | 1 | | | | 1 | | | | 5 | | | | 1 | | | | 4 | | | | | | | | | | | | | | | | | | | Total other income and deductions | | | (83 | ) | | | (78 | ) | | | (5 | ) | | | (84 | ) | | | (79 | ) | | | (5 | ) | | | | | | | | | | | | | | | | | Income before income taxes | | | 8 | | | | 91 | | | | (83 | ) | | | 47 | | | | 213 | | | | (166 | ) | Income taxes | | | 3 | | | | 37 | | | | 34 | | | | 18 | | | | 86 | | | | 68 | | | | | | | | | | | | | | | | | | Net income | | $ | 5 | | | $ | 54 | | | $ | (49 | ) | | $ | 29 | | | $ | 127 | | | $ | (98 | ) | | | | | | | | | | | | | | | | |
Net Income. As more fully described below, ComEd’s net income for the three months ended March 31,June 30, 2007 compared to the same period in 2006 reflectsreflected lower operating revenues, higher purchased power expense, higher operating and maintenance expense higher depreciation and amortization expense and higher interest expense, partially offset by higher operating revenues.expense. Beginning in 2007, ComEd ceased includingearning margin on the energy component of its deliveries to its customers, nor is it collecting CTC revenues. While ComEd’s 2007 results reflect an $83 million annual rate increase as allowed by the ICC, this rate increase was based generally on 2004 costs and does not include the impacts of increased expendituresoperating expenses since 2004 or additional net capital investment since the end of 2004.2005. ComEd anticipates filing a new delivery service rate case during the secondthird quarter of 2007 based on a 2006 test year and also filed a transmission rate case during the first quarter 2007. TheseOn June 5, 2007, FERC issued an order for the transmission rate filings will helpcase conditionally approving ComEd’s proposal to implement a formula based transmission rate effective May 1, 2007, subject to refund. The requested rate increase is designed to reduce the regulatory lag related to recovery of these costs and returns on ComEd’s investments. See Note 5 of the Combined Notes to Consolidated Financial Statements for further discussion. In 2007, ComEd incurred increased costs associated with transitioning from the rate freeze period including implementing the Rate Relief and Rate Stabilization programs.
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Operating Revenues and Purchased Power Expense. The changes in operating revenues and purchased power expense for the three months ended March 31,June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase (Decrease) | | | Increase (Decrease) | | | | | Operating
| | Purchased
| | Revenue Net of
| | | Operating
| | Purchased
| | Revenue Net of
| | | | | Revenues | | Power | | Purchased Power | | | Revenues | | Power | | Purchased Power | | | | | Customer choice | | $ | (294 | ) | | $ | (234 | ) | | $ | (60 | ) | | $ | (311 | ) | | $ | (228 | ) | | $ | (83 | ) | | Rate changes and mix | | | 304 | | | | 329 | | | | (25 | ) | | | 217 | | | | 273 | | | | (56 | ) | | Rate Relief Program | | | | (18 | ) | | | — | | | | (18 | ) | | Transmission | | | | 26 | | | | — | | | | 26 | | | Weather | | | 32 | | | | 19 | | | | 13 | | | | 57 | | | | 34 | | | | 23 | | | Transmission | | | 6 | | | | (7 | ) | | | 13 | | | | Volume | | | 7 | | | | — | | | | 7 | | | | 4 | | | | — | | | | 4 | | | Other | | | 9 | | | | (1 | ) | | | 10 | | | | (8 | ) | | | (7 | ) | | | (1 | ) | | | | | | | | | | | | | | | | | | Total increase (decrease) | | $ | 64 | | | $ | 106 | | | $ | (42 | ) | | $ | (33 | ) | | $ | 72 | | | $ | (105 | ) | | | | | | | | | | | | | | | | |
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Customer choice Revenue. All ComEd customers have the choice to purchase electricity from a competitive electric generation supplier. This choice does not impact the volume of deliveries, but affects revenue collected from customers related to supplied electricity and generation service. As of March 31,June 30, 2007, onetwo competitive electric generation suppliersuppliers had been granted approval to serve residential customers in the ComEd service territory. However, they are not currently supplying electricity to any residential customers. As a result of ComEd’s higher electricity rates, more non-residential customers have elected to have a competitive electric generation supplier provide their electricity. For the three months ended March 31,June 30, 2007 and 2006, 44%51% and 18%24%, respectively, of electricity delivered to ComEd’s retail customers was provided by competitive electric generation suppliers. Most of the customers previously receiving electricity under the power purchase option (PPO) are now electing either to buy their electricity from a competitive electric generation supplier or from ComEd under tariff rates. | | | | | | | | | | | | | | | | | | | | | Three Months
| | | Three Months
| | | | | Ended March 31, | | | Ended June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Retail customers purchasing electricity from a competitive electric generation supplier: | | | | | | | | | | | | | | | | | | Volume (GWhs)(a) | | | 10,071 | | | | 3,845 | | | | 11,290 | | | | 5,063 | | | Percentage of total retail deliveries | | | 44 | % | | | 18 | % | | | 51 | % | | | 24 | % | | Retail customers purchasing electricity from a competitive electric generation supplier or the ComEd PPO: | | | | | | | | | | | | | | | | | | Number of customers at period end | | | 36,900 | | | | 20,700 | | | | 41,500 | | | | 16,100 | | | Percentage of total retail customers | | | 1 | % | | | (b | ) | | | 1 | % | | | (b | ) | | Volume (GWhs)(a) | | | 10,127 | | | | 6,877 | | | | 11,291 | | | | 6,552 | | | Percentage of total retail deliveries | | | 45 | % | | | 32 | % | | | 51 | % | | | 31 | % |
| | | | (a) | | One GWh is the equivalent of one million kilowatthours (kWh). | | | | (b) | | Less than one percent. |
Purchased Power. The decrease in purchased power expense from customer choice was primarily due to more ComEd non-residential customers electing to purchase electricity from a competitive electric generation supplier.
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Rate changes and mix Revenue. The increase in revenue related to rate changes and mix primarily reflects the end of the rate freeze and the implementation of marketbasedmarket-based rates for electricity and the impact of the distribution rate increase. In 2006, most customers were charged a bundled rate that included distribution, transmission and the cost of electricity. Additionally, under Illinois law, no CTCs are permitted to be collected after 2006. As of January 2007, ComEd began billing customers on an unbundled basis which includes separate charges for distribution, transmission and electricity. Given the relatively small increase approved by the ICC in the annual distribution rates of $83 million, the majority of the change in year over year pricing is driven by the inclusion of market-based electricity rates. The market-based electricity rates were determined through the reverse-auction competitive bidding process. See Note 5 of the Combined Notes to the Consolidated Financial Statements for more information. StartingAdditionally starting in 2007, ComEd is recovering former manufacturing gas plant remediation costs from customers. Purchased Power. Purchased power increased due to higher electricity prices. The PPA with Generation terminated at the end of 2006. In 2007, as a result of the ICC approved reverse-auction process, ComEd began procuring electricity, including ancillary services, under its supplier forward contracts for the blended and annual products and from PJM-administered wholesale electricity markets for the hourly product. See Note 5 of the Combined Notes to Consolidated Financial Statements for more information on the reverse-auction process.
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Rate Relief Program Revenue. As part of its program for customer rate relief, ComEd is issuing credits to certain customers. See Note 5 of the Combined Notes to Consolidated Financial Statements for more information on the Rate Relief Programs. Transmission Revenue. In 2007, ComEd experienced increased revenue for the provision of transmission services resulting from increased peak and kWh load within the ComEd service territory. Additionally on June 5, 2007, FERC issued an order for the transmission rate case conditionally approving ComEd’s proposal to implement a formula based transmission rate effective May 1, 2007, subject to refund. See Note 5 of the Combined Notes to Consolidated Financial Statements for more information on the Transmission Rate Case. Weather Revenue. Revenues were higher due to favorable weather conditions for the three months ended March 31,June 30, 2007 compared to the same period in 2006. 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. In ComEd’s service territory, heatingcooling degree days were 15%43% higher during the three months ended March 31,June 30, 2007 compared to the same period in 2006. Purchased Power. The increase in purchased power expense attributable to weather was due to higher demand due toresulting from favorable weather conditions in the ComEd service territory relative to the prior year. Transmission
Revenue. The increase in revenue for the provision of transmission services reflects increased peak and kWh load within the ComEd service territory.
Purchased Power. Effective December 1, 2004, PJM became obligated to pay Seams Elimination Charge / Cost Adjustment/Assignment (SECA) collections to ComEd and ComEd became obligated to pay SECA charges. These charges were being collected subject to refund as they are being disputed. ComEd recorded SECA collections and payments on a net basis through purchased power expense. As ComEd was a net collector of SECA charges, ComEd recorded $5 million of net SECA collections during the three months ended March 31, 2006. During the three months ended March 31, 2006, ComEd adjusted its reserve for SECA. Management of ComEd believes that the appropriate reserve has been established in the event that some portion of SECA collections are required to be refunded. SECA charges expired on March 31, 2006. See Note 5 of the Combined Notes to Consolidated Financial Statements for more information on the SECA rates.
Volume Revenue. The increase in revenues for the provision of distribution services primarily resulted from an increase in deliveries, excluding the effects of weather, due to an increased number of customers. Other Revenue — Economic Hedge Derivative Contracts. During the three months ended March 31,June 30, 2007 as compared to the three months March 31,ended June 30, 2006, ComEd had a net increase$5 million decrease in economic hedge derivative contracts activity, includingmark-to-market adjustments and settlement activity.settlements.
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Revenue — Wholesale Contracts. ComEd’s revenues decreased $11 million as a result of certain wholesale contracts expiring in May 2007. Purchased Power — Wholesale Contracts. ComEd’s purchased power decreased $8 million as a result of certain wholesale contracts expiring in May 2007. Operating and Maintenance Expense. The changes in operating and maintenance expense for the three months ended March 31,June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | Increase
| | | | | (Decrease) | | | | | Wages and salaries | | $ | 6 | | | Fringe benefits(a) | | | 4 | | | Corporate allocations | | | 4 | | | Severance-related expenses | | | 3 | | | Repair and maintenance of transformer and synchronous condenser | | | 3 | | | CARE program(b) | | | 2 | | | Other | | | 6 | | | | | | | | | Increase in operating and maintenance expense | | $ | 28 | | | | | | | |
| | | | | | | | | Increase | | | | | Post rate freeze period transition expenses(a) | | $ | 17 | | | Allowance for uncollectible accounts expense(b) | | | 12 | | | Contracting | | | 5 | | | Fringe benefits(c) | | | 5 | | | Wages and salaries | | | 4 | | | Other | | | 5 | | | | | | | | | Increase in operating and maintenance expense | | $ | 48 | | | | | | | |
| | | | (a) | | Includes increased advertising costs, costs associated with the Rate Relief and Customers’ Affordable Reliable Energy (CARE) programs of $7 million, costs associated with implementing ComEd’s Rate Stabilization plan and other costs associated with transitioning to the post rate freeze period. See Note 5 of the Combined Notes to Consolidated Financial Statements for more information. | | | (b) | | Reflects higher revenues due to increased customer receivables resulting from the inclusion of market-based electricity rates and higher delivery rates. Also reflects an increase in older outstanding receivable balances from customers as a result of a management decision to reduce the number of non-paying customers being disconnected. | | | (c) | | Reflects increases in various fringe benefits primarily due to increased pension and other postretirement benefits costs of $4$5 million. | | (b) | | See Note 5 of the Combined Notes to the Consolidated Financial Statements for additional information. |
95
Depreciation and Amortization Expense. The increase in depreciation and amortization expense for the three months ended March 31,June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | | | | | Increase | | | Increase
| | | | | (Decrease) | | | | | | Depreciation expense associated with higher plant balances | | | $ | 5 | | | Amortization of regulatory assets | | $ | 5 | | | | (2 | ) | | Depreciation expense associated with higher plant balances | | | 4 | | | | | | | | | | | | Increase in depreciation and amortization expense | | $ | 9 | | | $ | 3 | | | | | | | | | |
In 2007, ComEd’s amortization reflects the impacts of the elimination of the regulatory asset for recoverable transition costs partially offset by the initial amortization of the various regulatory assets authorized by the ICC in its 2006 orders, partially offset by the elimination of recoverable transition costs regulatory asset.orders. See Note 5 of the Combined Notes of theto Consolidated Financial Statements for more information. Taxes Other Than Income. Taxes other than income remained constantincreased for the three months ended March 31,June 30, 2007 compared to the same period in 2006.2006 as a result of an increase in real estate and property taxes. Interest Expense, Net. The $7 million increase in interest expense, net for the three months ended March 31,June 30, 2007 compared to the same period in 2006 primarily resulted from higher debt balances and higher interest rates. Also in 2007, ComEd’s interest expense, net reflected $3 million of the initial amortization of the regulatory asset related to the early debt retirement costs authorized by the ICC in 2006.
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Other, Net. Other, net remained constantincreased for the three months ended March 31,June 30, 2007 compared to the same period in 2006. The changes consisted of the following: | | | | | | | | | Increase | | | | | Gain on disposal of assets and investments, net | | $ | 3 | | | Allowance for funds used during construction, equity | | | 1 | | | | | | | | | Increase in other, net | | $ | 4 | | | | | | | |
Income Taxes. The effective income tax rate was 37.5%38.3% for the three months ended March 31,June 30, 2007 compared to 40.7%40.4% for the three months ended March 31,June 30, 2006. See Note 10 of the Combined Notes to Consolidated Financial Statements for further discussion of the change in the effective income tax rate. ComEd Electric Operating Statistics and Revenue Detail | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | Three Months
| | | | | | | | | Ended
| | | | | | | Ended
| | | | | | | | | March 31, | | | | | | | June 30, | | | | | | Retail Deliveries — (in GWhs) | | 2007 | | 2006 | | Variance | | % Change | | | 2007 | | 2006 | | Variance | | % Change | | | | Full service(a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential | | | 7,089 | | | | 6,797 | | | | 292 | | | | 4.3 | % | | | 6,359 | | | | 6,124 | | | | 235 | | | | 3.8 | % | | Small commercial & industrial | | | 4,586 | | | | 5,319 | | | | (733 | ) | | | (13.8 | )% | | | 3,835 | | | | 5,709 | | | | (1,874 | ) | | | (32.8 | )% | | Large commercial & industrial | | | 706 | | | | 2,179 | | | | (1,473 | ) | | | (67.6 | )% | | | 539 | | | | 2,430 | | | | (1,891 | ) | | | (77.8 | )% | | Public authorities & electric railroads | | | 183 | | | | 601 | | | | (418 | ) | | | (69.6 | )% | | | 213 | | | | 514 | | | | (301 | ) | | | (58.6 | )% | | | | | | | | | | | | | | | | | | Total full service | | | 12,564 | | | | 14,896 | | | | (2,332 | ) | | | (15.7 | )% | | | 10,946 | | | | 14,777 | | | | (3,831 | ) | | | (25.9 | )% | | | | | | | | | | | | | | | | | PPO | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Small commercial & industrial | | | 25 | | | | 1,509 | | | | (1,484 | ) | | | (98.3 | )% | | | — | | | | 814 | | | | (814 | ) | | | (100.0 | )% | | Large commercial & industrial | | | 31 | | | | 1,523 | | | | (1,492 | ) | | | (98.0 | )% | | | 1 | | | | 675 | | | | (674 | ) | | | (99.9 | )% | | | | | | | | | | | | | | | | | | | | | 56 | | | | 3,032 | | | | (2,976 | ) | | | (98.2 | )% | | | 1 | | | | 1,489 | | | | (1,488 | ) | | | (99.9 | )% | | | | | | | | | | | | | | | | | Delivery only(b) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Small commercial & industrial | | | 3,495 | | | | 894 | | | | 2,601 | | | | n.m. | | | | 4,390 | | | | 1,291 | | | | 3,099 | | | | n.m. | | | Large commercial & industrial | | | 6,423 | | | | 2,951 | | | | 3,472 | | | | 117.7 | % | | | 6,785 | | | | 3,772 | | | | 3,013 | | | | 79.9 | % | | Public authorities & electric railroads | | | 153 | | | | — | | | | 153 | | | | n.m. | | | | 115 | | | | — | | | | 115 | | | | n.m. | | | | | | | | | | | | | | | | | | | | | | 10,071 | | | | 3,845 | | | | 6,226 | | | | 161.9 | % | | | 11,290 | | | | 5,063 | | | | 6,227 | | | | 123.0 | % | | | | | | | | | | | | | | | | | | Total PPO and delivery only | | | 10,127 | | | | 6,877 | | | | 3,250 | | | | 47.3 | % | | | 11,291 | | | | 6,552 | | | | 4,739 | | | | 72.3 | % | | | | | | | | | | | | | | | | | Total retail deliveries | | | 22,691 | | | | 21,773 | | | | 918 | | | | 4.2 | % | | | 22,237 | | | | 21,329 | | | | 908 | | | | 4.3 | % | | | | | | | | | | | | | | | | |
96
| | | | (a) | | Full service reflects deliveries to customers taking electric service under tariff rates. | | | | (b) | | Delivery only service reflects customers electing to receive electricity from a competitive electric generation supplier. | | | | n.m. Not meaningful. |
| | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | | | | | Ended
| | | | | | | | | | | March 31, | | | | | | | | Electric Revenue | | 2007 | | | 2006 | | | Variance | | | % Change | | | | Full service(a) | | | | | | | | | | | | | | | | | | Residential | | $ | 727 | | | $ | 549 | | | $ | 178 | | | | 32.4 | % | | Small commercial & industrial | | | 435 | | | | 388 | | | | 47 | | | | 12.1 | % | | Large commercial & industrial | | | 61 | | | | 110 | | | | (49 | ) | | | (44.5 | )% | | Public authorities & electric railroads | | | 17 | | | | 36 | | | | (19 | ) | | | (52.8 | )% | | | | | | | | | | | | | | | | | | | | Total full service | | | 1,240 | | | | 1,083 | | | | 157 | | | | 14.5 | % | | | | | | | | | | | | | | | | | | | PPO(b) | | | | | | | | | | | | | | | | | | Small commercial & industrial | | | 2 | | | | 102 | | | | (100 | ) | | | (98.0 | )% | | Large commercial & industrial | | | 2 | | | | 90 | | | | (88 | ) | | | (97.8 | )% | | | | | | | | | | | | | | | | | | | | | | | 4 | | | | 192 | | | | (188 | ) | | | (97.9 | )% | | | | | | | | | | | | | | | | | | | Delivery only(c) | | | | | | | | | | | | | | | | | | Small commercial & industrial | | | 49 | | | | 11 | | | | 38 | | | | n.m. | | | Large commercial & industrial | | | 63 | | | | 27 | | | | 36 | | | | 133.3 | % | | Public authorities & electric railroads | | | 1 | | | | — | | | | 1 | | | | n.m. | | | | | | | | | | | | | | | | | | | | | | | | 113 | | | | 38 | | | | 75 | | | | 197.4 | % | | | | | | | | | | | | | | | | | | | | Total PPO and delivery only | | | 117 | | | | 230 | | | | (113 | ) | | | (49.1 | )% | | | | | | | | | | | | | | | | | | | Total electric retail revenues | | | 1,357 | | | | 1,313 | | | | 44 | | | | 3.4 | % | | Other revenue(d) | | | 132 | | | | 123 | | | | 9 | | | | 7.3 | % | | Economic hedge derivative contracts | | | 1 | | | | (10 | ) | | | 11 | | | | (110.0 | )% | | | | | | | | | | | | | | | | | | | Total operating revenues | | $ | 1,490 | | | $ | 1,426 | | | $ | 64 | | | | 4.5 | % | | | | | | | | | | | | | | | | | | |
n.m. Not meaningful.
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| | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | | | | | Ended
| | | | | | | | | | | June 30, | | | | | | | | Electric Revenue | | 2007 | | | 2006 | | | Variance | | | % Change | | | | Full service(a) | | | | | | | | | | | | | | | | | | Residential | | $ | 696 | | | $ | 547 | | | $ | 149 | | | | 27.2 | % | | Small commercial & industrial | | | 380 | | | | 452 | | | | (72 | ) | | | (15.9 | )% | | Large commercial & industrial | | | 35 | | | | 130 | | | | (95 | ) | | | (73.1 | )% | | Public authorities & electric railroads | | | 18 | | | | 32 | | | | (14 | ) | | | (43.8 | )% | | | | | | | | | | | | | | | | | | | | Total full service | | | 1,129 | | | | 1,161 | | | | (32 | ) | | | (2.8 | )% | | | | | | | | | | | | | | | | | | | PPO(b) | | | | | | | | | | | | | | | | | | Small commercial & industrial | | | — | | | | 61 | | | | (61 | ) | | | (100.0 | )% | | Large commercial & industrial | | | — | | | | 42 | | | | (42 | ) | | | (100.0 | )% | | | | | | | | | | | | | | | | | | | | | | | — | | | | 103 | | | | (103 | ) | | | (100.0 | )% | | | | | | | | | | | | | | | | | | | Delivery only(c) | | | | | | | | | | | | | | | | | | Small commercial & industrial | | | 70 | | | | 21 | | | | 49 | | | | n.m. | | | Large commercial & industrial | | | 71 | | | | 40 | | | | 31 | | | | 77.5 | % | | Public authorities & electric railroads | | | 1 | | | | — | | | | 1 | | | | n.m. | | | | | | | | | | | | | | | | | | | | | | | | 142 | | | | 61 | | | | 81 | | | | 132.8 | % | | | | | | | | | | | | | | | | | | | | Total PPO and delivery only | | | 142 | | | | 164 | | | | (22 | ) | | | (13.4 | )% | | | | | | | | | | | | | | | | | | | Total electric retail revenues | | | 1,271 | | | | 1,325 | | | | (54 | ) | | | (4.1 | )% | | Other revenue(d) | | | 151 | | | | 125 | | | | 26 | | | | 20.8 | % | | Economic hedge derivative contracts | | | (2 | ) | | | 3 | | | | (5 | ) | | | (166.7 | )% | | | | | | | | | | | | | | | | | | | Total operating revenues | | $ | 1,420 | | | $ | 1,453 | | | $ | (33 | ) | | | (2.3 | )% | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Full service revenue reflects deliveries to customers taking electric service under tariff rates, which include the cost of electricity and the cost of transmission and distribution of the electricity. | | | | (b) | | Revenues from customers choosing the PPO include an energy charge at market rates, transmission and distribution charges, and a CTC through December 31, 2006. | | | | (c) | | Delivery only revenues reflect revenue under tariff rates from customers electing to receive electricity from a competitive electric generation supplier, which includes a distribution charge and a CTC through December 31, 2006. | | | | (d) | | Other revenues include transmission revenue (including revenue from PJM), sales to municipalities and other wholesale energy sales. | | | | n.m. Not meaningful. |
n.m. Not meaningful.
97112
Results of Operations — PECO | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | Three Months
| | | | | | | Ended
| | Favorable
| | | Ended
| | Favorable
| | | | | March 31, | | (Unfavorable)
| | | June 30, | | (Unfavorable)
| | | | | 2007 | | 2006 | | Variance | | | 2007 | | 2006 | | Variance | | | | Operating revenues | | $ | 1,500 | | | $ | 1,407 | | | $ | 93 | | | $ | 1,269 | | | $ | 1,148 | | | $ | 121 | | Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | | Purchased power and fuel | | | 843 | | | | 813 | | | | (30 | ) | | | 655 | | | | 577 | | | | (78 | ) | | Operating and maintenance | | | 148 | | | | 148 | | | | — | | | | 146 | | | | 141 | | | | (5 | ) | | Depreciation and amortization | | | 185 | | | | 171 | | | | (14 | ) | | | 185 | | | | 172 | | | | (13 | ) | | Taxes other than income | | | 71 | | | | 65 | | | | (6 | ) | | | 71 | | | | 53 | | | | (18 | ) | | | | | | | | | | | | | | | | | | Total operating expenses | | | 1,247 | | | | 1,197 | | | | (50 | ) | | | 1,057 | | | | 943 | | | | (114 | ) | | | | | | | | | | | | | | | | | Operating income | | | 253 | | | | 210 | | | | 43 | | | | 212 | | | | 205 | | | | 7 | | | | | | | | | | | | | | | | | | Other income and deductions | | | | | | | | | | | | | | | | | | | | | | | | | | Interest expense, net | | | (62 | ) | | | (69 | ) | | | 7 | | | | (64 | ) | | | (67 | ) | | | 3 | | | Equity in losses of unconsolidated affiliates | | | (2 | ) | | | (3 | ) | | | 1 | | | | (2 | ) | | | (2 | ) | | | — | | | Other, net | | | 5 | | | | 3 | | | | 2 | | | | 5 | | | | 2 | | | | 3 | | | | | | | | | | | | | | | | | | | Total other income and deductions | | | (59 | ) | | | (69 | ) | | | 10 | | | | (61 | ) | | | (67 | ) | | | 6 | | | | | | | | | | | | | | | | | | Income before income taxes | | | 194 | | | | 141 | | | | 53 | | | | 151 | | | | 138 | | | | 13 | | Income taxes | | | 66 | | | | 48 | | | | (18 | ) | | | 55 | | | | 45 | | | | (10 | ) | | | | | | | | | | | | | | | | | Net income | | | 128 | | | | 93 | | | | 35 | | | | 96 | | | | 93 | | | | 3 | | | Preferred stock dividends | | | 1 | | | | 1 | | | | — | | | | 1 | | | | 1 | | | | — | | | | | | | | | | | | | | | | | | Net income on common stock | | $ | 127 | | | $ | 92 | | | $ | 35 | | | $ | 95 | | | $ | 92 | | | $ | 3 | | | | | | | | | | | | | | | | | |
Net Income. PECO’s net income for the three months ended March 31,June 30, 2007 compared to the same period in 2006 increased primarily due to higher operating revenues, net of purchased power and fuel expense, which reflected increased sales from favorable weather conditions the completion of certain authorized rate increases which began in 2006for electric and the favorable settlement of a PJM billing dispute.gas and increased usage across all customer classes for electric. Partially offsetting higher net operating revenues, net of purchased power and fuel expense, was higher CTC amortization, which was in accordance with PECO’s 1998 restructuring settlement with the PAPUC.PAPUC, which was mandated by the Pennsylvania Electricity Generation Customer Choice and Competition Act (Competition Act). Electric and Gas Operating Revenues, Purchased Power and Fuel Expense. The changes in PECO’s operating revenues and purchased power and fuel expense for the three months ended March 31,June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase (Decrease) | | | Increase (Decrease) | | | | | Electric | | Gas | | Total | | | Electric | | Gas | | Total | | | | | | | | | | | | | | | | | | | Purchased
| | | | | | | | | | | | | | | | | | | Purchased
| | | | | | | Operating
| | Purchased
| | | | Operating
| | Fuel
| | | | Operating
| | Power
| | | | | Operating
| | Purchased
| | | | Operating
| | Fuel
| | | | Operating
| | Power and
| | | | | | | Revenues | | Power | | Net | | Revenues | | Expense | | Net | | Revenues | | and Fuel | | Net | | | Revenues | | Power | | Net | | Revenues | | Expense | | Net | | Revenues | | Fuel | | Net | | | | | Weather | | $ | 30 | | | $ | 13 | | | $ | 17 | | | $ | 55 | | | $ | 46 | | | $ | 9 | | | $ | 85 | | | $ | 59 | | | $ | 26 | | | $ | 29 | | | $ | 12 | | | $ | 17 | | | $ | 26 | | | $ | 21 | | | $ | 5 | | | $ | 55 | | | $ | 33 | | | $ | 22 | | | Volume | | | 28 | | | | 12 | | | | 16 | | | | 13 | | | | 10 | | | | 3 | | | | 41 | | | | 22 | | | | 19 | | | | 29 | | | | 12 | | | | 17 | | | | 4 | | | | 4 | | | | — | | | | 33 | | | | 16 | | | | 17 | | | Rate increases (decreases) | | | 55 | | | | 44 | | | | 11 | | | | (104 | ) | | | (104 | ) | | | — | | | | (49 | ) | | | (60 | ) | | | 11 | | | | 44 | | | | 44 | | | | — | | | | (16 | ) | | | (16 | ) | | | — | | | | 28 | | | | 28 | | | | — | | | Settlement of PJM billing dispute | | | — | | | | (10 | ) | | | 10 | | | | — | | | | — | | | | — | | | | — | | | | (10 | ) | | | 10 | | | | Customer choice | | | 3 | | | | 3 | | | | — | | | | — | | | | — | | | | — | | | | 3 | | | | 3 | | | | — | | | | 2 | | | | 2 | | | | — | | | | — | | | | — | | | | — | | | | 2 | | | | 2 | | | | — | | | Other rate changes and mix | | | (10 | ) | | | (3 | ) | | | (7 | ) | | | (1 | ) | | | 6 | | | | (7 | ) | | | (11 | ) | | | 3 | | | | (14 | ) | | | (3 | ) | | | 3 | | | | (6 | ) | | | (2 | ) | | | 1 | | | | (3 | ) | | | (5 | ) | | | 4 | | | | (9 | ) | | Other | | | 7 | | | | (2 | ) | | | 9 | | | | 17 | | | | 15 | | | | 2 | | | | 24 | | | | 13 | | | | 11 | | | | 6 | | | | (5 | ) | | | 11 | | | | 2 | | | | — | | | | 2 | | | | 8 | | | | (5 | ) | | | 13 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total increase (decrease) | | $ | 113 | | | $ | 57 | | | $ | 56 | | | $ | (20 | ) | | $ | (27 | ) | | $ | 7 | | | $ | 93 | | | $ | 30 | | | $ | 63 | | | | Total increase | | | $ | 107 | | | $ | 68 | | | $ | 39 | | | $ | 14 | | | $ | 10 | | | $ | 4 | | | $ | 121 | | | $ | 78 | | | $ | 43 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
98113
Weather Revenues. The demand for electricity and gas is affected by weather conditions. With respect to the electric business, very warm weather in summer months and, with respect to the electric and gas businesses, very cold weather in other months are referred to as “favorable weather conditions” because these weather conditions result in increased sales of electricity and gas. Conversely, mild weather reduces demand. Revenues were higher due to favorable weather conditions in PECO’s service territory, where heating degree days and cooling degree days were 15%51% and 22% higher, respectively, during the three months ended June 30, 2007 compared to the same period in 2006. Purchased Power and Fuel Expense. The increase in purchased power and fuel expense attributable to weather was due to higher demand as a result of favorable weather conditions in the PECO service territory relative to the prior year. Volume Revenues. The increase in revenues as a result of higher delivery volume, exclusive of the effects of weather and customer choice, reflected increased usage across all customer classes for electric and across residential and large commercial and industrial customer classes for gas. In addition, there was a favorable impact of an increased number of customers primarily in the residential and small commercial and industrial customer classes for electric and gas. Purchased Power and Fuel Expense. The increase in purchased power and fuel expense as a result of higher delivery volume, exclusive of the effects of weather and customer choice, reflected increased usage across all customer classes for electric and across residential and large commercial and industrial classes for gas. In addition, the increase reflected the impact of an increased number of customers primarily in the residential and small commercial and industrial customer classes for electric and gas. Rate increases (decreases) Revenues. The increase in electric revenues attributable to electric rate increases reflects a scheduled electric generation rate increase effective for customer bills for electric generation service delivered after customers’ January 2007 meter readings, which represents the last scheduled rate increase through 2010 under PECO’s 1998 restructuring settlement. This rate increase does not affect operating income as PECO incurs corresponding and offsetting purchased power expense under its PPA with Generation. The decrease in gas revenues was due to net decreases in rates through PAPUC-approved quarterly changes to the purchased gas adjustment clause. The average purchased gas cost rate per million cubic feet in effect for the three months ended June 30, 2007 was 16% lower than the average rate for the same period in 2006. Purchased Power and Fuel Expense. The increase in purchased power expense attributable to electric rate increases reflects the scheduled generation rate increase under the PPA with Generation. The decrease in fuel expense reflects lower gas prices. Customer choice Revenues and Purchased Power. For the three months ended June 30, 2007 and 2006, 2% of energy delivered to PECO’s retail customers was provided by competitive electric generation suppliers. All PECO customers have the choice to purchase energy from a competitive electric generation supplier. This choice does not affect the volume of deliveries, but affects revenue collected from customers related to supplied energy and generation service. PECO’s operating income is not affected by customer choice since any increase or decrease in revenues is completely offset by any related increase or decrease in purchased power expense.
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| | | | | | | | | | | | | Three Months Ended June 30, | | | | | 2007 | | | 2006 | | | | | Retail customers purchasing energy from a competitive electric generation supplier: | | | | | | | | | | Number of customers at period end | | | 31,700 | | | | 38,300 | | | Percentage of total retail customers | | | 2 | % | | | 3 | % | | Volume (GWhs)(a) | | | 158 | | | | 188 | | | Percentage of total retail deliveries | | | 2 | % | | | 2 | % |
| | | | (a) | | One GWh is the equivalent of one million kWh. |
The increase in electric retail revenue and expense associated with customer choice reflects customers, primarily from the small commercial and industrial customer class, returning to PECO as their electric supplier. Other rate changes and mix Revenues. The decrease in electric and gas revenues attributable to other rate changes and mix reflects the effects of rate blocking, whereby certain customer charges per unit of energy are reduced when customer usage exceeds a certain threshold. Purchased Power and Fuel Expense. The increase in purchased power attributable to other rate changes and mix reflects a change in the mix of average pricing related to PECO’s PPA with Generation. Other revenues and expenses Revenues. The increase in electric and gas revenues was primarily due to increased late charges. Purchased Power and Fuel. The decrease in purchased power was due to various factors, none of which were individually material. Operating and Maintenance Expense. The changes in operating and maintenance expense for the three months ended June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | Increase
| | | | | (Decrease) | | | | | Wages and salaries | | $ | 4 | | | Storm costs | | | 3 | | | Allowance for uncollectible accounts expense | | | (4 | ) | | Other | | | 2 | | | | | | | | | Increase in operating and maintenance expense | | $ | 5 | | | | | | | |
Depreciation and Amortization Expense. The increase in depreciation and amortization expense for the three months ended June 30, 2007 compared to the same period in 2006 was primarily due to an increase in CTC amortization of $15 million. PECO’s additional amortization of the CTC is in accordance with its original settlement under the Competition Act. 115
Taxes Other Than Income. The changes in taxes other than income for the three months ended June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | Increase
| | | | | (Decrease) | | | | | Taxes on utility revenues(a) | | $ | 7 | | | State franchise tax adjustment in 2006(b) | | | 7 | | | Sales and use tax adjustment in 2006(b) | | | 5 | | | Other | | | (1 | ) | | | | | | | | Increase in taxes other than income | | $ | 18 | | | | | | | |
| | | | (a) | | As these taxes were collected from customers and remitted to the taxing authorities and included in revenues and expenses, the increase in tax expense was offset by a corresponding increase in revenues. | | | (b) | | Represents the reduction of tax accruals in the second quarter of 2006 following settlements related to 2005 tax assessments. |
Interest Expense, Net. The decrease in interest expense, net for the three months ended June 30, 2007 compared to the same period in 2006 was primarily due to scheduled payments on long-term debt owed to PECO Energy Transition Trust (PETT), partially offset by an increase in interest expense associated with a higher amount of outstanding long-term First and Refunding Mortgage Bonds. Other, Net. The increase for the three months ended June 30, 2007 compared to the same period in 2006 was primarily due to interest income associated with the adoption of FIN 48. See Note 14 of the Combined Notes to Consolidated Financial Statements for further details of the components of other, net. See Notes 3 and 10 of the Combined Notes to Consolidated Financial Statements for additional information regarding the adoption of FIN 48. Income Taxes. The effective income tax rate was 36.4% for the three months ended June 30, 2007 compared to 32.6% for the three months ended June 30, 2006. See Note 10 of the Combined Notes to Consolidated Financial Statements for further details of the components of the effective income tax rates. PECO Electric Operating Statistics and Revenue Detail PECO’s electric sales statistics and revenue detail were as follows: | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | | | | | Ended
| | | | | | | | | | | June 30, | | | | | | | | Retail Deliveries — (in GWhs) | | 2007 | | | 2006 | | | Variance | | | % Change | | | | Full service(a) | | | | | | | | | | | | | | | | | | Residential | | | 2,963 | | | | 2,719 | | | | 244 | | | | 9.0 | % | | Small commercial & industrial | | | 1,995 | | | | 1,869 | | | | 126 | | | | 6.7 | % | | Large commercial & industrial | | | 4,054 | | | | 3,875 | | | | 179 | | | | 4.6 | % | | Public authorities & electric railroads | | | 202 | | | | 229 | | | | (27 | ) | | | (11.8 | )% | | | | | | | | | | | | | | | | | | | | Total full service | | | 9,214 | | | | 8,692 | | | | 522 | | | | 6.0 | % | | | | | | | | | | | | | | | | | | | Delivery only(b) | | | | | | | | | | | | | | | | | | Residential | | | 10 | | | | 14 | | | | (4 | ) | | | (28.6 | )% | | Small commercial & industrial | | | 145 | | | | 163 | | | | (18 | ) | | | (11.0 | )% | | Large commercial & industrial | | | 3 | | | | 11 | | | | (8 | ) | | | (72.7 | )% | | | | | | | | | | | | | | | | | | | | Total delivery only | | | 158 | | | | 188 | | | | (30 | ) | | | (16.0 | )% | | | | | | | | | | | | | | | | | | | Total retail deliveries | | | 9,372 | | | | 8,880 | | | | 492 | | | | 5.5 | % | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Full service reflects deliveries to customers taking electric service under tariff rates. | | | (b) | | Delivery only service reflects customers receiving electric generation service from a competitive electric generation supplier. |
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| | | | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | | | | | | | | Ended
| | | | | | | | | | | | | | June 30, | | | | | | | | | | | Electric Revenue | | 2007 | | | 2006 | | | Variance | | | % Change | | | | | | | Full service(a) | | | | | | | | | | | | | | | | | | | | | | Residential | | $ | 445 | | | $ | 392 | | | $ | 53 | | | | 13.5 | % | | | | | | Small commercial & industrial | | | 265 | | | | 236 | | | | 29 | | | | 12.3 | % | | | | | | Large commercial & industrial | | | 341 | | | | 319 | | | | 22 | | | | 6.9 | % | | | | | | Public authorities & electric railroads | | | 21 | | | | 22 | | | | (1 | ) | | | (4.5 | )% | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total full service | | | 1,072 | | | | 969 | | | | 103 | | | | 10.6 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Delivery only(b) | | | | | | | | | | | | | | | | | | | | | | Residential | | | 1 | | | | 1 | | | | — | | | | 0.0 | % | | | | | | Small commercial & industrial | | | 8 | | | | 9 | | | | (1 | ) | | | (11.1 | )% | | | | | | Large commercial & industrial | | | — | | | | 1 | | | | (1 | ) | | | (100.0 | )% | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total delivery only | | | 9 | | | | 11 | | | | (2 | ) | | | (18.2 | )% | | | | | | | | | | | | | | | | | | | | | | | | | | | Total electric retail revenues | | | 1,081 | | | | 980 | | | | 101 | | | | 10.3 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other revenue(c) | | | 66 | | | | 60 | | | | 6 | | | | 10.0 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Total electric and other revenue | | $ | 1,147 | | | $ | 1,040 | | | $ | 107 | | | | 10.3 | % | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Full service revenue reflects revenue from customers taking generation service under tariff rates, which include the cost of energy, the cost of transmission and distribution of the energy and a CTC. | | | (b) | | Delivery only revenue reflects revenue from customers receiving generation service from a competitive electric generation supplier, which includes the cost of distribution of the energy and a CTC. | | | (c) | | Other revenues include transmission revenue from PJM and other wholesale energy sales. |
PECO Gas Sales Statistics and Revenue Detail PECO’s gas sales statistics and revenue detail were as follows: | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | | | | | | Deliveries to customers (in million cubic feet (mmcf)) | | 2007 | | | 2006 | | | Variance | | | % Change | | | | | Retail sales | | | 8,317 | | | | 6,292 | | | | 2,025 | | | | 32.2 | % | | Transportation | | | 5,928 | | | | 6,139 | | | | (211 | ) | | | (3.4 | )% | | | | | | | | | | | | | | | | | | | | Total | | | 14,245 | | | | 12,431 | | | | 1,814 | | | | 14.6 | % | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | | | | | | Revenue | | 2007 | | | 2006 | | | Variance | | | % Change | | | | | Retail sales | | $ | 116 | | | $ | 103 | | | $ | 13 | | | | 12.6 | % | | Transportation | | | 3 | | | | 4 | | | | (1 | ) | | | (25.0 | )% | | Resales and other | | | 3 | | | | 1 | | | | 2 | | | | n.m. | | | | | | | | | | | | | | | | | | | | | Total gas revenue | | $ | 122 | | | $ | 108 | | | $ | 14 | | | | 13.0 | % | | | | | | | | | | | | | | | | | | |
n.m. Not meaningful 117
Results of Operations — Exelon Corporation Six Months Ended June 30, 2007 Compared To Six Months Ended June 30, 2006 | | | | | | | | | | | | | | | | | Six Months
| | | | | | | | Ended
| | | Favorable
| | | | | June 30, | | | (Unfavorable)
| | Exelon Corporation | | 2007 | | | 2006 | | | Variance | | | | Operating revenues | | $ | 9,330 | | | $ | 7,559 | | | $ | 1,771 | | Operating expenses | | | | | | | | | | | | | | Purchased power and fuel expense | | | 3,655 | | | | 2,534 | | | | (1,121 | ) | | Operating and maintenance expense | | | 2,120 | | | | 1,906 | | | | (214 | ) | | Depreciation and amortization | | | 738 | | | | 735 | | | | (3 | ) | | Taxes other than income | | | 395 | | | | 364 | | | | (31 | ) | | | | | | | | | | | | | | | | Total operating expenses | | | 6,908 | | | | 5,539 | | | | (1,369 | ) | | | | | | | | | | | | | | | Operating income | | | 2,422 | | | | 2,020 | | | | 402 | | | | | | | | | | | | | | | | Other income and deductions | | | | | | | | | | | | | | Interest expense | | | (318 | ) | | | (306 | ) | | | (12 | ) | | Interest expense to affiliates, net | | | (109 | ) | | | (139 | ) | | | 30 | | | Equity in losses of unconsolidated affiliates and investments | | | (69 | ) | | | (61 | ) | | | (8 | ) | | Other, net | | | 106 | | | | 91 | | | | 15 | | | | | | | | | | | | | | | | | Total other income and deductions | | | (390 | ) | | | (415 | ) | | | 25 | | | | | | | | | | | | | | | | Income from continuing operations before income taxes | | | 2,032 | | | | 1,605 | | | | 427 | | Income taxes | | | 648 | | | | 564 | | | | (84 | ) | | | | | | | | | | | | | | | Income from continuing operations | | | 1,384 | | | | 1,041 | | | | 343 | | Income from discontinued operations, net of income taxes | | | 9 | | | | 3 | | | | 6 | | | | | | | | | | | | | | | | Net income | | $ | 1,393 | | | $ | 1,044 | | | $ | 349 | | | | | | | | | | | | | | | | Diluted earnings per share | | $ | 2.05 | | | $ | 1.55 | | | $ | 0.50 | | | | | | | | | | | | | | | |
Net Income. Exelon’s net income for the six months ended June 30, 2007 reflects higher average margins on wholesale market sales; higher nuclear output at Generation; decreased nuclear refueling outage costs; a favorable PJM billing settlement with PPL; favorable weather conditions in the ComEd and PECO service territories; increased electric and gas deliveries, excluding the effects of weather, at ComEd and PECO; increased pricing for delivery services at ComEd and PECO; increased transmission revenues at ComEd; and increased earnings associated with investments in synthetic fuel-producing facilities. These increases were partially offset by unrealized mark-to-market losses on contracts not yet settled; decreased energy margins at ComEd; higher operating and maintenance expenses, including labor-related inflation and increased allowance for uncollectible accounts expense at ComEd; the impact of ComEd’s 2007 rate relief program and other post rate freeze period transition expenses; increased depreciation and amortization expense, primarily related to CTC amortization at PECO; an update of the nuclear decommissioning asset retirement obligation recorded in the second quarter of 2006; and favorable tax settlements at PECO in 2006. Operating Revenues. Operating revenues increased due to an increase in wholesale and retail electric sales at Generation due to higher volumes of generation sold to the market as a result of the expiration of the ComEd PPA in 2006; higher market prices; favorable weather conditions in the ComEd and PECO service territories; higher electric and gas delivery volumes, excluding the effects of weather and customer choice, at ComEd and PECO; rate changes and mix at ComEd due to the end of the rate freeze and implementation of market-based rates for electricity; impact of the distribution rate increase; and increased transmission revenues at ComEd resulting from the 2007 transmission rate case and increased load. These increases were partially offset by ComEd customers
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switching to competitive electric generation suppliers and the impact of ComEd’s 2007 rate relief program. See further analysis and discussion of operating revenues by segment below. Purchased Power and Fuel Expense. Purchased power and fuel expense increased due to higher volumes of power purchased in the market and higher market energy prices. Purchased power represented 19% of Generation’s total supply for the six months ended June 30, 2007 and compared to 17% for the six months ended June 30, 2006. This increase was partially offset by a favorable PJM billing settlement with PPL. See further analysis and discussion of purchased power and fuel expense by segment below. Operating and Maintenance Expense. Operating and maintenance expense increased primarily due to labor-related inflation; the impact of ComEd’s 2007 rate relief program and other post rate freeze period transition expenses; increased allowance for uncollectible accounts expense at ComEd; and a decrease in Generation’s nuclear decommissioning obligation related to the AmerGen nuclear plants recorded in the second quarter of 2006. See further discussion of operating and maintenance expenses by segment below. Depreciation and Amortization Expense. Depreciation and amortization expense increased primarily due to additional CTC amortization at PECO. This increase was partially offset by lower amortization related to investments in synthetic fuel-producing facilities. Taxes Other Than Income. Taxes other than income increased primarily due to favorable tax settlements at PECO in 2006 and higher taxes on utility revenues at PECO in 2007. Other Income and Deductions. The change in other income and deductions reflects interest income related to the favorable PJM billing settlement with PPL, a gain related to the sale of investments by Generation, earnings associated with investments in synthetic fuel-producing facilities and expenses recorded in 2006 related to the now terminated merger with PSEG. Effective Income Tax Rate. The effective income tax rate from continuing operations was 31.9% for the six months ended June 30, 2007 compared to 35.1% for the six months ended June 30, 2006. The synthetic-fuel producing facilities credit decreased the effective income tax rate from continuing operations by 5.6% for the six months ended June 30, 2007. See Note 10 of the Combined Notes to Consolidated Financial Statements for further discussion of the change in the effective income tax rate. Discontinued Operations. On January 31, 2005, subsidiaries of Generation completed a series of transactions that resulted in Generation’s sale of its investment in Sithe. In addition, Exelon has sold or wound down substantially all components of Enterprises. Accordingly, the results of operations and any gain or loss on the sale of these entities have been presented as discontinued operations within Exelon’s (for Sithe and Enterprises) and Generation’s (for Sithe) Consolidated Statements of Operations and Comprehensive Income. See Notes 2 and 4 of the Combined Notes to Consolidated Financial Statements for further information regarding the presentation of Sithe and certain Enterprises businesses as discontinued operations. During the six months ended June 30, 2007, Exelon’s Consolidated Statement of Income and Comprehensive Income included $9 million (after-tax) of income from discontinued operations related to a favorable legal settlement at Enterprises and $3 million (after-tax) of income from discontinued operations related primarily to Sithe, resulting from a settlement agreement between a subsidiary of Sithe, the Pennsylvania Attorney General’s Office and the Pennsylvania Department of Revenue regarding a previously disputed tax position asserted for the 2000 tax year. Results of Operations by Business Segment The comparisons of operating results and other statistical information for the six months ended June 30, 2007 compared to the same period in 2006 set forth below include intercompany transactions, which are eliminated in Exelon’s consolidated financial statements.
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Income (Loss) from Continuing Operations by Business Segment | | | | | | | | | | | | | | | | | Six Months
| | | | | | | | Ended
| | | Favorable
| | | | | June 30, | | | (Unfavorable)
| | | | | 2007 | | | 2006 | | | Variance | | | | | Generation | | $ | 1,133 | | | $ | 765 | | | $ | 368 | | | ComEd | | | 33 | | | | 181 | | | | (148 | ) | | PECO | | | 224 | | | | 186 | | | | 38 | | | Other(a) | | | (6 | ) | | | (91 | ) | | | 85 | | | | | | | | | | | | | | | | | Total | | $ | 1,384 | | | $ | 1,041 | | | $ | 343 | | | | | | | | | | | | | | | |
| | | | (a) | | Other includes corporate operations, shared service entities, including BSC, Enterprises, investments in synthetic fuel-producing facilities and intersegment eliminations. |
Net Income (Loss) by Business Segment | | | | | | | | | | | | | | | | | Six Months
| | | | | | | | Ended
| | | Favorable
| | | | | June 30, | | | (Unfavorable)
| | | | | 2007 | | | 2006 | | | Variance | | | | | Generation | | $ | 1,138 | | | $ | 768 | | | $ | 370 | | | ComEd | | | 33 | | | | 181 | | | | (148 | ) | | PECO | | | 224 | | | | 186 | | | | 38 | | | Other(a) | | | (2 | ) | | | (91 | ) | | | 89 | | | | | | | | | | | | | | | | | Total | | $ | 1,393 | | | $ | 1,044 | | | $ | 349 | | | | | | | | | | | | | | | |
| | | | (a) | | Other includes corporate operations, shared service entities, including BSC, Enterprises, investments in synthetic fuel-producing facilities and intersegment eliminations. |
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Results of Operations — Generation | | | | | | | | | | | | | | | | | Six Months
| | | | | | | | Ended
| | | Favorable
| | | | | June 30, | | | (Unfavorable)
| | | | | 2007 | | | 2006 | | | Variance | | | | Operating revenues | | $ | 5,344 | | | $ | 4,434 | | | $ | 910 | | Operating expenses | | | | | | | | | | | | | | Purchased power and fuel | | | 2,038 | | | | 1,817 | | | | (221 | ) | | Operating and maintenance | | | 1,257 | | | | 1,108 | | | | (149 | ) | | Depreciation and amortization | | | 133 | | | | 139 | | | | 6 | | | Taxes other than income | | | 88 | | | | 84 | | | | (4 | ) | | | | | | | | | | | | | | | | Total operating expenses | | | 3,516 | | | | 3,148 | | | | (368 | ) | | | | | | | | | | | | | | | Operating income | | | 1,828 | | | | 1,286 | | | | 542 | | | | | | | | | | | | | | | | Other income and deductions | | | | | | | | | | | | | | Interest expense | | | (66 | ) | | | (82 | ) | | | 16 | | | Equity in earnings (losses) of investments | | | 1 | | | | (5 | ) | | | 6 | | | Other, net | | | 54 | | | | 20 | | | | 34 | | | | | | | | | | | | | | | | | Total other income and deductions | | | (11 | ) | | | (67 | ) | | | 56 | | | | | | | | | | | | | | | | Income from continuing operations before income taxes | | | 1,817 | | | | 1,219 | | | | 598 | | Income taxes | | | 684 | | | | 454 | | | | (230 | ) | | | | | | | | | | | | | | | Income from continuing operations | | | 1,133 | | | | 765 | | | | 368 | | Income from discontinued operations, net of income taxes | | | 5 | | | | 3 | | | | 2 | | | | | | | | | | | | | | | | Net income | | $ | 1,138 | | | $ | 768 | | | $ | 370 | | | | | | | | | | | | | | | |
Net Income. Generation’s net income for the six months ended June 30, 2007 compared to the same period in 2006 increased primarily due to higher revenue, net of purchased power and fuel expense, offset by increased operating and maintenance expense, primarily associated with an update of the nuclear decommissioning asset retirement obligation recorded in the second quarter of 2006, higher nuclear refueling outage expenses and wage-related inflation. Generation’s revenue, net of purchased power and fuel expense, increased by $689 million for the six months ended June 30, 2007 compared to the same period in 2006, which was driven by higher average margins primarily due to the end of the below-market price PPA with ComEd at the end of 2006, the contractual increase in the prices associated with Generation’s PPA with PECO, and by a PJM billing settlement with PPL. In addition to these impacts, Generation’s net income for the six months ended June 30, 2007 included (all after tax) a gain on the sale of investments of $11 million and earnings of $5 million associated with the settlement of a tax matter related to Generation’s previous investment in Sithe.
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Operating Revenues. For the six months ended June 30, 2007 and 2006, Generation’s sales were as follows: | | | | | | | | | | | | | | | | | | | | | Six Months
| | | | | | | | | | | Ended
| | | | | | | | | | | June 30, | | | | | | | | Revenue | | 2007 | | | 2006 | | | Variance | | | % Change | | | | | Electric sales to affiliates | | $ | 1,688 | | | $ | 2,270 | | | $ | (582 | ) | | | (25.6 | )% | | Wholesale and retail electric sales | | | 3,317 | | | | 1,689 | | | | 1,628 | | | | 96.4 | % | | | | | | | | | | | | | | | | | | | | Total electric sales revenue | | | 5,005 | | | | 3,959 | | | | 1,046 | | | | 26.4 | % | | Retail gas sales | | | 269 | | | | 340 | | | | (71 | ) | | | (20.9 | )% | | Trading portfolio | | | 32 | | | | 5 | | | | 27 | | | | n.m. | | | Other operating revenue(a) | | | 38 | | | | 130 | | | | (92 | ) | | | (70.7 | )% | | | | | | | | | | | | | | | | | | | | Total operating revenue | | $ | 5,344 | | | $ | 4,434 | | | $ | 910 | | | | 20.5 | % | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Includes sales relating to fossil fuel sales, operating service agreements and decommissioning revenue from PECO in 2007 and tolling agreements, fossil fuel sales, operating service agreements and decommissioning revenue from ComEd and PECO in 2006. |
| | | | | | | | | | | | | | | | | | | | | Six Months
| | | | | | | | | | | Ended
| | | | | | | | | | | June 30, | | | | | | | | Sales (in GWhs) | | 2007 | | | 2006 | | | Variance | | | % Change | | | | | Electric sales to affiliates | | | 31,083 | | | | 57,870 | | | | (26,787 | ) | | | (46.3 | )% | | Wholesale and retail electric sales | | | 61,740 | | | | 33,052 | | | | 28,688 | | | | 86.8 | % | | | | | | | | | | | | | | | | | | | | Total electric sales | | | 92,823 | | | | 90,922 | | | | 1,901 | | | | 2.1 | % | | | | | | | | | | | | | | | | | | |
Trading volumes of 9,876 GWhs and 14,754 GWhs for the six months ended June 30, 2007 and 2006 respectively, are not included in the table above. Electric sales to affiliates. Revenue from sales to affiliates decreased $582 million for the six months ended June 30, 2007, as compared to the same period in 2006. The decrease was primarily due to a $970 million decrease from lower electric sales volume, partially offset by higher prices resulting in a $388 million increase in revenues. In the ComEd territories, lower volumes resulted in a $1,021 million decrease in revenues, partially offset by a $306 million increase in revenues due to higher prices. Generation’s PPA with ComEd expired December 31, 2006. As a result of the expiration of the PPA and the results of the auctions, beginning in 2007, Generation is selling more power through bilateral agreements, which resulted in higher prices, but a decrease in volumes to ComEd. In the PECO territories, higher prices resulted in increased revenues of $82 million due to a scheduled electric generation rate increase that took effect January 1, 2007. Additionally, volumes increased resulting in increased revenues of $51 million. Wholesale and retail electric sales. The increase in Generation’s wholesale and retail electric sales for the six months ended June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | Increase | | | | | Volume | | $ | 1,483 | | | Price | | | 145 | | | | | | | | | Increase in wholesale and retail electric sales | | $ | 1,628 | | | | | | | |
Wholesale and retail electric sales increased $1,628 million for the six months ended June 30, 2007 as compared to the same period in 2006. The increase was the result of higher volumes of generation sold to the market as a result of the expiration of the ComEd PPA in 2006.
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Retail gas sales. Retail gas sales decreased $71 million for the six months ended June 30, 2007 as compared to the same period in 2006, of which $41 million was due to lower realized prices and $30 million was due to lower volumes as a result of lower demand. Other revenue. The decrease in other revenues for the six months ended June 30, 2007 compared to the same period in 2006 was due to a $32 million decrease related to the termination of decommissioning collections from ComEd in accordance with the terms and conditions of the ICC Order which only permitted such collections through December 31, 2006. There was a decrease of $36 million due to the cessation of a tolling agreement. Additionally, a $24 million decrease in other revenues was attributable to the sale of TEG and TEP on February 9, 2007 and the resulting absence of revenue thereafter. Purchased Power and Fuel Expense. Generation’s supply sources are summarized below: | | | | | | | | | | | | | | | | | | | | | Six Months
| | | | | | | | | | | Ended
| | | | | | | | | | | June 30, | | | | | | | | Supply Source (in GWhs) | | 2007 | | | 2006 | | | Variance | | | % Change | | | | | Nuclear generation(a) | | | 69,707 | | | | 68,933 | | | | 774 | | | | 1.1 | % | | Purchases — economic hedge portfolio | | | 17,263 | | | | 15,870 | | | | 1,393 | | | | 8.8 | % | | Fossil and hydroelectric generation | | | 5,853 | | | | 6,119 | | | | (266 | ) | | | (4.3 | )% | | | | | | | | | | | | | | | | | | | | Total supply | | | 92,823 | | | | 90,922 | | | | 1,901 | | | | 2.1 | % | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Represents Generation’s proportionate share of the output of its nuclear generating plants, including Salem, which is operated by PSEG Nuclear, LLC. |
The changes in Generation’s purchased power and fuel expense for the six months ended June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | Increase
| | | | | Price | | | Volume | | | (Decrease) | | | | | Purchased power costs | | $ | 6 | | | $ | 122 | | | $ | 128 | | | Generation cost | | | (10 | ) | | | 3 | | | | (7 | ) | | Fuel resale cost | | | (45 | ) | | | (28 | ) | | | (73 | ) | | Mark-to-market | | | n.m. | | | | n.m. | | | | 173 | | | | | | | | | | | | | | | | | Increase in purchased power and fuel expense | | | | | | | | | | $ | 221 | | | | | | | | | | | | | | | |
n.m. Not meaningful Purchased Power Cost. Purchased power cost includes all costs associated with the procurement of electricity including capacity, energy and fuel costs associated with tolling agreements. Generation experienced overall higher volumes that were attributable to increased purchases from PPAs and to serve load commitments. These increases were partially offset by lower purchased power volumes needed to supply ComEd due to the expiration of the PPA at December 31, 2006. Further, Generation realized overall lower prices for purchased power. Additionally, Generation’s purchased power cost decreased $28 million due to the PJM billing dispute settlement with PPL. See Note 13 of the Combined Notes to Consolidated Financial Statements. Generation Cost. Generation cost includes fuel cost for internally generated energy. Generation experienced overall lower generation costs for the six months ended June 30, 2007 as compared to the same period in 2006 due to decreased prices related to fossil fuel generation. The increased volume of $3 million was primarily due to higher nuclear generation. Fuel Resale Cost. Fuel resale cost includes retail gas purchases and wholesale fossil fuel expenses. The changes in Generation’s fuel resale costs for the six months ended June 30, 2007 as compared to the same period in 2006 consisted of overall lower prices resulting in a decrease of $45 million. Additionally, a decrease of $28 million was the result of lower volumes caused by lower demand.
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Mark-to-market. Mark-to-market losses on power hedging activities were $145 million for the six months ended June 30, 2007 compared to gains of $88 million for the same period in 2006. Mark-to-market gains on fuel hedging activities were $8 million for the six months ended June 30, 2007 compared to losses of $52 million for the same period in 2006. Generation’s average margins per MWh of electricity sold during the six months ended June 30, 2007 and 2006 were as follows: | | | | | | | | | | | | | | | | | Six Months
| | | | | | | | Ended
| | | | | | | | June 30, | | | | | ($/MWh) | | 2007 | | | 2006 | | | % Change | | | | | Average electric revenue | | | | | | | | | | | | | | Electric sales to affiliates | | $ | 54.31 | | | $ | 39.23 | | | | 38.4 | % | | Wholesale and retail electric sales | | | 53.73 | | | | 51.10 | | | | 5.1 | % | | Total — excluding the trading portfolio | | | 53.92 | | | | 43.54 | | | | 23.8 | % | | Average electric supply cost(a) — excluding the trading portfolio | | | 19.08 | | | | 16.23 | | | | 17.6 | % | | Average margin — excluding the trading portfolio | | | 34.84 | | | | 27.31 | | | | 27.6 | % |
| | | | (a) | | Average supply cost includes purchased power and fuel costs associated with electric sales. Average electric supply cost does not include fuel costs associated with retail gas sales and other sales. |
Nuclear fleet operating data for the six months ended June 30, 2007 and 2006 were as follows: | | | | | | | | | | | | | Six Months
| | | | | Ended
| | | | | June 30, | | | | | 2007 | | | 2006 | | | | | Nuclear fleet capacity factor(a) | | | 95.0 | % | | | 93.3 | % | | Nuclear fleet production cost per MWh(a) | | $ | 14.28 | | | $ | 14.19 | |
| | | | (a) | | Excludes Salem, which is operated by PSEG Nuclear, LLC. |
The nuclear fleet capacity factor increased primarily due to fewer planned refueling outage and non-refueling outage days during the six months ended June 30, 2007 compared to the same period in 2006. For the six months ended June 30, 2007 and 2006, refueling outage days totaled 95 and 114, respectively, and non-refueling outage days totaled 19 and 49, respectively. Additionally, during the six months ended June 30, 2007, both Quad Cities units operated at Extended Power Uprate (EPU) generation levels for the entire period as compared to the six months ended June 30, 2006, when the generation levels of both Quad Cities units operated intermittently at pre-EPU generation levels during that period to address vibration related equipment issues. The higher number of net MWh’s generated was offset by labor-related inflation and higher costs for nuclear fuel, NRC reactor fees, and security, resulting in a slightly higher production cost per MWh for the six months ended June 30, 2007 as compared to the same period in 2006. Operating and Maintenance Expense. The increase in operating and maintenance expense for the six months ended June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | Increase
| | | | | (Decrease) | | | | | Decommissioning-related activities | | $ | 118 | | | Pension, payroll and benefit costs | | | 43 | | | Nuclear refueling outage costs | | | (9 | ) | | Other | | | (3 | ) | | | | | | | | Increase in operating and maintenance expense | | $ | 149 | | | | | | | |
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The net $149 million increase was primarily attributable to the following: | | | | • | A $118 million increase in nuclear decommissioning-related activities was associated with the recognition of a credit totaling $149 million which represented a reduction in the asset retirement obligation in excess of the asset retirement cost balance for the AmerGen units recorded in the same period in 2006, offset by a $31 million decrease resulting from the termination of revenue collections from ComEd, which likewise no longer required an offset through operating and maintenance expense. | | | • | A $43 million increase in pension, payroll and benefit costs reflected the impact of inflation as well as an increase in various direct and allocated fringe costs. | | | • | A $9 million decrease in nuclear refueling outage costs was associated with the fewer planned refueling outage days during the six months ended June 30, 2007 as compared to the same period in 2006. | | | • | A $3 million decrease in other operating and maintenance expense for the six months ended June 30, 2007 compared to the same period in 2006 was primarily due to a decrease in service agreement-related expenses, offset by an increase in contracting charges resulting from increased outage costs for fossil and hydroelectric facilities. |
Depreciation and Amortization. The decrease in depreciation and amortization expense for the six months ended June 30, 2007 compared to the same period in 2006 was primarily due to the reassessment of the useful lives, for accounting purposes, of several fossil facilities. Interest Expense. The decrease in net interest expense for the six months ended June 30, 2007 as compared to the same period in 2006 was primarily attributable to an interest payment made in 2006 to the Internal Revenue Service (IRS) in settlement of a tax matter and to a decline in the amount of commercial paper that was outstanding during the six months ended June 30, 2007 as compared to the same period in 2006. Other, Net. The change in other, net reflects a gain on sale of investments recognized in the first and second quarters of 2007. Effective Income Tax Rate. There was not a significant change in the effective income tax rate for the six months ended June 30, 2007 compared to the same period in 2006. See Note 10 of the Combined Notes to Consolidated Financial Statements for further discussion of the change in the effective income tax rate. Discontinued Operations. On January 31, 2005, subsidiaries of Generation completed a series of transactions that resulted in Generation’s sale of its investment in Sithe. Accordingly, the results of operations and the gain on the sale of Sithe have been presented as discontinued operations within Generation’s Consolidated Statements of Operations and Comprehensive Income. For the six months ended June 30, 2007, Generation’s Consolidated Statement of Income and Comprehensive Income included $5 million (after-tax) gain on disposal of discontinued operations related primarily to Sithe, resulting from a settlement agreement between a subsidiary of Sithe, the Pennsylvania Attorney General’s Office and the Pennsylvania Department of Revenue regarding a previously disputed tax position asserted for the 2000 tax year. For the six months ended June 30, 2006, Generation’s Consolidated Statement of Income and Comprehensive Income included $3 million (after-tax) gain on disposal of discontinued operations. See Notes 2 and 4 of the Combined Notes to Consolidated Financial Statements for further information regarding the presentation of Sithe as discontinued operations.
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Results of Operations — ComEd | | | | | | | | | | | | | | | | | Six Months
| | | | | | | | Ended
| | | Favorable
| | | | | June 30, | | | (Unfavorable)
| | | | | 2007 | | | 2006 | | | Variance | | | | Operating revenues | | $ | 2,911 | | | $ | 2,880 | | | $ | 31 | | Operating expenses | | | | | | | | | | | | | | Purchased power | | | 1,806 | | | | 1,628 | | | | (178 | ) | | Operating and maintenance | | | 510 | | | | 434 | | | | (76 | ) | | Depreciation and amortization | | | 217 | | | | 205 | | | | (12 | ) | | Taxes other than income | | | 157 | | | | 152 | | | | (5 | ) | | | | | | | | | | | | | | | | Total operating expenses | | | 2,690 | | | | 2,419 | | | | (271 | ) | | | | | | | | | | | | | | | Operating income | | | 221 | | | | 461 | | | | (240 | ) | | | | | | | | | | | | | | | Other income and deductions | | | | | | | | | | | | | | Interest expense, net | | | (170 | ) | | | (153 | ) | | | (17 | ) | | Equity in losses of unconsolidated affiliates | | | (4 | ) | | | (5 | ) | | | 1 | | | Other, net | | | 7 | | | | 1 | | | | 6 | | | | | | | | | | | | | | | | | Total other income and deductions | | | (167 | ) | | | (157 | ) | | | (10 | ) | | | | | | | | | | | | | | | Income before income taxes | | | 54 | | | | 304 | | | | (250 | ) | Income taxes | | | 21 | | | | 123 | | | | 102 | | | | | | | | | | | | | | | | Net income | | $ | 33 | | | $ | 181 | | | $ | (148 | ) | | | | | | | | | | | | | | |
Net Income. As more fully described below, ComEd’s net income for the six months ended June 30, 2007 compared to the same period in 2006 reflected higher purchased power expense, higher operating and maintenance expense, higher depreciation and amortization expense and higher interest expense. Beginning in 2007, ComEd ceased earning margin on the energy component of its deliveries to its customers, nor is it collecting CTC revenues. While ComEd’s 2007 results reflect an $83 million annual rate increase as allowed by the ICC, this rate increase was based generally on 2004 costs and does not include the impacts of increased operating expenses since 2004 or additional net capital investment since the end of 2005. ComEd anticipates filing a new delivery service rate case during the third quarter of 2007 based on a 2006 test year and also filed a transmission rate case during the first quarter 2007. On June 5, 2007, FERC issued an order for the transmission rate case conditionally approving ComEd’s proposal to implement a formula based transmission rate effective May 1, 2007, subject to refund. The requested rate increase is designed to help reduce the regulatory lag related to recovery of these costs and returns on ComEd’s investments. See Note 5 of the Combined Notes to Consolidated Financial Statements for further discussion. In 2007, ComEd incurred increased costs associated with transitioning from the rate freeze period including implementing the Rate Relief and Rate Stabilization programs.
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Operating Revenues and Purchased Power Expense. The changes in operating revenues and purchased power expense for the six months ended June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | | | | | | | | | Increase (Decrease) | | | | | Operating
| | | Purchased
| | | Revenue Net of
| | | | | Revenues | | | Power | | | Purchased Power | | | | | Customer choice | | $ | (604 | ) | | $ | (463 | ) | | $ | (141 | ) | | Rate changes and mix | | | 521 | | | | 603 | | | | (82 | ) | | Rate Relief Program | | | (19 | ) | | | — | | | | (19 | ) | | Transmission | | | 32 | | | | (6 | ) | | | 38 | | | Weather | | | 89 | | | | 53 | | | | 36 | | | Volume | | | 11 | | | | — | | | | 11 | | | Other | | | 1 | | | | (9 | ) | | | 10 | | | | | | | | | | | | | | | | | Total increase (decrease) | | $ | 31 | | | $ | 178 | | | $ | (147 | ) | | | | | | | | | | | | | | |
Customer choice Revenue. All ComEd customers have the choice to purchase electricity from a competitive electric generation supplier. This choice does not impact the volume of deliveries, but affects revenue collected from customers related to supplied electricity and generation service. As of June 30, 2007, two competitive electric generation suppliers had been granted approval to serve residential customers in the ComEd service territory. However, they are not currently supplying electricity to any of ComEd’s residential customers. As a result of ComEd’s higher electricity rates, more non-residential customers have elected to have a competitive electric generation supplier provide their electricity. For the six months ended June 30, 2007 and 2006, 48% and 21%, respectively, of electricity delivered to ComEd’s retail customers was provided by competitive electric generation suppliers. Most of the customers previously receiving electricity under the PPO are now electing either to buy their electricity from a competitive electric generation supplier or from ComEd under tariff rates. | | | | | | | | | | | | | Six Months
| | | | | Ended June 30, | | | | | 2007 | | | 2006 | | | | | Retail customers purchasing electricity from a competitive electric generation supplier: | | | | | | | | | | Volume (GWhs)(a) | | | 21,361 | | | | 8,908 | | | Percentage of total retail deliveries | | | 48 | % | | | 21 | % | | Retail customers purchasing electricity from a competitive electric generation supplier or the ComEd PPO: | | | | | | | | | | Number of customers at period end | | | 41,500 | | | | 16,100 | | | Percentage of total retail customers | | | 1 | % | | | (b | ) | | Volume (GWhs)(a) | | | 21,418 | | | | 13,428 | | | Percentage of total retail deliveries | | | 48 | % | | | 31 | % |
| | | | (a) | | One GWh is the equivalent of one million kilowatthours (kWh). | | | (b) | | Less than one percent. |
Purchased Power. The decrease in purchased power expense from customer choice was primarily due to more ComEd non-residential customers electing to purchase electricity from a competitive electric generation supplier.
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Rate changes and mix Revenue. The increase in revenue related to rate changes and mix primarily reflects the end of the rate freeze and the implementation of market-based rates for electricity and the impact of the distribution rate increase. In 2006, most customers were charged a bundled rate that included distribution, transmission and the cost of electricity. Additionally, under Illinois law, no CTCs are permitted to be collected after 2006. As of January 2007, ComEd began billing customers on an unbundled basis, which includes separate charges for distribution, transmission and electricity. Given the relatively small increase approved by the ICC in the annual distribution rates of $83 million, the majority of the change in year over year pricing is driven by the inclusion of market-based electricity rates. The market-based electricity rates were determined through the reverse-auction competitive bidding process. See Note 5 of the Combined Notes to Consolidated Financial Statements for more information. Additionally starting in 2007, ComEd is recovering former manufacturing gas plant remediation costs from customers. Purchased Power. Purchased power increased due to higher electricity prices. The PPA with Generation terminated at the end of 2006. In 2007, as a result of the ICC approved reverse-auction process, ComEd began procuring electricity, including ancillary services, under its supplier forward contracts for the blended and annual products and from PJM-administered wholesale electricity markets for the hourly product. See Note 5 of the Combined Notes to Consolidated Financial Statements for more information on the reverse-auction process. Rate Relief Program Revenue. As part of its program for customer rate relief, ComEd is issuing credits to certain customers. See Note 5 of the Combined Notes to Consolidated Financial Statements for more information on the Rate Relief Programs. Transmission Revenue. In 2007, ComEd experienced increased revenue for the provision of transmission services resulting from increased peak and kWh load within the ComEd service territory. Additionally on June 5, 2007, FERC issued an order for the transmission rate case conditionally approving ComEd’s proposal to implement a formula based transmission rate effective May 1, 2007, subject to refund. See Note 5 of the Combined Notes to Consolidated Financial Statements for more information on the Transmission Rate Case. Purchased Power. Effective December 1, 2004, PJM became obligated to pay Seams EliminationCharge/Cost Adjustment/Assignment (SECA) collections to ComEd and ComEd became obligated to pay SECA charges. These charges were being collected subject to refund as they are being disputed. ComEd recorded SECA collections and payments on a net basis through purchased power expense. As ComEd was a net collector of SECA charges, ComEd recorded $5 million of net SECA collections during the three months ended March 31, 2006. During the three months ended March 31, 2006, ComEd adjusted its reserve for SECA to reflect management’s best estimate of amounts that will ultimately be required to be refunded. The reserve existing at June 30, 2007 continues to represent management’s best estimate. Management of ComEd believes that the appropriate reserve has been established in the event that some portion of SECA collections are required to be refunded. SECA charges expired on March 31, 2006. See Note 5 of the Combined Notes to Consolidated Financial Statements for more information on the SECA rates. Weather Revenue. Revenues were higher due to favorable weather conditions for the six months ended June 30, 2007 compared to the same period in 2006. In ComEd’s service territory, heating degree days were 14% higher and cooling degree days were 46% higher during the six months ended June 30, 2007 compared to the same period in 2006. Purchased Power.The increase in purchased power expense attributable to weather was resulting from higher demand due to favorable weather conditions in the ComEd service territory relative to the prior year.
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Volume Revenue. The increase in revenues for the provision of distribution services primarily resulted from an increase in deliveries, excluding the effects of weather, due to an increased number of customers. Other Revenue — Economic Hedge Derivative Contracts. During the six months ended June 30, 2007 as compared to the six months ended June 30, 2006, ComEd had a net $5 million increase in economic hedge derivative contracts activity, including mark-to-market adjustments and settlements. Revenue — Wholesale Contracts. ComEd’s revenue decreased $11 million as a result of certain wholesale contracts expiring in May 2007. Purchased Power — Wholesale Contracts. ComEd’s purchased power decreased $8 million as a result of certain wholesale contracts expiring in May 2007. Operating and Maintenance Expense. The changes in operating and maintenance expense for the six months ended June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | Increase | | | | | Post rate freeze period transition expenses(a) | | $ | 21 | | | Allowance for uncollectible accounts expense(b) | | | 13 | | | Wages and salaries | | | 9 | | | Contracting | | | 7 | | | Fringe benefits(c) | | | 7 | | | Severance-related expenses | | | 4 | | | Corporate allocations | | | 2 | | | Repair and maintenance of transformer and synchronous condenser | | | 3 | | | Materials and supplies expense | | | 2 | | | Rents and leases | | | 2 | | | Other | | | 6 | | | | | | | | | Increase in operating and maintenance expense | | $ | 76 | | | | | | | |
| | | | (a) | | Includes increased advertising costs, costs associated with the Rate Relief and CARE programs of $8 million, costs associated with implementing ComEd’s Rate Stabilization plan and other costs associated with transitioning to the post rate freeze period. See Note 5 of the Combined Notes to Consolidated Financial Statements for more information. | | | (b) | | Reflects the impact of higher revenues due to increased customer receivables resulting from the inclusion of market-based electricity rates and higher delivery rates. Also reflects an increase in older outstanding receivable balances from customers as a result of a management decision to reduce the number of non-paying customers being disconnected. | | | (c) | | Reflects increases in various fringe benefits primarily due to increased pension and other postretirement benefits costs of $8 million. |
Depreciation and Amortization Expense. The increase in depreciation and amortization expense for the six months ended June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | Increase | | | | | Depreciation expense associated with higher plant balances | | $ | 10 | | | Amortization of regulatory assets | | | 2 | | | | | | | | | Increase in depreciation and amortization expense | | $ | 12 | | | | | | | |
In 2007, ComEd’s amortization reflects the initial amortization of the various regulatory assets authorized by the ICC in its 2006 orders, partially offset by the impacts of the elimination of the regulatory asset for recoverable transition costs. See Note 5 of the Combined Notes to Consolidated Financial Statements for more information.
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Taxes Other Than Income. Taxes other than income increased for the six months ended June 30, 2007 compared to the same period in 2006 as a result of an increase in the Illinois Electricity Distribution tax and an increase in real estate and property taxes. Interest Expense, Net. The increase in interest expense, net for the six months ended June 30, 2007 compared to the same period in 2006 primarily resulted from higher debt balances and higher interest rates. Also in 2007, ComEd’s interest expense, net reflected $7 million of the initial amortization of the regulatory asset related to the early debt retirement costs authorized by the ICC in 2006. Other, Net. Other, net increased for the six months ended June 30, 2007 compared to the same period in 2006. The changes consisted of the following: | | | | | | | | | Increase | | | | | Gain on disposal of assets and investments, net | | $ | 3 | | | Allowance for funds used during construction, equity | | | 2 | | | Other | | | 1 | | | | | | | | | Increase in other, net | | $ | 6 | | | | | | | |
Income Taxes. The effective income tax rate was 38.9% for the six months ended June 30, 2007 compared to 40.5% for the six months ended June 30, 2006. See Note 10 of the Combined Notes to Consolidated Financial Statements for further discussion of the change in the effective income tax rate. ComEd Electric Operating Statistics and Revenue Detail | | | | | | | | | | | | | | | | | | | | | Six Months
| | | | | | | | | | | Ended
| | | | | | | | | | | June 30, | | | | | | | | Retail Deliveries — (in GWhs) | | 2007 | | | 2006 | | | Variance | | | % Change | | | | Full service(a) | | | | | | | | | | | | | | | | | | Residential | | | 13,448 | | | | 12,921 | | | | 527 | | | | 4.1 | % | | Small commercial & industrial | | | 8,421 | | | | 11,028 | | | | (2,607 | ) | | | (23.6 | )% | | Large commercial & industrial | | | 1,245 | | | | 4,609 | | | | (3,364 | ) | | | (73.0 | )% | | Public authorities & electric railroads | | | 396 | | | | 1,115 | | | | (719 | ) | | | (64.5 | )% | | | | | | | | | | | | | | | | | | | | Total full service | | | 23,510 | | | | 29,673 | | | | (6,163 | ) | | | (20.8 | )% | | | | | | | | | | | | | | | | | | | PPO | | | | | | | | | | | | | | | | | | Small commercial & industrial | | | 23 | | | | 2,322 | | | | (2,299 | ) | | | (99.0 | )% | | Large commercial & industrial | | | 34 | | | | 2,198 | | | | (2,164 | ) | | | (98.5 | )% | | | | | | | | | | | | | | | | | | | | | | | 57 | | | | 4,520 | | | | (4,463 | ) | | | (98.7 | )% | | | | | | | | | | | | | | | | | | | Delivery only(b) | | | | | | | | | | | | | | | | | | Small commercial & industrial | | | 7,885 | | | | 2,185 | | | | 5,700 | | | | n.m. | | | Large commercial & industrial | | | 13,208 | | | | 6,723 | | | | 6,485 | | | | 96.5 | % | | Public authorities & electric railroads | | | 268 | | | | — | | | | 268 | | | | n.m. | | | | | | | | | | | | | | | | | | | | | | | | 21,361 | | | | 8,908 | | | | 12,453 | | | | 139.8 | % | | | | | | | | | | | | | | | | | | | | Total PPO and delivery only | | | 21,418 | | | | 13,428 | | | | 7,990 | | | | 59.5 | % | | | | | | | | | | | | | | | | | | | Total retail deliveries | | | 44,928 | | | | 43,101 | | | | 1,827 | | | | 4.2 | % | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Full service reflects deliveries to customers taking electric service under tariff rates. | | | (b) | | Delivery only service reflects customers electing to receive electricity from a competitive electric generation supplier. |
n.m. Not meaningful.
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| | | | | | | | | | | | | | | | | | | | | Six Months
| | | | | | | | | | | Ended
| | | | | | | | | | | June 30, | | | | | | | | Electric Revenue | | 2007 | | | 2006 | | | Variance | | | % Change | | | | Full service(a) | | | | | | | | | | | | | | | | | | Residential | | $ | 1,423 | | | $ | 1,096 | | | $ | 327 | | | | 29.8 | % | | Small commercial & industrial | | | 814 | | | | 839 | | | | (25 | ) | | | (3.0 | )% | | Large commercial & industrial | | | 96 | | | | 240 | | | | (144 | ) | | | (60.0 | )% | | Public authorities & electric railroads | | | 34 | | | | 68 | | | | (34 | ) | | | (50.0 | )% | | | | | | | | | | | | | | | | | | | | Total full service | | | 2,367 | | | | 2,243 | | | | 124 | | | | 5.5 | % | | | | | | | | | | | | | | | | | | | PPO(b) | | | | | | | | | | | | | | | | | | Small commercial & industrial | | | 2 | | | | 163 | | | | (161 | ) | | | (98.8 | )% | | Large commercial & industrial | | | 3 | | | | 132 | | | | (129 | ) | | | (97.7 | )% | | | | | | | | | | | | | | | | | | | | | | | 5 | | | | 295 | | | | (290 | ) | | | (98.3 | )% | | | | | | | | | | | | | | | | | | | Delivery only(c) | | | | | | | | | | | | | | | | | | Small commercial & industrial | | | 119 | | | | 33 | | | | 86 | | | | n.m. | | | Large commercial & industrial | | | 134 | | | | 67 | | | | 67 | | | | 100.0 | % | | Public authorities & electric railroads | | | 3 | | | | — | | | | 3 | | | | n.m. | | | | | | | | | | | | | | | | | | | | | | | | 256 | | | | 100 | | | | 156 | | | | 156.0 | % | | | | | | | | | | | | | | | | | | | | Total PPO and delivery only | | | 261 | | | | 395 | | | | (134 | ) | | | (33.9 | )% | | | | | | | | | | | | | | | | | | | Total electric retail revenues | | | 2,628 | | | | 2,638 | | | | (10 | ) | | | (0.4 | )% | | Other revenue(d) | | | 285 | | | | 250 | | | | 35 | | | | 14.0 | % | | Economic hedge derivative contracts | | | (2 | ) | | | (8 | ) | | | 6 | | | | (75.0 | )% | | | | | | | | | | | | | | | | | | | Total operating revenues | | $ | 2,911 | | | $ | 2,880 | | | $ | 31 | | | | 1.1 | % | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Full service revenue reflects deliveries to customers taking electric service under tariff rates, which include the cost of electricity and the cost of transmission and distribution of the electricity. | | | (b) | | Revenues from customers choosing the PPO include an energy charge at market rates, transmission and distribution charges, and a CTC through December 31, 2006. | | | (c) | | Delivery only revenues reflect revenue under tariff rates from customers electing to receive electricity from a competitive electric generation supplier, which includes a distribution charge and a CTC through December 31, 2006. | | | (d) | | Other revenues include transmission revenue (including revenue from PJM), sales to municipalities and other wholesale energy sales. |
n.m. Not meaningful. 131
Results of Operations — PECO | | | | | | | | | | | | | | | | | Six Months
| | | | | | | | Ended
| | | Favorable
| | | | | June 30, | | | (Unfavorable)
| | | | | 2007 | | | 2006 | | | Variance | | | | Operating revenues | | $ | 2,769 | | | $ | 2,554 | | | $ | 215 | | Operating expenses | | | | | | | | | | | | | | Purchased power and fuel | | | 1,498 | | | | 1,389 | | | | (109 | ) | | Operating and maintenance | | | 294 | | | | 289 | | | | (5 | ) | | Depreciation and amortization | | | 370 | | | | 343 | | | | (27 | ) | | Taxes other than income | | | 142 | | | | 117 | | | | (25 | ) | | | | | | | | | | | | | | | | Total operating expenses | | | 2,304 | | | | 2,138 | | | | (166 | ) | | | | | | | | | | | | | | | Operating income | | | 465 | | | | 416 | | | | 49 | | | | | | | | | | | | | | | | Other income and deductions | | | | | | | | | | | | | | Interest expense, net | | | (126 | ) | | | (136 | ) | | | 10 | | | Equity in losses of unconsolidated affiliates | | | (4 | ) | | | (6 | ) | | | 2 | | | Other, net | | | 10 | | | | 5 | | | | 5 | | | | | | | | | | | | | | | | | Total other income and deductions | | | (120 | ) | | | (137 | ) | | | 17 | | | | | | | | | | | | | | | | Income before income taxes | | | 345 | | | | 279 | | | | 66 | | Income taxes | | | 121 | | | | 93 | | | | (28 | ) | | | | | | | | | | | | | | | Net income | | | 224 | | | | 186 | | | | 38 | | | Preferred stock dividends | | | 2 | | | | 2 | | | | — | | | | | | | | | | | | | | | | Net income on common stock | | $ | 222 | | | $ | 184 | | | $ | 38 | | | | | | | | | | | | | | | |
Net Income. PECO’s net income for the six months ended June 30, 2007 compared to the same period in 2006 increased primarily due to higher operating revenues, net of purchased power and fuel expense, which reflected increased sales from favorable weather conditions, increased usage across all customer classes, the completion of certain authorized rate increases which began in 2006 and the favorable settlement of a PJM billing dispute. Partially offsetting higher operating revenues, net of purchased power and fuel expense, was higher CTC amortization, which was in accordance with the Competition Act. Electric and Gas Operating Revenues, Purchased Power and Fuel Expense. The changes in PECO’s operating revenues and purchased power and fuel expense for the six months ended June 30, 2007 compared to the same period in 2006 consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase (Decrease) | | | | | Electric | | | Gas | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | Purchased
| | | | | | | | Operating
| | | Purchased
| | | | | | Operating
| | | Fuel
| | | | | | Operating
| | | Power
| | | | | | | | Revenues | | | Power | | | Net | | | Revenues | | | Expense | | | Net | | | Revenues | | | and Fuel | | | Net | | | | | Weather | | $ | 61 | | | $ | 26 | | | $ | 35 | | | $ | 81 | | | $ | 67 | | | $ | 14 | | | $ | 142 | | | $ | 93 | | | $ | 49 | | | Volume | | | 57 | | | | 24 | | | | 33 | | | | 17 | | | | 14 | | | | 3 | | | | 74 | | | | 38 | | | | 36 | | | Rate increases (decreases) | | | 99 | | | | 88 | | | | 11 | | | | (120 | ) | | | (120 | ) | | | — | | | | (21 | ) | | | (32 | ) | | | 11 | | | Settlement of PJM billing dispute | | | — | | | | (10 | ) | | | 10 | | | | — | | | | — | | | | — | | | | — | | | | (10 | ) | | | 10 | | | Customer choice | | | 5 | | | | 5 | | | | — | | | | — | | | | — | | | | — | | | | 5 | | | | 5 | | | | — | | | Other rate changes and mix | | | (13 | ) | | | — | | | | (13 | ) | | | (3 | ) | | | 7 | | | | (10 | ) | | | (16 | ) | | | 7 | | | | (23 | ) | | Other | | | 13 | | | | (7 | ) | | | 20 | | | | 18 | | | | 15 | | | | 3 | | | | 31 | | | | 8 | | | | 23 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total increase (decrease) | | $ | 222 | | | $ | 126 | | | $ | 96 | | | $ | (7 | ) | | $ | (17 | ) | | $ | 10 | | | $ | 215 | | | $ | 109 | | | $ | 106 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Weather Revenues. Revenues were higher due to favorable weather conditions in PECO’s service territory, where heating degree days and cooling degree days were 19% and 21% higher, respectively, during the six months ended June 30, 2007 compared to the same period in 2006. Purchased Power and Fuel Expense. The increase in purchased power and fuel expense attributable to weather was due to higher demand as a result of favorable weather conditions in the PECO service territory relative to the prior year. Volume Revenues. The increase in revenues as a result of higher delivery volume, exclusive of the effects of weather and customer choice, reflected increased usage across all customer classes for electric and gas. In addition, there was a favorable impact of an increased number of customers primarily in the small commercial and industrial class for electric and the residential and small commercial and industrial classes for electric and gas. Purchased Power and Fuel Expense. The increase in expenses as a result of higher delivery volume, exclusive of the effects of weather and customer choice, reflected increased usage across all customer classes for electric and gas and the impact of an increased number of customers primarily in the small commercial and industrial class for electric and the residential and small commercial and industrial classes for electric and gas. Rate increases (decreases) Revenues. The increase in electric revenues attributable to electric rate increases reflected $11 million associated with the completion in January 2007 of scheduled CTC and distribution rate increases which began in 2006. In addition, effective for customer bills for electric generation service delivered after customers’ January 2007 meter readings, a scheduled electric generation rate increase took effect, which represents the last scheduled rate increase through 2010 under PECO’s 1998 restructuring settlement. This rate increase willdoes not affect operating income as PECO will incur corresponding and offsetting purchased power expense under its PPA with Generation. The decrease in gas revenues was due to net decreases in rates through PAPUC-approved quarterly changes to the purchased gas adjustment clause. The average purchased gas cost rate per million cubic feet in effect for the threesix months ended March 31,June 30, 2007 was 26%18% lower than the average rate for the same period in 2006. Purchased Power and Fuel Expense. PECO’sThe increase in purchased power expense increased primarily dueattributable to increased costs under its PPA with Generation, whichelectric rate increase reflects the scheduled generation rate increase. Fuelincrease under the PPA with Generation. The decrease in fuel expense for gas decreased due toreflects lower gas prices. Settlement of PJM billing dispute Purchased Power. PECO’s purchased power expense decreased $10 million due to the settlement of a PJM billing dispute settlement with PPL. See Note 13 of the Combined Notes to Consolidated Financial Statements for further discussion. Customer choice Revenues and Purchased Power. For the threesix months ended March 31,June 30, 2007 and 2006, 2% of energy delivered to PECO’s retail customers was provided by competitive electric generation suppliers. All PECO customers have the choice to purchase energy from a competitive electric generation supplier. This choice does not affect the volume of deliveries, but affects revenue collected from customers related to supplied energy and generation service. PECO’s operating income is not affected by customer choice since any increase or decrease in revenues is completely offset by any related increase or decrease in purchased power expense.
99133
| | | | | | | | | | | | | | | Six Months
| | | | | | | | | | | | | Ended
| | | | | Three Months Ended March 31, | | | June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Retail customers purchasing energy from a competitive electric generation supplier: | | | | | | | | | | | | | | | | | | Number of customers at period end | | | 34,000 | | | | 40,700 | | | | 31,700 | | | | 38,300 | | | Percentage of total retail customers | | | 2 | % | | | 3 | % | | | 2 | % | | | 3 | % | | Volume (GWhs)(a) | | | 159 | | | | 218 | | | | 317 | | | | 406 | | | Percentage of total retail deliveries | | | 2 | % | | | 2 | % | | | 2 | % | | | 2 | % |
| | | | (a) | | One GWh is the equivalent of one million kWh. |
The increase in electric retail revenue and expense associated with customer choice reflects customers, primarily from the small commercial and industrial customer class, returning to PECO as their electric supplier. Other rate changes and mix Revenues. The decrease in electric and gas revenues attributable to other rate changes and mix primarily reflects the effects of rate blocking. During the winter heating season,blocking, whereby certain customer charges per unit of energy are reduced when customer usage exceeds a certain threshold. Purchased Power and Fuel Expense.The decreaseincrease in electric purchased power attributable to other rate changes and mix reflects a change in the mix of average pricing related to PECO’s PPA with Generation. The decrease in gas fuel expense reflects a timing difference between how fuel costs are recognized versus how they are collected, including billing adjustments.and the fuel commodity component in customers’ rates. Other revenues and expenses Revenues. The increase in electric revenues was primarily due to various factors, none of which were individually material.increased late charges. The increase in gas revenues was primarily due to increased off-system sales. Purchased Power and Fuel. The increase in gas fuel expense was due to increased off-system sales. Operating and Maintenance Expense. Operating The changes in operating and maintenance expense for the threesix months ended March 31,June 30, 2007 compared to the same period in 2006 was unchanged due toconsisted of the following offsetting factors:following: | | | | | | | | | Increase
| | | | | (Decrease) | | | | | Allowance for uncollectible accounts | | $ | (7 | ) | | Storm costs | | | (3 | ) | | Contractors | | | 6 | | | Environmental reserve(a) | | | 4 | | | | | | | | | Change in operating and maintenance expense | | $ | — | | | | | | | |
| | | | | | | | | Increase
| | | | | (Decrease) | | | | | Contractors | | $ | 7 | | | Wages and salaries | | | 5 | | | Environmental reserve(a) | | | 4 | | | Allowance for uncollectible accounts expense(b) | | | (11 | ) | | | | | | | | Increase in operating and maintenance expense | | $ | 5 | | | | | | | |
| | | | (a) | | Reflects lower expense in 2006 due to a settlement related to a Superfund site in the first quarter of 2006. | | | (b) | | Reflects the following factors, each of which decreased expense in 2007 compared to 2006; (1) lower net charge-offs of customer receivables in 2007 compared to 2006; (2) changes in PAPUC-approved regulations which relaxed customer payment terms in 2006, which resulted in higher expense in 2006. |
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Depreciation and Amortization Expense. The increasechanges in depreciation and amortization expense for the threesix months ended March 31,June 30, 2007 compared to the same period in 2006 was primarily due to an increase in CTC amortization of $17 million. PECO’s additional amortizationconsisted of the CTC is in accordance with its original settlement under the Pennsylvania Competition Act.following: | | | | | | | | | Increase
| | | | | (Decrease) | | | | | CTC amortization(a) | | $ | 32 | | | Accelerated amortization of PECO billing system(b) | | | (7 | ) | | Other | | | 2 | | | | | | | | | Increase in depreciation and amortization expense | | $ | 27 | | | | | | | |
| | | | (a) | | PECO’s additional amortization of the CTC is in accordance with its original settlement under the Competition Act. | | | (b) | | In January 2005, as part of a broader systems strategy at PECO associated with the proposed merger with PSEG, Exelon’s Board of Directors approved the implementation of a new customer information and billing system at PECO. The approval of this new system required the accelerated amortization of PECO’s current system through 2006 and the recognition of additional amortization expense in 2005 and 2006. The new system was implemented in the fourth quarter 2006. |
Taxes Other Than Income. The increasechanges in taxes other than income for the threesix months ended March 31,June 30, 2007 compared to the same period in 2006 was primarily due to an increase in taxes on utility revenues as a resultconsisted of higher electric operating revenues.the following: 100
| | | | | | | | | Increase | | | | | Taxes on utility revenues(a) | | $ | 13 | | | State franchise tax adjustment in 2006(b) | | | 7 | | | Sales and use tax adjustment in 2006(b) | | | 5 | | | | | | | | | Increase in taxes other than income | | $ | 25 | | | | | | | |
| | | | (a) | | As these taxes were collected from customers and remitted to the taxing authorities and included in revenues and expenses, the increase in tax expense was offset by a corresponding increase in revenues. | | | (b) | | Represents the reduction of tax accruals in the second quarter of 2006 following settlements related to 2005 tax assessments. |
Interest Expense, Net. The decrease in interest expense, net for the threesix months ended March 31,June 30, 2007 compared to the same period in 2006 was primarily due to scheduled principal payments on long-term debt owed to PECO Energy Transition Trust (PETT), partially offset by an increase in interest expense associated with higher outstanding long-term first mortgage bonds. Other, Net. The increase for the threesix months ended March 31,June 30, 2007 compared to the same period in 2006 was primarily due to interest income associated with the adoption of FIN 48 and the PJM billing dispute settlement. See Note 14 of the Combined Notes to the Consolidated Financial Statements for further details of the components of other, net. See Notes 3 and 10 of the Combined Notes to the Consolidated Financial Statements for additional information regarding the adoption of FIN 48. See Note 13 of the Combined Notes to the Consolidated Financial Statements for additional information on the PJM billing dispute settlement. Income Taxes. The effective income tax rate was 34.0%35.1% for the threesix months ended March 31,June 30, 2007 andcompared to 33.3% for the six months ended June 30, 2006. See Note 10 of the Combined Notes to the Consolidated Financial Statements for further details of the components of the effective income tax rates.
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PECO Electric Operating Statistics and Revenue Detail PECO’s electric sales statistics and revenue detail were as follows: | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | | | | Ended
| | | | | | | | | | | | | | | | | | | | | | | | | March 31, | | | | | | | Six Months Ended June 30, | | | | | | Retail Deliveries — (in GWhs) | | 2007 | | 2006 | | Variance | | % Change | | | 2007 | | 2006 | | Variance | | % Change | | | | Full service(a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential | | | 3,414 | | | | 3,198 | | | | 216 | | | | 6.8 | % | | | 6,377 | | | | 5,917 | | | | 460 | | | | 7.8 | % | | Small commercial & industrial | | | 2,069 | | | | 1,883 | | | | 186 | | | | 9.9 | % | | | 4,064 | | | | 3,753 | | | | 311 | | | | 8.3 | % | | Large commercial & industrial | | | 3,907 | | | | 3,702 | | | | 205 | | | | 5.5 | % | | | 7,961 | | | | 7,576 | | | | 385 | | | | 5.1 | % | | Public authorities & electric railroads | | | 232 | | | | 243 | | | | (11 | ) | | | (4.5 | )% | | | 434 | | | | 472 | | | | (38 | ) | | | (8.1 | )% | | | | | | | | | | | | | | | | | | Total full service | | | 9,622 | | | | 9,026 | | | | 596 | | | | 6.6 | % | | | 18,836 | | | | 17,718 | | | | 1,118 | | | | 6.3 | % | | | | | | | | | | | | | | | | | Delivery only(b) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential | | | 12 | | | | 18 | | | | (6 | ) | | | (33.3 | )% | | | 21 | | | | 32 | | | | (11 | ) | | | (34.4 | )% | | Small commercial & industrial | | | 144 | | | | 182 | | | | (38 | ) | | | (20.9 | )% | | | 289 | | | | 345 | | | | (56 | ) | | | (16.2 | )% | | Large commercial & industrial | | | 3 | | | | 18 | | | | (15 | ) | | | (83.3 | )% | | | 7 | | | | 29 | | | | (22 | ) | | | (75.9 | )% | | | | | | | | | | | | | | | | | | Total delivery only | | | 159 | | | | 218 | | | | (59 | ) | | | (27.1 | )% | | | 317 | | | | 406 | | | | (89 | ) | | | (21.9 | )% | | | | | | | | | | | | | | | | | Total retail deliveries | | | 9,781 | | | | 9,244 | | | | 537 | | | | 5.8 | % | | | 19,153 | | | | 18,124 | | | | 1,029 | | | | 5.7 | % | | | | | | | | | | | | | | | | |
| | | | (a) | | Full service reflects deliveries to customers taking electric service under tariff rates. | | | | (b) | | Delivery only service reflects customers receiving electric generation service from a competitive electric generation supplier. |
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| | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | | | | Ended
| | | | | | | | | | | | | | | | | | | | | | | | | March 31, | | | | | | | Six Months Ended June 30, | | | | | | Electric Revenue | | 2007 | | 2006 | | Variance | | % Change | | | 2007 | | 2006 | | Variance | | % Change | | | | Full service(a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential | | $ | 449 | | | $ | 405 | | | $ | 44 | | | | 10.9 | % | | $ | 894 | | | $ | 795 | | | $ | 99 | | | | 12.5 | % | | Small commercial & industrial | | | 239 | | | | 209 | | | | 30 | | | | 14.4 | % | | | 504 | | | | 446 | | | | 58 | | | | 13.0 | % | | Large commercial & industrial | | | 329 | | | | 295 | | | | 34 | | | | 11.5 | % | | | 670 | | | | 614 | | | | 56 | | | | 9.1 | % | | Public authorities & electric railroads | | | 22 | | | | 21 | | | | 1 | | | | 4.8 | % | | | 43 | | | | 43 | | | | — | | | | 0.0 | % | | | | | | | | | | | | | | | | | | Total full service | | | 1,039 | | | | 930 | | | | 109 | | | | 11.7 | % | | | 2,111 | | | | 1,898 | | | | 213 | | | | 11.2 | % | | | | | | | | | | | | | | | | | Delivery only(b) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential | | | 1 | | | | 1 | | | | — | | | | — | | | | 2 | | | | 2 | | | | — | | | | 0.0 | % | | Small commercial & industrial | | | 7 | | | | 9 | | | | (2 | ) | | | (22.2 | )% | | | 15 | | | | 18 | | | | (3 | ) | | | (16.7 | )% | | Large commercial & industrial | | | — | | | | 1 | | | | (1 | ) | | | (100.0 | )% | | | — | | | | 1 | | | | (1 | ) | | | (100.0 | )% | | | | | | | | | | | | | | | | | | Total delivery only | | | 8 | | | | 11 | | | | (3 | ) | | | (27.3 | )% | | | 17 | | | | 21 | | | | (4 | ) | | | (19.0 | )% | | | | | | | | | | | | | | | | | Total electric retail revenues | | | 1,047 | | | | 941 | | | | 106 | | | | 11.3 | % | | | 2,128 | | | | 1,919 | | | | 209 | | | | 10.9 | % | | | | | | | | | | | | | | | | | | Other revenue(c) | | | 65 | | | | 58 | | | | 7 | | | | 12.1 | % | | | 131 | | | | 118 | | | | 13 | | | | 11.0 | % | | | | | | | | | | | | | | | | | Total electric and other revenue | | $ | 1,112 | | | $ | 999 | | | $ | 113 | | | | 11.3 | % | | $ | 2,259 | | | $ | 2,037 | | | $ | 222 | | | | 10.9 | % | | | | | | | | | | | | | | | | |
| | | | (a) | | Full service revenue reflects revenue from customers taking generation service under tariff rates, which includesinclude the cost of energy, the cost of transmission and distribution of the energy and a CTC. | | | | (b) | | Delivery only revenue reflects revenue from customers receiving generation service from a competitive electric generation supplier, which includes the cost of distribution of the energy and a CTC. | | | | (c) | | MiscellaneousOther revenues include transmission revenue from PJM and other wholesale energy sales. |
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PECO Gas Sales Statistics and Revenue Detail PECO’s gas sales statistics and revenue detail were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | Six Months
| | | | | | | | | Ended
| | | | | | | Ended
| | | | | | | | | March 31, | | | | | | | June 30, | | | | | | Deliveries to customers (in million cubic feet (mmcf)) | | 2007 | | 2006 | | Variance | | % Change | | | 2007 | | 2006 | | Variance | | % Change | | | | | Retail sales | | | 28,968 | | | | 24,921 | | | | 4,047 | | | | 16.2 | % | | | 37,285 | | | | 31,213 | | | | 6,072 | | | | 19.5 | % | | Transportation | | | 7,049 | | | | 6,880 | | | | 169 | | | | 2.5 | % | | | 12,977 | | | | 13,019 | | | | (42 | ) | | | (0.3 | )% | | | | | | | | | | | | | | | | | | Total | | | 36,017 | | | | 31,801 | | | | 4,216 | | | | 13.3 | % | | | 50,262 | | | | 44,232 | | | | 6,030 | | | | 13.6 | % | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | | | Six Months
| | | | | | | | | Ended
| | | | | | | Ended
| | | | | | | | | March 31, | | | | | | | June 30, | | | | | | Revenue | | 2007 | | 2006 | | Variance | | % Change | | | 2007 | | 2006 | | Variance | | % Change | | | | | Retail sales | | $ | 366 | | | $ | 403 | | | $ | (37 | ) | | | (9.2 | )% | | $ | 482 | | | $ | 507 | | | $ | (25 | ) | | | (4.9 | )% | | Transportation | | | 4 | | | | 4 | | | | — | | | | — | | | | 8 | | | | 8 | | | | — | | | | 0.0 | % | | Resales and other | | | 18 | | | | 1 | | | | 17 | | | | n.m. | | | | 20 | | | | 2 | | | | 18 | | | | n.m. | | | | | | | | | | | | | | | | | | | Total gas revenue | | $ | 388 | | | $ | 408 | | | $ | (20 | ) | | | (4.9 | )% | | $ | 510 | | | $ | 517 | | | $ | (7 | ) | | | (1.4 | )% | | | | | | | | | | | | | | | | |
n.m. Not meaningful 102
Liquidity and Capital Resources The Registrants’ operating and capital expenditures requirements are provided by internally generated cash flows from operations as well as funds from external sources in the capital markets and through bank borrowings or, in the case of Generation and PECO, through capital contributions from Exelon when necessary. The Registrants’ businesses are capital intensive and require considerable capital resources. The Registrants’Each Registrant’s access to external financing on reasonable terms depends on theirits credit ratings and current overall capital market business conditions, including that of the utility industry in general. If these conditions deteriorate to the extent that the Registrants no longer have access to the capital markets at reasonable terms, Exelon, Generation, ComEd and PECO have access to unsecured revolving credit facilities with aggregate bank commitments of $1 billion, $5 billion, $1 billion and $600 million, respectively, and ComEd has access to secured revolving credit facilities with aggregate bank commitments of $1 billion, that they currently utilize to support their commercial paper programs and to issue letters of credit. At March 31,June 30, 2007, ComEd has borrowed $340$475 million from its credit facility since its access to the commercial paper market is limited due to its current credit ratings. See the “Credit Matters” section below for further discussion. Exelon expects cash flows to be sufficient to meet operating, financing and capital expenditure requirements. See “Liquidity and Capital Resources” within Exelon’s 2006 Annual Report onForm 10-K for additional information. The Registrants primarily use their capital resources, including cash, to fund capital requirements, including construction expenditures, retire debt, pay dividends, fund pension obligations and invest in new and existing ventures. The Registrants spend a significant amount of cash on capital improvements and construction projects that have a long-term return on investment. Additionally, ComEd and PECO operate in rate-regulated environments in which the amount of new investment recovery may be limited and where such recovery takes place over an extended period of time. As a result of these factors, each of Exelon’s, ComEd’sComEd and PECO’s working capital, defined as current assets less current liabilities, is in a net deficit position. ComEd intends to refinance maturing long-term debt and to repay a portion of its credit facility borrowings with long-term debt. As of June 30, 2007, ComEd has the capacity to issue up to approximately $460 million of additional first mortgage bonds subject to certain restrictions. To manage cash flows as more fully described below, ComEd did not pay a dividend in 2006 or during the threesix months ended March 31,June 30, 2007. Future acquisitions that Exelon may undertake may involve external debt financing or the issuance of additional Exelon common stock. During the threesix months ended March 31,June 30, 2007 as compared to the same period in 2006, ComEd experienced negativea decrease in operating cash flows primarily due to a change in its payment terms with energy suppliers resulting from
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downgraded credit ratings and due to under-recovery of energy costs, which have been recognized as a regulatory asset. Beginning in 2007, ComEd ceased includingearning margin on the energy component of its deliveries to its customers, nor is it collecting CTC revenues. While ComEd’s 2007 results reflect an $83 million annual rate increase as allowed by the ICC, this rate increase was based generally on 2004 costs and does not include the impacts of increased expendituresoperating expenses since 2004 or additional net capital investment since the end of 2004.2005. ComEd anticipates filing a new delivery service rate case during the secondthird quarter of 2007 based on a 2006 test year and also filed a transmission rate case during the first quarter 2007. TheseOn June 5, 2007, FERC issued an order for the transmission rate filings will helpcase conditionally approving ComEd’s proposal to implement a formula based transmission rate effective May 1, 2007, subject to refund. The requested rate increase is designed to reduce the regulatory lag related to recovery of these costs and returns on ComEd’s investments. See Note 5 of the Combined Notes to Consolidated Financial Statements for further discussion. Cash Flows from Operating Activities Generation’s cash flows from operating activities primarily result from the sale of electric energy to wholesale customers, including ComEd and PECO. Generation’s future cash flows from operating activities will be affected by demand for and market prices of energy and its ability to continue to produce and supply power at competitive costs as well as make collections from customers. ComEd’s and PECO’s cash flows from operating activities primarily result from sales of electricity and, in the case of PECO, gas to a stable and diverse base of retail customers at fixed prices and are weighted toward the third quarter of each fiscal year. ComEd’s and PECO’s future cash flows will be affected by the economy, weather, customer choice, existing and future regulatory proceedings relating to their revenues and their ability to achieve operating cost reductions. See Notes 5 and 13 of the Combined Notes to Consolidated Financial Statements for further discussion of regulatory and legal proceedings and proposed legislation. Operating cash flows could be negatively affected by changes in the rate regulatory environments of ComEd and PECO, although any effects are not expected to hinder the ability of PECO to fund its business requirements. Beginning in 2007, ComEd began purchasing electricity through the ICC authorized reverse-auction process in
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order to meet the retail electricity needs of ComEd’s customers because ComEd does not own any generation. If the price at which ComEd is allowed to sell electricity is below ComEd’s cost to procure and deliver electricity, there may be potential material adverse consequences to ComEd and, possibly, Exelon. However, the Proposed Legislation introduced in the State of Illinois in July 2007 in connection with the Settlement has significantly reduced the probability of rate freeze legislation and other legislative actions proposed in previous periods. If enacted, the Proposed Legislation should provide ComEd with greater stability and certainty that it will be able to procure electricity and pass through the costs of that electricity to its customers. Additionally, ComEd has implemented a voluntary “cap and deferral” program to mitigate the impact on its residential customers of transitioning to the post rate freeze period. ComEd’s cash flows from operations will be reduced in the first years of the program, but will increase as any deferred amounts are collected with a 3.25% return on any deferred balances. As of March 31,June 30, 2007, approximately 34,00036,000 or 1% of ComEd’s residential customers have enrolled in the program. ComEd has also implemented various other programs to assist its residential customers, including a $64 million rate relief package and other initiatives. See Note 5 of the Combined Notes to Consolidated Financial Statements for further discussion of ComEd’s procurement case, and the residential rate stabilization program.program and rate relief efforts. Beginning in 2007, Generation’s sales to counterparties other than ComEd and PECO increased due to the expiration of the PPA with ComEd on December 31, 2006. TheThese incremental bilateral contracts are subject to the credit risk which relates toassociated with the ability of counterparties to meet their contractual payment obligations.obligations to Generation. Any failure to collect these payments from counterparties could have a material impact on Exelon’s and Generation’s results of operations, cash flows and financial position. When Generation sells power, as market prices rise above contracted price levels, Generation is required to post collateral with purchasers; as market prices fall below contracted price levels, counterparties are required to post collateral with Generation. To the extent Generation does not have enough collateral to cover its risk of payment collection, Generation’s revenues are at risk. With respect to Generation’s sales, when market prices decrease there is a corresponding increase in Generation’s revenues at risk.
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Beginning in 2007, under the Illinois auction rules and the supplier forward contracts that Generation entered into with ComEd and Ameren, collateral postings will be one-sided from Generation only. That is, if market prices fall below ComEd’s or Ameren’s contracted price levels, ComEd or Ameren, as the case may be, is not required to post collateral; however, if market prices rise above contracted price levels with ComEd or Ameren, Generation is required to post collateral. To the extent Ameren or ComEd do not or cannot pay Generation under the supplier forward contracts, Generation is therefore exposed. See Note 8 of the Combined Notes to Consolidated Financial Statements for further information regarding Generation’s collateral policy. Additionally, Exelon, through 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. In November 2006, ComEd received from the IRS a notice of proposed adjustment disallowing the deferral of gain associated with its position that proceeds from the fossil plant sales resulted from an “involuntary conversion.” This potential tax obligation is significant and an adverse determination could require a significant payment. See Note 10 of the Combined Notes to Consolidated Financial Statements for further discussion regarding ComEd’s tax position on the 1999 sale of its fossil generating assets. The following table provides a summary of the major items affecting Exelon’s cash flows from operations for the threesix months ended March 31,June 30, 2007 and 2006: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | Six Months
| | | | | | | Ended
| | | | | Ended
| | | | | | | March 31, | | | | | June 30, | | | | | | | 2007 | | 2006 | | Variance | | | 2007 | | 2006 | | Variance | | | | | Net income | | $ | 691 | | | $ | 400 | | | $ | 291 | | | $ | 1,393 | | | $ | 1,044 | | | $ | 349 | | | Add (subtract): | | | | | | | | | | | | | | | | | | | | | | | | | | Non-cash operating activities(a) | | | 744 | | | | 686 | | | | 58 | | | | 1,427 | | | | 1,151 | | | | 276 | | | Income taxes | | | 319 | | | | 35 | | | | 284 | | | | 87 | | | | 300 | | | | (213 | ) | | Changes in working capital and other noncurrent assets and liabilities(b) | | | (1,066 | ) | | | (258 | ) | | | (808 | ) | | | (1,241 | ) | | | (277 | ) | | | (964 | ) | | Pension and non-pension postretirement benefit contributions | | | (20 | ) | | | (15 | ) | | | (5 | ) | | | (40 | ) | | | (30 | ) | | | (10 | ) | | | | | | | | | | | | | | | | | | Net cash flows provided by operations | | $ | 668 | | | $ | 848 | | | $ | (180 | ) | | $ | 1,626 | | | $ | 2,188 | | | $ | (562 | ) | | | | | | | | | | | | | | | | |
| | | | (a) | | Represents depreciation, amortization and accretion, deferred income taxes, provision for uncollectible accounts, pension and non-pension postretirement benefit expense, equity in earnings and losses of unconsolidated affiliates and investments, other decommissioning-related activities, stock compensation expense and other non-cash charges. | | | | (b) | | Changes in working capital and other noncurrent assets and liabilities exclude the changes in commercial paper, income taxes and the current portion of long-term debt. |
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Cash flows provided by (used in) operations for the threesix months ended March 31,June 30, 2007 and 2006 by registrant were as follows: | | | | | | | | | | | | | | | | | | | | | | Six Months
| | | | | Three Months
| | | Ended
| | | | | Ended March 31, | | | June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Exelon | | $ | 668 | | | $ | 848 | | | $ | 1,626 | | | $ | 2,188 | | | Generation | | | 823 | | | | 597 | | | | 1,115 | | | | 1,067 | | | ComEd | | | (31 | ) | | | 274 | | | | 184 | | | | 552 | | | PECO | | | 201 | | | | 235 | | | | 467 | | | | 550 | |
Changes in Exelon’s, Generation’s, ComEd’s and PECO’s cash flows from operations were generally consistent with changes in itsrespective results of operations, as adjusted by changes in working capital in the
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normal course of business. In addition, significant operating cash flow impacts for the Registrants for the threesix months ended March 31,June 30, 2007 and 2006 were as follows: Generation | | | | | • | At March 31,June 30, 2007 and December 31, 2006, Generation had accounts receivable from ComEd of $53$68 million under its supplier forward agreement and $197 million under the PPA, which expired on December 31, 2006, respectively. The decrease was primarily due to lower revenues resulting from the expiration of the PPA with ComEd as well as ComEd making semi-monthly payments under its supplier forward contracts in 2007 as opposed to making monthly payments in 2006. At March 31,June 30, 2006 and December 31, 2005, Generation had accounts receivable from ComEd under the PPA of $251$247 million and $242 million, respectively. | | | | | • | At March 31,June 30, 2007 and December 31, 2006, Generation had accounts receivable from PECO under the PPA of $186$146 million and $153 million, respectively. At March 31,June 30, 2006 and December 31, 2005, Generation had accounts receivable from PECO under the PPA of $143$170 million and $151 million, respectively. | | | | | • | During the threesix months ended March 31,June 30, 2007 and 2006, Generation had net disbursements of counterparty collateral of $347$498 million and net collections of counterparty collateral of $105 million.$183 million, respectively. The decrease in cash flows was primarily due to changes in collateral requirements resulting from increased activity within exchange-based markets for energy and fossil fuel. | | | | | • | In 2005, Exelon received a $102 million Federal income tax refund for capital losses generated in 2003 related to Generation’s previously owned investment in Sithe, which were carried back to prior periods. In the first quarter of 2006, Exelon remitted a $98 million payment to the IRS in connection with the settlement of the IRS’s challenge of the timing of the above-described deduction. This payment included $6 million of interest, which was recognized as interest expense in the first quarter of 2006. |
ComEd | | | | | • | As a result of ComEd’s downgraded credit ratings, ComEd is making accelerated semi-monthly payments under its supplier forward contracts with its energy suppliers, including Generation. Prior to the credit ratings downgrade, ComEd made monthly payments to its energy suppliers. At March 31,June 30, 2007 and December 31, 2006, ComEd had accrued payments to Generation for energy purchases of $53$68 million and $197 million, respectively. At March 31,June 30, 2006 and December 31, 2005, ComEd had accrued payments to Generation for energy purchases of $251$247 million and $242 million, respectively. At March 31,June 30, 2007 and December 31, 2006, ComEd had accrued payments to other energy suppliers of $81$68 million and $10 million, respectively. At March 31,June 30, 2006 and December 31, 2005, ComEd had accrued payments to other energy suppliers of $1$3 million and $12 million, respectively. | | | | | • | During the threesix months ended March 31,June 30, 2007, ComEd had net under-recovered energy costs of $67$104 million. See Note 5 of the Combined Notes to the Consolidated Financial Statements for more information. | | | | | • | During the threesix months ended March 31,June 30, 2007, ComEd’s revenue exceeded its cash collections from customers by $38 million. During the threesix months ended March 31,June 30, 2006, ComEd’s cash collections exceeded its revenue to customers by $58$24 million. | | | • | As part of its Rate Relief programs, ComEd has deposited $39 million into an escrow account classified as restricted cash. As ComEd issues credits to customers and funds various customer programs, ComEd will request reimbursements from the escrow account. See Note 5 of the Combined Notes to the Consolidated Financial Statements for more information on the Rate Relief Programs. |
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Cash Flows from Investing Activities Cash flows used in investing activities for the threesix months ended March 31,June 30, 2007 and 2006 by registrant were as follows: | | | | | | | | | | | | | | | | | | | | | Three Months
| | | Six Months
| | | | | Ended
| | | Ended
| | | | | March 31, | | | June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Exelon | | $ | (659 | ) | | $ | (713 | ) | | $ | (1,367 | ) | | $ | (1,360 | ) | | Generation | | | (380 | ) | | | (354 | ) | | | (584 | ) | | | (666 | ) | | ComEd | | | (288 | ) | | | (236 | ) | | | (549 | ) | | | (461 | ) | | PECO | | | (85 | ) | | | (84 | ) | | | (160 | ) | | | (157 | ) |
Capital expenditures by registrant and business segment for the threesix months ended March 31,June 30, 2007 and projected amounts for the twelve months ended December 31, 2007 are as follows: | | | | | | | | | | | | | | | | | | | | | Three Months
| | | | | Six Months
| | | | | | | Ended
| | Projected
| | | Ended
| | Projected
| | | | | March 31, 2007 | | 2007 | | | June 30, 2007 | | 2007 | | | | | Generation | | $ | 290 | | | $ | 1,353 | | | $ | 550 | | | $ | 1,353 | | | ComEd | | | 289 | | | | 1,055 | | | | 559 | | | | 1,055 | | | PECO | | | 85 | | | | 355 | | | | 161 | | | | 355 | | | Other(a) | | | 8 | | | | 38 | | | | 14 | | | | 38 | | | | | | | | | | | | | | | Total Exelon capital expenditures | | $ | 672 | | | $ | 2,801 | | | $ | 1,284 | | | $ | 2,801 | | | | | | | | | | | | | |
| | | | (a) | | Other includes corporate operations and shared service entities, including BSC. |
Projected capital expenditures and other investments are subject to periodic review and revision to reflect changes in economic conditions and other factors. Generation. Generation’s capital expenditures for 2007 reflect additions and upgrades to existing facilities (including material condition improvements during nuclear refueling outages) and nuclear fuel. Exelon anticipates that Generation’s capital expenditures will be funded by internally generated funds, borrowings or capital contributions from Exelon. ComEd and PECO. Approximately 50% of the projected 2007 capital expenditures at ComEd and PECO are for continuing projects to maintain and improve the reliability of their transmission and distribution systems. The remaining amounts are for capital additions to support new business and customer growth. Exelon isComEd and PECO are each continuing to evaluate itstheir own total capital spending requirements. Exelon anticipatesComEd and PECO anticipate that ComEd’s and PECO’sthey will fund their own capital expenditures will be funded by internally generated funds, borrowings and the issuance of debt or preferred securities. Other significant investing activities of the Registrants for the threesix months ended March 31,June 30, 2007 and 2006 were as follows: Exelon | | | | | • | Exelon contributed $24$49 million and $33$53 million to its investments in synthetic fuel-producing facilities during the threesix months ended March 31,June 30, 2007 and 2006, respectively. |
Generation | | | | | • | Generation contributed $117 millionAs a result of its prior contributions to the Exelon intercompany money pool, $13 million was returned to Generation during the threesix months ended March 31,June 30, 2007. |
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| | | | | • | On February 9, 2007, Tamuin International Inc., a wholly owned subsidiary of Generation, sold its 49.5% ownership interests in TEG and TEP to a subsidiary of AES Corporation for $95 million in cash plus certain purchase price adjustments. | | | • | Generation and Peoples Calumet, LLC (Peoples Calumet), a subsidiary of Peoples Energy Corporation, were joint owners of SCEP, a 350-megawatt natural gas-fired, peaking electric power plant located in Chicago, Illinois, which began operation in 2002. In 2002, Generation and Peoples Calumet owned 70% and 30%, respectively, of SCEP. Generation reflected the third-party interest in this majority-owned investment as a long-term liability in its consolidated financial statements. Pursuant to the joint owners agreement, Generation was obligated to purchase Peoples Calumet’s 30% interest ratably over a20-year period. On March 31, 2006, Generation entered into an agreement to accelerate the acquisition of Peoples Calumet’s interest in SCEP. This transaction closed on May 31, 2006. Under the agreement, Generation paid Peoples Calumet approximately $47 million for its remaining interest in SCEP. Generation financed this transaction using short-term debt and available cash. |
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PECO | | | | | • | As a result of its prior contributions to the Exelon intercompany money pool, $8 million was returned to PECO during the threesix months ended March 31,June 30, 2006. |
Cash Flows from Financing Activities Cash flows provided by (used in) financing activities for the threesix months ended March 31,June 30, 2007 and 2006 by registrantRegistrant were as follows: | | | | | | | | | | | | | | | | | | | | | Three Months Ended
| | | Six Months Ended
| | | | | March 31, | | | June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Exelon | | $ | 147 | | | $ | (101 | ) | | $ | (348 | ) | | $ | (686 | ) | | Generation | | | (294 | ) | | | (246 | ) | | | (625 | ) | | | (411 | ) | | ComEd | | | 336 | | | | (40 | ) | | | 375 | | | | (95 | ) | | PECO | | | (123 | ) | | | (108 | ) | | | (306 | ) | | | (405 | ) |
Debt. On January 15, 2007, ComEd repaid at maturity $145 million of its 7.625% notes. On March 22, 2007, ComEd issued an additional $300 million aggregate principal amount of the same series as ComEd’s currently outstanding First Mortgage 5.90% Bonds, Series 103, due March 15, 2036. The proceeds of the bonds were used to refinance outstanding commercial paper and to repay a portion of borrowings under its revolving credit facility. On March 19, 2007, PECO issued $175 million aggregate principal amount of its First and Refunding Mortgage Bonds, 5.70% Series due 2037. The proceeds of the bonds were used to supplement working capital previously financed through sales of commercial paper and for other general corporate purposes. On March 6, 2006, ComEd issued $325 million aggregate principal amount of its First Mortgage 5.90% Bonds, Series 103, due March 15, 2036. The proceeds of the bonds were used to supplement working capital, which previously used to refinancerefinanced amounts that ComEd used to repay bonds and notes. From time to time and as market conditions warrant, the Registrants may engage in long-term debt retirements via tender offers, open market repurchases or other viable options to strengthen their respective balance sheets.
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Dividends. Cash dividend payments and distributions during the threesix months ended March 31,June 30, 2007 and 2006 by registrant were as follows: | | | | | | | | | | | | | | | | | | | | | Three Months Ended
| | | Six Months Ended
| | | | | March 31, | | | June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Exelon | | $ | 296 | | | $ | 267 | | | $ | 592 | | | $ | 535 | | | Generation | | | 295 | | | | 165 | | | | 665 | | | | 322 | | | PECO | | | 156 | | | | 117 | | | | 278 | | | | 253 | |
Exelon paid dividends of $296 million and $296 million on March 10, 2007 and June 11, 2007, respectively, to shareholders of record at the close of business on February 15, 2007.2007 and May 15, 2007, respectively. On February 27,July 24, 2007, Exelon’s board of directors declared a quarterly dividend of $0.44 per share on Exelon’s common stock, which is payable on June 11,September 10, 2007 to shareholders of record at the end of the day on August 15, 2007. Exelon paid dividends of $267 million and $268 million on March 10, 2006 and June 12, 2006, respectively, to shareholders of record at the close of business on February 15, 2006 and May 15, 2007.2006, respectively. See “Dividends” section of ITEM 5 of Exelon’s 2006 Annual Report onForm 10-K for a further discussion of Exelon’s dividend policy. During 2006 and the threesix months ended March 31,June 30, 2007, ComEd did not pay any dividend. The decision by the ComEd Board of Directors not to declare a dividend during 2006 and 2007 was the result of several factors, including ComEd’s need for a rate increase to cover existing costs and anticipated levels of future capital expenditures as well as the continued uncertainty related to ComEd’s regulatory filings as discussed in Note 5 of the Combined Notes to
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Consolidated Financial Statements. ComEd’s Board of Directors will continue to assess ComEd’s ability to pay a dividend on a quarterly basis.after 2007. Intercompany Money Pool. Generation repaid borrowings from the Exelon intercompany money pool totaling $88$92 million during the threesix months ended March 31,June 30, 2006. During the threesix months ended March 31,June 30, 2006, ComEd repaid $140 million that it had borrowed from the Exelon intercompany money pool. As of January 10, 2006, ComEd suspended its participation in the money pool. During the threesix months ended March 31,June 30, 2007, PECO repaid $32$45 million that it had borrowed from the Exelon intercompany money pool. Short-Term Borrowings. During the threesix months ended March 31,June 30, 2007, Exelon, Generation, ComEd and PECO issued (repaid) $(9)$(127) million, $39 million, $(60) million and $5$27 million of commercial paper, respectively. During the threesix months ended March 31,June 30, 2006, Exelon, Generation, ComEd and PECO issued (repaid) $31$(106) million, $2$(2) million, $(151)$(120) million and $87$7 million of commercial paper, respectively. At March 31,June 30, 2007, ComEd had $340$475 million of outstanding borrowings under its credit agreement. Retirement of Long-Term Debt to Financing Affiliates. Retirement of long-term debt to financing affiliates during the threesix months ended March 31,June 30, 2007 and 2006 by registrant was as follows: | | | | | | | | | | | | | | | | | | | | | | Six Months Ended
| | | | | Three Months Ended March 31, | | | June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Exelon | | $ | 264 | | | $ | 215 | | | $ | 534 | | | $ | 422 | | | ComEd | | | 86 | | | | 89 | | | | 180 | | | | 174 | | | PECO | | | 178 | | | | 126 | | | | 354 | | | | 248 | |
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Contributions from Parent/Member. Contributions from Parent/Member (Exelon) during the threesix months ended March 31,June 30, 2007, and 2006 by registrant were as follows: | | | | | | | | | | | | | | Six Months
| | | | | | | | | | | Ended
| | | | | Three Months Ended March 31, | | | June 30, | | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Generation | | $ | — | | | $ | 5 | | | $ | — | | | $ | 5 | | | ComEd | | | — | | | | 23 | | | | — | | | | 23 | | | PECO | | | 65 | | | | 48 | | | | 165 | | | | 83 | |
Other. Other significant financing activities for Exelon for the threesix months ended March 31,June 30, 2007 and 2006 were as follows: | | | | | • | Exelon purchased treasury shares totaling $37 million and $54$53 million during the threesix months ended March 31,June 30, 2007 and 2006, respectively. | | | | | • | Exelon received proceeds from employee stock plans of $98$145 million and $81$107 million during the threesix months ended March 31,June 30, 2007 and 2006, respectively. | | | | | • | There were $34$55 million and $21$29 million of excess tax benefits included as a cash inflow in other financing activities during the threesix months ended March 31,June 30, 2007 and 2006, respectively. |
Credit Matters Credit Facilities. Exelon, Generation and PECO meet their short-term liquidity requirements primarily through the issuance of commercial paper and ComEd meets its short-term liquidity requirements primarily through borrowings from its credit facilities and the issuance of commercial paper.facility. The Registrants may use credit facilities for general corporate purposes, including meeting short-term funding requirements and the issuance of letters of credit. At March 31,June 30, 2007, ComEd had $340$475 million of outstanding borrowings under its credit agreement. See Note 7 of the Combined Notes to Consolidated Financial Statements for further information regarding the Registrants’ credit facilities.
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At March 31,June 30, 2007, the Registrants had the following bank commitments and available capacity under the various credit agreements to which they are a party and the indicated amounts of outstanding commercial paper: | | | | | | | | | �� | | | | | | | | | | | | | | | | | | | | Aggregate Bank
| | Available
| | Outstanding
| | | Aggregate Bank
| | Available
| | Outstanding
| | Borrower | | Commitment(a) | | Capacity(b) | | Commercial Paper | | | Commitment(a) | | Capacity(b) | | Commercial Paper | | | | | Exelon | | $ | 1,000 | | | $ | 993 | | | $ | 196 | | | $ | 1,000 | | | $ | 993 | | | $ | 17 | | | Generation | | | 5,000 | | | | 4,914 | | | | — | | | | 5,000 | | | | 4,879 | | | | 39 | | | ComEd | | | 1,000 | | | | 590 | | | | — | | | | 1,000 | | | | 455 | | | | — | | | PECO | | | 600 | | | | 598 | | | | 100 | | | | 600 | | | | 598 | | | | 122 | |
| | | | (a) | | Represents the total bank commitments to the borrower under credit agreements to which the borrower is a party. | | | | (b) | | Available capacity represents the unused bank commitments under the borrower’s credit agreements net of outstanding letters of credit and any required reserves. The amount of commercial paper outstanding does not reduce the available capacity under the credit agreements. |
Interest rates on advances under the credit facilities are based on either prime or 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. In the cases of Exelon, Generation and PECO, the maximum LIBOR adder is 65 basis points, and in the case of ComEd, it is 200 basis points. The average interest rates on commercial paper for the threesix months ended March 31,June 30, 2007 for Exelon, Generation, ComEd and PECO were approximately 5.33%5.34%, 5.32%5.34%, 5.58% and 5.32%5.35%, respectively. The credit agreements require the Registrants 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 and Generation, interest on the debt of its project subsidiaries. The
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following table summarizes the minimum thresholds reflected in the credit agreements for the three-monthsix-month period ended March 31,June 30, 2007: | | | | | | | | | | | | | | | | | | | | | Exelon | | | Generation | | | ComEd | | | PECO | | | | | Credit agreement threshold | | | 2.50 to 1 | | | | 3.00 to 1 | | | | 2.25 to 1 | | | | 2.00 to 1 | |
At March 31,June 30, 2007, the Registrants were in compliance with the foregoing thresholds. The ComEd credit agreement imposes a restriction on future mortgage bond issuances by ComEd. It requires ComEd to maintain at least $1.75 billion of issuance availability (ignoring any interest coverage test) in the form of “property additions” or “bondable bond retirements” (previously issued, but now retired, bonds), most of which are required to be maintained in the form of “bondable bond retirements.” In general, a dollar of bonds can be issued under ComEd’s Mortgage on the basis of $1.50 of property additions,“property additions”, subject to an interest coverage test, or $1 of bondable“bondable bond retirements,retirements”, which may or may not be subject to an interest coverage test. As of March 31,June 30, 2007, ComEd was in compliance with this requirement. 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. As of January 10, 2006, ComEd suspended its participation in the money pool. Maximum amounts contributed to and borrowed from the money pool by participant during the threesix months ended March 31,June 30, 2007 are presented in the following table in addition to the net contribution or borrowing as of March 31,June 30, 2007: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | June 30,
| | | | | | | | | March 31, 2007
| | | | | | | 2007
| | | | | Maximum
| | Maximum
| | Contributed
| | | Maximum
| | Maximum
| | Contributed
| | | | | Contributed | | Borrowed | | (Borrowed) | | | Contributed | | Borrowed | | (Borrowed) | | | | | Generation | | $ | 314 | | | $ | 11 | | | $ | 130 | | | $ | 314 | | | $ | 87 | | | $ | — | | | PECO | | | 60 | | | | 207 | | | | (13 | ) | | | 60 | | | | 207 | | | | — | | | BSC | | | — | | | | 165 | | | | (117 | ) | | | 87 | | | | 165 | | | | (4 | ) | | UII, LLC | | | — | | | | — | | | | — | | | | Exelon | | | 56 | | | | N/A | | | | — | | | | 56 | | | | N/A | | | | 4 | |
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Security Ratings. The Registrants’ access to the capital markets, including the commercial paper market, and their respective financing costs in those markets depend on the securities ratings of the entity that is accessing the capital markets. The securities ratings and outlook for Exelon, Generation and PECO have not changed from those set forth in Exelon’s 2006 Annual Report onForm 10-K. On March 9, 2007, Fitch Ratings (Fitch) downgraded the debt ratings of ComEd’s senior secured debt, senior unsecured debt and commercial paper. The ratings remain on Ratings Watch Negative. The rating action reflects Fitch’s concerns regarding the continued legislative efforts to freeze rates and the prospects for adequate and timely cost recovery through future rate increases. On March 26, 2007, Moody’s Investor Service (Moody’s) downgraded ComEd’s senior unsecured debt and commercial paper due to continued regulatory and political uncertainty in Illinois. ComEd’s long-term debt ratings remain under review for a possible downgrade. On June 1, 2007, Standard & Poor’s Corporation (S&P) downgraded ComEd’s short-term and long-term security ratings due to the continued regulatory and political uncertainty encountered by ComEd. ComEd’s ratings remain on CreditWatch with negative implications. Listed below are ComEd’s current securities ratings resulting from the latest rating actions. | | | | | | | | | | | | | ComEd Security Ratings | | Fitch | | | Moody’s | | | S&P | | | | | Senior secured debt | | | BBB | | | | Baa2 | | | | BBB- | | | Senior unsecured debt | | | BB+ | | | | Ba1 | | | | B+ | | | Commercial paper | | | B | | | | Not prime | | | | B | |
On June 12, 2007, PECO’s commercial paper rating from Fitch was changed to F2 from F1. According to Fitch, the ratings “... do not reflect any deterioration of PECO’s liquidity profile”; rather, they reflect a change to Fitch’s short-term and long-term rating linkage practices.
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The securities ratings and outlook for Exelon and Generation have not changed from those set forth in Exelon’s 2006 Annual Report onForm 10-K. None of the Registrants’ borrowings are subject to default or prepayment as a result of a downgrading of securities although such a downgrading could increase fees and interest charges under the Registrants’ credit agreements. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. 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 contracts law, if Exelon or 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 its net position with a counterparty, the demand could be for the posting of collateral. In the absence of expressly agreed to 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 Exelon or Generation’s situation at the time of the demand. If Exelon 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. Shelf Registrations As of March 31,June 30, 2007, Exelon, PECO and ComEd had current shelf registration statements for the sale of $300 million, $75 million and an unspecified amount, respectively, of securities that were effective with the SEC. Exelon and ComEd are well-known seasoned issuers as described by the SEC and may file automatic shelf registration statements that are not required to specify the amount of securities to be offered thereon. Although Exelon is a well-known seasoned issuer, Exelon has not filed an automatic shelf registration statement with the SEC. The ability of Exelon, ComEd or PECO to sell securities in the public market 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. Investments in Synthetic Fuel-Producing Facilities Exelon, through three wholly owned subsidiaries, has investments in synthetic fuel-producing facilities. Section 45K (formerly Section 29) of the Internal Revenue Code provides tax credits for the sale of synthetic fuel
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produced from coal. However, Section 45K contains a provision under which credits are phased out (i.e., eliminated) in the event crude oil prices for a year exceed certain thresholds. The following table (in dollars) provides the estimated phase-out range for 2007 based on the per barrel price of oil as of March 31,June 30, 2007. The table also contains the estimated 2007 annual average New York Mercantile Exchange, Inc. index (NYMEX) prices per barrel at March 31,June 30, 2007 based onyear-to-date and futures prices. | | | | | | | | | | Estimated
| | | | | | | | | 2007 | | | Estimated 2007 | | | | | Beginning of Phase-Out Range(a) | | $ | 62 | | | $ | 62 | | | End of Phase-Out Range(a) | | | 78 | | | | 78 | | | 2007 Annual Average NYMEX | | | 66 | | | | 66 | |
| | | | (a) | | The estimated 2007 phase-out range as of March 31,June 30, 2007 is based upon the actual 2006 phase-out range. The actual 2006 phase-out range was determined using the inflation adjustment factor published by the IRS in April 2007. The actual 2006 phase-out range was increased by 2% (Exelon’s estimate of inflation) to arrive at the estimated 2007 phase-out range. |
As of March 31,June 30, 2007, Exelon has estimated the 2007 phase-out to be 27%25%, which has reduced Exelon’s earned after-tax credits of $65$139 million to $48$105 million for the threesix months ended March 31,June 30, 2007. Exelon anticipates
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generating approximately $210 million of cash over the life of these investments, of which approximately $75$80 million is expected in total for 2007 and 2008, assuming a 27%25% phase-out of tax credits. This estimate may change significantly due to the volatility of oil prices. See Note 10 of the Combined Notes to Consolidated Financial Statements for further discussion. Contractual Obligations and Off-Balance Sheet Arrangements Contractual obligations represent cash obligations that are considered to be firm commitments and commercial commitments triggered by future events. The Registrants’ contractual obligations and commercial commitments as of March 31,June 30, 2007 were materially unchanged, other than in the normal course of business, from the amounts set forth in the 2006 Annual Report onForm 10-K except for the following: Exelon | | | | | • | GuaranteesLetters of credit increased $42 million and guarantees increased by $211$209 million primarily as a result of leasing activities, energy trading and performance guarantees. | | | • | Exelon adopted FIN 48 as of January 1, 2007. As of the date of adoption, Exelon’s FIN 48 liability was $501 million and FIN 48 net interest payable was $130 million. As of June 30, 2007, Exelon’s FIN 48 liability was $487 million and FIN 48 net interest payable was $141 million. The FIN 48 interest payable was calculated based on Exelon’s net FIN 48 position at January 1, 2007 and June 30, 2007. As of June 30, 2007, Exelon was unable to reasonably estimate the timing of FIN 48 liability and interest payments in individual years beyond 12 months due to uncertainties in the timing of the effective settlement of tax positions. |
Generation | | | | | • | Letters of credit increased by $6$41 million and guarantees increased by $175$176 million primarily as a result of Generation’s energy trading activities and the performance guaranty agreement entered into in connection with the sale of TEG and TEP. | | | | | • | Generation’s total commitments for future sales of energy to unaffiliated third-party utilities and others increaseddecreased by approximately $149$760 million during the threesix months ended March 31,June 30, 2007, reflecting increases of approximately $578$819 million, $346$495 million and $121$124 million in 2008, 2009 and 2010 sales commitments, respectively, offset by the fulfillment of approximately $896$2,198 million of 2007 commitments during the threesix months ended March 31,June 30, 2007. The increases were primarily due to increased forward sales of energy to counterparties other than ComEd as a result of the expiration of the PPA with ComEd on December 31, 2006 (see Note 5 of the Combined Notes to Consolidated Financial Statements for further information), as well as increased overall hedging activity in the normal course of business. | | | | | • | Generation’s long-term commitments for nuclear fuel as of March 31,June 30, 2007 increased by $79$17 million, $72 million, $93 million, $102 million, and $293 million for 2008, 2009, and 2010, and $270 million for 2011, 2012 and beyond, respectively, as compared to December 31, 2006. Generation’s long-term commitments for coal as of March 31,June 30, 2007 increased by $58$91 million, $48 million and $2 million for 2008, and $10 million for 2009 and 2010, respectively, as compared to December 31, 2006. Increases in nuclear fuel and coal commitments are due to contracts entered into in the normal course of business. | | | • | Generation adopted FIN 48 as of January 1, 2007. As of the date of adoption, Generation’s FIN 48 liability was $38 million and FIN 48 net interest receivable was $1 million. As of June 30, 2007, Generation’s FIN 48 liability was $41 million and FIN 48 net interest receivable was $1 million. The FIN 48 interest receivable was calculated based on Generation’s net FIN 48 position at January 1, 2007 and June 30, 2007. As of June 30, 2007, Generation was unable to reasonably estimate the timing of FIN 48 liability payments in individual years beyond 12 months due to uncertainties in the timing of the effective settlement of tax positions. |
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ComEd | | | | | • | ComEd issued $300 million First Mortgage 5.90% Bonds due March 15, 2036. |
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| | | | • | ComEd adopted FIN 48 as of January 1, 2007. As of the date of adoption, ComEd’s FIN 48 liability was $427 million and FIN 48 net interest payable was $167 million. As of June 30, 2007, ComEd’s FIN 48 liability was $415 million and FIN 48 net interest payable was $184 million. The FIN 48 interest payable was calculated based on ComEd’s net FIN 48 position at January 1, 2007 and June 30, 2007. As of June 30, 2007, ComEd was unable to reasonably estimate the timing of FIN 48 liability and interest payments in individual years beyond 12 months due to uncertainties in the timing of the effective settlement of tax positions. |
PECO | | | | | • | PECO issued $175 million First and Refunding Mortgage Bonds, 5.70% Series due March 15, 2037. | | | | | • | PECO’s total fuel purchase obligations increased by approximately $105$134 million during the threesix months ended March 31,June 30, 2007, reflecting an increase of $19$18 million, $36$63 million, $31$34 million and $19 million in 2007, 2008, 2009 and 2010, respectively, primarily related to the purchase of natural gas and related transportation services. | | | • | PECO adopted FIN 48 as of January 1, 2007. As of the date of adoption, PECO’s FIN 48 liability was $11 million and FIN 48 net interest receivable was $21 million. As of June 30, 2007, PECO’s FIN 48 liability was $2 million and FIN 48 net interest receivable was $27 million. The FIN 48 interest receivable was calculated based on PECO’s net FIN 48 position at January 1, 2007 and June 30, 2007. As of June 30, 2007, PECO was unable to reasonably estimate the timing of FIN 48 liability payments in individual years beyond 12 months due to uncertainties in the timing of the effective settlement of tax positions. |
See Note 13 of Combined Notes to Consolidated Financial Statements for further information on the Registrants’ commitments.
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EXELON GENERATION COMPANY General Generation operates in a single business segment and its operations consist of owned and contracted electric generating facilities, wholesale energy marketing operations and competitive retail sales operations. Executive Overview A discussion of items pertinent to Generation’s executive overview is set forth under “EXELON CORPORATION — Executive Overview” of thisForm 10-Q. Results of Operations A discussion of items pertinent to Generation’s results of operations for the three months ended March 31,June 30, 2007 compared to three months ended March 31,June 30, 2006 and six months ended June 30, 2007 compared to the six months ended June 30, 2006 is set forth under “Results of Operations — Generation” in “EXELON CORPORATION — Results of Operations” of thisForm 10-Q. Liquidity and Capital Resources Generation’s business is capital intensive and requires considerable capital resources. Generation’s capital resources are primarily provided by internally generated cash flows from operations and, to the extent necessary, external financing, including the issuance of long-term debt, commercial paper, participation in the intercompany money pool or capital contributions from Exelon. Generation’s 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 revolving credit facilities that Generation currently utilizes to support its commercial paper program and to issue letters of credit. See the “Credit Matters” section of “Liquidity and Capital Resources” for further discussion. Capital resources are used primarily to fund Generation’s capital requirements, including construction, retirement of debt, the payment of distributions to Exelon, contributions to Exelon’s pension plans and investments in new and existing ventures. Future acquisitions could require external financing or borrowings or capital contributions from Exelon. Cash Flows from Operating Activities A discussion of items pertinent to Generation’s cash flows from operating activities is set forth under “Cash Flows from Operating Activities” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q. Cash Flows from Investing Activities A discussion of items pertinent to Generation’s cash flows from investing activities is set forth under “Cash Flows from Investing Activities” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q.
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Cash Flows from Financing Activities A discussion of items pertinent to Generation’s cash flows from financing activities is set forth under “Cash Flows from Financing Activities” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q. Credit Matters A discussion of items pertinent to Generation’s credit facilities is set forth under “Credit Matters” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q.
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Contractual Obligations and Off-Balance Sheet Arrangements A discussion of items pertinent to Generation’s contractual obligations and off-balance sheet arrangements is set forth under “Contractual Obligations and Off-Balance Sheet Arrangements” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q.
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COMMONWEALTH EDISON COMPANY General ComEd operates in a single business segment and its operations consist of the purchase and regulated retail and wholesale sale of electricity and distribution and transmission services in northern Illinois, including the City of Chicago. Executive Overview A discussion of items pertinent to ComEd’s executive overview is set forth under “EXELON CORPORATION — Executive Overview” of thisForm 10-Q. Results of Operations A discussion of items pertinent to ComEd’s results of operations for the three months ended March 31,June 30, 2007 compared to three months ended March 31,June 30, 2006 and six months ended June 30, 2007 compared to the six months ended June 30, 2006 is set forth under “Results of Operations — ComEd” in “EXELON CORPORATION — Results of Operations” of thisForm 10-Q. Liquidity and Capital Resources ComEd’s business is capital intensive and requires considerable capital resources. ComEd’s capital resources are primarily provided by internally generated cash flows from operations and, to the extent necessary, external financing, including the issuance of long-term debt, commercial paper or credit facility borrowings. ComEd’s 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. At March 31,June 30, 2007, ComEd has borrowed $340$475 million from its secured credit facility since its access to the commercial paper market is limited due to its current credit ratings. See the “Credit Matters” section of “Liquidity and Capital Resources” for further discussion. Capital resources are used primarily to fund ComEd’s capital requirements, including construction, retirement of debt, the payment of dividends and contributions to Exelon’s pension plans. Additionally, ComEd operates in rate-regulated environments in which the amount of new investment recovery may be limited and where such recovery takes place over an extended period of time. As a result of these factors, ComEd’s working capital, defined as current assets less current liabilities, is in a net deficit position. ComEd intends to refinance maturing long-term debt and to repay a portion of its credit facility borrowings with long-term debt. As of June 30, 2007, ComEd has the capacity to issue up to approximately $460 million of additional first mortgage bonds subject to certain restrictions. To manage cash flows, ComEd did not pay a dividend in 2006 or during the threesix months ended March 31,June 30, 2007. During the threesix months ended March 31,June 30, 2007 as compared to the same period in 2006, ComEd experienced negativea decrease in operating cash flows primarily due to a change in its payment terms with energy suppliers resulting from downgraded credit ratings and due to under-recovery of energy costs, which have been recognized as a regulatory asset. Beginning in 2007, ComEd ceased includingearning margin on the energy component of its deliveries to its customers, nor is it collecting CTC revenues. While ComEd’s 2007 results reflect an $83 million annual rate increase as allowed by the ICC, this rate increase was based generally on 2004 costs and does not include the impacts of increased expendituresoperating expenses since 2004 or additional net capital investment since the end of 2004.2005. ComEd anticipates filing a new delivery service rate case during the secondthird quarter of 2007 based on a 2006 test year and also filed a transmission rate case during the first quarter of 2007. TheseOn June 5, 2007, FERC issued an order for the transmission rate filings will helpcase conditionally approving ComEd’s proposal to implement a formula based transmission rate effective May 1, 2007, subject to refund. The requested rate increase is designed to reduce the regulatory lag related to recovery of these costs and returns on ComEd’s investments. See Note 5 of the Combined Notes to Consolidated Financial Statements for further discussion. Cash Flows from Operating Activities A discussion of items pertinent to ComEd’s cash flows from operating activities is set forth under “Cash Flows from Operating Activities” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q.
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Cash Flows from Investing Activities A discussion of items pertinent to ComEd’s cash flows from investing activities is set forth under “Cash Flows from Investing Activities” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q. Cash Flows from Financing Activities A discussion of items pertinent to ComEd’s cash flows from financing activities is set forth under “Cash Flows from Financing Activities” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q. Credit Matters A discussion of items pertinent to ComEd’s credit facilities is set forth under “Credit Matters” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q. Contractual Obligations and Off-Balance Sheet Arrangements A discussion of items pertinent to ComEd’s contractual obligations and off-balance sheet arrangements is set forth under “Contractual Obligations and Off-Balance Sheet Arrangements” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q.
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PECO ENERGY COMPANY General PECO operates in a single business segment and its operations consist of the purchase and regulated retail sale of electricity and distribution and transmission services in southeastern Pennsylvania, including the City of Philadelphia, and the purchase and regulated retail sale of natural gas and distribution services in the Pennsylvania counties surrounding the City of Philadelphia. Executive Overview A discussion of items pertinent to PECO’s executive overview is set forth under “EXELON CORPORATION — Executive Overview” of thisForm 10-Q. Results of Operations A discussion of items pertinent to PECO’s results of operations for the three months ended March 31,June 30, 2007 compared to three months ended March 31,June 30, 2006 and six months ended June 30, 2007 compared to six months ended June 30, 2006 is set forth under “Results of Operations — PECO” in “EXELON CORPORATION — Results of Operations” of thisForm 10-Q. Liquidity and Capital Resources PECO’s business is capital intensive and requires considerable capital resources. PECO’s capital resources are primarily provided by internally generated cash flows from operations and, to the extent necessary, external financing, including the issuance of long-term debt, commercial paper, participation in the intercompany money pool or capital contributions from Exelon. PECO’s 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 revolving credit facilities that PECO currently utilizes to support its commercial paper program. See the “Credit Matters” section of “Liquidity and Capital Resources” for further discussion. Capital resources are used primarily to fund PECO’s capital requirements, including construction, retirement of debt, the payment of dividends and contributions to Exelon’s pension plans. Cash Flows from Operating Activities A discussion of items pertinent to PECO’s cash flows from operating activities is set forth under “Cash Flows from Operating Activities” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q. Cash Flows from Investing Activities A discussion of items pertinent to PECO’s cash flows from investing activities is set forth under “Cash Flows from Investing Activities” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q.
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Cash Flows from Financing Activities A discussion of items pertinent to PECO’s cash flows from financing activities is set forth under “Cash Flows from Financing Activities” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q. Credit Matters A discussion of items pertinent to PECO’s credit facilities is set forth under “Credit Matters” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q.
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Contractual Obligations and Off-Balance Sheet Arrangements A discussion of items pertinent to PECO’s contractual obligations and off-balance sheet arrangements is set forth under “Contractual Obligations and Off-Balance Sheet Arrangements” in “EXELON CORPORATION — Liquidity and Capital Resources” of thisForm 10-Q.
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| | | Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
The Registrants are exposed to market risks associated with adverse changes in commodity prices, counterparty credit, interest rates, and equity prices. Exelon’s Risk ManagementOversight Committee approves risk management policies and objectives for risk assessment, control and valuation, counterparty credit approval, and the monitoring and reporting of risk exposures. The Risk ManagementOversight Committee 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 representing Exelon’s business units. The Risk ManagementOversight Committee reports to the Exelon Board of Directors on the scope of the risk management activities. Commodity Price Risk (Exelon, Generation and ComEd) To the extent the amount of energy Exelon generates differs from the amount of energy it has contracted to sell, Exelon has price risk from commodity price movements. Commodity price risk is associated with price movements resulting from changes in supply and demand, fuel costs, market liquidity, weather, governmental regulatory and environmental policies, and other factors. Exelon seeks to mitigate its commodity price risk through the purchase and sale of electric capacity, energy and fossil fuels, including oil, gas, coal and emission allowances. Within Exelon, Generation has the most exposure to commodity price risk. PECO has transferred most of its commodity price risk to Generation through a PPA that expires at the end of 2010. ComEd has transferred most of its near term commodity price risk to generating companies through the Illinois auction process. Exelon and Generation In 2005, Exelon and Generation entered into certain derivatives in the normal course of trading operations to economically hedge a portion of the exposure to a phase-out of the tax credits for the sale of synthetic fuel produced from coal. One of the sellers of the tax credits has security interests in these derivatives. Including the relatedmark-to-market gains and losses on these derivatives, interests in synthetic fuel-producing facilities increased Exelon’s net income by $25$27 million and $12reduced Exelon’s net income by $55 million during the three months ended March 31,June 30, 2007 and 2006, respectively. Additionally, interests in synthetic fuel-producing facilities increased net income by $52 million and reduced net income by $43 million during the six months ended June 30, 2007 and 2006, respectively. Exelon anticipates that it will continue to record income or losses related to themark-to-market gains or losses on its derivative instruments and changes to the tax credits earned by Exelon during the period of production due to the volatility of oil prices. Net income from interests in synthetic fuel-producing facilities is reflected in Exelon’s Consolidated Statements of Operations within income taxes, operating and maintenance expense, depreciation and amortization expense, interest expense, equity in losses of unconsolidated affiliates and other, net. See Note 10 of the Combined Notes to Consolidated Financial Statements for further information related to synthetic fuel activity. Generation Generation’s energy contracts are accounted for under SFAS No. 133, “Accounting for Derivatives and Hedging Activities” (SFAS No. 133). Economic hedges may qualify for the normal purchases and normal sales exemption to SFAS No. 133, which is discussed in Critical Accounting Policies and Estimates within Exelon’s 2006 Annual Report onForm 10-K. Energy contracts that do not qualify for the normal purchases and normal sales exception are recorded as assets or liabilities on the balance sheet at fair value. Changes in the derivatives recorded at fair value are recognized in earnings unless specific hedge accounting criteria are met and the derivatives are designated as cash-flow hedges, in which case changes in fair value are recorded in 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 the hedge criteria under SFAS No. 133 or are not designated as such are recognized in current earnings. Normal Operations and Hedging Activities. Electricity available from Generation’s owned or contracted generation supply in excess of Generation’s obligations to customers, including ComEd’s and PECO’s retail load,loads, is sold into the wholesale markets. To reduce price risk caused by market fluctuations, Generation enters into physical contracts as well as financial derivative contracts, including forwards, futures, swaps, and options, with approved counterparties to hedge anticipated exposures. The maximum length of time over which cash flows
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related to energy commodities are currently being hedged is approximately three years. Generation has estimated a greater than 90% economic hedge ratio for 2007, which includes cash flow and other derivatives, for its energy marketing
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portfolio. This economic hedge ratio represents the percentage of its forecasted aggregate annual economic generation supply that is committed to firm sales, including sales to ComEd’s and PECO’s retail load. ComEd’s and PECO’s retail loadloads assumptions are based on forecasted average demand. A portion of Generation’s economic hedge may be accomplished with fuel products based on assumed correlations between power and fuel prices, which routinely change in the market. The economic hedge ratio is not fixed and will vary from time to time depending upon market conditions, demand, energy market option volatility and actual loads. During peak periods, Generation’s amount hedged declines to meet its energy and capacity commitments to ComEd and PECO. Market price risk exposure is the risk of a change in the value of unhedged positions. The forecasted market price exposure for Generation’s economic hedge portfolio associated with a 10% reduction in the annual averagearound-the-clock market price of electricity would be a decrease of less than $50 million in net income. This sensitivity assumes that price changes occur evenly throughout the year and across all markets. The sensitivity also assumes a static portfolio. Generation expects to actively manage its portfolio to mitigate market price exposure. Actual results could differ depending on the specific timing of, and markets affected by, price changes, as well as future changes in Generation’s portfolio. Proprietary Trading Activities. 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 amark-to-market basis. The proprietary trading activities, which included volumes of 5,1014,775 GWhs and 6,9857,769 GWhs for the three months ended March 31,June 30, 2007 and 2006, respectively, and 9,876 GWhs and 14,754 GWhs for the six months ended June 30, 2007 and 2006, respectively are a complement to Generation’s energy marketing portfolio but represent a very small portion of Generation’s revenue from energy marketing activities. For example, the limit on open positions in electricity for any forward month represents less than one percent of Generation’s owned and contracted supply of electricity. Generation expects this level of proprietary trading activity to continue in the future. Trading portfolio activity for the threesix months ended March 31,June 30, 2007 resulted in noa gain or lossof $32 million due to a net unrealizedmark-to-market loss gain of $3$28 million and realized gain of $3$4 million. Generation uses a 95% confidence interval, one day holding period, one-tailed statistical measure in calculating itsValue-at-Risk (VaR). The daily VaR on proprietary trading activity averaged $110,000$160,000 of exposure over the last 18 months. Because of the relative size of the proprietary trading portfolio in comparison to Generation’s total gross margin from continuing operations for the threesix months ended March 31,June 30, 2007 of $1,638$3,306 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 Exelon’s Risk ManagementOversight Committee monitor the financial risks of the proprietary trading activities. Trading and Economic Hedge Marketing Activities. The following detailed presentation of the trading and economic hedge marketing activities at Generation is included to address the recommended disclosures by the energy industry’s Committee of Chief Risk Officers (CCRO). The following table provides detail on changes in Generation’smark-to-market net asset or liability balance sheet position from January 1, 2007 to March 31,June 30, 2007. It indicates the drivers behind changes in the balance sheet amounts. This table incorporates themark-to-market activities that are immediately recorded in earnings as well as the settlements from accumulated OCI to earnings and changes in fair value for the hedging activities that are recorded in accumulated OCI on the Consolidated Balance Sheets. | | | | | | | | | | | | | Total | | | Total | | | | Totalmark-to-market energy contract net assets at January 1, 2007 | | $ | 499 | | | $ | 499 | | | Total change in fair value during 2007 of contracts recorded in earnings | | | (76 | ) | | | (49 | ) | | Reclassification to realized at settlement of contracts recorded in earnings | | | (39 | ) | | | (55 | ) | | Reclassification to realized at settlement from OCI | | | (21 | ) | | | Reclassification to realized at settlement from accumulated OCI | | | | (31 | ) | | Effective portion of changes in fair value — recorded in OCI | | | (682 | ) | | | (331 | ) | | | | | | | | | Totalmark-to-market energy contract net liabilities at March 31, 2007 | | $ | (319 | ) | | | Total mark-to-market energy contract net assets at June 30, 2007 | | | $ | 33 | | | | | | | | | |
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The following table details the balance sheet classification of Generation’smark-to-market energy contract net assets (liabilities) recorded as of March 31,June 30, 2007 and December 31, 2006: | | | | | | | | | | | | | | | | | | | | | March 31,
| | December 31,
| | | June 30,
| | December 31,
| | | | | 2007 | | 2006 | | | 2007 | | 2006 | | | | | Current assets | | $ | 497 | | | $ | 1,408 | | | $ | 749 | | | $ | 1,408 | | | Noncurrent assets | | | 151 | | | | 171 | | | | 210 | | | | 171 | | | | | | | | | | | | | | Totalmark-to-market energy contract assets | | | 648 | | | | 1,579 | | | | 959 | | | | 1,579 | | | | | | | | | | | | | | | Current liabilities | | | (751 | ) | | | (1,003 | ) | | | (628 | ) | | | (1,003 | ) | | Noncurrent liabilities | | | (216 | ) | | | (77 | ) | | | (298 | ) | | | (77 | ) | | | | | | | | | | | | | Totalmark-to-market energy contract liabilities | | | (967 | ) | | | (1,080 | ) | | | (926 | ) | | | (1,080 | ) | | | | | | | | | | | | | Totalmark-to-market energy contract net assets (liabilities) | | $ | (319 | ) | | $ | 499 | | | | Total mark-to-market energy contract net assets | | | $ | 33 | | | $ | 499 | | | | | | | | | | | | | |
The majority of Generation’s contracts are non-exchange-traded contracts valued using prices provided by external sources, primarily price quotations available through brokers orover-the-counter, on-line exchanges. Prices reflect the average of the bid-ask mid-point 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, which are primarily option contracts, represents contracts for which external valuations are not available. 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 March 31,June 30, 2007 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 Generation holds and sells. These estimates consider various factors including closing exchange andover-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. The following table, which presents maturity and source of fair value ofmark-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 Generation’s totalmark-to-market asset or liability. Second, this table provides the maturity, by year, of Generation’s net assets/liabilities, giving an indication of when thesemark-to-market amounts will settle and either generate or require cash. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Maturities Within | | | | | Maturities Within | | | | | | | | | | | | | | | | | 2012 and
| | Total Fair
| | | | | | | | | | | | | 2012 and
| | Total Fair
| | | | | 2007 | | 2008 | | 2009 | | 2010 | | 2011 | | Beyond | | Value | | | 2007 | | 2008 | | 2009 | | 2010 | | 2011 | | Beyond | | Value | | | | Normal Operations, qualifying cash-flow hedge contracts(a): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Prices provided by external sources | | $ | (106 | ) | | $ | (136 | ) | | $ | (46 | ) | | $ | 2 | | | $ | — | | | $ | — | | | $ | (286 | ) | | $ | 128 | | | $ | (1 | ) | | $ | (66 | ) | | $ | (8 | ) | | $ | — | | | $ | — | | | $ | 53 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Normal Operations, other derivative contracts(b): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Actively quoted prices | | $ | (29 | ) | | $ | 16 | | | $ | (11 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | (24 | ) | | $ | (81 | ) | | $ | 2 | | | $ | (19 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | (98 | ) | | Prices provided by external sources | | | 47 | | | | (13 | ) | | | 1 | | | | 3 | | | | — | | | | — | | | | 38 | | | | 92 | | | | (9 | ) | | | 4 | | | | — | | | | — | | | | — | | | | 87 | | | Prices based on model or other valuation methods | | | (35 | ) | | | (6 | ) | | | (6 | ) | | | — | | | | — | | | | — | | | | (47 | ) | | | 7 | | | | (6 | ) | | | (10 | ) | | | — | | | | — | | | | — | | | | (9 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | (17 | ) | | $ | (3 | ) | | $ | (16 | ) | | $ | 3 | | | $ | — | | | $ | — | | | $ | (33 | ) | | $ | 18 | | | $ | (13 | ) | | $ | (25 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | (20 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Mark-to-market gains and losses on economic hedge contracts that qualify as cash-flow hedges are recorded in OCI. | | | | (b) | | Mark-to-market gains and losses on other economic hedge and trading derivative contracts that do not qualify as cash-flow hedges are recorded in earnings. |
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The table below provides details of effective cash-flow hedges under SFAS No. 133 included in the balance sheet as of March 31,June 30, 2007. The data in 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 Generation’s hedges. The table also includes a roll-forward of accumulated OCI related to cash-flow hedges from January 1, 2007 to March 31,June 30, 2007, 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. | | | | | | | | | | | | | | | | | Total Cash-Flow Hedge OCI Activity,
| | | | | Net of Income Tax | | | | | Power Team Normal
| | | Interest-Rate
| | | Total
| | | | | Operations and
| | | and Other
| | | Cash-Flow
| | | (In millions) | | Hedging Activities | | | Hedges | | | Hedges | | | | | Accumulated OCI derivative gain (loss) at January 1, 2007 | | $ | 250 | | | $ | (3 | ) | | $ | 247 | | | Changes in fair value | | | (411 | ) | | | 2 | | | | (409 | ) | | Reclassifications from OCI to net income | | | (13 | ) | | | — | | | | (13 | ) | | | | | | | | | | | | | | | | Accumulated OCI derivative gain (loss) at March 31, 2007 | | $ | (174 | ) | | $ | (1 | ) | | $ | (175 | ) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Total Cash-Flow Hedge OCI Activity,
| | | | | Net of Income Tax | | | | | Power Team Normal
| | | Interest-Rate
| | | Total
| | | | | Operations and
| | | and Other
| | | Cash-Flow
| | | | | Hedging Activities | | | Hedges | | | Hedges | | | | | Accumulated OCI derivative gain (loss) at January 1, 2007 | | $ | 250 | | | $ | (3 | ) | | $ | 247 | | | Changes in fair value | | | (200 | ) | | | 3 | | | | (197 | ) | | Reclassifications from accumulated OCI to net income | | | (17 | ) | | | — | | | | (17 | ) | | | | | | | | | | | | | | | | Accumulated OCI derivative gain at June 30, 2007 | | $ | 33 | | | $ | — | | | $ | 33 | | | | | | | | | | | | | | | |
ComEd ComEd has derivatives related to one wholesale contract and certain other contracts to manage theits market price exposures to severalcertain wholesale contracts. Additionally, the supplier forward contracts that ComEd has entered into as part of the initial ComEd auction (see Note 5 of the Combined Notes to Consolidated Financial Statements) are deemed to be derivatives that qualify for the normal purchases and normal sales exception to SFAS No. 133. ComEd does not enter into derivatives for speculative or trading purposes. As of March 31,June 30, 2007, the fair value of the derivative wholesale contractcontracts of $3 million was recorded on ComEd’s Consolidated Balance Sheet, as a current liability of $4 million partially offset by a current asset of $1 million. The financial derivative used to manage the market price exposure to several wholesale contracts is designated and effective as a cash flow hedge, as defined in SFAS No. 133. As such, changes in the fair value of the derivative are recorded in OCI and gains and losses are recognized in earnings when the underlying transaction occurs. As of March 31, 2007, the fair value of this contract of $2$5 million was recorded on ComEd’s Consolidated Balance Sheet as a current liability. ComEd has transferred most of its near term commodity price risk to generating companies through the Illinois auction process. Credit Risk (Exelon, Generation, ComEd and PECO) Generation Generation’s PPA with ComEd expired at the end of 2006. In September 2006, Generation participated in and won portions of the ComEd and Ameren procurement auctions. Beginning in 2007 and as a result of the auctions, Generation’s sales to counterparties other than ComEd and PECO increased due to the expiration of the PPA with ComEd on December 31, 2006. Although the Proposed Legislation will establish a new procurement process in place of the procurement auctions, Generation is expected to participate in the alternative competitive procurement process and will continue to have credit risk in connection with contract for sale of electricity resulting from the alternative competitive procurement process. 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; therefore, Generation’s credit risk profile has changed based on the credit worthiness of the new and existing counterparties, including ComEd and Ameren. Additionally, due to the possibility of rate freeze legislation in Illinois affecting both ComEd and Ameren, Generation may be subject to the risk of default and, in the event of a bankruptcy filing by ComEd or Ameren, a risk that the bankruptcy may result in rejection of contracts for the purchase of electricity. A default by ComEd or Ameren on contracts for purchase of electricity, or a rejection of those contracts in a bankruptcy proceeding, could result in a disruption in the wholesale power markets. For additional information on the Illinois auction, the proposed legislation and the various regulatory proceedings, see Note 5 — Regulatory Issues of the Combined Notes to Consolidated Financial Statements.
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Generation attempts to enter into enabling agreements that allow for payment netting with its counterparties, which reduces Generation’s exposure to counterparty risk by providing for the offset of amounts payable to the counterparty against amounts receivable from the counterparty. Typically, each enabling agreement is for a specific commodity and so, with respect to each individual counterparty, netting is limited to transactions involving that specific commodity product, except where master netting agreements exist with a counterparty that allows for cross product netting. In addition to payment netting language in the enabling agreement, the credit department establishes credit limits and letter of credit requirements for each counterparty, which are defined in each contract. Counterparty credit limits are based on an internal credit review that considers a variety of factors, including the results of a scoring model, leverage, liquidity, profitability, credit ratings and risk management capabilities. To the
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extent that a counterparty’s credit limit and letter of credit thresholds are exceeded, the counterparty is required to post collateral with Generation as specified in each enabling agreement. The credit department monitors current and forward credit exposure to counterparties and their affiliates, both on an individual and an aggregate basis. The following tables provide information on Generation’s credit exposure, net of collateral, as of March 31,June 30, 2007. The tables further delineate that exposure by credit rating of the counterparties and provide guidance on the concentration of credit risk to individual counterparties and an indication of the maturity of a company’s credit risk by credit rating of the counterparties. The figures in the tables below do not include sales to Generation’s affiliates or exposure through Regional Transmission Organization’sOrganizations (RTOs) and Independent System Operators (ISOs) which are discussed below. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total
| | | | | | Number of
| | Net Exposure of
| | | Total
| | | | | | Number of
| | Net Exposure of
| | | | | Exposure
| | | | | | Counterparties
| | Counterparties
| | | Exposure
| | | | | | Counterparties
| | Counterparties
| | | | | Before Credit
| | Credit
| | Net
| | Greater than 10%
| | Greater than 10%
| | | Before Credit
| | Credit
| | Net
| | Greater than 10%
| | Greater than 10%
| | Rating as of March 31, 2007(a) | | Collateral | | Collateral | | Exposure | | of Net Exposure | | of Net Exposure | | | Rating as of June 30, 2007(a) | | | Collateral | | Collateral | | Exposure | | of Net Exposure | | of Net Exposure | | | | | Investment grade | | $ | 574 | | | $ | 62 | | | $ | 512 | | | | 1 | | | $ | 53 | | | $ | 875 | | | $ | 19 | | | $ | 856 | | | | 2 | | | $ | 194 | | | Non-investment grade | | | 8 | | | | — | | | | 8 | | | | — | | | | — | | | | 7 | | | | — | | | | 7 | | | | — | | | | — | | | No external ratings | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Internally rated — investment grade | | | 4 | | | | 1 | | | | 3 | | | | — | | | | — | | | | 5 | | | | 1 | | | | 4 | | | | — | | | | — | | | Internally rated — non-investment grade | | | 3 | | | | 1 | | | | 2 | | | | — | | | | — | | | | 5 | | | | 2 | | | | 3 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 589 | | | $ | 64 | | | $ | 525 | | | | 1 | | | $ | 53 | | | $ | 892 | | | $ | 22 | | | $ | 870 | | | | 2 | | | $ | 194 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | This table does not include accounts receivable exposure and credit risk exposure from retail energy sales.sales or uranium procurement contracts. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Maturity of Credit Risk Exposure | | | Maturity of Credit Risk Exposure | | | | | | | | | Exposure
| | Total Exposure
| | | | | | | Exposure
| | Total Exposure
| | | | | Less than
| | | | Greater than
| | Before Credit
| | | Less than
| | | | Greater than
| | Before Credit
| | Rating as of March 31, 2007(a) | | 2 Years | | 2-5 Years | | 5 Years | | Collateral | | | Rating as of June 30, 2007(a) | | | 2 Years | | 2-5 Years | | 5 Years | | Collateral | | | | | Investment grade | | $ | 461 | | | $ | 113 | | | $ | — | | | $ | 574 | | | $ | 843 | | | $ | 32 | | | $ | — | | | $ | 875 | | | Non-investment grade | | | 8 | | | | — | | | | — | | | | 8 | | | | 6 | | | | 1 | | | | — | | | | 7 | | | No external ratings | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Internally rated — investment grade | | | 4 | | | | — | | | | — | | | | 4 | | | | 5 | | | | — | | | | — | | | | 5 | | | Internally rated — non-investment grade | | | 1 | | | | 2 | | | | — | | | | 3 | | | | 4 | | | | 1 | | | | — | | | | 5 | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 474 | | | $ | 115 | | | $ | — | | | $ | 589 | | | $ | 858 | | | $ | 34 | | | $ | — | | | $ | 892 | | | | | | | | | | | | | | | | | | | | | |
| | | | (a) | | This table does not include accounts receivable exposure and credit risk exposure from retail energy sales.sales or uranium procurement contracts. |
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
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making a demand for adequate assurance of future performance. Depending on Generation’s net position with a counterparty, the demand could be for the posting of collateral. In the absence of expressly agreed-to 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 the 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.
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Generation sells output through bilateral contracts. The bilateral contracts are subject to credit risk, which relates to the ability of counterparties to meet their contractual payment obligations. Any failure to collect these payments from counterparties could have a material impact on Exelon’s and Generation’s results of operations, cash flows and financial position. As market prices rise above contracted price levels, Generation is required to post collateral with purchasers; as market prices fall below contracted price levels, counterparties are required to post collateral with Generation. Beginning in 2007, under the Illinois auction rules and the supplier forward contracts that Generation entered into with ComEd and Ameren, collateral postings will be one-sided from Generation only. That is, if market prices fall below ComEd’s or Ameren’s contracted price levels, neither ComEd nor Ameren is required to post collateral; however, if market prices rise above contracted price levels with ComEd or Ameren, Generation may be required to post collateral. See Note 4 of the Combined Notes to Consolidated Financial Statements within Exelon’s 2006 Annual Report onForm 10-K for further information on contracted clearing prices related to the ComEd and Ameren auctions. As of March 31,June 30, 2007, Generation had $127$257 million of collateral deposit payments being held by counterparties and Generation was holding $27$6 million of collateral deposits received from counterparties. RTOs and ISOs. Generation participates in the following established, real-time energy markets that are administered by: PJM, ISO-NE, New York ISO, MISO, Southwest Power Pool, Inc. and 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 RTOs or ISOs, as applicable. 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 an RTO or ISO, the RTO or ISO maintains financial assurance policies that are established and enforced by those administrators. The credit policies of the RTOs and 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 Generation’s financial condition, results of operations or net cash flows. Fuel Procurement. Generation procures coal through annual, short-term and spot-market purchases and natural gas through annual, monthly and spot-market purchases. Nuclear fuel assemblies are obtained through long-term contracts for uranium concentrates, and long-term contracts for conversion services, enrichment services and fuel fabrication services. The supply markets for coal, natural gas, uranium concentrates and certain nuclear fuel services are subject to price fluctuations and availability restrictions. Supply market conditions may make Generation’s procurement contracts subject to credit risk related to the potential non-performance of counterparties to deliver the contracted commodity or service at the contracted prices. Non-performance by these counterparties could have a material impact on Exelon’s and Generation’s results of operations, cash flows and financial position. ComEd and PECO Credit risk for ComEd and PECO is managed by credit and collection policies which are consistent with state regulatory requirements. ComEd and PECO are each currently obligated to provide service to all electric customers within their respective franchised territories. ComEd and PECO record a provision for uncollectible accounts, based upon historical experience and third-party studies, to provide for the potential loss from nonpayment by these customers. ComEd will continue to monitor the impact of the reverse-auction power prices on its customer payment practices as it relates to its provision for uncollectible accounts. ComEd will monitor nonpayment from customers and will make any necessary adjustments to the provision for uncollectible accounts. ComEd has reduced the number of customer disconnections for nonpayment. ComEd will monitor the impact of its disconnection practices and will make any necessary adjustments to the provision for uncollectible accounts. PECO’s provision for uncollectible accounts will continue to be affected by changes in prices as well as changes in PAPUC regulations. Under Pennsylvania’s Competition Act, licensed entities, including competitive electric generation suppliers, may act as agents to provide a single bill and provide associated billing and collection services to retail customers located in PECO’s retail electric service territory. Currently, there are no third parties providing billing of PECO’s charges to customers or advanced metering; however, if this occurs, PECO would be subject to credit risk related to the ability of the third parties to collect such receivables from the customers.
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Exelon Exelon’s Consolidated Balance Sheet as of March 31,June 30, 2007 included a $535$541 million net investment in direct financing leases. The investment in direct financing leases represents future minimum lease payments due at the end of the thirty-year lives of the leases of $1,492 million, less unearned income of $957$951 million. The future minimum
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lease payments are supported by collateral and credit enhancement measures, including letters of credit, surety bonds and credit swaps issued by high credit quality financial institutions. Management regularly evaluates the credit worthiness of Exelon’s counterparties to these direct financing leases. Interest-Rate Risk (Exelon, Generation, ComEd and PECO) Variable Rate Debt. The Registrants use a combination of fixed-rate and variable-rate debt to reduce interest-rate exposure. The Registrants may also use interest-rate swaps when deemed appropriate to adjust exposure based upon market conditions. Additionally, the Registrants may use forward-starting interest-rate swaps and treasury rate locks to lock in interest-rate levels in anticipation of future financings. These strategies are employed to achieve a lower cost of capital. At March 31,June 30, 2007, Exelon had $100 million of notional amounts of fair-value hedges outstanding. A hypothetical 10% increase in the interest rates associated with variable-rate debt would result in a $1 million decrease in Exelon’s pre-tax earnings for the three months ended March 31,June 30, 2007. A hypothetical 10% increase in the interest rates associated with variable-rate debt would result in a decrease of less than $1 million for Generation, ComEd and PECO in pre-tax earnings for the three months ended March 31,June 30, 2007. Equity Price Risk (Exelon and Generation) Exelon and Generation maintain trust funds, as required by the NRC, to fund certain costs of decommissioning Generation’s nuclear plants. As of March 31,June 30, 2007, Generation’s decommissioning trust funds are reflected at fair value on its 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 Generation 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 Generation’s nuclear decommissioning trust fund investment policy. A hypothetical 10% increase in interest rates and decrease in equity prices would result in a $467$496 million reduction in the fair value of the trust assets. Exelon and Generation maintain trust assets associated with defined benefit pension and other postretirement benefits. See Defined Benefit Pension and Other Postretirement Welfare Benefits in the Critical Accounting Policies and Estimates section within Exelon’s 2006 Annual Report onForm 10-K for information regarding the pension and other postretirement benefit trust assets.
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| | | Item 4. | Controls and Procedures |
During the firstsecond quarter of 2007, Exelon’s management, including its principal executive officer and principal financial officer, evaluated its disclosure controls and procedures related to the recording, processing, summarizing and reporting of information in its periodic reports that it files with the SEC. These disclosure controls and procedures have been designed by Exelon to ensure that (a) material information relating to Exelon, including its consolidated subsidiaries, is accumulated and made known to Exelon’s management, including its principal executive officer and principal financial officer, by other employees of Exelon and its subsidiaries as appropriate to allow timely decisions regarding required disclosure, and (b) this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the SEC’s 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. Accordingly, as of June 30, 2007, the principal executive officer and principal financial officer of Exelon concluded that Exelon’s disclosure controls and procedures were effective to accomplish its objectives. Exelon 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. However, there have been no changes in internal control over financial reporting that occurred during the second quarter of 2007 that have materially affected, or are reasonably likely to materially affect, Exelon’s internal control over financial reporting.
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| | | Item 4T. | Controls and Procedures |
During the second quarter of 2007, each registrant’sof Generation’s, ComEd’s and PECO’s management, including its principal executive officer and principal financial officer, evaluated that registrant’s disclosure controls and procedures related to the recording, processing, summarizing and reporting of information in that registrant’s periodic reports that it files with the SEC. These disclosure controls and procedures have been designed by each registrantGeneration, ComEd and PECO to ensure that (a) material information relating to that registrant, including its consolidated subsidiaries, is accumulated and made known to that registrant’s management, including its principal executive officer and principal financial officer, by other employees of that registrant and its subsidiaries as appropriate to allow timely decisions regarding required disclosure, and (b) this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the SEC’s 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. Accordingly, as of March 31,June 30, 2007, the principal executive officer and principal financial officer of each registrantGeneration, ComEd and PECO concluded that such registrant’s disclosure controls and procedures were effective to accomplish theirits objectives. Each registrantGeneration, ComEd and PECO each 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. However, there have been no changes in internal control over financial reporting that occurred during the firstsecond quarter of 2007 that have materially affected, or are reasonably likely to materially affect, each registrant’sof Generation’s, ComEd’s and PECO’s internal control over financial reporting.
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PART II — OTHER INFORMATION | | | Item 1. | Legal Proceedings |
The Registrants are parties to various lawsuits and regulatory proceedings in the ordinary course of their respective businesses. For information regarding material lawsuits and proceedings, see (a) ITEM 3. Legal Proceedings of the Registrants’ 2006 Annual Report onForm 10-K and (b) Notes 5 and 13 of the Combined Notes to Consolidated Financial Statements. Such descriptions are incorporated herein by these references. At March 31,June 30, 2007, the Registrants’ updatedrisk factors changed compared to the risk factors described in Exelon’s 2006 Annual Report onForm 10-K as described below. Exelonfollows: (a) the two risk factors titled “ComEd may file for voluntary relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code if rate rollback and freeze legislation is enacted into law” and “Exelon and Generation will be negatively affected if ComEd files for voluntary relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code.
There isCode” are no longer applicable as ComEd reached a risk ComEd will be requiredSettlement with various representatives from the State of Illinois in July 2007 to seek protection in bankruptcy if legislation is enacted inaddress rate relief for Illinois to extend ComEd’s rate freeze that expired in January 2007. Exelon anticipates that a bankruptcy filing by ComEd would have significant adverse consequences for Exelon and Generation. These adverse consequences may include, but are not limited to: the deconsolidation of ComEd from Exelon where Exelon would account for its investment in ComEd under the cost method; a significant loss in value of Exelon’s investment in ComEd due to the application of fair market value principles with a charge to earnings and a reduction in Exelon’s shareholders’ equity of up to $7.0 billion (including the potential impairments of ComEd’s remaining goodwill, the net gains associated with the elimination of ComEd’s regulatory assets and liabilities as a result of not meeting the criteria of SFAS No. 71, the impairment of the remaining balance of Exelon’s investment in ComEd and the charge against other comprehensive income related to Exelon’s regulatory assets associated with its defined benefit postretirement plans); possible dilution of Exelon’s ownership interest in ComEd; possible reductions in credit ratings which could increase borrowing costs; uncertainty in collection of receivables from ComEd by Exelon, including by BSC, and by Generation for the then current receivables from ComEd for the electricity previously provided under the supplier forward contracts; the overall uncertainty in the enforcement of Generation’s rights under its supplier forward contracts with ComEd and possible rejection of the supplier forward contracts in a ComEd bankruptcy; greater dependence by Generation on the wholesale power markets and increased commodity risk as a result of Generation having to sell more power in spot markets; incurring significant legal and other costs associated with the bankruptcy filing; possible negative income tax consequences; and possible reduced ability to effectively administer and allocate the costs of the various Exelon-sponsored benefit plans. These items, along with other possible negative effects of a ComEd bankruptcy, could have a material adverse effect on Exelon’s and Generation’s results of operations, financial position and cash flows. Additional information concerning transactions and business relationships between ComEd, on the one hand, and Generation and BSC, on the other hand, is included in the 2006Form 10-K and in Notescustomers (see Note 5 and 16 of the Combined Notes to Consolidated Financial Statements. These transactions include ComEd procuring approximately 35%Statements for additional information) and (b) the Registrants identified the additional risk factors described below.
Generation’s financial performance may be negatively affected by liabilities arising from its ownership and operation of nuclear facilities. Decommissioning. NRC regulations require that licensees of nuclear generating facilities demonstrate reasonable assurance that funds will be available in certain minimum amounts at the end of the life of the facility to decommission the facility. Generation is required to provide to the NRC a biennial report by unit (annually for Generation’s four retired units) addressing Generation’s ability to meet the NRC-estimated funding levels (NRC Funding Levels) including scheduled contributions to and earnings on the decommissioning trust funds. As of December 31, 2006, Generation identified trust funds for 6 units, which were being funded at a rate less than anticipated with respect to NRC Funding Levels. In December 2006, Generation made a submission to the NRC addressing this issue, demonstrating in accordance with NRC requirements, that the trust funds for these 6 units indeed met NRC Funding Levels and remain adequately funded compared to the NRC Funding Level, when using alternate evaluation criteria allowed by NRC regulations. During the second quarter 2007, the NRC provided written notice that Generation has demonstrated reasonable assurance of decommissioning funding for these 6 units and, thus, was satisfied that Generation has met NRC Funding Levels for all of its energy requirementsnuclear fleet. The NRC Funding Levels are based upon the assumption that decommissioning will commence at the end of current licensed life. Forecasting investment earnings and costs to decommission nuclear generating stations requires significant judgment, and actual results may differ significantly from current estimates. Ultimately, if the investments held by Generation’s nuclear decommissioning trusts are not sufficient to fund the decommissioning of Generation’s nuclear plants, Generation and ComEd purchasing corporate support services from BSC, including, but not limitedmay be required to information technology support, supply management services and planning and engineeringprovide other means of delivery systems.funding its decommissioning obligations.
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| | | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(c) Exelon
The attached table gives information on a monthly basis regarding purchases made by Exelon of its common stock in the quarter covered by this Report.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | January 1 — January 31, 2007 | | | 4,586 | | | $ | 61.89 | | | | — | | | | (b | ) | | February 1 — February 28, 2007 | | | 21,923 | | | | 63.31 | | | | 592,800 | | | | (b | ) | | March 1 — March 31, 2007 | | | — | | | | — | | | | — | | | | (b | ) | | | | | | | | | | | | | | | | | | | | Total | | | 26,509 | | | $ | 63.30 | | | | 592,800 | | | | (b | ) | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | April 1 — April 30, 2007 | | | 19,893 | | | $ | 67.63 | | | | — | | | | (b | ) | | May 1 — May 31, 2007 | | | 5,399 | | | | 72.51 | | | | — | | | | (b | ) | | June 1 — June 30, 2007 | | | 11,176 | | | | 76.01 | | | | — | | | | (b | ) | | | | | | | | | | | | | | | | | | | | Total | | | 36,468 | | | $ | 70.92 | | | | — | | | | (b | ) | | | | | | | | | | | | | | | | | | |
| | | | (a) | | Shares other than those purchased as part of a publicly announced plan primarily represent restricted and performance shares surrendered by employees to satisfy tax obligations arising upon the vesting of restricted shares. | | | | (b) | | In April 2004, Exelon’s 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 Exelon’s employee stock option plan and Exelon’s Employee Stock Purchase Plan. 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 Exelon’s Employee Stock Purchase Plan. 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. |
| | | Item 4. | Submission of Matters to a Vote of Security Holders |
Exelon Exelon held its 2007 Annual Meeting of Shareholders on May 8, 2007. Proposal 1 was the election of five Class I directors to serve three-year terms expiring in 2010 and one Class III director to serve a two-year term expiring in 2009. The following directors were elected: | | | | | | | | | | | | | | | | | Votes For | | | Votes Against | | | Votes Abstaining | | | | Class I Directors | | | | | | | | | | | | | | Nicholas DeBenedictis | | | 458,731,310 | | | | 83,641,677 | | | | 7,044,481 | | | Sue L. Gin | | | 536,508,585 | | | | 6,315,167 | | | | 6,593,716 | | | William C. Richardson | | | 536,985,739 | | | | 5,825,921 | | | | 6,605,808 | | | Thomas J. Ridge | | | 421,335,195 | | | | 119,271,938 | | | | 8,810,335 | | | Don Thompson | | | 536,700,363 | | | | 5,899,904 | | | | 6,817,201 | | | | | | | | | | | | | | | | Class III Director | | | | | | | | | | | | | | Stephen D. Steinour | | | 536,762,711 | | | | 5,781,618 | | | | 6,873,139 | |
Proposal 2 was the ratification of PricewaterhouseCoopers LLP as independent accountants for Exelon and its subsidiaries for 2007. The shareholders approved the proposal with a vote of 540,749,869 votes cast for, 2,952,609 votes cast against, and 5,714,990 votes abstaining. Proposal 3 was the amendment of Exelon’s Articles of Incorporation to allow for the annual election of all directors beginning in 2008. The shareholders approved the proposal with a vote of 533,610,590 votes cast for, 9,128,788 votes cast against, and 6,678,090 votes abstaining.
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Proposal 4 was a shareholder proposal to require shareholder approval of future severance benefits for executives. It received 166,061,956 votes cast for and 292,536,300 votes against. There were also 13,365,472 votes abstaining and 77,453,740 broker non-votes. | | | Item 5. | Other Information |
PECO During 2004, two elections were held at PECO, which resulted in union representation for PECO craft and call center employees in the Philadelphia service territory. The current affected workgroup totals approximately 1,200 employees. PECO and IBEWthe International Brotherhood of Electrical Workers Local 614 began negotiations for initial agreements in 2005. Although substantial progress has been made, no2005 and reached agreements have been finalized to date. The negotiations continue with the possibility of a tentative agreement being reached by the end ofin the second quarter inof 2007. The current affected workgroup totals approximately 1,200agreements cover work hours, wages, benefits and working conditions for the represented employees. The agreements will not result in a material financial impact to PECO. 128
166
| | | | | | | | 4-1-1 | | Supplemental Indentures to PECO Energy Company’s First and Refunding Mortgage: | | | Dated as of | | File Reference | | Exhibit No. | | | March 1, 2007 | | 000-16844,Form 8-K dated March 19, 2007 | | 4.1 | 4-3-1 | | Supplemental Indentures to Commonwealth Edison Mortgage: | | | Dated as of | | File Reference | | Exhibit No. | | | March 1, 2007 | | 1-1839,Form 8-K dated March 23, 2007 | | 4.1 |
| | | | | Exhibit
| | | | No. | | Description | | | | | 10-1 | | | Commonwealth Edison Company Long-Term Incentive Plan, effective January 1, 2007.Amended and Restated Articles of Incorporation of Exelon Corporation | | | 10-2 | | | One HundredExelon Corporation Amended and Third Supplemental Indenture, dated as of March 1, 2007, to the First and Refunding Mortgage, dated as of May 1, 1923, between PECO Energy Company and U.S. Bank National Association, as trustee. (File No. 000-16844,Form 8-K dated March 19, 2007, Exhibit 4.1)Restated Bylaws | | | 10-3 | | | Supplemental Indenture dated as of MarchAmendment Number One to the Exelon Corporation Stock Deferral Plan (As Amended and Restated Effective January 1, 2007 from ComEd to BNY Midwest Trust Company, as trustee, and D.G. Donovan, as co-trustee. (File No. 1-1839,Form 8-K dated March 23, 2007, Exhibit 4.1)2005) |
Certifications Pursuant toRule 13a-14(a) and15d-14(a) of the Securities and Exchange Act of 1934 as to the Quarterly Report onForm 10-Q for the quarterly period ended March 31,June 30, 2007 filed by the following officers for the following companies: | | | | | | | | | | 31-1 | | | — | | Filed by John W. Rowe for Exelon Corporation | | | 31-2 | | | — | | Filed by John F. Young for Exelon Corporation | | | 31-3 | | | — | | Filed by John L. Skolds for Exelon Generation Company, LLC | | | 31-4 | | | — | | Filed by John F. Young for Exelon Generation Company, LLC | | | 31-5 | | | — | | Filed by Frank M. Clark for Commonwealth Edison Company | | | 31-6 | | | — | | Filed by Robert K. McDonald for Commonwealth Edison Company | | | 31-7 | | | — | | Filed by John L. Skolds for PECO Energy Company | | | 31-8 | | | — | | Filed by John F. Young for PECO Energy Company |
Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes — Oxley Act of 2002) as to the Quarterly Report onForm 10-Q for the quarterly period ended March 31,June 30, 2007 filed by the following officers for the following companies: | | | | | | | | | | 32-1 | | | — | | Filed by John W. Rowe for Exelon Corporation | | | 32-2 | | | — | | Filed by John F. Young for Exelon Corporation | | | 32-3 | | | — | | Filed by John L. Skolds for Exelon Generation Company, LLC | | | 32-4 | | | — | | Filed by John F. Young for Exelon Generation Company, LLC | | | 32-5 | | | — | | Filed by Frank M. Clark for Commonwealth Edison Company | | | 32-6 | | | — | | Filed by Robert K. McDonald for Commonwealth Edison Company | | | 32-7 | | | — | | Filed by John L. Skolds for PECO Energy Company | | | 32-8 | | | — | | Filed by John F. Young for PECO Energy Company |
129167
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 | | | | | | | | | | | | | | | | /s/ John W. Rowe
John W. Rowe
Chairman, Chief Executive Officer and President
(Principal Executive Officer) | | /s/ John F. Young John F. Young
Executive Vice President, Finance and Markets
and Chief Financial Officer
(Principal Financial Officer) | | | | | | | | | | | | | | | | | | | | | | | | | /s/ Matthew F. Hilzinger
Matthew F. Hilzinger
Senior Vice President and Corporate Controller (Principal Accounting Officer) | | |
AprilJuly 25, 2007
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 | | | | | | | | | | | | | | | | /s/ John W. Rowe
John W. Rowe
Chairman, Chief Executive Officer and
President, Exelon | | /s/ John L. Skolds John L. Skolds
President
(Principal Executive Officer) | | | | | | | | | | | | | | | | | | | | | | | | | /s/ John F. Young
John F. Young
Executive Vice President, Finance and Markets and Chief Financial Officer, Exelon, and Chief Financial Officer
(Principal Financial Officer) | | /s/ Jon D. Veurink Jon D. Veurink
Vice President and Controller
(Principal Accounting Officer) |
AprilJuly 25, 2007
130168
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 | | | | | | | | | | | | | | | | /s/ Frank M. Clark
Frank M. Clark
Chairman and Chief Executive Officer
(Principal Executive Officer) | | /s/ J. Barry Mitchell J. Barry Mitchell
President | | | | | | | | | | | | | | | | | | | | | | | | | /s/ Robert K. Mcdonald
Robert K. McDonald
Senior Vice President, Chief Financial Officer, Treasurer and Chief Risk Officer
(Principal Financial Officer) | | /s/ Matthew R. Galvanoni Matthew R. Galvanoni
Principal Accounting Officer |
AprilJuly 25, 2007
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 | | | | | | | | | | | | | | | | /s/ John L. Skolds John L. Skolds
President, Exelon Energy Delivery
(Principal Executive Officer) | | /s/ Denis P. O’Brien Denis P. O’Brien
President | | | | | | | | | | | | | | | | | | | | | | | | | /s/ John F. Young
John F. Young
Executive Vice President, Finance and Markets and Chief Financial Officer, Exelon, and
Chief Financial Officer
(Principal Financial Officer) | | /s/ Matthew R. Galvanoni
Matthew R. Galvanoni
Vice President and Controller
(Principal Accounting Officer)
|
AprilJuly 25, 2007
131169
|