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FORM 10-KUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
(Mark
one)-------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[_]2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Name of Registrant; State of Incorporation; Address of IRS Employer
File Number Address;Principal Executive Offices; and Telephone Number Identification No.
----------- ----------------------------------- ------------------
Number
- --------------------- --------------------------------------------------------- -------------------------
1-11375 UNICOM
1-16169 EXELON CORPORATION 36-3961038
(an Illinois23-2990190
(a Pennsylvania corporation)
37th Floor,
10 South Dearborn Street Post Office- 37th Floor
P.O. Box A-3005805379
Chicago, Illinois 60690-3005
312/394-739960680-5379
(312) 394-4321
1-1401 PECO ENERGY COMPANY 23-0970240
(a Pennsylvania corporation)
P.O. Box 8699
2301 Market Street
Philadelphia, Pennsylvania 19101-8699
(215) 841-4000
1-1839 COMMONWEALTH EDISON COMPANY 36-0938600
(an Illinois corporation)
37th Floor, 10 South Dearborn Street Post Office- 37th Floor
P.O. Box 767805379
Chicago, Illinois 60690-0767
312/60680-5379
(312) 394-4321
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------------------------------------------------------------------ -----------------------------
EXELON CORPORATION:
Common Stock, without par value New York, Chicago and
Philadelphia
PECO ENERGY COMPANY:
First and Refunding Mortgage Bonds: 5-5/8% Series due 2001, New York
6-3/8% Series due 2005, and 6-1/2% Series due 2003
Cumulative Preferred Stock, without par value: $4.68 Series, $4.40 New York
Series, $4.30 Series and $3.80 Series
Trust Receipts of PECO Energy Capital Trust II, each representing an New York
8.00% Cumulative Monthly Income Preferred Security, Series C, $25
stated value, issued by PECO Energy Capital, L.P. and unconditionally
guaranteed by PECO Energy Company
Trust Receipts of PECO Energy Capital Trust III, each representing an New York
7.38% Cumulative Preferred Security, Series D, $25 stated value, issued
by PECO Energy Capital, L.P. and unconditionally guaranteed by PECO
Energy Company
COMMONWEALTH EDISON COMPANY:
Sinking Fund Debentures: 2-7/8%, due April 1, 2001 New York
Company-Obligated Mandatorily Redeemable Preferred Securities of New York
Subsidiary Trust Holding Solely Commonwealth Edison Company's 8.48%
Subordinated Debt Securities and unconditionally guaranteed by
Commonwealth Edison Company
Securities Registered Pursuantregistered pursuant to Section 12(b)12(g) of the Act:
Title of Each Class Name of Each Exchange
- --------------------------- on Which Registered
-------------------------
Unicom Corporation
CommonPECO ENERGY COMPANY:
Cumulative Preferred Stock, without par value New York, Chicagovalue: $7.48 Series and Pacific
Commonwealth Edison Company
(Listed on inside cover)$6.12
Series
COMMONWEALTH EDISON COMPANY:
Common Stock Purchase Warrants, 1971 Warrants and Series B Warrants
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days.
Yes X .days.Yes [X] No .[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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Commonwealth Edison Company Securities Registered Pursuant to Section 12(b) of
the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- --------------------------------------- ---------------------------
Sinking Fund Debentures:
2 7/8%, due April 1, 2001 New York
Company-Obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trust Holding Solely the
Company's 8.48% Subordinated Debt
Securities
New York
The estimated aggregate market value of Unicom Corporation's 184,283,802
sharesthe voting and non-voting
common equity held by nonaffiliates of outstandingthe registrants as of March 1, 2001, was
as follows:
Exelon Corporation Common Stock, without par value was approximately
$6,968 million as of February 29, 2000. Approximately 99.9% of Unicom
Corporation's voting stock was owned by non-affiliates as of that date.
The estimated aggregate market$20,986,864,596
PECO Energy Company Common Stock, without par value ofNone
Commonwealth Edison Company's
outstanding $1.425 Convertible Preferred Stock, Cumulative Preference Stock
and Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely the Company's Subordinated Debt Securities
was approximately $411 million as of February 29, 2000. Unicom Corporation
held in excess of 99.99% of the 180,854,004 shares of outstandingCompany Common Stock,
$12.50 par value No established market.
The number of shares outstanding of each registrant's common stock as
of March 1, 2001, except for Commonwealth Edison Company which is as of that date.
Documents Incorporated by Reference:December
31, 2000, was as follows:
Exelon Corporation Common Stock, without par value 320,068,089
PECO Energy Company Common Stock, without par value 170,478,507
Commonwealth Edison Company Common Stock,
$12.50 par value 163,805,020
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of UnicomExelon Corporation's definitive Proxy Statement to be filed
prior to April 30, 2000, relating to its Annual Meeting of shareholders, are
incorporated by reference into Part III of the Unicom Corporation Annual
Report on Form 10-K.
Portions of Commonwealth Edison Company's Current Report on Form 8-K dated March
30,16, 2001 containing consolidated financial statements and related information
for the year ended December 31, 2000, are incorporated by reference into Parts
I, II and IV of the
Commonwealth Edison Companythis Annual Report on Form 10-K and portions10-K. Portions of Exelon
Corporation's definitive Proxy Statement filed on March 23, 2001 relating to its
annual meeting of shareholders, are incorporated by reference into Part III of
this Annual Report on Form 10-K.
Portions of PECO Energy Company's definitive Information Statement to
be filed prior to April 30, 2001, relating to its annual meeting of
shareholders, are incorporated by reference into Part III of this Annual Report
on Form 10-K.
Portions of Commonwealth Edison Company's definitive Information
Statement to be filed prior to April 30, 2000,2001, relating to its Annual Meetingannual meeting of
shareholders, are incorporated by reference into Part III of the Commonwealth Edison Companythis Annual Report
on Form 10-K.
UNICOM CORPORATION
and
COMMONWEALTH EDISON COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 1999
This document contains the Annual Reports oncombined Form 10-K for the fiscal year
ended December 31, 1999 for each of Unicomis separately filed by Exelon Corporation, PECO
Energy Company and Commonwealth Edison Company. Information contained herein
relating to anany individual registrant is filed by such registrant onin its own
behalf. Accordingly, except for its
subsidiaries, Commonwealth Edison CompanyEach registrant makes no representation as to information relating to
Unicom Corporation or to anythe other companies affiliated
with Unicom Corporation.registrants.
TABLE OF CONTENTS
Page
----
Definitions............................................................... 1
Annual Report on Form 10-K for Unicom Corporation:
Part I
Item 1. Business........................................................ 2
General............................................................ 2
Changes in the Electric Utility Industry........................... 3
Construction Program............................................... 8
Fuel Supply........................................................ 10
Regulation......................................................... 10
Employees.......................................................... 14
Interconnections................................................... 15
Franchises......................................................... 15
Executive Officers of the Registrant............................... 16
Year 2000 Conversion............................................... 17
Forward-Looking Information........................................ 17
Item 2. Properties...................................................... 18
Item 3. Legal Proceedings............................................... 19
Item 4. Submission of Matters to a Vote of Security Holders............. 22
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters................................................................ 23
Item 6. Selected Financial Data......................................... 24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of
Operations...................................................... 24
Item 7A Quantitative and Qualitative Disclosures About Market Risks.....
Item 8. Financial Statements and Supplementary Data..................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 24
Part III
Item 10. Directors and Executive Officers of the Registrant............. 24
Item 11. Executive Compensation......................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and Manage-
ment................................................................... 25
Item 13. Certain Relationships and Related Transactions................. 25
i
UNICOM CORPORATIONPART I Page No.
--------
ITEM 1. BUSINESS 1
General............................................1
Energy Delivery....................................2
Generation........................................10
Enterprises.......................................19
Employees.........................................20
Environmental Regulation..........................20
Related Entities..................................23
Executive Officers of Exelon, ComEd and COMMONWEALTH EDISON COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 1999
TABLEPECO......25
ITEM 2. PROPERTIES..................................................28
ITEM 3. LEGAL PROCEEDINGS...........................................30
ITEM 4. SUBMISSION OF CONTENTS (Concluded)
Page
----
Annual Report on Form 10-K for Commonwealth Edison Company:
Part I
Item 1.Business......................................................... 26
Executive Officers of the Registrant................................ 26
Item 2.Properties....................................................... 28
Item 3.Legal Proceedings................................................ 28
Item 4.Submission of Matters to a Vote of Security Holders.............. 28
Part II
Item 5.Market for Registrant's Common Equity and Related Stockholder
Matters................................................................ 28
Item 6.Selected Financial Data.......................................... 28
Item 7.Management's Discussion and Analysis of Financial Condition and
Results of
Operations..................................................... 28
Item 7A. Quantitative and Qualitative Disclosures About Market Risks.... 28
Item 8.Financial Statements and Supplementary Data...................... 28
Item 9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 28
Part III
Item 10. Directors and Executive Officers of the Registrant............ 29
Item 11. Executive Compensation........................................ 29
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................................. 29
Item 13. Certain Relationships and Related Transactions................ 29
Annual Reports on Form 10-K for Unicom Corporation and Commonwealth Edison
Company:
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K...................................................................... 30
(a) Financial Statements, Financial Statement Schedules and Exhib-
its.............................................................. 30
(b) Reports on Form 8-K........................................... 36
Report of Independent Public Accountants on Supplemental Schedule to
Commonwealth Edison Company............................................ 37
Signature Page to Unicom Corporation Annual Report on Form 10-K......... 38
Signature Page to Commonwealth Edison Company Annual Report on Form 10-
K...................................................................... 39
ii
DEFINITIONS
The following terms are used in this document with the following meanings:
Term Meaning
---------------------- -------------------------------------------------------
1997 Act Illinois Electric Service Customer Choice and Rate
Relief Law of 1997
APX Automated Power Exchange Inc., a California company
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended
CHA Chicago Housing Authority
ComEd Commonwealth Edison Company
ComEd Funding ComEd Funding, LLC, a ComEd subsidiary
ComEd Funding Trust ComEd Transitional Funding Trust, a ComEd Funding
subsidiary
Congress U.S. Congress
Cotter Cotter Corporation, a ComEd subsidiary
CTC Non-bypassable "competitive transition charge"
DOE U.S. Department of Energy
EME Edison Mission Energy, an Edison International
subsidiary
FERC Federal Energy Regulatory Commission
IBEW International Brotherhood of Electrical Workers (AFL-
CIO)
ICC Illinois Commerce Commission
IDNS Illinois Department of Nuclear Safety
IDR Illinois Department of Revenue
Illinois EPA Illinois Environmental Protection Agency
Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd
subsidiary
INPO Institute of Nuclear Power Operations
IPCB Illinois Pollution Control Board
ISO Independent System Operator
MAIN Mid-America Interconnected Network
MGP Manufactured gas plant
NPDES National Pollutant Discharge Elimination System
NPL National Priorities List
NRC Nuclear Regulatory Commission
PECO PECO Energy Company, a Pennsylvania company
RES Retail Electric Supplier
SEC Securities and Exchange Commission
SPEs Special purpose entities
S&P Standard & Poor's
Trust Securities ComEd-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely ComEd's
subordinated debt securities
Unicom Unicom Corporation
Unicom Energy Services Unicom Energy Services Inc., a Unicom Enterprises
subsidiary
Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary
Unicom Investment Unicom Investment, Inc., a Unicom Enterprises
subsidiary
Unicom Thermal Unicom Thermal Technologies Inc., a UT Holdings
subsidiary
U.S. EPA U.S. Environmental Protection Agency
UT Holdings UT Holdings Inc., a Unicom Enterprises subsidiary
1
ANNUAL REPORTMATTERS TO A VOTE OF SECURITY HOLDERS.........31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.........................................31
ITEM 6. SELECTED FINANCIAL DATA.....................................33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.........................35
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...........................................51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................109
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT.................................................110
ITEM 11. EXECUTIVE COMPENSATION.....................................110
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT......................................111
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............111
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 10-K FOR UNICOM CORPORATION8-K.....................................111
SIGNATURES...............................................................125
PART I
ItemITEM 1. Business.BUSINESS.
General
UnicomExelon Corporation, a Pennsylvania corporation (Exelon), was
incorporated in January 1994. ComEd, a regulated electric
utility, isFebruary 1999. On October 20, 2000, Exelon became the principal subsidiaryparent
corporation for each of Unicom. Unicom Enterprises is an
unregulated subsidiary of UnicomPECO Energy Company (PECO) and is engaged, through its subsidiaries, in
energy service activities. Unicom's principal executive offices are located at
Ten South Dearborn Street, Post Office Box A-3005, Chicago, Illinois 60690-
3005, and its telephone number is 312/394-7399.
ComEd represents substantially all of the results of operations of Unicom;
and Unicom's resources and results of operations are largely dependent on, and
reflect, those of ComEd. Consequently, the following discussion generally
focuses, in more detail, on ComEd's utility operations although information is
also provided about Unicom's unregulated operations.
Utility Operations. ComEd is engaged principally in the production,
purchase, transmission, distribution and sale of electricity to a diverse base
of residential, commercial, industrial and wholesale customers. ComEd was
organized in the state of Illinois on October 17, 1913Commonwealth Edison
Company (ComEd) as a result of the mergercompletion of Cosmopolitan Electric Company into the original corporation named
Commonwealth Edison Company. The latter had been incorporated on September 17,
1907. ComEd's service territory hastransactions contemplated
by an areaAgreement and Plan of approximately 11,300 square
milesExchange and an estimated population of approximately eight millionMerger, as of
December 31, 1999. It includes the city of Chicago, an area of about 225
square miles with an estimated population of approximately three million from
whichamended, among PECO, Unicom
Corporation (Unicom) and Exelon. PECO and ComEd, derived approximately 30 percent of its ultimate consumer revenues
in 1999. ComEd had approximately 3.5 million customers at December 31, 1999.
ComEd's principal executive offices are located at Ten South Dearborn Street,
Post Office Box 767, Chicago, Illinois 60690-0767, and its telephone number is
312/394-4321.
Unregulated Operations. Unicom Enterprises is engaged, through subsidiaries,
in energy service activities which are not subject to utility regulation by
federal or state agencies. One of these subsidiaries, UT Holdings, provides
district cooling and related services to offices and other buildings in the
central business district of Chicago and in other cities in North America,
generally working with local utilities. District cooling involves, in essence,
the production of chilled water at one or more central locations and its
circulation to customers' buildings through a closed circuit of supply and
return piping. Such water is circulated through customers' premises primarily
for air conditioning. This process is used by customers in lieu of self-
generated cooling.
Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged
in providing energy services, including gas services, performance contracting,
distributed energy and energy management systems. Through an alliance with
AlliedSignal Power Systems, Inc., a subsidiary of AlliedSignal Inc., Unicom
Energy Services is an exclusive distributor for the Parallon 75(TM)
TurboGenerator system, which was developed by AlliedSignal to provide
customers with on-site electricity production. Unicom Energy Services'
exclusive distribution territory encompasses 12 Midwest states, Ontario,
Canada and Puerto Rico.
Unicom Power Holdings, another subsidiary of Unicom Enterprises, is
developing certain generation and cogeneration projects.
Unicom Energy Inc., also a subsidiary of
Unicom, Enterprises, is currently
engaged in providing retail gas services to commercial and industrial
customers in the Midwest region. Unicom Energy Inc. also provides retail
electric services as an unregulated retail energy supplier.
2
Unicom Mechanical Services Inc., a subsidiary of Unicom Enterprises, engages
in the design, installation and servicing of heating, ventilation and air
conditioning facilities for commercial and industrial customers in Chicago and
surrounding area through subsidiaries conducting business as Midwest
Mechanical and V.A. Smith Company.
Merger Agreement. In September 1999, the Boards of Directors of Unicom and
PECO approved a merger of equals that will create a new holding company,
Exelon. The merger is conditioned, among other things, upon the approvals of
the shareholders of both companies and by various regulatory bodies. The
merger is currently expected to be completed in the latter half of 2000.
Under the merger agreement, as amended and restated January 7, 2000, PECO
and ComEd will becomebecame the principal utility subsidiaries of Exelon. This
result will be achieved byExelon through a mandatory
exchange of theeach share of outstanding common stock of PECO for one share of
common stock of Exelon and a merger of Unicom with and into Exelon whereinExelon. In the merger,
holders of Unicom common stock will receivereceived 0.875 shares of Exelon common stock plus
$3.00 in cash for each of their shares of Unicom common stock. The merger
transaction will bewas accounted for as a purchase of Unicom by PECO.
PriorExelon, through subsidiaries including PECO and ComEd, operates in
three business segments:
o Energy Delivery, consisting of the retail electricity
distribution and transmission businesses of ComEd in northern
Illinois and PECO in southeastern Pennsylvania and the natural
gas distribution business of PECO in the Pennsylvania counties
surrounding the City of Philadelphia.
o Generation, consisting of electric generating facilities, power
marketing operations and equity interests in Sithe Energies, Inc.
(Sithe) and AmerGen Energy Company, LLC (AmerGen).
o Enterprises, consisting of competitive retail energy sales,
energy and infrastructure services, communications and related
investments.
During January 2001, Exelon undertook a restructuring to separate
Exelon's generation and other competitive businesses from its regulated energy
delivery business. As part of the consummationrestructuring, the non-regulated operations
and related assets of ComEd and PECO were transferred to separate subsidiaries
of Exelon. Restructuring will streamline the process for managing, operating and
tracking the financial performance of each business segment.
Exelon's principal executive offices are located at 10 South Dearborn
Street, Chicago, Illinois 60603, and its telephone number is 312-394-4321. ComEd
was organized in the State of Illinois in 1913 as a result of the merger Unicom expects to repurchase
approximately $1.0 billionof
Cosmopolitan Electric Company into the original corporation named Commonwealth
Edison Company, which was incorporated in 1907. ComEd's principal executive
offices are located at 10 South Dearborn Street, Chicago, Illinois 60603 and its
telephone number is 312-394-4321. PECO was incorporated in Pennsylvania in 1929.
PECO's principal executive offices are located at 2301 Market Street,
Philadelphia, Pennsylvania 19101-8699 and its telephone number is 215-841-4000.
Exelon and various of its outstanding common shares.subsidiaries are subject to Federal and state
regulation. Exelon is a registered holding company under the Public Utility
Holding Company Act of 1935 (PUHCA). ComEd is a public utility under the
Illinois Public Utilities Act subject to regulation by the Illinois
1
Commerce Commission (ICC). PECO is a public utility under the Pennsylvania
Public Utility Code subject to regulation by the Pennsylvania Public Utility
Commission (PUC). PECO, ComEd and Generation are electric utilities under the
Federal Power Act subject to regulation by the Federal Energy Regulatory
Commission (FERC). Specific operations of Exelon are also subject to the
jurisdiction of various other Federal, state, regional and local agencies,
including the United States Nuclear Regulatory Commission (NRC).
As a registered holding company, Exelon and its subsidiaries are
subject to a number of restrictions under PUHCA. These share
repurchases arerestrictions generally
involve financing, investments and affiliate transactions. Under PUHCA, Exelon
and its subsidiaries cannot issue debt or equity securities or guaranties
without approval of the Securities and Exchange Commission (SEC), or in additionsome
circumstances in the case of ComEd and PECO, the ICC or the PUC, respectively.
Exelon currently has SEC approval to 26.3 million sharesissue up to an aggregate of Unicom$4 billion in
common stock, preferred securities, long-term debt and short-term debt, and to
issue up to $4.5 billion in guaranties. PUHCA also limits the businesses in
which Exelon may engage and the investments that Unicom repurchasedExelon may make. With limited
exceptions, Exelon may only engage in January 2000 upon settlementtraditional electric and gas utility
businesses and other businesses that are reasonably incidental or economically
necessary or appropriate to the operations of certain forward purchase
contracts.the utility business. The
$1.0exceptions include Exelon's ability to invest in exempt telecommunications
companies, in exempt wholesale generating businesses and foreign utility
companies (these investments are capped at $4 billion additional share repurchases will be funded from
available funds, including funds resulting fromin the fossil plant sale.
The merger agreement, as amendedaggregate), in
energy-related companies (as defined in SEC rules, and restated, was filed on January 13, 2000
by Unicom with the SEC as an exhibitsubject to a Form 8-K,cap on these
investments of 15% of Exelon's consolidated capitalization), and referencein other
businesses, subject to SEC approval. In addition, PUHCA requires that filingall of a
registered holding company's utility subsidiaries constitute a single system
that can be operated in an efficient, coordinated manner. For additional
information about restrictions on the payment of dividends and other effects of
PUHCA on Exelon and its subsidiaries, see ITEM 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Exelon.
Energy Delivery
Energy Delivery consists of Exelon's regulated energy delivery
operations conducted by ComEd and PECO.
ComEd is made for more detailed information.
Changesengaged principally in the Electricpurchase, transmission,
distribution and sale of electricity to a diverse base of residential,
commercial, industrial and wholesale customers in northern Illinois. ComEd is a
public utility under the Illinois Public Utilities Act. Consequently, ComEd is
subject to regulation by the ICC as to rates and charges, issuance of most of
its securities, service and facilities, classification of accounts, transactions
with affiliated interests, as defined in the Illinois Public Utilities Act, and
other matters. ComEd is also subject to regulation by FERC as to transmission
rates and certain other aspects of its business, including interconnections and
sales of transmission related assets.
ComEd's traditional service territory has an area of approximately
11,300 square miles and an estimated population of approximately 8 million as of
December 31, 2000. The service territory includes the City of Chicago, an area
of about 225 square miles with an estimated population of approximately 3
million. ComEd had approximately 3.5 million customers at December 31, 2000.
ComEd's franchises are sufficient to permit it to engage in the
business it now conducts. ComEd's franchise rights are generally nonexclusive
rights documented in agreements and, in some cases, certificates of public
convenience issued by the ICC. With few exceptions, the franchise rights have
stated expiration dates ranging from 2001 to 2040 and subsequent years.
2
PECO is engaged principally in the purchase, transmission, distribution
and sale of electricity to residential, commercial, industrial and wholesale
customers and in the purchase, distribution and sale of natural gas to
residential, commercial and industrial customers. PECO is a public utility under
the Pennsylvania Public Utility Industry
UnicomCode. As a result, PECO is subject to regulation
by the PUC as to electric distribution rates, retail gas rates, issuances of
securities and certain other aspects of PECO's operations. PECO is also subject
to regulation by FERC as to transmission rates and certain other aspects of its
predominant business, including interconnections and sales of transmission related assets.
Pursuant to the Pennsylvania Electricity Generation Customer Choice and
Competition Act (Competition Act), the Commonwealth of Pennsylvania has required
the unbundling of retail electric energyservices in Pennsylvania into separate
generation, transmission and distribution areservices with open retail competition
for generation services. Since the commencement of deregulation in 1999, PECO
serves as the local distribution company providing electric distribution
services to all customers in its service territory and bundled electric service
to customers who do not choose an alternate electric generation supplier. PECO
delivers electricity to approximately 1.5 million customers and natural gas to
approximately 425,000 customers.
PECO's traditional retail service territory covers 2,107 square miles
in southeastern Pennsylvania. PECO provides electric delivery service in an area
of 1,972 square miles, with a population of approximately 3.6 million, including
1.6 million in the City of Philadelphia. Natural gas service is supplied in a
period of fundamental change. These
changes are attributable1,475 square mile area in southeastern Pennsylvania adjacent to changes in technology and regulation. Federal law
and regulations have been amended to provide for open transmission system
access, and various states, including Illinois, are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers in addition to the local utility.
Electric Utility Industry. The electric utility industry historically has
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state,Philadelphia,
with a statutory obligationpopulation of 1.9 million.
PECO has the necessary franchise rights to serve all
offurnish electric and gas
service in the electricity needs within their service territoryvarious municipalities or territories in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on a recovery of
some or all ofwhich it now supplies
such prudently incurred costs plus a return on invested
capital. Such rate regulation, and the ability of utilities to recover
investment and other costs through rates, have provided the basis for
recording certain costs as regulatory assets. These assets represent costsservices. PECO's franchise rights, which are allocated over future periods reflecting related regulatory
treatment, rather than expensed ingenerally nonexclusive rights,
consist of charter rights and certificates of public convenience issued by the
current period.
3
Federal Regulation. The Federal Energy Policy Act of 1992, among other
things, empowered FERC to introduce a greater level of competition into the
wholesale marketplace for electric energy. Under FERC Order No. 888, utilitiesPUC and/or "grandfather rights". Such franchise rights are required to file open access tariffs with regard to their transmission
systems. These tariffs set forth the terms, including prices, under which
other parties and the utility's wholesale marketing function may use the
utility's transmission system. ComEd has an approved open access tariff with
the FERC. A companion FERC rule, Order No. 889, requires the separation of the
transmission operations and wholesale marketing functions sogenerally unlimited
as to ensure that
unaffiliated third parties have access to the same information as to system
availability and other requirements. The FERC Order further requires utilities
to operate an electronic bulletin board to make transmission price and access
data available to all potential users. A key feature of FERC Order No. 888 is
that it contemplates full recovery of a utility's costs "stranded" by
competition. These costs are "stranded" or "strandable" to the extent market-
based rates would be insufficient to allow for their full recovery. To recover
stranded costs, the utility must show that it had a reasonable expectation
that it would continue to serve the customer in question under its regulatory
compact. In addition, some government entities, such as cities, may elect to
"municipalize" a utility's distribution facilities through condemnation
proceedings. Such municipalities would then be able to purchase electric power
on a wholesale basis and resell it to customers over the newly acquired
facilities. The FERC Order provides for the recovery of a utility's investment
stranded by municipalization.
The 1997 Act. In December 1997, the Governor of Illinois signed into law the
1997 Act, which established a phased process to introduce competition into the
electric industry in Illinois under a less regulated structure. The 1997 Act
was amended in June 1999.time.
As a result of Exelon's restructuring to separate its regulated and
competitive businesses, both ComEd and PECO transferred their assets and
liabilities unrelated to energy delivery to other subsidiaries of Exelon. In the
1997 Actcase of ComEd, the assets and FERC rules, pricesliabilities transferred included nuclear
generation and wholesale power marketing operations and some administrative
functions. In the case of PECO, the assets and liabilities transferred related
to nuclear, fossil and hydroelectric generation and wholesale power marketing;
unregulated ventures and activities, including communications, infrastructure
services and unregulated gas and electric sales activities; and administrative,
information technology and other support for all other business activities of
Exelon and its subsidiaries.
Energy Delivery's kilowatt-hour (kWh) sales and generation are
generally higher, primarily during the summer periods but also during the winter
periods, when temperature extremes create demand for either summer cooling or
winter heating. ComEd's highest peak load experienced to date occurred on August
30, 1999 and was 21,243,000 kilowatts, and the highest peak load experienced to
date during a winter season occurred on December 20, 1999 and was 14,484,000
kilowatts. PECO's highest peak load experienced to date occurred on July 6, 1999
and was 7,959,000 kilowatts; and the highest peak load experienced to date
during a winter season occurred on January 17, 2000 and was 6,135,000 kilowatts.
3
Retail Electric Services
Electric utility restructuring legislation was adopted in Pennsylvania
in December 1996 and in Illinois in December 1997. Both states, through their
regulatory agencies, established a phased approach to competition, allowing
customers to choose an alternative electric generation supplier; required rate
reductions and imposed caps on rates during a transition period; and allowed the
collection of competitive transition charges (CTCs) from customers to recover
costs that might not otherwise be recovered in a competitive market (stranded
costs). Under the restructuring initiatives adopted at the Federal and state
levels, the role of electric utilities in the supply and delivery of energy is
changing. ComEd and PECO continue to be obligated to provide a reliable delivery
system under cost-based rates. During the transition period to a competitive
supply marketplace, ComEd and PECO are also obligated to supply generation
services to customers who do not or cannot choose an alternate supplier.
The rates for the supply of
electric energygeneration service provided by ComEd and PECO are
expectedsubject to change from cost-based, regulated rates to
rates determined by competitive market forces. Accordingly,rate caps during the 1997 Act
provides for, among other things, gradual customer access to other electric
suppliers ortransition periods. PECO has entered into a
long-term power purchase agreement with Generation to obtain sufficient power at
the rates it is allowed to charge to serve customers who do not choose an
alternate generation supplier. ComEd has entered into a long-term power purchase
agreement with Generation to obtain sufficient power at fixed rates.
ComEd. Under the Illinois legislation, as of December 31, 2000, all
non-residential customers were eligible to choose a new electric generation
supplier or elect the power purchase option. The power purchase option which allows
the purchase of electric energy from ComEd at marketmarket-based prices. ComEd's
residential customers become eligible to choose a new electric supplier in May
2002. As of December 31, 2000, over 9,500 non-residential customers,
representing approximately 27% of ComEd's retail kilowatt-hour sales for the
twelve months prior to the introduction of retail competition, had elected to
receive their electric energy from an alternative electric supplier or chose the
power purchase option.
In addition to retail competition for generation services, the Illinois
legislation provided for residential base rate reductions, a sharing with
customers of any earnings over a defined threshold and a base rate freeze,
reflecting the residential base rate reductions, through January 1, 2005. A 15%
residential base rate reduction became effective on August 1, 1998 and a further
5% residential base rate reduction will become effective in October 2001. Under
the earnings provision, one-half of any earnings over a defined threshold return
on common equity during the period ending December 31, 2004 must be refunded to
customers. The threshold rate of return on common equity is based prices,on the 30-year
treasury bond rate, plus 8.5% in the years 2000 through 2004. Earnings, for
purposes of the earnings provision, include ComEd's net income calculated in
accordance with generally accepted accounting principles and may include
accelerated amortization of regulatory assets and the amortization of goodwill.
At December 31, 2000, ComEd had a regulatory asset with an unamortized balance
of $385 million as a result of the Illinois legislation. It expects to fully
recover and amortize that regulatory asset by the end of 2003. ComEd does not
currently expect to trigger the earnings sharing provisions in the years 2001
through 2004.
The Illinois legislation also provided for the collection of a CTC from
customers who choose to purchase electric energy from a RESan alternative supplier or
elect the power purchase option during a transition period that extends through
2006. EffectiveThe CTC, which was established as of October 1, 1999 the CTC was established in accordance with a
formula defined in the 1997 Act. The CTC, whichand is applied on a
cents per kilowatthourkWh basis, considers the revenue whichthat would have been collected from a
customer under tariffed rates, reduced by the revenue the utility will receive
for providing delivery services to the customer, the market price for
electricity and a defined mitigation factor, which represents the utility's
opportunity to develop new revenue sources and achieve cost savings. The CTC
allows ComEd to recover some of its costs whichthat might otherwise be unrecoverable
under market-based rates.
Nonetheless,4
As part of a settlement agreement between ComEd and the City of Chicago
relating to ComEd's Chicago franchise agreement, ComEd and Chicago agreed to a
revised combination of ongoing work under the franchise agreement and new
initiatives that will need to take
steps to address the portion of such costs which are not recoverable through
the CTC. Such steps may include cost control efforts, developing new sources
of revenue and asset dispositions.
On October 1, 1999, more than 41,000 non-residential customers became
eligible to choose a new electric supplier or elect the purchase power option.
The remainder of the non-residential customers will become eligible to choose
an electric supplier or the purchase power option between June 1 and
December 31, 2000. As of December 31, 1999, over 4,700 non-residential
customers, representing approximately ten percent of ComEd's 1998 retail
kilowatthour sales, elected to receive their electric energy from a RES or
chose the purchase power option. As a result of the collection of CTC's from
such customers, ComEd does not expect these elections to have a material
effect on its results of operations in the near term.
Utilities are required to continue to offer delivery services, including thedefined transmission and distribution
ofexpenditures by ComEd to improve electric energy, such that customers who
select a RES can receive electric energy from that supplier using existing
transmission and distribution facilities. Such services will continue to be
4
offered under cost-based, regulated rates.service in Chicago. The ICC issued orders in August and
September 1999 approving, with modifications, ComEd's delivery service
tariffs.
The 1997 ActIllinois
legislation also committed ComEd to spend at least $2 billion during the period
1999 through 2004 on transmission and distribution facilities outside of
ChicagoChicago. In addition, ComEd conducted an extensive evaluation of the reliability
of its transmission and distribution systems in response to contribute $250 million to an environmental trust, asseveral outages in
the summer of 1999. As a result of closingthe evaluation, ComEd has increased its
capital and operating and maintenance expenditures on its transmission and
distribution facilities in order to improve their reliability.
As a result of ComEd's commitments to improve the fossil plant sale. See "Fossil Plant Sale" below for
additional information.reliability of its
transmission and distribution system, ComEd expects its capital expenditures
will exceed depreciation on its rate base assets through at least 2002. The 1997 Act also provides for a 15% residential base rate reduction which
became effective August 1, 1998 and an additional 5% residential base rate
reduction in October 2001. ComEd's operating revenues were reduced by
approximately $170 million in 1998 due to the 15% residential base rate
reduction. The 15% rate reduction further reduced ComEd's operating revenues
by approximately $226 million in 1999, compared to 1998 rate levels.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a
rate freeze will generally be in effect until at leastpreclude rate recovery on and of such investments
prior to January 1, 2005. During thisUnless ComEd can offset the additional carrying costs
against cost savings, its return on investment will be reduced during the period
utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC regulatory review. A utility may
request a rate increase during the rate freeze period only when necessaryand until rate increases are approved authorizing a return of
and on this new investment.
In addition, the Illinois legislation provides that an electric
utility, such as ComEd, will be liable for actual damages suffered by customers
in the event of a continuous power outage of four hours or more affecting 30,000
or more customers and provides for reimbursement of governmental emergency and
contingency expenses incurred in connection with any such outage. The
legislation bars recovery of consequential damages. The legislation also allows
an affected utility to ensureseek relief from these provisions from the utility's financial viability, but not before January 1, 2000.
UnderICC where the
earnings provisionutility can show that the cause of the 1997 Act, if the earned return on common
equity of a utility during this period exceeds an established threshold, one-
half of the excess earnings must be refundedoutage was unpreventable damage due to
customers.weather events or conditions, customer tampering or third party causes.
The threshold rate
of return on common equity is based on the 30-Year Treasury Bond rate, plus
5.5% in the years 1998 through 1999 and plus 8.5% in the years 2000 through
2004. The utility's earned return on common equity and the threshold return on
common equity are each calculated on a two-year average basis. The earnings
sharing provision is applicable only to ComEd's earnings. In accordance with
the provisions of 1997 Act, increased amortization of regulatory assets may be
recorded, thereby reducing the earned return on common equity, if earnings
otherwise would have exceeded the maximum allowable rate of return. The
potential for earnings sharing or increased amortization of regulatory assets
could limit earnings in future periods.
The 1997 ActIllinois legislation also allows a portion of ComEd's future
revenues to be segregated and used to support the issuance of securities by
ComEd or a SPE.special purpose financing subsidiary. The proceeds, net of
transaction costs, from such securities issuances must be used to refinance
outstanding debt or equity or for certain other limited purposes. The total
amount of such securities that may be issued is approximately $6.8 billion. In
December 1998, special purpose financing subsidiaries of ComEd initiated the issuance ofissued $3.4
billion of transitional trust notes through its SPEs, ComEd Fundingnotes. For additional information, see Related Entities below and
ComEd Funding Trust. See "LiquidityITEM 8. Financial Statements and Capital Resources," subcaption
"UTILITY OPERATIONS--Capital Resources" on page F-10, and Notes 3 and 7Supplementary Data - Exelon, Note 15 of Notes
to Consolidated Financial StatementsStatements.
PECO. Retail competition for electric generation services began in
Pennsylvania on page F-39January 1, 1999, and F-43, respectively,by January 1, 2000 all of PECO's retail
electric customers had the right to choose their generation suppliers. At
December 31, 2000, approximately 18% of PECO's residential load, 46% of its
commercial load and 42% of its industrial load were purchasing generation
service from alternative suppliers.
In addition to retail competition for generation services, PECO's
settlement of its restructuring case mandated by the Competition Act required
PECO to provide generation services to customers who do not or cannot choose an
alternate supplier through December 31, 2010 and established caps on generation
and distribution rates. The 1998 settlement also authorized PECO to recover $5.3
billion of stranded costs and to securitize up to $4.0 billion of its stranded
cost recovery.
Under the 1998 settlement, PECO's distribution rates were capped
through June 30, 2005 at the level in effect on December 31, 1996. Generation
rates, consisting of the charge for stranded cost recovery and a shopping credit
or capacity and energy charge, were capped through December 31, 2010. For 2001,
the generation rate cap is $0.0681 per kWh, increasing to $0.0698 per kWh in
2002,
5
$0.0751 per kWh in 2006 and $0.0801 per kWh in 2007. The rate caps are subject
to limited exceptions, including significant increases in Federal or state taxes
or other significant changes in law or regulations that would not allow PECO to
earn a fair rate of return.
In connection with its request for authorization to securitize an
additional information regarding$1 billion of its stranded cost recovery, PECO agreed to provide its
customers with additional rate reductions of $60 million in 2001. Under the
redemptionssettlement agreement entered into by PECO in 2000 relating to the PUC's approval
of the merger with Unicom, PECO agreed to $200 million in aggregate rate
reductions for all customers over the period January 1, 2002 through 2005 and
repurchaseextended the rate cap on distribution rates through December 31, 2006.
PECO has been authorized to recover stranded costs of debt$5.3 billion over
a twelve-year period ending December 31, 2010 with a return on the unamortized
balance of 10.75%. PECO's recovery of stranded costs is based on the level of
transition charges established in the settlement of PECO's restructuring case
and equity.
The 1997 Act also requiresthe projected annual retail sales in PECO's service territory. Recovery of
transition charges for stranded costs and PECO's allowed return on its recovery
of stranded costs are included in operating revenue.
As a mechanism for utilities to establish or join an ISO that will
independently manage and control utility transmission systems. Additionally,recover their allowed stranded costs,
the 1997Competition Act includes the leveling of certain regulatory requirements to
permit operational flexibility, the leveling of certain regulatory and tax
provisions as applied to various electric suppliers and a new, more stringent,
reliability requirement applicable to ComEd in the event of a major outage.
See "Response to Regulatory Changes" below for additional information.
See Note 1, under "Regulatory Assets and Liabilities," and Note 3 of Notes
to Financial Statements on page F-33 and F-39, respectively,provides for the accounting effects relatedimposition and collection of non-bypassable
CTCs on customers' bills. CTCs are assessed to and collected from all retail
customers who have been assigned stranded cost responsibility and access the
utilities' transmission and distribution systems. As the CTCs are based on
access to the 1997 Act.
Response to Regulatory Changes. Unicom has announced several businessutility's transmission and operational objectives designed to focus efforts in responding to the energy
market changes that are expected to
5
developdistribution system, they will be
assessed regardless of whether such customer purchases electricity from the
1997 Act. Among other things, these strategic objectives call
for a focusutility or an alternate electric generation supplier. The Competition Act
provides, however, that the utility's right to collect CTCs is contingent on operations to: (1) provide a reliable supply of electricity as
the
competitive marketplace evolves, (2) become a top quartile operator of
competitive nuclear plants, (3) deliver competitive earnings while
restructuring the balance sheet to reflect the realitiescontinued operation at reasonable availability levels of the marketplace,
(4) expandassets for which
the offeringstranded costs were awarded, except where continued operation is no longer
cost efficient because of energy-related products and services, and (5)
transform the corporate culture of Unicom.
Under the 1997 Act, the role of electric utilities in the supply and
delivery of energy is expected to change. Utilities, such as ComEd,
traditionally have been responsible for providing both adequate supply and
reliable delivery of electricity to customers within their service areas. In
the future, ComEd will continue to be obligated to provide a reliable delivery
system. However, ComEd will be obligated to supply electricity only to those
customers that it continues to serve under tariffs for electricity, but not to
those customers who choose to rely on the marketplace. Nonetheless, during the transition period to a competitive supply marketplace, ComEd must provide both
an adequate supply and reliable delivery of electricity. Givenmarket.
The following table shows the tight
capacity situation in ComEd's market, ComEd will continue working to maintain
its available capacity, as well as working to assist in the development of a
competitive supply marketplace in Illinois.
ComEd has a significant commitment to, and investment in, nuclear generating
capacity. ComEd has installed a management team responsible for improving
nuclear operations. Such improvements are aimed at increasingestimated average levels of energy
generation, or capacity factors, at ComEd's nuclear generating units while
simultaneously improving ComEd's record of meeting NRC requirementsstranded cost
recovery and INPO
performance standards. Increased capacity factors generally result in lower
unit production costs and an improved opportunity to generate and sell
electricity in a competitive marketplace. Efforts are also being made to
control capital and operating costs through increased efficiencies, such as
the reduction of downtime and expenses associated with generating unit
maintenance and refueling outages.
ComEd also evaluated the recoverability of its generating plant investment
as a result of the 1997 Act. See Note 1 of Notes to Financial Statements,
under "Regulatory Assets and Liabilities," on page F-33 for additional
information. Notwithstanding these efforts, there continues to be an ongoing
analysis of the ability of ComEd's various nuclear plants to generate and
deliver electric energy safely at competitive prices in the competitive market
for energy. Although short-term system reliability and capacity constraints
are likely to support the continued operation of ComEd's nuclear units in the
near term, expected longer term developments are likely to make decision-
making a function of economic considerations. In the absence of short-term
reliability and capacity constraints, if a generating plant cannot produce
power safely at a cost below the competitive market price, it will be disposed
of or closed. Plant impairment adjustments have reduced the carrying value of
nuclear plants, and depreciation rates reflecting shortened estimated useful
lives for certain stations will reduce the carrying value further during the
next several years. However, closure of a plant could involve additional
charges associated with the write-off of its then-current carrying value. In
January 1998, Unicom and ComEd announced its decision to permanently cease
nuclear generating operations at ComEd's Zion Station. The related retirement
resulted in a charge in 1997 of $523 million (after-tax), or $2.42 per common
share (diluted), reflecting both a write down of the plant's carrying value
and a liability for future closing costs. A portion of Zion Station currently
is used to provide voltage support in the transmission system that serves
ComEd's northern region. See Note 5 of Notes to Financial Statements on page
F-41, for additional information.
ComEd joined with other Midwestern utilities to design the Midwest ISO in
1998. These utilities have agreed to place their transmission systems under
the control of the Midwest ISO as soon as it achieves operational status in
2001. The Midwest ISO, a key element in accommodating the FERC-directed
restructuring of the electric industry, is expected to promote enhanced
reliability of the transmission system, equal access to the transmission
system, and foster increased competition. The Midwest ISO will control the
transmission system and will have authority to require modification in
6
the operation of generators connected to that system during system
emergencies. ComEd, like other utilities, will retain ownership of its
transmission lines. The formation of the Midwest ISO was approved by the FERC
in September 1998, subject to certain conditions. In December 1999, ComEd and
other Midwestern utilities filed a request with the FERC for a Declaratory
Order approving a different organizational template for the regional
transmission grid. The request seeks approval for the creation of for-profit
transmission companies, operating under the general oversight of the Midwest
ISO, but separated from their previous vertically integrated utilities. The
request was approved, in part, on February 24, 2000, subject to further
development of its elements.
In the absence of an ISO-related power exchange, ComEd has also agreed to
cooperate with APX in the creation of the first electronic energy exchange in
Illinois. Initial products may include hourly, daily and weekly electricity
delivered to and from interconnection points on ComEd's transmission system,
and a standard system of credit and trading interfaces. Unicom has made a $3
million venture capital investment in APX in order to help finance its
expansion in the Midwest. Neither ComEd nor Unicom will receive any voting
rights. The power exchange will be independently owned and managed by APX and
will allow wholesale and retail market participants to trade electricity
anonymously through an internet-based computerized system. ComEd will be
treated like any other market participant and will be an active participant in
the power exchange which opened in Illinois in the fourth quarter of 1999.
Fossil Plant Sale. In December 1999, ComEd completed the sale of its fossil
generating assets to EME for a cash purchase price of $4.8 billion. The fossil
plant assets represent an aggregate generating capacity of approximately 9,772
megawatts.
Just prior to the consummation of the fossil plant sale, ComEd transferred
these assets to an affiliate, Unicom Investment. In consideration for the
transferred assets, Unicom Investment paid ComEd consideration totalling
approximately $4.8 billion in the form of a demand note in the amount of
approximately $2.4 billion and an interest-bearing Note with a maturity of
twelve years. Unicom Investment immediately sold the fossil plant assets to
EME, in consideration of which Unicom Investment received approximately $4.8
billion in cash from EME. Immediately after its receipt of the cash payment
from EME, Unicom Investment paid the $2.4 billion aggregate principal due to
ComEd under the demand note. Unicom Investment will use the remainder of the
cash received from EME to fund other business opportunities, including the
share repurchases. Of the cash received by ComEd, $1.8 billion is expected to
be used to pay the costs and taxes associated with the fossil plant sale
including ComEd's contribution of $250 million of the proceeds to an
environmental trust as required by the 1997 Act. The remainder of the demand
note proceeds will be available to ComEd to fund, among other things,
transmission and distribution projects, nuclear generation station projects,
and environmental and other initiatives.
The sale produced an after-tax gain of approximately $1.6 billion, after
recognizing commitments associated with certain coal contracts ($350 million),
recognizing employee-related costs ($112 million) and contributing to the
environmental trust. The coal contract costs include the amortization of the remaining balance of ComEd's regulatory asset for unrecovered coal reserves of
$178 million and the recognition of $172 million of settlement payments
related to the above-market portion of coal purchase commitments ComEd
assigned to EME at market value upon completion of the fossil plant sale. The
severance costs included pension and post-retirement welfare benefit
curtailment and special termination benefit costs of $51 million and
transition, separation and retention payments of $61 million. A total of 1,730
fossil station employee positions were eliminated upon completion of the
fossil plant sale on December 15, 1999. As of December 31, 1999, 1,590 of the
employees whose positions were eliminated had been terminated and 140 affected
employees were in a transition program which generally extends 60 days from
the date of the fossil plant sale. Consistent with the provisions of the 1997
Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory
liability, which was used to recover regulatory assets. Therefore, the gain on
the sale, excluding $43 million of amortization
7
of investment tax credits, was recorded as a regulatory liability in the
amount of $2.544 billion and amortized in the fourth quarter of 1999. The
amortization of the regulatory liability and additional regulatory asset
amortization of $2.456 billion are reflected in depreciation and amortization
expense on Unicom's Statement of Consolidated Operations and resulted in a net
reduction to depreciation and amortization expense of $88 million.
As part of the sale transaction, ComEd entered into transitional, limited
term power purchase agreements with the buyer. Such purchase power agreements
will increase ComEd's purchased power costs.
Construction Program
Utility Operations. ComEd has a construction program for the year 2000,
which consists principally of improvements to its existing nuclear production,
transmission and distribution facilities. The program, as currently approved
by ComEd, includes the following estimated expenditures (excluding nuclear
fuel expenditures of approximately $260 million).
2000
----
(Millions
of Dollars)
Nuclear................................................... $215
Transmission and Distribution............................. 536
General................................................... 146
----
$897
====
In response to several outages in the summer of 1999, ComEd conducted an
extensive evaluation of the reliability of its transmission and distribution
systems. The construction program above reflects a preliminary evaluation of
improvements necessary to improve reliability of ComEd's transmission and
distribution systems. ComEd is currently evaluating its construction program
for the years 2000, 2001 and 2002. The final results of this planning process
cannot be determined at this time.
ComEd's net nuclear generating plant, including construction work in
progress and nuclear fuel, and excluding the decommissioning costs included in
the accumulated provison for depreciation, is $7.8PECO's authorized
stranded cost recovery ($5.2 billion at December 31, 1999. Gross additions to and retirements from utility property, excluding
nuclear fuel, of ComEd and the Indiana Company2000) for the five years ended
December 31, 1999 were $4,801 million2001
through 2010, based on estimated 0.8% annual sales growth assumed in the 1998
settlement of PECO's restructuring case. Exelon's independent accountant's have
neither examined nor compiled these projections.
6
Annual Stranded Cost
Amortization And Return
Revenue Excluding
Stranded Cost Gross Receipts Tax
Recovery -------------------------------------------------------
Year Annual Sales (1) Charge (2) Total Return @ 10.75% Amortization
- -------------- ------------------- ---------------- -------------------------------------------------------
MWh $/kWh ($000) ($000) ($000)
2001 34,108,616 0.0231 753,241 482,561 270,680
2002 34,381,485 0.0251 825,004 516,869 308,135
2003 34,656,537 0.0247 818,352 482,401 335,951
2004 34,933,789 0.0243 811,540 444,798 366,742
2005 35,213,260 0.0240 807,933 403,555 404,378
2006 35,494,966 0.0266 902,623 353,070 549,553
2007 35,778,925 0.0266 909,844 290,627 619,217
2008 36,065,157 0.0266 917,123 220,312 696,811
2009 36,353,678 0.0266 924,459 141,229 783,231
2010 36,644,507 0.0266 931,855 52,381 879,474
- ----------------------------------
(1) Subject to reconciliation of actual sales and collections.
(2) Subject to periodic adjustments for over- or under- recovery.
Under the Competition Act, licensed entities, including alternate
electric generation suppliers, may act as agents to provide a single bill and
$1,622 million, respectively
(excluding the effects of the closure of Zion Station, the sales of State Lineprovide associated billing and Kincaid Stations and the fossil plant sale).
ComEd periodically reviews its projection of probable future demand for
electricitycollection services to retail customers located
in its traditionalPECO's retail electric service territory. It currently projects long-
term average annual growth of 1.75% in annual peak load and 1.5% in total
annual electricity requirements, excluding sales to other utilities. ComEd's
forecasts of peak load indicate a need for additional resources to meet
demand, either through generating capacity, equivalent purchased power and/orIn that event, the development of additional demand-side management resources, in 2000 and
each year thereafter for the foreseeable future. ComEd believes that adequate
resources can be obtained in sufficient quantities to meet such forecasted
needs. Currently, ComEd does not know the ultimate impact on these projections
resulting from open access which began on a phased basis on October 1, 1999.
8
Purchase commitments for ComEd, principally related to construction, nuclear
fuel and coal in support of certain power purchase agreements approximated
$670 million at December 31, 1999. In addition, ComEd's estimated commitments
for expected capacity payments and fixed charges related to power purchase
agreements were as follows:
Commitments(1)
Period ($Millions)
------ --------------
2000......................... $ 783
2001......................... 698
2002......................... 427
2003-2004.................... 540
2005-2012.................... 1,039
------
$3,487
======
--------
(1) Capacity payments may be adjusted based on certain conditions. No
estimate of future cost escalation has been made.
See "Changes in the Electric Utility Industry," subcaptions "The 1997 Act"
and "Fossil Plant Sale" above, for additional information.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," subcaption "Liquidity and Capital Resources--UTILITY
OPERATIONS--Capital Resources," on page F-10 for information regarding the
capital resources of ComEd.
Unregulated Operations. Unicom has approved capital expenditures for 2000 of
approximately $85 million for UT Holdings, primarily related to an expansion
of its Chicago district cooling facilities and the related distribution piping
and plants in other cities. As of December 31, 1999, UT Holdings' purchase
commitments, principally related to construction, were approximately $27
million.
Unicom has approved capital expenditures for 2000 of approximately $15
million for Unicom Energy Services. As of December 31, 1999, Unicom Energy
Services had purchase commitments of approximately $24 million.
Unicom has approved capital expenditures for 2000 of approximately $221
million for Unicom Power Holdings. As of December 31, 1999, Unicom Power
Holdings had purchase commitments of approximately $78 million.
Unicom Power Holdings intends to purchase approximately 440 MW of combustion
turbine generators and auxiliary equipment. Such generators will either be
sold or placed into cogenerationalternative
supplier or other peaking applications. Unicom Power
Holdings is evaluatingthird party replaces the costs and economics of such alternatives. Unicom
Power Holdings anticipates thatcustomer as the equipment purchases will cost
approximately $165 million, of which approximately $90 million has been
incurred as of December 31, 1999. Unicom Power Holdings may incur significant
additional costs to site and install such power generation equipment.
Unicom expects to obtain funds to invest in its unregulated subsidiaries
principally from the fossil plant sale proceeds received by Unicom Investment,
although it may also obtain funds from dividends received on its ComEd common
stock and from borrowings. The availability of ComEd's dividends to Unicom is
dependent on ComEd's financial performance and cash position, as well as legal
restrictions on the payment of dividends by public utilities. Other forms of
financing by ComEd to Unicom or the unregulated subsidiaries of Unicom, such
as additional loans or additional equity investments, which are not expected,
would be subject to prior approval by the ICC.
The fossil plant sale proceeds received by Unicom Investment, after the
payment of the demand note to ComEd, will be used to fund share repurchases
and to invest in new business opportunities. See "Changes in the Electric
Utility Industry" subcaption "Fossil Plant Sale" above, for additional
information.
9
Unicom Enterprises has an unused $400 million credit facility which will
expire on December 15, 2000. The credit facility can be used by Unicom
Enterprises to finance investments in unregulated businesses and projects, and
for general corporate purposes. The credit facility is guaranteed by Unicom
and includes certain covenants with respect to Unicom and Unicom Enterprises'
operations. Interest rates for borrowings under the credit facility are set at
the time of a borrowing and are based on either a prime interest rate or a
floating rate bank index plus a spread which varies with the credit rating of
ComEd's outstanding first mortgage bonds.
In June 1999, Northwind Midway issued $12 million of 7.68% guaranteed senior
Notes due June 2023, the proceeds of which will be used primarily to finance
certain project construction costs. The Notes are guaranteed by Unicom and
include certain covenants with respect to Unicom and Northwind Midway's
operations.
In July 1998, Unicom Thermal issued $120 million of 7.38% unsecured
guaranteed senior Notes due May 2012, the proceeds of which were used to
refinance existing debt. The Notes are guaranteed by Unicom and include
certain covenants with respect to Unicom and Unicom Thermal's operations.
See Notes 12 and 13 of Notes to Financial Statements on pages F-47 and F-49
for additional information regarding certain covenants with respect to Unicom,
Unicom Enterprises and Unicom Thermals' operations.
Fuel Supply
The kilowatthour generation of ComEd for 1999 was provided from the
following fuel sources: nuclear 74%, coal 23% and natural gas 3%. The
increases in net generation of electricity for 1999, compared to the prior
years, are primarily due to significant improvement in the performance of
ComEd's nuclear fleet. In December 1999, ComEd sold its fossil generating
assets. As part of the sale transaction, ComEd entered into transitional,
limited term power purchase agreements with the buyer. See "Changes in the
Electric Utility Industry," subcaption "Fossil Plant Sale" above, and page F-
20 for additional information.
Nuclear Fuel. ComEd has uranium concentrate inventory and supply contracts
sufficient to meet all of its uranium concentrate requirements through 2000
and portions of its uranium concentrate requirements for periods beyond 2000.
ComEd's contracted conversion services are sufficient to meet all of its
uranium conversion requirements through 2000 and portions beyond 2000. All of
ComEd's enrichment requirements have been contracted through 2003 and portions
of its enrichment requirements for periods beyond 2003. Commitments for fuel
fabrication have been obtained for ComEd's nuclear units at least through
2005. ComEd does not anticipate that it will have any difficulty in
negotiating contracts for uranium concentrates, conversion, enrichment and
fuel fabrication services for its remaining requirements.
Under the Energy Policy Act of 1992, investor-owned electric utilities that
have purchased enrichment services from the DOE are being assessed amounts to
fund a portion of the cost for the decontamination and decommissioning of
uranium enrichment facilities owned and previously operated by the DOE.
ComEd's portion of such assessments is estimated to be approximately $17
million per year (to be adjusted annually for inflation) to 2007. The Act
provides that such assessments are to be treated as a cost of fuel.
See "Regulation--Nuclear" below for information concerning the disposal of
radioactive waste.
Regulation
ComEd and the Indiana Company are subject to federal and state regulation in
the conduct of its business. Such regulation includes rates, securities
issuance, nuclear operations, environmental and
10
other matters. Particularly in the cases of nuclear operations and
environmental matters, such regulation can and does affect operational and
capital expenditures. ComEd is subject to regulation by the ICC as to rates
and charges, issuance of most of its securities, service and facilities,
classification of accounts, transactions with affiliated interests, as defined
in the Illinois Public Utilities Act, and other matters. In addition, the ICC
in certain of its rate orders has exercised jurisdiction over ComEd's
environmental control program. See "Changes in the Electric Utility Industry--
The 1997 Act" above for information regarding the 1997 Act.
ComEd is subject to the jurisdiction of the FERCobligor with respect
to the customer's bill and PECO generally has no right to collect such
receivable from the customer. Third-party billing would change PECO's customer
profile (and risk of non-payment by customers) by replacing multiple customers
with the entity providing third-party billing for those customers. PUC-licensed
entities may also finance, install, own, maintain, calibrate and remotely read
advanced meters for service to retail customers in PECO's retail electric
service territory. To date, no third parties are providing billing of PECO's
charges to customers or advanced metering. Only PECO can physically disconnect
or reconnect a customer's distribution service.
As permitted by the Competition Act and the 1998 settlement of its
restructuring case, PECO securitized $4 billion of its stranded cost recovery in
1999 by the issuance of certaintransition bonds through a special purpose financing
entity. In 2000, PECO securitized an additional $1 billion of its securities.stranded cost
recovery, also through the issuance of transition bonds. As required by the
Competition Act, the proceeds from the securitizations were applied to reduce
stranded costs, including related capitalization of PECO. In March 2001,
approximately $805 million of the first series of transition bonds were
refinanced. For additional information, see Related Entities below and ITEM 8.
Financial Statements and Supplementary Data - Exelon, Note 22 of Notes to
Consolidated Financial Statements.
PECO's settlement of its restructuring case included a number of
provisions designed to encourage competition for generation services. Shopping
credits for generation service may provide an economic incentive for customers
to choose an alternate supplier. Effective January 1, 2001, PECO agreed to
assign 20% of its non-shopping residential customers to competitive default
service
7
provided by one or more alternate suppliers. If on January 1, 2003, 50% of
PECO's residential and commercial customers are not obtaining generation
services from alternate generation suppliers, then non-shopping customers will
be assigned to alternate generation suppliers to reach that level.
On November 29, 2000, the PUC approved PECO's bilateral contract with
New Power Company (New Power) to move 22% of PECO's non-shopping residential
customers to New Power for competitive default generation service. Under this
contract, New Power has agreed that it will provide generation services through
January 2004, at specified discounted rates, to nearly 300,000 residential
customers of PECO who are currently taking their generation service from PECO.
During this period, those customers will continue to have the right to switch to
an alternate electric generation supplier other than New Power, as well as the
right to return as customers of PECO, without penalty or charge. At the end of
2002, if the number of competitive default service customers then served by New
Power has dropped below 20% of PECO's residential customer base, there will be
an additional allocation of residential customers to New Power to bring its
competitive default service levels back up to 20% of the residential customer
base.
In addition to the New Power contract, PECO has also entered into a
contract with Green Mountain Energy Company to assign 50,000 of PECO's
non-shopping residential customers to Green Mountain for competitive default
generation service, on the same terms and conditions as the New Power contract.
On February 21, 2001, the PUC approved the Green Mountain contract.
Transmission Services
Energy Delivery provides wholesale transmission service under rates
established by FERC. FERC Order No. 888 (Order 888) requires all public
utilities that own, control or operate interstate transmission facilities have
open-access transmission tariffs for wholesale transmission services in
accordance with non-discriminatory terms and conditions established by FERC. In
response to Order 888, both ComEd and PECO filed individual compliance tariffs
with FERC.
FERC has used its regulation of transmission to encourage competition
for wholesale generation services and the development of regional structures to
facilitate regional wholesale markets. In December 1999, FERC issued Order No.
2000 requiring jurisdictional utilities to file a proposal to form a regional
transmission organization (RTO) meeting certain governance, operational, and
scope and scale requirements articulated in the order or, alternatively, to
describe efforts to participate in or work toward participating in an RTO or
explain why they were not participating in an RTO. Order 2000 is alsogenerally
designed to separate the governance and operation of the transmission system
from generation companies and other market participants. RTOs may be organized
and may independently manage regional transmission systems in a variety of ways,
including through independent for-profit or not-for-profit transmission
companies, independent not-for-profit system operators or ISOs (such as the
Midwest Independent Transmission System Operator (MISO)), as well as other
structures. FERC has set December 15, 2001 as the deadline for transferring
control over transmission facilities to approved RTOs.
ComEd. ComEd has been a transmission-owning member of MISO, a
prospective RTO. On October 31, 2000, ComEd announced its intention to join the
Alliance Regional Transmission Organization (Alliance), an RTO being established
by utilities generally located to the east of ComEd. Participation options in
the Alliance are being evaluated, including a transfer of the transmission
assets for a passive equity interest, leasing or a management-type arrangement.
On the same date, ComEd provided notice of its intention to withdraw from the
MISO, which withdrawal is needed in order to participate in the Alliance. In
March 2001, ComEd, the MISO and other market participants reached a proposed
settlement regarding issues associated with ComEd's
8
withdrawal from the MISO, including related costs. The proposed settlement is
subject to FERC approval, which has the jurisdictionpower to accept, reject or make changes
as a condition to its approval. If the settlement is approved, ComEd will be
permitted to withdraw from the MISO and to join the Alliance. At present, ComEd
believes it has established adequate reserves for its portion of costs related
to its withdrawal from the MISO.
PECO. PECO provides regional transmission service pursuant to a
regional open-access transmission tariff filed by it and the other transmission
owners who are members of PJM Interconnection LLC (PJM). PJM is a power pool
that integrates, through central dispatch, the generation and transmission
operations of its member companies across a 50,000 square mile territory. Under
the PJM tariff, transmission service is provided on a region-wide, open-access
basis using the transmission facilities of the FERCPJM members at rates based on the
costs of transmission service. PJM's Office of Interconnection is the ISO for
PJM and is responsible for operation of the PJM control area and administration
of the PJM open-access transmission tariff. PECO and the DOE underother transmission
owners in PJM have turned over control of their transmission facilities to the
Federal Power Act with respect
to certain other matters, including the sale for resale of electric energyISO. The PJM ISO and the transmission owners who are members of electric energyPJM, including
PECO, have filed with FERC for approval of PJM as an RTO.
Gas
Historically, PECO's gas sales and gas transportation revenues were
derived pursuant to rates regulated by the PUC. The PUC established, through
regulated proceedings, the base rates that PECO may charge for gas service in
interstate commerce,Pennsylvania. PECO's gas rates are subject to quarterly adjustments designed to
recover or refund the difference between the actual cost of purchased gas and
the amount included in base rates and to recover or refund increases or
decreases in certain state taxes not recovered in base rates.
On July 1, 2000, PECO implemented the jurisdictionPennsylvania Natural Gas Choice
and Competition Act that was passed in 1999. The Act expands choice of gas
suppliers to residential and small commercial customers and eliminates the 5%
gross receipts tax on gas distribution companies' sales of gas. Large commercial
and industrial customers have been able to choose their suppliers since 1984.
Approximately one-third of PECO's current total yearly throughput is supplied by
third parties. The Act permits gas distribution companies to continue to make
regulated sales of gas, at cost, to their customers. The Act does not deregulate
the transportation service provided by gas distribution companies, which remains
subject to rate regulation. Gas distribution companies continue to provide
billing, metering, installation, maintenance and emergency response services.
PECO's natural gas supply is provided by purchases from a number of
suppliers for terms of up to five years. These purchases are delivered under
several long-term firm transportation contracts. PECO's aggregate annual
entitlement under these firm transportation contracts is 87.5 million
dekatherms. Peak gas is provided by PECO's liquefied natural gas facility and
propane-air plant. PECO also has under contract 21.7 million dekatherms of
underground storage through service agreements. Natural gas from underground
storage represents approximately 45% of PECO's 2000-2001 heating season
supplies.
Construction Budget
The following table shows Exelon's most recent estimate of capital
expenditures for plant additions and improvements for Energy Delivery for 2001:
ComEd PECO
(Millions of $)
-----------------------------------
Transmission and Distribution $745 $181
Gas -- 69
Other 155 10
---- ----
Total $900 $260
==== ====
9
Generation
General
Generation combines the generating resources and wholesale power
marketing operations owned by PECO and ComEd prior to Exelon's restructuring.
The generating resources of Generation consist of ownership interests in
generating facilities and long-term contracts for capacity. Generation also owns
a 50% interest in AmerGen, a joint venture with British Energy, Inc., a wholly
owned subsidiary of British Energy plc (British Energy), which acquires and
operates nuclear generating facilities. In 2000, Exelon acquired a 49.9%
interest in Sithe, with an option to purchase the other 50.1% beginning in 2003.
Sithe develops, owns and operates merchant generating facilities.
Generation's wholesale power marketing group, Power Team, is one of the
DOE with respectlargest wholesale power marketers in North America. Power Team manages the
output of Generation's resources to meet the disposalload requirements of spent nuclear fuelComEd and other radioactive wastes.PECO
and the supply commitments of Exelon Energy, Exelon's competitive retail energy
supplier.
10
Generating Resources
The generating resources of Generation, AmerGen and Sithe consist of
the following:
Type of Capacity MW % of Total
- ---------------- ------ -----------
Generation 1
Nuclear 13,949 42.2%
Fossil 3,721 11.3%
Hydro 1,489 4.5%
Long-term Contracts 2 13,900 42.0%
------ ------
Total 33,059 100.0%
====== ======
AmerGen 3
Nuclear 2,378 100.0%
====== ======
Sithe 4
Fossil 3,782 37.7%
Under Development 3,715 37.0%
Under Advanced Construction 2,535 25.3%
------ ------
Total 10,032 100.0%
====== ======
1 See "Changes"Fuel" for sources of fuels used in electric generation.
2 Contracts range from 4 to 29 years.
3 Generation owns a 50% interest in AmerGen. Capacity and the related energy
from AmerGen's facilities not sold under long-term contracts to third parties
are marketed by the Power Team. See "AmerGen" below.
4 Generation owns a 49.9% interest in Sithe. The capacity and related energy
from Sithe's facilities are marketed by Sithe. Fossil includes Hydro of 80 MW or
0.79% of total Sithe capacity. See "Sithe" below.
The generating resources of Generation are located primarily in the
Electric Utility Industry--
Federal Regulation" above for information regarding FERC Order Nos. 888 and
889Midwest (approximately 45% of capacity) and the Energy Policy ActMid Atlantic regions
(approximately 55% of 1992.
Unicom is a public utility holding company, as defined bycapacity). AmerGen's generating resources are also in the
Public Utility
Holding Company ActMidwest and the Mid Atlantic regions. Sithe's generating resources are primarily
in the New England region.
Nuclear Facilities
Generation has ownership interests in eight nuclear generating
stations, consisting of 1935, because16 units with 13,949 MW of its majority ownership of ComEd's
common stock, and ComEd is a public utility holding company as defined in such
Act because of its ownershipcapacity (Exelon share). For
additional information, see ITEM 2. Properties. All of the Indiana Company. However, both Unicom and
ComEdnuclear generating
stations are exempt from most provisions of such Act.
Nuclear. Under the Nuclear Waste Policy Act of 1982, the DOE is responsible
for the selection and development of repositories for, and the disposal of,
spent nuclear fuel and high-level radioactive waste. The costs incurredoperated by the
DOE for disposal activities will be paid out of fees charged to owners and
generators of spent nuclear fuel and high-level radioactive waste. ComEd, as
required by that Act, has signed a contractGeneration, with the DOE to provide for the
disposalexception of spent nuclear fuelSalem Generating
Station (Salem), which is operated by PSE&G Nuclear, LLC. In addition, AmerGen
owns and high-level radioactive waste from ComEd'soperates three nuclear generating stations. That contract provided for acceptance by the DOEstations, consisting of such materials to begin in January 1998; however, that date was not met by
the DOE and is expected to be delayed significantly. The DOE's current
estimate for opening a facility to accept such waste is 2010. This extended
delay in spent nuclear fuel acceptance by the DOE has led to ComEd's
considerationthree units
with 2,378 MW of additional dry storage alternatives. On July 30, 1998,capacity.
In 2000, approximately 59% of Exelon's electric output (including
output of ComEd
filed a complaint against the United States in the United States Court of
Federal Claims, seeking to recover damages caused by the DOE's failure to
honor its contractual obligation to begin disposing of spent nuclear fuel in
January 1998.
The contract with the DOE requires ComEd to pay the DOE a one-time fee
applicable to nuclear generation through April 6, 1983 of $277 million, with
interest to date of payment, and a fee payable quarterly equal to one mill per
kilowatthour of nuclear-generated and sold electricity after April 6, 1983.
Pursuant to the contract, ComEd has elected to pay the one-time fee, with
interest, just prior to the first deliverymerger) was generated from the nuclear generating
facilities. During 2000 and 1999, the nuclear generating facilities now owned by
Generation operated at weighted average capacity factors of spent94% and 89%,
respectively.
11
Generation is in the process of increasing the capacity of its nuclear
fuelfleet through power uprates and plant modifications and refinements. Power
uprate projects involve equipment and instrumentation modifications which
require NRC approval. These power uprate projects have the potential of adding
up to 885 MW of capacity by the DOE.end of 2003. Generation is also pursuing other
capacity additions through plant modifications and refinements of several
nuclear units that have the potential of adding between 60 MW and 90 MW of
capacity.
On September 30, 1999, Exelon reached an agreement to purchase an
additional 7.51% ownership interest in Peach Bottom Atomic Power Station (Peach
Bottom), constituting 164 MW of capacity, from Atlantic City Electric Company
and Delmarva Power & Light Company for $18 million. On December 24, 2000, Exelon
completed the purchase of Delmarva Power & Light Company's 3.755% interest in
Peach Bottom for $9 million. The liability for the one-time fee and relatedpurchase of Atlantic City Electric Company's
ownership interest is reflected on the
Consolidated Balance Sheets on page F-28.
ComEd has responsibility for the storage of its spent nuclear fuel until it
is accepted by the DOE. Dresden Station has spent fuel capacity into the year
2001, Zion Station has capacity for all of its spent fuel, Byron and Braidwood
Stations have spent fuel capacity into approximately 2011 and 2014,
respectively, Quad Cities Station has spent fuel capacity into 2006 and
LaSalle Station has spent fuel capacity through 2012. ComEd is developing on
site dry cask spent fuel storage for Dresden Unit 1,still pending regulatory approval, which is expected to be
funded by the external decommissioning trusts. The Dresden Unit 1 dry storage
canisters will meet the federal requirements for both storage and
transportation of spent nuclear fuel. The storage canisters could be in
use by
the year 2000. Meeting spent fuel storage requirements beyond the years stated
above could require new and separate storage facilities. See "Depreciation,
Amortization of Regulatory Assets and Liabilities and Decommissioning" under
11
Note 1 of Notes to Financial Statements on page F-34 for information regarding
the external decommissioning trusts.
The federal Low-Level Radioactive Waste Policy Act of 1980 provides that
states may enter into compacts to provide for regional disposal facilities for
low-level radioactive waste and restrict use of such facilities to waste
generated within the region. Illinois has entered into a compact with the
state of Kentucky, which has been approved by Congress as required by the
Waste Policy Act. Neither Illinois nor Kentucky currently has an operational
site, and none is currently expected to be operational until after the year
2011. ComEd has temporary on-site storage capacity at its nuclear generating
stations for a limited amount of low-level radioactive waste and has been
shipping such waste to a low-level radioactive waste site in South Carolina
and Utah. ComEd anticipates the possibility of continuing difficulties in
disposing of low-level radioactive waste. ComEd continues to evaluate its
options relating to the disposal of low-level radioactive waste.
ComEd2001.
Regulation. Generation is subject to the jurisdiction of the NRC with
respect to its nuclear generating stations. The NRC regulations control the
granting of permits and licenses for the construction and operation of nuclear
generating stations and subject such stations to continuing review and
regulation. The NRC review and regulatory process covers, among other things,
the operations, maintenance, and environmental and radiological aspects of such
stations. The NRC may modify, suspend or revoke licenses and impose civil
penalties for failure to comply with the Atomic Energy Act, the regulations
under such Act or the terms of such licenses. Changes in regulations by the NRC
that require a substantial increase in capital expenditures for nuclear
generating facilities or that result in increased operating costs of nuclear
generating units could adversely affect Exelon and its results of operations.
In April 2000, the NRC implemented a Revised Reactor Oversight Process
that replaced the Systematic Assessment of Licensee Performance process. The new
process relies on quantifiable performance indicators and inspections of areas
not covered by indicators to determine safety performance. An overall assessment
of performance is provided by the NRC on an annual basis and reflects the
combination of performance indicators and inspection results.
Nuclear operations have been, and remain, an important focusWaste Disposal. There are no commercial facilities for the
reprocessing of ComEd. ComEd
operates fivespent nuclear plants--Braidwood, Byron, Dresden, LaSalle and Quad
Cities Stations, and is committed to safe, reliable and efficient operation.
See "Changesfuel (SNF) currently in operation in the Electric Utility Industry," subcaption "ResponseUnited
States, nor has the NRC licensed any such facilities. Generation currently
stores all SNF from its nuclear generating facilities in on-site, spent-fuel
storage pools and, for certain plants in dry cask storage facilities. The spent
fuel storage pools at Generation's nuclear plants may not have sufficient
storage capacity for the life of the plant and additional storage facilities may
be required.
Under the Nuclear Waste Policy Act of 1982 (NWPA), the U.S. Department
of Energy (DOE) is responsible for the disposal of SNF and other high-level
radioactive waste. ComEd and PECO each signed contracts with the DOE (Standard
Contract) to Regulatory Changes" above,provide for information regarding ComEd's permanent
cessationdisposal of SNF from their respective nuclear
generating stations. In accordance with the NWPA and the Standard Contract,
ComEd and PECO pay the DOE one mill ($.001) per kWh of net nuclear generation to
cover the cost of SNF disposal. This fee may be adjusted prospectively in order
to ensure full disposal cost recovery by DOE. In July 1996, the U.S. Court of
Appeals for the District of Columbia (D.C. Court of Appeals), in response to a
suit filed by a group of utilities, ruled that the DOE had an unequivocal
obligation to begin to accept SNF in 1998. In November 1997, the D.C. Court of
Appeals issued a decision in which it confirmed its earlier decision that the
DOE has an unconditional obligation to begin disposal of SNF by January 31,
1998, but directed utilities to pursue contractual remedies for DOE's failure to
perform.
12
In July 1998, ComEd filed a complaint against the DOE in the United
States Court of Federal Claims seeking to recover damages caused by the DOE's
failure to honor its contractual obligation to begin disposing of SNF in January
1998. In August 2000, the United States Court of Appeals for the Federal Circuit
decided two other similar cases, granting partial summary judgment on liability
for the plaintiff utility. ComEd has requested that the Court of Claims grant
its pending summary judgment motion on liability, particularly in light of this
Federal Circuit's decision.
In July 2000, PECO entered into an agreement with the DOE relating to
Peach Bottom to address the DOE's failure to begin removal of SNF in January
1998, as required by the Standard Contract. Under that agreement, the DOE agreed
to provide credits against future contributions to the nuclear waste fund to
compensate for SNF storage costs incurred as a result of the DOE's breach of the
Standard Contract. The agreement also provides that, upon request, the DOE will
take title to the SNF and the interim storage facility at Peach Bottom provided
certain conditions are met. In November 2000, eight utilities with nuclear power
plants filed a Joint Petition for Review against the DOE with the United States
Court of Appeals for the Eleventh Circuit seeking to invalidate that portion of
the agreement providing for credits against nuclear waste fund payments on the
ground that such provision is a violation of the NWPA. PECO has intervened as a
defendant in that case, which is ongoing.
The Standard Contract with the DOE requires ComEd and PECO to pay the
DOE a one-time fee applicable to nuclear generation through April 6, 1983. PECO
has paid the one-time fee. Pursuant to the Standard Contract, ComEd has elected
to pay the one-time fee of $277 million, with interest, just prior to the first
delivery of SNF to the DOE. As of December 31, 2000, the liability for the
one-time fee with interest was $810 million.
As a by-product of their operations, nuclear generating units produce
low-level radioactive waste (LLRW). LLRW is accumulated at each generating
station and permanently disposed of at a Federally licensed disposal facility.
The Federal Low-Level Radioactive Waste Policy Act of 1980 provides that states
may enter into compacts to provide for regional disposal facilities for LLRW and
restrict use of such facilities to waste generated within the region. Illinois
and the Commonwealth of Kentucky have entered into a compact, which has been
approved by Congress as required by the Waste Policy Act. Neither Illinois nor
Kentucky currently has an operational site, and none is currently expected to be
operational until after the year 2011. Pennsylvania, which had agreed to be the
host site for LLRW disposal facilities for generators located in Pennsylvania,
Delaware, Maryland and West Virginia, has suspended the search for a permanent
disposal site.
Generation has temporary on-site storage capacity at its Zion Station.
On May 6, 1999, ComEd's LaSalle Station was officially removed fromnuclear
generating stations for limited amounts of LLRW and has been shipping such waste
to LLRW disposal facilities in South Carolina and Utah. Generation anticipates
the NRC's listingpossibility of plantscontinuing difficulties in disposing of LLRW. Generation is
also pursuing alternative disposal strategies for LLRW, including a LLRW
reduction program.
The National Energy Policy Act of 1992 requires, among other things,
that require increased regulatory scrutiny. LaSalle
Station had been on this list since January 1997. Concurrentutilities with nuclear reactors pay for the LaSalle
Station action, the NRC announced the formal removaldecommissioning and
decontamination of the Quad Cities
Station from its list of plants with declining performance trends. Quad Cities
Station had been on the declining trend list since January 1998. With these
actions, all of ComEd'sDOE nuclear plants are now placed in the NRC's "routine
oversight" category.fuel enrichment facilities. The NRC and representatives of ComEd's management have met, and will
continuetotal costs
to meet periodically as part of the NRC's normal oversight process,
to discuss the overall performance of the ComEd nuclear program.
Based on ComEd's most recent study, decommissioning costsdomestic utilities are estimated to be $5.7$150 million per year through 2006, of
which Generation's share is approximately $22 million per year. The Energy
Policy Act provides that these costs are to be recoverable in the same manner as
other fuel costs. ComEd and PECO are currently recovering these costs through
regulated rates.
Insurance. The Price-Anderson Act currently limits the liability of
nuclear reactor owners to $9.5 billion for claims that could arise from a single
nuclear incident. The limit is subject to change to
13
account for the effects of inflation and changes in current-year (2000) dollars,the number of licensed
reactors. Generation carries the maximum available commercial insurance of $200
million and the remaining $9.3 billion is provided through mandatory
participation in a financial protection pool. Under the Price-Anderson Act, all
nuclear reactor licensees can be assessed up to $89 million per reactor per
incident, payable at no more than $10 million per reactor per incident per year.
This assessment is subject to inflation and state premium taxes. In addition,
the U.S. Congress could impose revenue raising measures on the nuclear industry
to pay claims if the damages from an incident at a licensed nuclear facility
exceed $9.5 billion. The Price-Anderson Act and the extensive regulation of
nuclear safety by the NRC do not preclude claims under state law for personal,
property or punitive damages related to radiation hazards.
Property insurance is maintained for each nuclear power plant in which
Generation has an ownership interest. Generation is responsible for its
proportionate share of premiums for such insurance based on its ownership
interest. Generation's insurance policies provide coverage for decontamination
liability expense, premature decommissioning and loss or damage to its nuclear
facilities. These policies require that insurance proceeds first be applied to
assure that, following an accident, the facility is in a safe and stable
condition and can be maintained in such condition. Within 30 days of stabilizing
the reactor, the licensee must submit a report to the NRC that provides a
clean-up plan, including the identification of all clean-up operations necessary
to decontaminate the reactor to permit either the resumption of operations or
decommissioning of the facility. Under Generation's insurance policies, proceeds
not already expended to place the reactor in a contingency
allowance.stable condition must be used to
decontaminate the facility. If, as a result of an accident, the decision is made
to decommission the facility, a portion of the insurance proceeds will be
allocated to a fund that Generation is required by the NRC to maintain to
decommission the facility. These proceeds would be paid to the fund to make up
any difference between the amount of money in the fund at the time of the early
decommissioning and the amount that would have been in the fund if contributions
had been made over the normal life of the facility. Generation is unable to
predict what effect these requirements may have on the timing of the
availability of insurance proceeds to creditors and the amount of such proceeds
that would be available. Under the terms of the various insurance agreements,
Generation could be assessed up to $69 million for losses incurred at any plant
insured by the insurance companies. Generation is self-insured to the extent
that any losses may exceed the amount of insurance maintained. Any such losses
could have a material adverse effect on Exelon's financial condition or results
of operations.
Generation is a member of an industry mutual insurance company that
provides replacement power cost insurance in the event of a major accidental
outage at a nuclear station. The policy contains a waiting period before
recovery of costs can commence. The premium for this coverage is subject to
assessment for adverse loss experience. Generation's maximum share of any
assessment is $18 million per year.
In addition, Generation participates in the American Nuclear Insurers
Master Worker Program, which provides coverage for worker tort claims filed for
bodily injury caused by a nuclear energy accident. This estimate includes $617program was modified,
effective January 1, 1998, to provide coverage to all workers whose
nuclear-related employment began on or after the commencement date of reactor
operations. Generation will not be liable for a retrospective assessment under
this new policy. However, in the event losses incurred under the small number of
policies in the old program exceed accumulated reserves, a maximum retroactive
assessment of up to $50 million could apply.
Decommissioning. NRC regulations require that licensees of non-radiological costs,
which are includednuclear
generating facilities demonstrate reasonable assurance that funds will be
available in ComEd's proposed rider for recovery, as discussed below.
ComEd's decommissioning cost expenditurescertain minimum amounts at the end of the units' operating
liveslife of the facility to
decommission the facility. Based on estimates of decommissioning costs
14
for each of the nuclear facilities in which Generation has an ownership
interest, the PUC permits PECO and the ICC permits ComEd to collect from its
customers and deposit in segregated accounts amounts which, together with
earnings thereon, will be used to decommission such nuclear facilities. At
December 31, 2000, Generation's current estimate of its nuclear facilities'
decommissioning cost was $6.9 billion. At December 31, 2000, ComEd and PECO held
$3.1 billion in trust accounts, representing amounts recovered from customers
and net realized and unrealized investment earnings thereon, to fund future
decommissioning costs. The decommissioning liabilities and related trust funds
were transferred to Generation as of January 1, 2001 pursuant to Exelon's
corporate restructuring. Amounts collected by ComEd and PECO to fund
decommissioning costs will continue to be paid into the nuclear decommissioning
trust funds.
In connection with the transfer of ComEd's nuclear generating stations
to Generation, ComEd asked the ICC to approve the continued recovery of
decommissioning costs after the transfer. On December 20, 2000, the ICC issued
an order finding that the ICC has the legal authority to permit ComEd to
continue to recover decommissioning costs from ComEd's customers for the
six-year term of the power purchase agreement between ComEd and Generation.
Under the ICC order, ComEd is permitted to recover $73 million per year from
customers for decommissioning for the years 2001 through 2004. In 2005 and 2006,
ComEd can recover up to $73 million annually, depending upon the portion of the
output of the former ComEd nuclear stations that ComEd purchases from
Generation. Subsequent to 2006, there will be no further recoveries of
decommissioning costs from customers. The ICC order also provides that any
surplus funds after ComEd's former nuclear stations are decommissioned must be
refunded to ComEd's customers. The amount of recovery in the ICC order is less
than the $84 million annual amount ComEd recovered in 2000. The ICC order is
currently pending appeal in the Illinois Appellate Court.
Fuel
The following table shows sources of electric output for 2000
(including output of ComEd prior to the merger) and sources of electric output
as estimated for 2001:
Electric Electric
Output Output 2001
2000 (Est.)
----- -----------
Nuclear............................................. 59% 62%
Fossil including Hydro.............................. 6% 6%
Purchased, interchange and nonutility generated..... 35% 32%
----- -----
100% 100%
===== =====
The fuel costs for nuclear generation are substantially less than
fossil-fuel generation. Consequently, nuclear generation is the most
cost-effective way for Generation to totalmeet its commitment to supply the base load
requirements of ComEd, PECO and Exelon Energy and for sales to other utilities.
The cycle of production and utilization of nuclear fuel includes the
mining and milling of uranium ore into uranium concentrates; the conversion of
uranium concentrates to uranium hexafluoride; the enrichment of the uranium
hexafluoride; the fabrication of fuel assemblies; and the use of the nuclear
fuel in the generating station reactor. Generation has uranium concentrate
inventory and supply contracts sufficient to meet all of its uranium concentrate
requirements through 2001. Generation's contracted conversion services are
sufficient to meet all of its uranium conversion requirements through 2002. All
15
of Generation's enrichment requirements have been contracted through 2004.
Contracts for fuel fabrication have been obtained through 2005. Generation does
not anticipate difficulty in obtaining the necessary uranium concentrates or
conversion, enrichment or fabrication services for its nuclear units.
Generation obtains approximately $13.8 billion. These expenditures25% of its enrichment services from
European suppliers. There is an ongoing trade action by USEC, Inc. alleging
dumping in the United States against European enrichment services suppliers. If
the trade action is resolved unfavorably against the European suppliers, it
could increase Generation's cost of enrichment services.
Coal is obtained for Generation's coal-fired capacity primarily through
long-term contracts with the remainder supplied through either short-term
contracts or spot-market purchases. Generation purchases fuel oil through a
combination of short-term contracts and spot-market purchases. The contracts are
expected to occur primarilynormally not longer than one year in length. Fuel oil inventories are managed
such that in the winter months sufficient volumes of fuel are available in the
event of extreme weather conditions and during the period from 2007remaining months inventory
levels are managed to take advantage of favorable market pricing. Generation
obtains natural gas for electric generation through 2034. All
such costs are expected to be funded by external decommissioning trusts, which
ComEd established in compliance with Illinois lawa combination of long-term
and into which ComEd has
been making annual contributions. Future decommissioning cost estimates may be
significantly affected by the adoption of or changes to NRC regulations,short-term contracts and spot purchases as well as changesthrough PECO's own retail
gas tariff.
Power Team
Generation competes in the assumptions used in making such estimates, including
changes in technology, available alternativeswholesale electric generation business on a
national basis. Generation competes on the basis of price and service offerings,
utilizing its generation portfolio to assure customers of energy deliverability.
Generation enters into bilateral arrangements for the disposalpurchase, sale and
delivery of energy and competes in the developing wholesale spot markets for
electricity.
Generation has agreed to supply ComEd and PECO with their respective
load requirements for customers through 2006 and 2010, respectively. Generation
has also contracted with Exelon Energy to meet its supply commitments pursuant
to its competitive retail generation sales agreements. Under the agreements with
ComEd and PECO, Generation will supply all of ComEd and PECO's needs to supply
customers who do not select an alternative electric generation supplier through
the end of the respective transition periods. Therefore, the supply requirements
under the agreements will vary depending on how much of the load has selected an
alternative supplier.
FERC's stated goal in promulgating Order 888 and related orders is to
remove impediments to competition in the wholesale bulk power marketplace and to
bring more efficient and lower cost power to electricity consumers. Generation
has received authorization from FERC to sell energy at market-based rates.
Generation's wholesale operations include the physical delivery and
marketing of power obtained through its generation capacity, and long,
intermediate and short-term contracts. Generation seeks to maintain a net
positive supply of energy and capacity, through ownership of generation assets
and power purchase and lease agreements, to protect it from the potential
operational failure of one of its owned or contracted power generating units.
Generation has also contracted for access to additional generation through
bilateral long-term power purchase agreements. These agreements are commitments
related to power generation of specific generation plants and/or are
dispatchable in nature similar to asset ownership. Generation enters into power
purchase agreements with the objective of obtaining low-cost energy supply
16
sources to meet its physical delivery obligations to customers. Excess power is
sold in the wholesale market. Generation has also purchased transmission service
to ensure that it has reliable transmission capacity to physically move its
power supplies to meet customer delivery needs. The intent and business
objective for the use of its capital assets and contracts is to provide
Generation with physical power supply to enable it to deliver energy to meet
customer needs. Except for hedging purposes, Generation does not use financial
contracts in its wholesale marketing activities. During 2001, Generation intends
to pursue financial trading, primarily to complement the marketing of its
generation portfolio. Generation intends to manage the risk of these activities
through a mix of long-term and short-term supply obligations and through the use
of established policies, procedures and trading limits.
Generation has entered into bilateral long-term contractual obligations
for sales of energy to load-serving entities including electric utilities,
municipalities, electric cooperatives, and retail load aggregators. Generation
also enters into contractual obligations to deliver energy to wholesale market
participants who primarily focus on the resale of energy products for delivery.
Generation provides delivery of its energy to these customers through access to
transmission assets or rights for transmission service.
In addition, Generation has entered into long-term power purchase
agreements with independent power producers under which Generation makes fixed
capacity payments in return for exclusive rights to the energy and capacity of
the generating units for a fixed period. The terms of the long-term power
purchase agreements enable Generation to dispatch energy from the plants.
At December 31, 2000, Generation had long-term commitments, in
megawatt-hours (MWh) and dollars, relating to the purchase and sale of energy,
capacity and transmission rights from unaffiliated utilities and others as
expressed in the following tables (in millions):
Power Only
--------------------------------------------
Purchases Sales
------------------ ----------------
MWh Dollars MWh Dollars
------------------ ----------------
2001 17 $362 36 $ 840
2002 11 167 18 371
2003 9 135 15 327
2004 5 71 8 190
2005 4 61 6 148
Thereafter 5 81 4 87
---- ------
Total $877 $1,963
==== ======
Capacity Capacity Transmission
Purchases Sales Rights Purchases
in Dollars in Dollars in Dollars
---------------------------------------------
2001 $ 856 $ 32 $ 119
2002 881 21 35
2003 786 16 32
2004 778 3 25
2005 414 3 25
Thereafter 5,200 8 80
------- ------ --------
Total $8,915 $ 83 $ 316
====== ==== ======
17
Capital Expenditures
Generation's estimated capital expenditures for 2001 are as follows:
(Millions of $)
-------------
Production Plant $459
Nuclear Fuel 308
Investment in AmerGen 185
-----
Total $952
====
Capital expenditures for production plant include expenditures to
increase capacity of existing plants.
Sithe
As a result of a purchase in December 2000, Exelon owns a 49.9%
interest in Sithe, an independent power producer. The remaining 50.1% is owned
by Vivendi, SA (34%), Marubeni Corp. (15%) and Sithe Management (1%). As part of
the transaction, Exelon has the right to purchase the remaining 50.1% interest
in Sithe from Vivendi, Marubeni and Sithe Management within two to five years at
a price based on market conditions when the call option is exercised.
Alternatively, Vivendi, Marubeni and Sithe Management have the right to require
Exelon to purchase the remaining 50.1% within two to five years at a price based
on market conditions when the option is exercised. Exelon accounts for its
investment in Sithe under the equity method of accounting.
Sithe presently owns and operates 27 power generation facilities in
North America, with approximately 3,800 MW of net merchant generating capacity.
It has 11 facilities under construction with an estimated capacity of 2,500 MW
and approximately 3,700 MW of generation capacity in various stages of advanced
development.
AmerGen
In 1997, Exelon and British Energy formed AmerGen to pursue
opportunities to acquire and operate nuclear wastegenerating stations in the United
States. Generation and inflation.
UnderBritish Energy each own a 50% equity interest in AmerGen.
Exelon accounts for its investment in AmerGen under the equity method of
accounting.
In 1999, AmerGen, purchased Clinton Nuclear Power Station (Clinton) and
Three Mile Island Unit No. 1 Nuclear Generating Facility (TMI). Clinton is a
boiling water reactor with a capacity of 933 MW. TMI is a pressurized water
reactor with a capacity of 814 MW.
In August 2000, AmerGen completed the purchase of Oyster Creek Nuclear
Generation Facility (Oyster Creek) from GPU, Inc. (GPU) for $10 million. Oyster
Creek is a boiling water reactor with a capacity of 630 MW.
In conjunction with each of the completed acquisitions, AmerGen has
entered into a power purchase agreement providing the seller with all or a
portion of the energy produced at the acquired facility for periods of two to
five years. The energy produced at the plants not sold under the power purchase
agreement is sold in the wholesale market. At the closing of each acquisition,
AmerGen received funded decommissioning trust funds, with assets to cover the
anticipated costs to decommission each nuclear plant following its licensed
life, including an annual rider, filednet growth rate of 2% in
18
accordance with the ICC on February 26, 1999, ComEd has
proposed to increase its estimated annual decommissioning cost accrual from
$84 million to $130 million. The proposed
12
increase primarily reflects an increase in low-level waste disposal cost
escalation, the inclusion of $219 million in current-year (2000) dollars for
safety-related costs of maintaining Zion Station in a mothballed condition
until dismantlement begins, and the inclusion of non-radiological costs in the
decommissioning cost estimates for recovery under the rider. The ICC is
expected to issue an order in this proceeding in the second quarter of 2000.
See Note 1 of Notes to Financial Statements, under "Depreciation,
Amortization of Regulatory Assets and Liabilities, and Decommissioning," on
page F-34 for additional information regarding decommissioning costs.
During the year 1999, one civil penalty was proposed for ComEd for a
violation of NRC regulations inregulations. AmerGen believes that the amount of $110,000. To ComEd's knowledge,
there are no enforcement issues outstanding or under reviewthe trust
funds and investment earnings thereon will be sufficient to meet its
decommissioning obligations.
Enterprises
Enterprises combines the competitive businesses formerly held by the NRC.
The IDNS has jurisdiction over certainPECO
and Unicom. Enterprises focuses its business activities in the areas of
infrastructure services, communications, retail energy sales, energy services
and related investments.
Exelon Infrastructure Services, Inc. (EIS) provides infrastructure
services, including infrastructure construction, operation management and
maintenance services to owners of electric, gas, cable and communications
systems, including industrial and commercial customers, utilities and
municipalities, throughout the United States. Since it was established in 1997,
EIS has acquired thirteen infrastructure service companies. Currently, EIS has
annualized revenues of over $1 billion and employs more than 8,000 people.
Exelon Energy provides retail electric and gas services as an
unregulated retail energy supplier in Illinois, relatingMassachusetts, Michigan, New
Jersey, Ohio, Pennsylvania and other areas in the Midwest and Northeast United
States.
Exelon Services is engaged in the design, installation and servicing of
heating, ventilation and air conditioning facilities for commercial and
industrial customers. Exelon Services also provides energy-related services,
including performance contracting and energy management systems.
Exelon Thermal Technologies provides district cooling and related
services to nuclear poweroffices and safety,other buildings in the central business district of
Chicago and radioactive materials. Effective Junein other cities in North America, generally working with local
utilities. District cooling involves the production of chilled water at one or
more central locations and its circulation to customers' buildings, primarily
for air conditioning.
Exelon Communications is the unit of Enterprises through which Exelon
manages its communications investments. Exelon Communications' principal
investments are PECOAdelphia Communications and AT&T Wireless PCS of
Philadelphia, LLC (AT&T Wireless Philadelphia). PECOAdelphia is a competitive
local exchange carrier, providing local and long-distance, point-to-point voice
and data communications, internet access and enhanced data services for
businesses and institutions in eastern Pennsylvania. PECOAdelphia utilizes a
large-scale, fiber-optic cable-based network that currently extends over 700
miles and is connected to major long-distance carriers and local businesses.
PECOAdelphia is a 50% owned joint venture with Adelphia Business Solutions.
Formed in 1996, AT&T Wireless Philadelphia is a joint venture to provide
personal communications services (PCS) in the Philadelphia metropolitan trading
area. AT&T Wireless Philadelphia has completed the initial build-out of its
digital wireless PCS network and commercially launched PCS service in October
1997. Enterprises holds a 49% equity interest in AT&T Wireless Philadelphia.
Exelon Capital Partners was created in 1999 as a vehicle for direct
venture capital investing in the areas of unregulated energy sales, energy
services, utility infrastructure services, e-commerce and communications. At
December 31, 2000, Exelon Capital Partners had made direct investments in eight
companies, with funding commitments totaling approximately $100 million. The
investment mix was weighted toward the communications industry, but also
included companies in energy services and retail services, including e-commerce.
19
Employees
As of January 1, 1987,
the IDNS replaced the NRC as the regulator2001, Exelon and licensorits subsidiaries had approximately
29,000 employees, including 2,700 employees at PECO and 8,000 employees at
ComEd. The number of certain source, by-
product and special nuclear material in quantities not sufficient to form a
critical mass, including such material contained in various measuring devices
used at fossil-fuel power plants. The IDNSemployees does not regulate ComEd's nuclear
generating stations.include employees of joint ventures. As
a result of the restructuring of Exelon's operations in January 2001, Energy
Delivery, Generation and Enterprises had approximately 10,700, 7,500 and 9,800
employees, respectively.
Over the past several years, a number of unions have filed petitions
with the National Labor Relations Board to hold certification elections with
regard to different segments of employees within PECO. In all cases, PECO
employees have rejected union representation. PECO expects that such petitions
will continue to be filed in the future.
Approximately 7,400 employees, including 5,100 employees of ComEd and
2,200 employees of Generation, are covered by a collective bargaining agreement
with Local 15 of the International Brotherhood of Electrical Workers. ComEd
reached agreement with Local 15 on the pension, as well as other benefits, on
September 15, 2000. The IDNS has promulgated regulations whichcollective bargaining agreement with Local 15 expires on
March 31, 2001. Negotiations are substantially similarongoing with respect to a new collective
bargaining agreement.
In addition, approximately 3,100 EIS employees are represented by
unions, including approximately 1,500 employees who are represented by various
local unions of the corresponding federal regulations.International Brotherhood of Electrical Workers. The
IDNS also
has authority to licenseremaining union employees are members of a low-level radioactive waste disposal facilitynumber of different local unions,
including laborers, welders, operators, plumbers and to regulate alternative methods for disposingmachinists.
Environmental Regulation
General
Specific operations of materials which contain only
trace amountsExelon, primarily those of radioactivity.
Environmental. ComEd isGeneration, are
subject to regulation regarding environmental matters by the United States and
by the states of Illinois, Pennsylvania, New Jersey and Iowa and by local
jurisdictions where ComEdExelon operates its facilities. The IPCBIllinois Pollution
Control Board (IPCB) has jurisdiction over environmental control in the stateState of
Illinois, which includes authority
to regulate air, water and noise emissions and solid waste disposal, together with the Illinois EPA,Environmental Protection Agency, which
enforces regulations of the IPCB and issues permits in connection with
environmental control. The U.S. EPAPennsylvania Department of Environmental Protection
(PDEP) has jurisdiction over environmental control in the Commonwealth of
Pennsylvania. State regulation includes the authority to regulate air, water and
noise emissions and solid waste disposals. The United States Environmental
Protection Agency (EPA) administers certain federalFederal statutes relating to such
matters.
The IPCB has published a
proposed rule under which it would have the power to regulate radioactive air
pollutants under the Illinois Environmental Protection Act and the Federal
Clean Air Act Amendments of 1977.Water
Under the Federal Clean Water Act, NPDESNational Pollutant Discharge
Elimination System (NPDES) permits for discharges into waterways are required to
be obtained from the U.S. EPA or from the state environmental agency to which the
permit program has been delegated. Those permits must be renewed periodically.
ComEdGeneration either has NPDES permits for all of its generating stations or has
pending applications for such permits under
the current delegation of the program to the Illinois EPA. ComEdpermits. Generation is also subject to the
jurisdiction of certain pollution controlother state agencies, including the Delaware River Basin
Commission and the Susquehanna River Basin Commission.
Solid and Hazardous Waste
The Comprehensive Environmental Response, Compensation, and Liability
Act of the state
of Iowa with respect to the discharge into the Mississippi River from Quad
Cities Station.
CERCLA1980, as amended (CERCLA), provides for immediate response and removal
actions coordinated by the U.S. EPA toin the event of threatened releases of hazardous
substances into the
20
environment and authorizes the U.S. Government either to clean up sites at which
hazardous substances have created actual or potential environmental hazards or
to order persons responsible for the situation to do so. Under CERCLA,
generators and transporters of hazardous substances, as well as past and present
owners and operators of hazardous waste sites, are made strictly, jointly and
severally liable for the cleanup costs of waste at sites, most of which are
listed by the U.S. EPA on the NPL.National Priorities List (NPL). These potentially
responsible parties (PRPs) can be ordered to perform a cleanup, can be sued for
costs associated with a U.S. EPA directedEPA-directed cleanup, may voluntarily settle with the
U.S. Government concerning their liability for cleanup costs, or may voluntarily
begin a site investigation and site remediation under state oversight prior to
listing on the NPL under state oversight.NPL. Various states, including Illinois, have enacted statutes
whichthat contain provisions substantially similar to CERCLA. In addition, the
Resource Conservation and Recovery Act (RCRA) governs treatment, storage and
disposal of solid and hazardous wastes and cleanup of sites where such
activities were conducted.
Generation, PECO and ComEd and itstheir subsidiaries are or are likely to
become parties to proceedings initiated by the U.S. EPA, state agencies and/or other
responsible parties under CERCLA and RCRA with respect to a number of 13
sites,
including MGPmanufactured gas plant (MGP) sites, or may voluntarily undertake to
investigate and remediate sites for which they may be liableliable.
By notice issued in November 1986, the EPA notified over 800 entities,
including PECO and ComEd, that they may be PRPs under CERCLA.CERCLA with respect to
releases of radioactive and/or toxic substances from the Maxey Flats disposal
site, a LLRW disposal site near Moorehead, Kentucky, where PECO and ComEd wastes
were deposited. Approximately 90 PRPs, including PECO, formed a steering
committee to investigate the nature and extent of possible involvement in this
matter. The steering committee preliminarily estimated that implementing the EPA
proposed remedy at the Maxey Flats site would cost $60-$70 million in 1993
dollars. A settlement was reached among the Federal and private PRPs, the
Commonwealth of Kentucky and the EPA concerning their respective roles and
responsibilities in conducting remedial activities at the site. Under the
settlement, the private PRPs agreed to perform the initial remedial work at the
site and the Commonwealth of Kentucky agreed to assume responsibility for
long-range maintenance and final remediation of the site. Exelon estimates that
it will be responsible for approximately $1.4 million of the remediation costs
to be incurred by the private PRPs. On April 18, 1996, a consent decree, which
included the terms of the settlement, was entered by the United States District
Court for the Eastern District of Kentucky. The PRPs have entered into a
contract for the design and implementation of the remedial plan and work has
commenced.
By notice issued in December 1987, the EPA notified several entities,
including PECO, that they may be PRPs under CERCLA with respect to wastes
resulting from the treatment and disposal of transformers and miscellaneous
electrical equipment at a site located in Philadelphia, Pennsylvania (the Metal
Bank of America site). Several of the PRPs, including PECO, formed a steering
committee to investigate the nature and extent of possible involvement in this
matter. On May 29, 1991, a Consent Order was issued by the EPA pursuant to which
the members of the steering committee agreed to perform the remedial
investigation and feasibility study as described in the work plan issued with
the Consent Order. PECO's share of the cost of study was approximately 30%. On
July 19, 1995, the EPA issued a proposed plan for remediation of the site which
involves removal of contaminated soil, sediment and groundwater and which the
EPA estimated would cost approximately $17 million to implement. On June 26,
1998, the EPA issued an Order to the non-de minimis PRP Group members, and
others, including the owner, to implement the remedial design (RD) and remedial
action (RA). The PRP group is proceeding as required by the Order. It has
selected a contractor which has been approved by the EPA, and, on November 5,
1998, submitted the draft RD work plan. The EPA has approved the PRP Group's RD
work plan and based upon the RD investigation, the EPA has modified the work
plan. On March 5, 2001, the PRP group submitted a revised RD to the EPA, in
which it estimates the cost to implement the RA to range from $14 million to $27
million. The EPA and the PRPs are also involved in litigation with the site
owner concerning remediation liability. PECO is unable to estimate its share of
the costs of the remedial activities.
21
MGP Sites
MGPs manufactured gas in Illinois and Pennsylvania from approximately
1850 to 1950. ComEd generally did not operate MGPs as a corporate entity but
did, however, acquire MGP sites as part of the absorption of smaller utilities.
Approximately half of these sites were transferred to then Northern IllinoisNicor Gas Company (Nicor
Gas) as part of a
general conveyance in 1954. ComEd also acquired former MGP sites as vacant real
estate on which ComEd facilities have been constructed. To date, ComEd has
identified 44 former MGP sites for which it may be liable for remediation.
InSimilarly, PECO has identified 28 sites where former MGP activities may have
resulted in site contamination. With respect to these sites, ComEd and PECO are
presently engaged in performing various levels of activities, including initial
evaluation to determine the fourth quarterexistence and nature of 1999, ComEd re-evaluated its
environmentalthe contamination, detailed
evaluation to determine the extent of the contamination and the necessity and
possible methods of remediation, strategies.and implementation of remediation. Overseeing
state regulatory agencies have approved the remediation of five MGP sites, while
35 other sites are currently under some degree of active study or remediation.
At December 31, 2000, Exelon had accrued $140 million for investigation and
remediation of these MGP sites that currently can be reasonably estimated.
Exelon believes that it could incur additional liabilities with respect to MGP
sites, which cannot be reasonably estimated at this time. Exelon has sued a
number of insurance carriers seeking indemnity/coverage for remediation costs
associated with these former MGP sites.
Air
Air quality regulations promulgated by the EPA, the PDEP and the City
of Philadelphia in accordance with the Federal Clean Air Act and the Clean Air
Act Amendments of 1990 (Amendments) impose restrictions on emission of
particulates, sulfur dioxide (SO(2)), nitrogen oxides (NO(x)) and other
pollutants and require permits for operation of emission sources. Such permits
have been obtained by Exelon's subsidiaries and must be renewed periodically.
The Amendments establish a comprehensive and complex national program
to substantially reduce air pollution. The Amendments include a two-phase
program to reduce acid rain effects by significantly reducing emissions of SO(2)
and NO(x) from electric power plants. Flue-gas desulfurization systems
(scrubbers) have been installed at all of Generation's coal-fired units other
than the Keystone Station. Keystone is subject to, and in compliance with, the
Phase II SO(2) and NO(x) limits of the Amendments, which became effective
January 1, 2000. Generation and the other Keystone co-owners are purchasing
SO(2) emission allowances to comply with the Phase II limits.
Generation has completed implementation of measures, including the
installation of NO(x) emissions controls and the imposition of certain
operational constraints, to comply with the Reasonably Available Control
Technology limitations of the Amendments. Generation expects that the cost of
compliance with anticipated air-quality regulations may be substantial due to
further limitations on permitted NO(x) emissions.
The EPA has issued two regulations to limit nitrogen oxide (NO(x))
emissions from power plants in the eastern United States to address the "ozone
transport" issue. The first regulation was issued on September 24, 1998. The
original NO(x) regulation covered power plants in the 22 eastern states and had
an effective date of May 1, 2003. As a result of this re-evaluation,
ComEd's current best estimatelitigation at the D.C. Circuit
Court of its costAppeals, the original NO(x) regulation was revised to cover 19 eastern
states (rather than the original 22) and the effective date was delayed by
approximately one year to May 31, 2004. In most other respects, the original
NO(x) regulation was substantively upheld by the Court. Both Pennsylvania and
Illinois power plants are covered by the original NO(x) regulation. The second
EPA regulation, referred to as the "Section 126 Petition Regulation," was issued
on May 25, 1999. This regulation was issued by the EPA in response to downwind
state (Connecticut, Maine, Massachusetts, New Hampshire, New York, Pennsylvania,
22
Rhode Island, Vermont) complaints under Section 126 of former MGP sitethe Clean Air Act that
upwind state NO(x) emissions were negatively impacting downwind states' ability
to attain the Federal ozone standard. The Section 126 Petition Regulation
requires substantively the same NO(x) reduction requirement for the power
generation sector as the original NO(x) regulation. However, the Section 126
Petition Regulation covers a more limited number of states (Delaware, Indiana,
Kentucky, Maryland, Michigan, North Carolina, New Jersey, New York, Ohio,
Virginia and West Virginia). It does not cover power plants in Illinois. The
compliance date of the Section 126 Petition Regulation is May 1, 2003, one year
earlier than states covered only under the original NO(x) regulation. The
Section 126 Petition Regulation is currently being litigated in the D.C. Circuit
Court of Appeals with a decision expected in spring 2001. On September 23, 2000,
Pennsylvania issued final state NO(x) reduction regulations for power plants
that satisfy both the original NO(x) regulation and the Section 126 Petition
Regulation. The Pennsylvania regulation is effective May 1, 2003. Exelon is
currently evaluating options to comply with the new Pennsylvania regulations.
These regulations could restrict the operation of the Generation's fossil-fired
units, require the purchase of NO(x) emission allowances from others, or require
the installation of additional control equipment.
Many other provisions of the Amendments affect activities of Exelon's
business, primarily Generation. The Amendments establish stringent control
measures for geographical regions which have been determined by the EPA to not
meet National Ambient Air Quality Standards; establish limits on the purchase
and operation of motor vehicles and require increased use of alternative fuels;
establish stringent controls on emissions of toxic air pollutants and provide
for possible future designation of some utility emissions as toxic; establish
new permit and monitoring requirements for sources of air emissions; and provide
for significantly increased enforcement power, and civil and criminal penalties.
Costs
At December 31, 2000, Exelon accrued $172 million for various
investigation and remediation is $93costs that can be reasonably estimated, including
approximately $140 million in current-year (2000) dollars (reflecting a
discount rate of 6.5%). Such estimate, reflecting an estimated inflation rate
of 3% and before the effects of discounting, is $182 million. It is expected
that the costs associated withfor investigation and remediation of former MGP sites
as described above. Exelon cannot currently predict whether it will be substantially incurred through 2012, however monitoring and
certainincur other
costs are expected to be incurred through 2042. ComEd's current
estimate of its costs of former MGP sitesignificant liabilities for additional investigation and remediation costs at
sites presently identified or additional sites which may be identified by
Exelon, environmental agencies or others or whether all such costs will be
recoverable through rates or from third parties.
Exelon's budget for capital requirements for 2001 for compliance with
environmental requirements total approximately $8 million. In addition, Exelon
may be required to make significant additional expenditures not presently
determinable.
Related Entities
PECO Energy Transition Trust (PETT), a Delaware business trust wholly
owned by PECO, was formed on June 23, 1998 pursuant to a trust agreement between
PECO, as grantor, First Union Trust Company, National Association, as issuer
trustee, and two beneficiary trustees appointed by PECO. PETT was created for
the sole purpose of $93issuing transition bonds to securitize a portion of PECO's
authorized stranded cost recovery. On March 25, 1999, PETT issued $4 billion of
its Series 1999-A
23
Transition Bonds. On May 2, 2000, PETT issued $1 billion of its Series 2000-A
Transition Bonds and on March 1, 2001, PETT issued $805 million has been included in other noncurrent liabilitiesof its Series
2001-A Transition Bonds to refinance a portion of the Series 1999-A Transition
Bonds. The Transition Bonds are solely obligations of PETT secured by intangible
transition property, representing the right to collect transition charges
sufficient to pay the principal and interest on the Consolidated
Balance Sheets on page F-28, as of December 31, 1999. The increase in ComEd's
estimated costs of former MGP sites of $68 million in 1999 over 1998 was
included in operation and maintenance expenses on Unicom and ComEd's
Statements of Consolidated Operations on page F-26. In addition, as of
December 31, 1999 and 1998,Transition Bonds, sold by
PECO to PETT.
PECO Energy Capital Corp., a reserve of $8 million has been included in other
noncurrent liabilities on the Consolidated Balance Sheets on page F-28,
representing ComEd's estimate of the liability associated with cleanup costs
of sites other than former MGP sites. These cost estimates are based on
currently available information regarding the responsible parties likely to
share in the costs of responding to site contamination, the extent of
contamination at sites for which the investigation has not yet been completed
and the cleanup levels to which sites are expected to have to be remediated.
While ComEd may have rights of reimbursement under insurance policies, amounts
that may be recoverable from other entities are not considered in establishing
the estimated liability for the environment remediation costs.
The outcome of many of the regulatory proceedings referred to above, if not
favorable, could have a material adverse effect on Unicom and ComEd's future
business and operating results.
From time to time, Unicom and its subsidiaries are, or are claimed to be, in
violation of or in default under orders, statutes, rules or regulations
relating to environmental controls and other matters, compliance plans imposed
upon or agreed to by them or permits issued by various state and federal
agencies for the construction or operation of their facilities. Unicom and
ComEd do not believe, so far as they now foresee, that such violations or
defaults will have a material adverse effect on their future business and
operating results, except for events otherwise described in these Annual
Reports on Form 10-K, which could have such an effect.
Employees
Unicom and its subsidiary companies had approximately 14,435 and 15,962
employees as of December 31, 1999 and 1998, respectively. The reduction from
1998 is substantially due to the sale of ComEd's fossil plant assets. See
"Fossil Plant Sale" above for additional information. ComEd had approximately
14,308 employees as of December 31, 1999 of which approximately 7,671 ComEd
employees were represented by IBEW Local 15.
The Collective Bargaining Agreement with Local 15 became effective August
25, 1997, and provides, among other things, for a term expiring on March 31,
2001. A previously negotiated general wage increase of 1.5% was effective
April 1, 1997, for all employees covered by the Collective Bargaining
Agreement. Additionally, a general wage increase of 1.5% was effective October
13, 1997, and was applied on a retroactive basis to March 31, 1997. For each
of the remaining three years, a 3%
14
general wage increase will be granted to employees covered by the Collective
Bargaining Agreement, effective the beginning of the pay period that includes
April 1st of each such year.
The supplemental agreements covering the life insurance, savings and
investment plan, and health care plans are effective through March 31, 2001.
ComEd is currently in negotiations with IBEW Local 15 concerning the
supplemental agreement covering pension benefits which expired on September
30, 1999.
Interconnections
ComEd has interconnections for the transmission of electricity with Central
Illinois Light Company, Central Illinois Public Service Company (awholly owned subsidiary of Ameren)PECO, is the
sole general partner of PECO Energy Capital, L.P., Illinois Power Company, Indiana Michigan Power Company (a
subsidiary of American Electric Power Company), Alliant West, MidAmerican
Energy Company, Northern Indiana Public Service Company, Wisconsin Electric
Power Company and Alliant Easta Delaware limited
partnership (Partnership). The Partnership was created solely for the purpose of
exchanging energyissuing preferred securities, representing limited partnership interests and
for
other formslending the proceeds thereof to PECO and entering into similar financing
arrangements. The loans to PECO are evidenced by PECO's subordinated debentures
(Subordinated Debentures), which are the only assets of mutual assistance.
ComEd and 40 other utilitiesthe Partnership. The
only revenues of the Partnership are membersinterest on the Subordinated Debentures.
All of MAIN. The members have entered
into an agreement to work together to ensure the reliabilityoperating expenses of electric power
production and transmission throughout the area they serve.
ComEd joined with other Midwestern utilities to form a regional Midwest ISO
in January 1998. See "Changes in the Electric Utility Industry--Response to
Regulatory Changes" above for additional information.
Franchises
ComEd's franchisesPartnership are in general, deemed adequate to permit it to engage
in the business it now conducts.
ComEd operates in Chicago under a nonexclusive electric franchise ordinance,
effective January 1, 1992, and continuing in force until December 31, 2020.
ComEd derives approximately one-third of its ultimate consumer revenues from
customers located within Chicago. See "Item 3. Legal Proceedings" regarding a
settlement agreement reached with the City of Chicago.
The electric business outside of Chicago is conducted in municipalities
under nonexclusive franchises and, where required, under certificates of
convenience and necessity grantedpaid by the ICC. The following tabulation
summarizes, asPECO Energy Capital
Corp. As of December 31, 1999,2000, the expiration datesPartnership held $128.1 million aggregate
principal amount of the electric
franchises heldSubordinated Debentures.
PECO Energy Capital Trust II (Trust II) was created in June 1997 as a
Delaware business trust solely for the purpose of issuing trust receipts (Trust
II Receipts) each representing an 8.00% Cumulative Monthly Income Preferred
Security, Series C (Series C Preferred Securities) of the Partnership. The
Partnership is the sponsor of Trust II. As of December 31, 2000, Trust II had
outstanding 2,000,000 Trust II Receipts. At December 31, 2000, the assets of
Trust II consisted solely of 2,000,000 Series C Preferred Securities with an
aggregate stated liquidation preference of $50 million. Distributions were made
on the Trust II Receipts during 2000 in the 395 municipalities outsideaggregate amount of Chicago capable$4 million.
Expenses of granting franchisesTrust II for 2000 were approximately $50,000, all of which were paid
by PECO Energy Capital Corp. The Trust II Receipts are issued in book-entry only
form.
PECO Energy Capital Trust III (Trust III) was created in April 1998 as
a Delaware business trust solely for the purpose of issuing trust receipts
(Trust III Receipts) each representing an 7.38% Cumulative Preferred Security,
Series D (Series D Preferred Securities) of the Partnership. The Partnership is
the sponsor of Trust III. As of December 31, 2000, Trust III had outstanding
78,105 Trust III Receipts. At December 31, 2000, the assets of Trust III
consisted solely of 78,105 Series D Preferred Securities with an aggregate
stated liquidation preference of $78.1 million. Distributions were made on Trust
III Receipts during 2000 in the aggregate amount of $5.8 million. Expenses of
Trust III for 2000 were approximately $50,000, all of which were paid by PECO
Energy Capital Corp. The Trust III Receipts are issued in book-entry only form.
ComEd Financing I, a Delaware business trust, was formed by ComEd on
July 21, 1995. ComEd Financing I was created solely for the purpose of issuing
$200 million of trust preferred securities. The trust preferred securities were
issued on September 26, 1995, carry an annual distribution rate of 8.48% and inare
mandatorily redeemable on September 30, 2035. The sole assets of ComEd Financing
I are $206.2 million principal amount of 8.48% subordinated deferrable interest
notes due September 30, 2035, issued by ComEd.
Similarly, ComEd Financing II, a Delaware business trust, was formed by
ComEd on November 20, 1996. ComEd Financing II was created solely for the
purpose of issuing $150 million of trust capital securities. The trust capital
securities were issued on January 24, 1997, carry an annual distribution rate of
8.50% and are mandatorily redeemable on Janaury 15, 2027. The sole assets of
ComEd Financing II are $154.6 million principal amount of 8.50% subordinated
deferrable interest debentures due January 15, 2027, issued by ComEd.
ComEd Transitional Funding Trust (ComEd Funding Trust), a Delaware
business trust, was formed on October 28, 1998, pursuant to a trust agreement
among First Union Trust Company, National Association, as Delaware trustee, and
24
two individual trustees appointed by ComEd. ComEd Funding Trust was created for
the sole purpose of issuing transitional funding notes to securitize intangible
transition property granted to ComEd Funding LLC, a ComEd affiliate, by an ICC
order issued July 21, 1998. On December 16, 1998, ComEd Funding Trust issued
$3.4 billion of transitional funding notes, the proceeds of which were used to
purchase the intangible transition property held by ComEd currently provides electric service.Funding LLC. ComEd
Funding LLC transferred the proceeds to ComEd where they were used, among other
things, to repurchase outstanding debt and equity securities of ComEd. The
transitional funding notes are solely obligations of ComEd Funding Trust and are
secured by the intangible transition property, which represents the right to
receive instrument funding charges collected from ComEd's customers. The
instrument funding charges represent a nonbypassable, usage-based, per
kilowatt-hour charge on designated consumers of electricity.
Estimated
NumberExecutive Officers of Aggregate
Franchise Expiration Periods Municipalities Populationthe Registrants at December 31, 2000
Exelon
Age at
Name Dec. 31, 2000 Position
- ---------------------------- -------------- -------------- ------------- --------
2000-2006............................................. 2 82,000
2007-2017............................................. 10 96,000
2018-2028............................................. 3 3,537
2029-2039............................................. 1 *
2040 and subsequent years............................. 376 4,033,000
No stated time limit.................................. 3 61,000
- --------
*Less than 1,000 people.
15
Executive Officers of the Registrant
The effective year of election of the officers to their present positions and
the prior positions they have held with Unicom or other companies, since
January 1, 1995, are described below.
Name and Age Position
---------------------------- -----------------------------------------------
*John W. Rowe, 54 Chairman, President and ChiefMcNeill, Jr., Corbin A................61 Co-Chief Executive Officer of Unicom and ComEd since March 1998; previ-
ously President and ChiefChairman
Rowe, John W..........................55 Co-Chief Executive Officer of
New England Electric System.
*Paul A. Elbert, 50and President
Egan, Michael J.......................47 Executive Vice President
of Unicom and ComEd
and President Unicom Enterprises Inc. since
October 1999; previously President and Chief
Executive Officer--Gas for Consumers Energy
Company from August 1997 to September 1999;
previouslyKingsley Jr., Oliver D................58 Executive Vice President
and Chief
Operating Officer--Gas at Consumers Energy
Company from December 1994 to August 1997.
*Oliver D. Kingsley, Jr., 57Strobel, Pamela B.....................48 Executive Vice President
of Unicom and ComEd
and President and Chief Nuclear Officer--Nu-
clear Generation Group of ComEd since October
1997; previously Chief Nuclear Officer at the
Tennessee Valley Authority.
*Pamela B. Strobel, 47 Executive Vice President and General Counsel of
Unicom and ComEd since January 1999; previ-
ously Senior Vice President and General Coun-
sel of Unicom and ComEd, October 1997 to De-
cember 1998; previously Vice President and
General Counsel of ComEd.
*Frank M. Clark, 54 Senior Vice President of Unicom and ComEd since
January 1999; previously Vice President of
ComEd, January 1997 to December 1998; previ-
ously Governmental Affairs Vice President 1996
to January 1997 and Governmental Affairs Man-
ager.
*Carl J. Croskey, 48 Senior Vice President of Unicom and ComEd and
President of Distribution at ComEd since Au-
gust 1999; previously President of MichCon En-
terprises Inc., a subsidiary of Michigan Con-
solidated Gas Company from January 1998 to Au-
gust 1999; previously Senior Vice President of
Operations for Michigan Consolidated Gas Com-
pany from April 1995 to January 1998.
*RuthGillis, Ruth Ann M. Gillis, 45 Senior Vice President and Chief Financial Offi-
cer of Unicom and ComEd since January 1999;
previously Vice President and Treasurer of
Unicom and ComEd, September 1997 to December
1998; previously Vice President, Chief Finan-
cial Officer and Treasurer of the University
of Chicago Hospitals and Health System from
1996 to 1997 andM....................46 Senior Vice President and Chief Financial Officer
of American National
Bank and Trust Company.
*Elizabeth A. Moler, 50McLean, Ian P.........................51 Senior Vice President
of ComEd and Unicom since
January 2000; previously Director of Unicom
and ComEd from December 1998 to December 1999,
and partner at Vinson & Elkins, LLP, from De-
cember 1998 to December 1999; previously Dep-
uty Secretary of the U.S. Department of Ener-
gy, 1997 to 1998 and Chair of the Federal En-
ergy Regulatory Commission, 1993 to 1997.
16
Name and Age Position
------------------------ -------------------------------------------------------------
*S. Gary Snodgrass, 48Mehrberg, Randall E...................45 Senior Vice President of Unicom and ComEd since October 1997;General Counsel
Moler, Elizabeth A....................51 Senior Vice President, of Unicom and ComEd, September 1997 to
October 1997; previouslyGovernment Affairs-Federal
Padron, Honorio J.....................48 Senior Vice President
of USG Corporation.
*Robert E. Berdelle, 44Snodgrass, S. Gary....................49 Senior Vice President and Comptroller of Unicom and ComEd since
January 1999; previously Comptroller of Unicom and ComEd,
July 1997 to December 1998; previously held various finan-
cial reporting and analysis positions within ComEd.
John T. Hooker, 51 Vice President of Unicom and ComEd since December 1999; pre-
viously Government Affairs Vice President of ComEd, 1998 to
December 1999 and Director of Governmental Services of
ComEd.
Arlene A. Juracek, 49 Vice President of Unicom and ComEd since December 1999; pre-
viously Assistant Vice President of ComEd, February 1994 to
December 1999.
Robert K. McDonald, 44 Vice President of Unicom and ComEd since December 1999; pre-
viously Strategic PlanningChief Human Resources Officer
Gibson, Jean..........................44 Vice President and Director of
Strategic Planning ofCorporate Controller
ComEd
September 1994 to December
1999.
Vito Stagliano, 57Age at
Name Dec. 31, 2000 Position
- ---- ------------- --------
McNeill, Jr., Corbin A................61 Co-Chief Executive Officer, ComEd
Rowe, John W. ........................55 President, Co-Chief Executive Officer and Chairman, ComEd
Egan, Michael J.......................47 Executive Vice President, of Unicom and ComEd since December 1999; pre-
viously Energy Policy and PlanningExelon
Kingsley Jr., Oliver D. ..............58 Executive Vice President, ofNuclear and Chief Nuclear Officer, ComEd
since November 1998; previously Managing Director ofStrobel, Pamela B. ...................48 Executive Vice President, Energy Security Analysis Inc. during 1997 to 1998; previously vis-
iting scholar at Resources for the Future during 1994 to
1996.
Patricia L. Kampling, 40 Treasurer of UnicomDelivery, Exelon and Vice Chairman, ComEd
since February 1999; previously
Manager ofClark, Frank M. ......................55 Senior Vice President, Distribution Customer and Marketing Services and External
Affairs, ComEd
Gillis, Ruth Ann M....................46 Senior Vice President, Finance of Unicom and Chief Financial Officer, Exelon
Helwig, David R.......................50 Senior Vice President, Operations, ComEd
May 1998 to February
1999; previously Assistant Treasurer of UnicomMcLean, Ian P.........................51 Senior Vice President, Power Team, ComEd
Mehrberg, Randall E...................45 Senior Vice President and ComEd.
John P. McGarrity, 38 Associate General Counsel, Exelon
Moler, Elizabeth A....................51 Senior Vice President, Government Affairs-Federal, Exelon
Padron, Honorio J.....................48 Senior Vice President, Business Services, ComEd
Snodgrass, S. Gary....................49 Senior Vice President, Human Resources, ComEd
Gibson, Jean..........................44 Vice President and Secretary of UnicomController, Exelon
25
PECO
Age at
Name Dec. 31, 2000 Position
- ---- ------------- --------
McNeill, Jr., Corbin A. ..............61 President, Co-Chief Executive Officer and ComEd
since January 1999; previously AssociateChairman, PECO
Rowe, John W..........................55 Co-Chief Executive Officer, PECO
Egan, Michael J.......................47 Executive Vice President, Enterprises, PECO
Kingsley Jr., Oliver D. ..............58 Executive Vice President, Nuclear and Chief Nuclear Officer, PECO
Strobel, Pamela B. 48 Executive Vice President, Energy Delivery, Exelon and Vice
Chairman, PECO
Gillis, Ruth Ann M....................46 Senior Vice President, Finance and Chief Financial Officer, Exelon
Lawrence, Kenneth G...................53 Senior Vice President, Distribution, PECO
McLean, Ian P.........................51 Senior Vice President, Power Team, PECO
Mehrberg, Randall E...................45 Senior Vice President and General Counsel, of
UnicomExelon
Moler, Elizabeth A....................51 Senior Vice President, Government Affairs-Federal, Exelon
Padron, Honorio J.....................48 Senior Vice President, Business Services, PECO
Snodgrass, S. Gary....................49 Senior Vice President, Human Resources, PECO
Gibson, Jean..........................44 Vice President and ComEd, December 1997 to January 1999; previously
a partner with Sidley & Austin.Controller, Exelon
--------
* Executive Officers for Section 16 reporting purposes.
The present term of office of eachEach of the above executive officers extendswas elected to such office
effective October 20, 2000, the first meetingclosing date of Unicom's Boardthe merger, except for Randall
E. Mehrberg, who was elected effective December 1, 2000.
Each of Directors after the next annual
election of Directors.
There are no family relationships among theabove executive officers directors
and nominees for director of Unicom.
Year 2000 Conversion
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," subcaption "Liquidity and Capital Resources--Year 2000
Conversion" on page F-12 for information regarding Unicom and ComEd's Year
2000 conversion.
Forward-Looking Information
Except for historical data,holds such office at the
information contained in these Annual
Reports constitutes forward-looking statements. Forward-looking statements are
inherently uncertain and subject to risks. Such statements should be viewed
with caution. Actual results or experience could differ materially from the
forward-looking statements as a result of many factors. Forward-looking
statements in this report include, but are not limited to: (1) statements
regarding expectations of revenue reductions and
17
collections of future CTC revenues as a resultdiscretion of the 1997 Act in "Item 1.
Business," subcaption "Changes in the Electric Utility Industry--The 1997
Act," (2) statements regarding estimated capital expenditures in "Item 1.
Business," subcaption "Construction Program," (3) statements regarding the
costsrespective companys' board of decommissioning nuclear generating stations in "Item 1. Business,"
subcaption "Regulation-- Nuclear," (4) statements regarding site investigation
and remediation costs associated with MGPs and other remediation sites in
"Item 1. Business," subcaption "Regulation--Environmental," and (5) "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8. Financial Statements and Supplementary Data" which
contain forward-looking information as described therein, and in the case of
ComEd, incorporate portions of ComEd's March 30, 2000 Form
8-K Report, which is incorporated herein by reference, which contain forward-
looking information as described therein. Management cannot predict the course
of future eventsdirectors until his or anticipate the interaction of multiple factors beyond
management's control and their effect on revenues, project timing and costs.
The statements regarding revenue reductions and collections of future CTC
revenues are subjecther
replacement or earlier resignation, retirement or death.
Prior to unforeseen developments in the market for electricity
in Illinois resulting from regulatory changes. The statements regarding
estimated capital expenditures, decommissioning costs and cleanup costs are
subjecthis election to changes in the scope of work and manner in which the work is
performed and consequent changes in the timing and levelhis current position, Mr. McNeill was Chairman
of the projected
expenditure,Board, President and are also subjectChief Executive Officer of PECO Energy Company;
President and Chief Executive Officer of PECO Energy Company; and President and
Chief Operating Officer and Executive Vice President - Nuclear of PECO Energy
Company.
Prior to changes in lawshis election to his current position, Mr. Rowe was Chairman,
President and regulations or their
interpretation or enforcement. Unicom and ComEd make no commitment to disclose
any revisions to the forward-looking statements, or any facts, events or
circumstances after the date hereof that may bear upon forward-looking
statements.
Item 2. Properties.
ComEd's electric properties are located in Illinois and the Indiana
Company's electric facilities are located in Indiana. In management's
opinion, ComEd and the Indiana Company's operating properties are adequately
maintained and are substantially in good operating condition. The electric
generating, transmission, distribution and general facilitiesChief Executive Officer of ComEd and Unicom Corporation; and
President and Chief Executive Officer of New England Electric System.
Prior to his election to his current position, Mr. Egan was Senior Vice
President, Finance and Chief Financial Officer of PECO Energy Company; Senior
Vice President and Chief Financial Officer of Aristech Chemical Company; and
Vice President of Planning and Control of ARCO Chemical Company, Americas.
Prior to his election to his current position, Mr. Kingsley was
Executive Vice President of ComEd and Unicom, President and Chief Nuclear
Officer - Nuclear Generation Group of ComEd; and Chief Nuclear Officer at the
Indiana Company represent approximately 54%, 9%, 31%Tennessee Valley Authority.
Prior to her election to her current position, Ms. Strobel was
Executive Vice President and 6%, respectively,General Counsel of their net investment in electric plantComEd and equipment in service (after
reflecting the saleUnicom; Senior Vice
President and General Counsel of ComEd and Unicom; and Vice President and
General Counsel of ComEd.
Prior to her election to her current position, Ms. Gillis was Senior
Vice President and Chief Financial Officer of ComEd and Unicom; Vice President
and Treasurer of ComEd and Unicom; Vice President, Chief Financial Officer and
Treasurer of the fossil plant assets).University of Chicago Hospitals and Health System; and Senior
Vice President and Chief Financial Officer of American National Bank and Trust
Company.
26
Prior to his election to his current position, Mr. McLean was President
of the Power Team division of PECO Energy Company; and Group Vice President of
Engelhard Corporation.
Prior to his election to his current position, Mr. Mehrberg was an
equity partner with the law firm of Jenner & Block; and General Counsel and
Lakefront Director of the Chicago Park District.
Prior to her election to her current position, Ms. Moler was Senior
Vice President of ComEd and Unicom; Director of Unicom and ComEd; Partner at the
law firm of Vinson & Elkins, LLP; Deputy Secretary of the U.S. Department of
Energy; and Chair of the Federal Energy Regulatory Commission.
Prior to his election to his current position, Mr. Padron Executive was
Vice President, Process Engineering and Chief Information Officer of CompUSA,
Inc.; Senior Vice President and Chief Information Officer of Pepsico Restaurant
Service Group; and Senior Vice President, Business Engineering and Technology
and Chief Information Officer of Flagstar Corporation.
Prior to his election to his current position, Mr. Snodgrass was Senior
Vice President of ComEd and Unicom; Vice President of ComEd and Unicom; and Vice
President of USG Corporation.
Prior to her election to her current position, Ms. Gibson was Vice
President and Controller of PECO Energy Company; and Director of Audit Services
and Director of the Tax Division of PECO Energy Company.
Prior to his election to his current position, Mr. Clark was Senior
Vice President of ComEd and Unicom; Vice President of ComEd; Governmental
Affairs Vice President; and Governmental Affairs Manager.
Prior to his election to his current position, Mr. Helwig was Senior
Vice President of ComEd; Vice President of ComEd; General Manager of General
Electric Company's Nuclear Services Company; and Vice President at PECO Energy
Company.
Prior to his election to his current position, Mr. Lawrence was Senior
Vice President, Corporate and President, Distribution, of PECO Energy Company;
Senior Vice President - Local Distribution of PECO Energy Company; Senior Vice
President - Finance and Chief Financial Officer of PECO Energy Company; and Vice
President - Gas Operations of PECO Energy Company.
27
ITEM 2. PROPERTIES.
Energy Delivery
The electric generating stations, substations and a portion of the transmission rights of
way of ComEd and the Indiana CompanyPECO are owned in fee. A significant portion of the electric
transmission and distribution facilities is located over or under highways,
streets, other public places or property owned by others, for which permits,
grants, easements or licenses, deemed satisfactory by ComEd and PECO,
respectively, but without examination of underlying land titles, have been
obtained.
Transmission and Distribution
Exelon's higher voltage electric transmission and distribution lines
owned and in service are as follows:
Voltage (Volts) Circuit Miles
- -------------------------------- ----------------------
ComEd:
765,000 90
345,000 2,589
138,000 2,097
PECO:
500,000 891
220,000 1,634
132,000 15
28
ComEd's electric distribution system includes 40,605 pole-line miles of
overhead lines and 38,517 cable miles of underground lines. PECO's electric
distribution system includes 48,222 circuit miles, 21,009 pole-line miles of
overhead lines and 21,002 cable miles of underground lines.
Gas
The following table sets forth PECO's gas pipeline miles at December
31, 2000:
Pipeline Miles
Transmission 28
Distribution 6,099
Service piping 5,030
-------
Total 11,157
=======
PECO has a liquefied natural gas facility located in West Conshohocken,
Pennsylvania which has a storage capacity of 1,200,000 million cubic feet (mcf)
and a sendout capacity of 157,000 mcf/day and a propane-air plant located in
Chester, Pennsylvania, with a tank storage capacity of 1,980,000 gallons and a
peaking capability of 28,800 mcf/day. In addition, PECO owns 27 natural gas city
gate stations at various locations throughout its gas service territory.
Mortgages
The principal plants and properties of ComEd are subject to the lien of
ComEd's Mortgage dated July 1, 1923, as amended and supplemented, under which
ComEd's first mortgage bonds are issued.
Promptly following the completionThe principal plants and properties of the transactions leadingPECO are subject to the establishmentlien of
ExelonPECO's Mortgage dated May 1, 1923, as the holding company for ComEdamended and PECO, it is
anticipated that both ComEd and PECO will transfer their generating assets and
wholesale power marketing operations to subsidiaries. Following those
transfers, these subsidiaries will be transferred to Exelon and ultimately
will be combined into a single power generation and marketing company
("Genco"),supplemented, under which
will be a direct subsidiary of Exelon. In ComEd's case, the
transfer will include its Braidwood, Byron, Dresden, LaSalle and Quad Cities
generating stations (nuclear generating stations) representing an aggregate
generating capability of 9,566 megawatts, its Zion station, its rights and
obligations under various power purchase agreements, the assets constituting
its nuclear decommissioning trusts and its wholesale power marketing business.
Genco will assume responsibility for the decommissioning of the nuclear
generating stations and Zion Station, subject to an obligation of ComEd to
continue collecting decommissioning-related charges from its customers. Genco
will enter into a power purchase agreement with ComEd in which Genco will
undertake to supply ComEd's full requirements for electric energy through 2004
and all of ComEd's requirements up to the available capacity of the nuclear
generating stations in 2005 and 2006.PECO's first mortgage bonds are issued.
29
Generation
The proposed transfer is subject to
various regulatory approvals.
18
Thefollowing table sets forth Generation's owned net generating capability of ComEd, as of December 31, 1999, is derived
from the following electric
generating facilities:capacity by station at January 1, 2001:
Net Generating CapabilityCapacity
(1) (Kilowatts) Estimated
Station Location (kilowatts)(1)
------- -------------- -------------------------Retirement Year
- --------------------------- -------------------------------- --------------------------- --------------------
Nuclear--
Nuclear(2)
Braidwood Braidwood, IL 2,308,000 2026, 2027
Byron Byron, IL 2,304,000 2024, 2026
Dresden Near Morris, 1,600,000IL 1,592,000 2009, 2011
LaSalle County Seneca, IL 2,291,000 2022, 2023
Limerick Limerick Twp., PA 2,312,000 2024, 2029
Peach Bottom Peach Bottom Twp., PA 1,028,000(3) 2013, 2014
Quad Cities Near Cordova, 1,176,000(2)
LaSalle County Near Seneca 2,210,000IL 1,172,000(3) 2011, 2012
Salem Hancock's Bridge, NJ 942,000(3) 2016, 2020
------------
Total Nuclear 13,949,000
Hydro
Conowingo Harford Co., MD 512,000 2014
Pumped Storage
Muddy Run Lancaster Co., PA 977,000 2014
Fossil (Steam Turbines)
Cromby Phoenixville, PA 345,000 (4)
Delaware Philadelphia, PA 250,000 (4)
Eddystone Eddystone, PA 1,341,000 2009, 2010, 2011
Schuylkill Philadelphia, PA 166,000 (4)
Conemaugh New Florence, PA 352,000(3) 2005, 2006
Keystone Shelocta, PA 357,000(3) 2002, 2003
------------
Total Fossil (Steam Turbine) 2,811,000
Fossil (Gas Turbines)
Chester Chester, PA 39,000 (4)
Croydon Bristol Twp., PA 380,000 (4)
Delaware Philadelphia, PA 56,000 (4)
Eddystone Eddystone, PA 60,000 (4)
Fairless Hills Falls Twp., PA 60,000 (4)
Falls Falls Twp., PA 51,000 (4)
Moser Lower Pottsgrove Twp., PA 51,000 (4)
Pennsbury Falls Twp., PA 6,000 (4)
Richmond Philadelphia, PA 96,000 (4)
Schuylkill Philadelphia, PA 30,000 (4)
Southwark Philadelphia, PA 52,000 (4)
Salem Hancock's Bridge, NJ 16,000(3) (4)
------------
Total Fossil (Gas Turbines) 897,000
Fossil (Internal Combustion)
Cromby Phoenixville, PA 2,700 (4)
Delaware Philadelphia, PA 2,700 (4)
Schuylkill Philadelphia, PA 2,800 (4)
Conemaugh New Florence, PA 2,300(3) 2006
Keystone Shelocta, PA 2,300(3) 2003
------------
Total Fossil (Internal Combustion) 12,800
------------
Total 19,158,800
============
(1) Nuclear stations reflect the annual mean rating. All other stations reflect
a summer rating.
(2) All nuclear stations are boiling water reactors except Braidwood, Byron Near Byron 2,290,000
Braidwood Near Braidwood 2,290,000
----------
Company owned net non-summer
generating capability 9,566,000
Deduct--Summer limitations 231,000
----------
Company owned net summer
generating capability 9,335,000
Add--Capabilityand
Salem which are pressurized water reactors.
(3) Generation's portion.
(4) Retirement dates are under purchase
power agreements 11,008,000(3)(4)(5)
----------
Net summer generating capability 20,343,000
==========on-going review. Current plans call for the
continued operation of these units beyond 2001.
- --------
(1) Reflects a re-rating of certain generating stations as of January 1, 2000.
(2) Excludes the 25% undivided interest of MidAmerican Energy Company in the
Quad Cities Station.
(3) ComEd sold its Kincaid and State Line generating stations in February 1998
and December 1997, respectively. Under the terms of the sales, ComEd
entered into exclusive 15-year purchase power agreements for the output of
the plants.
(4) ComEd sold its remaining six coal-fired generating plants, an oil and gas
fired plant, and nine peaking units to EME in December 1999. ComEd entered
into transitional, limited term power purchase agreements with EME.
(5) The above table represents ComEd's net generating capability for the
summer of 2000.
The net generating capability available for operation at any time may
be less due to regulatory restrictions, fuel restrictions, efficiency of cooling
facilities and generating units being temporarily out of service for inspection,
maintenance, refueling, repairs or modifications required by regulatory
authorities.
The above table excludesExelon and its subsidiaries maintain property insurance against loss or
damage to its principal plants and properties by fire or other perils, subject
to certain limited term power
purchase arrangements with independent power producersexceptions. For information regarding nuclear insurance, see ITEM 1.
Business - Generation. Exelon and other utilities.
ComEd's highest peak load experiencedits subsidiaries are self-insured to date occurredthe
extent that any losses may exceed the amount of insurance maintained. Any such
losses could have a material adverse effect on August 30, 1999Exelon's consolidated financial
condition and was 21,243,000 kilowatts;results of operations.
ITEM 3. LEGAL PROCEEDINGS.
Exelon
None.
PECO
On May 27, 1998, the United States Department of Justice, on behalf of
the Rural Utilities Service (RUS) and the highest peak load experienced to date during
a winter season occurred on December 20, 1999 and was 14,484,000 kilowatts.
ComEd's kilowatthour sales and generation are generally higher, primarily
duringChapter 11 Trustee for the summer periods but also during the winter periods, when temperature
extremes create demand for either summer cooling or winter heating.
See "ChangesCajun
Electric Power Cooperative Inc. filed an action claiming breach of contract
against PECO in the Electric Utility Industry--Fossil Plant Sale" aboveUnited States District Court for additional information regarding ComEd's salethe Middle District of
fossil plants.
Major electric transmission lines owned and in service are as follows:
Voltage Circuit
(Volts) Miles
------- -------
765,000........................................................... 90
345,000........................................................... 2,500
138,000........................................................... 2,097
ComEd's electric distribution system includes 40,493 pole line milesLouisiana arising out of overhead lines and 38,037 cable milesPECO's termination of underground lines. A total of
approximately 1,365,310 poles are included in ComEd's distribution system, of
which about 592,672 poles are owned jointly with telephone companies.
On February 18, 2000, ComEd sold its investment in Cotter Corporationthe contract to General Atomics for $1 million. ComEd will record a loss of approximately $22
million (after-tax)purchase Cajun's
interest in the first quarterRiver Bend nuclear power plant. In the complaint, RUS seeks the
full purchase price of 2000the 30% interest in the River Bend nuclear power plant,
30
that is, $50 million, plus interest and the Trustee seeks alleged consequential
damages to Cajun's Chapter 11 estate as a result of the sale.
Item 3. Legal Proceedings.
During 1989termination. On February
24, 2000, PECO and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that Cotter
19
has permitted radioactive and other hazardous material to be released from its
mill into areas owned or occupied by the plaintiffs resultingfiled cross-motions for summary judgment
regarding the issue of liability. In addition, the court ordered counsel for
PECO to file a supplemental motion for summary judgment on the issue of damages.
On March 21, 2001, all of the pending motions and cross-motions for summary
judgment were denied. While PECO cannot predict the outcome of this matter, PECO
believes that it validly exercised its right of termination and did not breach
the agreement.
Generation
Generation is involved in property
damagetax appeals regarding two of its nuclear
facilities, Limerick Generating Station (Montgomery County, PA) and potential adverse health effects. With respectPeach Bottom
(York County, PA). The Board of Assessment Appeals of Montgomery County has
reduced the assessment of Limerick from $939 million to Cotter,$912 million. Assessors
in 1994 a
federal jury returned nominal dollar verdicts against Cotter on eight
plaintiffs' claimsYork County have valued Peach Bottom at $303 million. Primarily because of
decommissioning costs inherent in the 1989 cases, which verdicts were upheld on appeal.
The remaining claimsproperty and supported by comparable
sales, Generation believes that the values for real property taxes for Limerick
and Peach Bottom for 1998, 1999 and 2000 are negative. Generation is appealing
the assessments in both counties. As of January 11, 2001, Generation and the
1989 actions have been settledMontgomery County taxing authorities entered into a stipulation and dismissed. On
July 15, 1998, a jury verdict was rendered in Dodge v. Cotter (United States
District Courtinterim
settlement agreement providing for partial payment of taxes pending the
District of Colorado, Civil Action No. 91-Z-1861), a
case relating to 14determination of the plaintiffs inappeal. Generation and the 1991 cases. The verdict against
CotterYork County taxing authorities
are negotiating a stipulation and in favorinterim settlement agreement. Generation does
not believe the outcome of the plaintiff, after amended judgement issued in March
1999, totaled approximately $6 million, including compensatory and punitive
damages, interest, and medical monitoring. On February 11, 2000, the Tenth
Circuit Court of Appeals agreed with Cotter, found that the trial judge had
erred in critical rulings and reversed the jury verdict, remanding the case
for new trial. A case involving the next group of plaintiffs is set for trial
in federal district court in Denver on October 2, 2000. Although ComEd sold
its investment in Cotter in February 2000, ComEdthese matters will continue to be liable
for any court verdicts in favor of the plaintiffs. The other 1991 cases will
necessarily involve the resolution of numerous contested issues of law and
fact. It is Unicom and ComEd's assessment that these actions will not have a material impactadverse effect on
their financial position orGeneration's results of operations.
In Julyoperations or financial condition.
ComEd
Three of ComEd's wholesale municipal customers filed a complaint and
August 1995, three class action lawsuits were filed againstrequest for refund with FERC alleging that ComEd arising out of a series of service outages. Allfailed to properly adjust its
rates, as provided for under the terms of the complaints seek
damages incurredelectric service contracts with
the municipal customers and to track certain refunds made to ComEd's retail
customers in the years 1992 through 1994. In the third quarter of 1998, the FERC
granted the complaint and directed that refunds be made, with interest. ComEd
filed a request for property lossrehearing. On January 11, 2001, FERC issued its Order on
Rehearing Requesting Submission of Additional Information. Responsive pleadings
have been filed by approximately 40,000 customers who were
without electrical service for up to 48 hours. These suits were subsequently
consolidated. A proposed settlement agreement was preliminarily approved byall parties and final FERC action is still pending. ComEd's
management believes an adequate reserve has been established in connection with
the Court on November 23, 1999. Under this plan, eligible class members will
receive a credit if they were without power more than 12 consecutive hours. If
they submitted timely claim forms, some class members will receive additional
compensation for food spoilage, other perishable items and damage caused by
power surges. Total benefits available to the class are approximately $2.5
million. Class counsel fee petitions are currently under consideration by the
Court, but will not increase the maximum allowable payout by ComEd. The claims
administration will continue through the summer of 2000.case.
In August 1999, three class action lawsuits were filed, againstand
subsequently consolidated, in the Circuit Court of Cook County, Illinois seeking
damages for personal injuries, property damage and economic losses from ComEd
related to a series of service interruptions duringthat occurred in the summer of
1999. The combined effect of these eventsinterruptions resulted in over 100,000168,000
customers losing service. On
August 12, 1999, service was interrupted to ComEd customers on the near north
and near west side of Chicago's central business district. While major
commercial customers were affected, all service was restored on the same date.
The class action complaints have been consolidated and seek to recover damages
for personal injuries and property damage, as well as economic loss for these
events. Further, ComEd initiated expedited claim settlements for those with
primarily food spoilage claims.more than four hours. Conditional class
certification has been approved by the Court for the sole purpose of exploring
settlement talks. The
lawsuits are pending in the Circuit Court of Cook County. ComEd has filedA hearing on a motion challenging the legal sufficiency of the consolidated complaints. The
plantiff's response is due April 14, 2000 and any replyfiled by ComEd is due May
12, 2000. The motion to dismiss the complaints
is currently scheduled tofor April 2001. A portion of any settlement or verdict may be
argued on May 23,
2000.covered by insurance and discussions with the carrier are ongoing. ComEd's
management believes adequate reserves have been established in connection with
these cases.
Following the summerIn 1999, service interruptions, the ICC opened a three-
phasean investigation ofregarding the design and
reliability of ComEd's transmission and distribution system. Atsystem, which investigation
was expanded during 2000 to include a circuit breaker fire that occurred in
October 2000 at a ComEd substation. The ICC has issued several reports in that
investigation covering the conclusion of each phase of the investigation, the
ICC will issue a report that will include specific recommendations for ComEd
and a timetable for executing the recommendations. Hearings on Phase I of the
investigation were held the week of January 3, 2000, which focused on thesummer 1999 outages of July and August 1999. Reports on Phase II and Phase III, focusing
onas well as the transmission and
distribution system generally,system. These reports include recommendations and an implementation
timetable. The recommendations are not legally binding on ComEd; however, the
ICC may enforce them through litigation. Two more reports are anticipated in
the
second quarter of 2000. The final phase ofearly 2001, and the investigation is expected to conclude in early 2001.
20
ComEd also has several matters pending before various local and state
agencies which pertain to the assessment of Company property for local tax
purposes.by mid-2001. Since
summer 1999, ComEd has instituted several proceedings indevoted significant resources to improving the
courts challenging
adverse determinations by certainreliability of these stateits transmission and local agencies. All taxes
attributable to such determinations have been paid and reflected ondistribution system. ComEd's management
believes that the bookslikelihood of ComEd. ComEd does not believe that a successful material adverse outcomeclaim resulting from the
investigation is likely.
ComEd also has appeals pending in applicable counties concerning property tax
assessments for its Braidwood nuclear generating station. These proceedings
seek refunds and reduced valuations resulting in lower property taxes for the
challenged and subsequent years. ComEd has reached an agreement in principle
with the Will County Board that will resolve these matters.remote.
The agreement is
subject to the approval of the taxing districts involved.
The MontanaIllinois Department of Revenue has made additional tax assessments on
Decker Coal Company for severance taxes, gross proceeds taxes and resource
indemnity trust taxes covering the years 1993-1995. The amount of additional
taxes assessed, including interest through April 30, 1998, is approximately $5
million. Under the terms of a tax and royalty indemnity agreement, ComEd may
be responsible for some or all of these additional taxes and interest, to the
extent they are shown to be payable. ComEd has the right to direct the
challenge of these assessments and may be responsible for the cost of
conducting the defense of Decker from these assessments. Decker is appealing
assessments unrelated to ComEd, but with issues common to the 1993-1995
assessment. Therefore, the appeal impacting ComEd has been held in abeyance
until April 10, 2000.
On March 22, 1999, ComEd reached a settlement agreement with the City to end
the arbitration proceeding between ComEd and the City regarding the January 1,
1992 franchise agreement and a supplemental agreement between them. Under the
terms of the settlement agreement, the pending arbitration is to be dismissed
with prejudice and the City is to release ComEd from all claims the City may
have under the supplemental agreement. The settlement agreement was approved
by the City Council.
As part of the settlement agreement, ComEd and the City have agreed to a
revised combination of ongoing work under the franchise agreement and new
initiatives that will result in defined transmission and distribution
expenditures by ComEd to improve electric service in the City. The settlement
agreement provides that ComEd will be subject to liquidated damages if the
projects are not completed by various dates, unless it is prevented from doing
so by events beyond its reasonable control. ComEd's current construction
budget considers these projects. In addition, ComEd and the City established
an Energy Reliability and Capacity Account, into which ComEd deposited $25
million following the effectiveness of the settlement agreement and ComEd has
conditionally agreed to deposit up to $25 million at the end of each of the
years 2000, 2001 and 2002, to help ensure an adequate and reliable electric
supply for the City.
The IDR(Department) has issued Notices of
Tax Liability to ComEd alleging deficiencies in Illinois invested capital tax
payments for the years 1988 through 1997. The alleged deficiencies including interest and
penalties totaled approximately $52$54 million as of December 31, 1999.2000. The issue
presented for each of the years in question is whether, for Illinois invested
capital tax purposes, ComEd's liability under capital leases is to be included
in long-term debt and thus form a part of ComEd's invested capital subject to
the tax. ComEd's position is that the definition of invested capital for
purposes of the tax is to be determined on the basis of ComEd's annual reports
to the ICC, which, in accordance with ICC instructions, do not include capital
leases in long-term debt. After December 31, 1997, the invested capital tax no
longer applies as the result of legislation enacted in Illinois. ComEd has
protested the notices, and the matter is currently pending before the
IDR'sDepartment's Office of Administrative Hearings. Interest will continue to accrue
on the alleged tax deficiencies.
In November and December1996, several developers of 1997, Unicom and its directors were served with
seven shareholder derivative lawsuits in federalnon-utility generating facilities filed
litigation against various Illinois officials claiming that the enforcement of
an amendment to Illinois law removing the facilities' entitlement to state
subsidized payments for electricity sold to ComEd after March 15, 1996 violated
their rights under Federal and state court. Allconstitutions, and against ComEd for a
declaratory order that their rights under their contracts with ComEd were not
affected by the amendment. On August 4, 1999, the Illinois Appellate Court held
that the developers' claims against the State were premature, and the Illinois
Supreme Court denied leave to appeal that ruling. Developers of both facilities
have since filed amended complaints repeating their allegations that ComEd
breached the contracts in question, and requesting damages for such breach, in
the amount of the suits asserted identical claims thatdifference between the directors breached fiduciary duties
to the shareholders by allegedly failing to properly supervise ComEd's nuclear
program. Each plaintiff alleged that this caused ComEd to violate NRC rules,
which has cost ComEd millions of dollars. The plaintiffs sought to have the
directors reimburse ComEd for these costs. The originally filed suits were
dismissed because no demand was made upon ComEd's board to pursue a derivative
action on behalf of ComEd, and demand was not excused. In September 1998, the
plaintiffs made such a demand on ComEd's board. On October 22, 1998, the board
appointed a special committee to review the merits of the demand. On May 19,
1999, the plaintiffs refiled a
21
derivative action alleging that because the board of directors had not
responded to the plaintiffs, in effect the board had refused the demand. The
special committee, assisted by separate counsel, conducted a review of the
claims asserted in the plaintiffs demand letter. On October 27, 1999, the
special committee reported its findings to the full board and recommended that
the demand be rejected,state-subsidized rate and the board decidedamount
(such amount being referred to as the avoided cost) ComEd was willing to pay for
the electricity. ComEd has contested the assertions by the developers that no legal action should be
broughtthey
are entitled to any payment in excess of avoided cost.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Exelon
The information required by Unicom or ComEdthis Item with respect to the claims asserted in the
plaintiffs demand letter. The plaintiffs reviewed the Special Committee's
report and determined notmarket
information relating to contest the Special Committee's recommendation.
An order dismissing the derivative action was issued on February 9, 2000.
On April 28, 1997, Tower Leasing, Inc. and QST Energy, Inc. filed a
complaint with the ICC alleging that ComEd violated Illinois law and its own
tariffsExelon's common stock is incorporated herein by
preventing Tower Leasing and QST from installing a cogeneration
facility at Sears Tower in Chicago and interconnecting such facility with
ComEd's system in that building. Tower Leasing and QST asked the ICCreference to enter
an order that would have essentially required ComEd to assist in the
implementation of the proposed facility. The ICC issued an order dismissing
the complaint and denying the relief requested by Tower Leasing. Tower
Leasing's petition for rehearing was denied. In August 1998, Tower Leasing and
QST appealed the ICC's decision to the state appellate court. The appellate
court issued an order upholding the ICC's decision.
On November 14, 1997, the CHA filed an application with the FERC, seeking to
require ComEd to provide transmission service to some of CHA's buildings so
that those buildings may take electric service from an alternate electric
supplier. ComEd maintains that the CHA is a retail customer ineligible for
transmission service. ComEd and the CHA have asked the FERC to hold
proceedings in abeyance pending the outcome of settlement negotiations. Should
the CHA proceedings be resolved adversely to ComEd, ComEd could lose
substantial revenue. This revenue loss may be offset, however, by a stranded
cost obligation the CHA would owe ComEd under FERC Order No. 888.
On September 10, 1998, Prairieland Energy, Inc. filed an application with
the FERC, seeking to require ComEd to transmit power and energy on behalf of
Prairieland to the Chicago campus of its parent, the University of Illinois.
ComEd protested the filing because the application either seeks prohibited
retail wheeling or seeks approval of a sham wholesale transaction between
Prairieland and its parent. On December 28, 1998, the FERC issued an order
denying Prairieland's application. On April 19, 1999, the FERC denied
Prairieland's request for appeal. On July 28, 1999, the FERC denied a second
application, which Prairieland had submitted in May, determining that
documentation submitted by Prairieland did not demonstrate the basis for a
bona fide commercial transaction with the University of Illinois.
Prairieland's request for rehearing is pending.
In June 1997, Torco Energy Marketing, Inc. filed an action against ComEd in
the Circuit Court of Cook County, Illinois, alleging that ComEd tortiously
interfered with Torco's proposed arrangement between Torco and Sargent & Lundy
LLC. Torco claims that, but for actions by ComEd, Sargent & Lundy would have
paid Torco $20 million to purchase a portion of the equity in Torco, and that
the venture would have had revenues of $2.6 billion. ComEd was granted summary
judgement on October 28, 1999 and the complaint was dismissed. Torco has filed
a Notice of Appeal. ComEd is confident the dismissal will be upheld.
On April 18, 1996, a ComEd truck driver, driving a ComEd truck, struck a car
that had slowed or stopped to make a turn. The truck pushed this car into
oncoming traffic causing a head-on collision with a third vehicle. The driver
of this third vehicle suffered extensive injuries resulting in numerous
surgical procedures. The plaintiff, who is wheelchair bound, and the
plaintiff's spouse have made a combined demand of $55 million upon ComEd. On
May 28, 1999, judgement for $13,500,000 was entered for the plaintiff. The
matter is currently on appeal. Insurance coverage above ComEd's $5 million
self-insured retention should be available.
22
See "Item 1. Business," subcaption "Regulation" above, for information
concerning other legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market"Market for Registrant's Common Equity and Related Stockholder
Matters.
ComEd's securitiesMatters" in Exhibit 99-1 to Exelon's Current Report on Form 8-K dated March 16,
2001.
31
PECO
As of March 1, 2001, there were outstanding 170,478,507 shares of
common stock, without par value, of PECO, all of which were held by Exelon.
PECO's Articles of Incorporation prohibit payment of any dividend on,
or other distribution to the holders of, common stock if, after giving effect
thereto, the capital of PECO represented by its common stock together with its
Other Paid-in Capital and other securities guaranteedRetained Earnings is, in the aggregate, less than the
involuntary liquidating value of its then outstanding preferred stock. At
December 31, 2000, such capital ($1.6 billion) amounted to about 9 times the
liquidating value of the outstanding preferred stock ($174 million).
PECO may not declare dividends on any shares of its capital stock in
the event that: (1) PECO exercises its right to extend the interest payment
periods on the Subordinated Debentures which were issued to the Partnership; (2)
PECO defaults on its guarantee of the payment of distributions on the Series C
or Series D Preferred Securities of the Partnership; or (3) an event of default
occurs under the Indenture under which the Subordinated Debentures are issued.
See Item 1. Business-Related Entities.
ComEd
As of December 31, 2000, there were outstanding 163,805,020 shares of
common stock, $12.50 par value, of ComEd, of which 163,796,961 shares were held
by Exelon. In addition to Exelon, there were at December 31, 2000 approximately
268 additional holders of ComEd are currently
ratedcommon stock. There is no established market for
shares of the common stock of ComEd.
Dividends
Under PUHCA and the Federal Power Act, Exelon, PECO, ComEd and
Generation can only pay dividends from retained or current earnings. Similar
restrictions also apply to ComEd under the Illinois Public Utilities Act. An SEC
order issued under PUHCA granted permission to Exelon and ComEd to pay up to
$500 million in dividends out of additional paid-in capital, provided that
Exelon agreed not to pay dividends out of paid-in capital after December 31,
2002 if its common equity is less than 30% of its total capitalization. At
December 31, 2000, Exelon had retained earnings of $332 million, PECO had
retained earnings of $197 million, ComEd had retained earnings of $133 million
and Generation had no retained earnings.
The following table sets forth the quarterly cash dividends paid by
three principal securities rating agencies as follows:PECO and ComEd during 2000 and 1999:
Standard Duff &
Moody's & Poor's Phelps
------- -------- ------- ---------------------------------------------------------- ---------------------------------------------
2000 1999
- ---------------------------------------------------------- ---------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ----------------------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
First mortgage and secured pollution control bonds.. Baa1 BBB+ A-
Publicly-held debentures and unsecured pollution
control obligations................................ Baa2 BBB BBB+
Convertible preferred stock......................... baa3 BBB- BBB
Preference stock.................................... baa2 BBB- BBB
Trust Securities.................................... baa3 BBB- BBB
Commercial paper.................................... P-2 A-2 D-1
ComEd Funding Trust's securities are currently rated by three principal
securities rating agencies as follows:
Standard Duff &
Moody's & Poor's Phelps
------- -------- ------
Transitional trust notes............................. Aaa AAA AAA
PECO $0.25 $0.25 $0.25 $0.16 $0.25 $0.25 $0.25 $0.25
- ----------------------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
ComEd $0.40 $0.40 $0.40 $0.09 $0.40 $0.40 $0.40 $0.40
- ----------------------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
As32
Exelon did not pay any cash dividends. The Board of February 2000, Moody'sDirectors of Exelon
has announced its intention, subject to approval and Duff & Phelps' current rating outlooks on
ComEd's securities are stable. S&P has ComEd on CreditWatch with positive
implications.
All three agencies raised their rating for ComEd in the course of 1999: Duff
& Phelps in December, Moody's in September and S&P in June.
On December 17, 1999, Duff & Phelps raised its rating on Unicom's senior
debt obligations to BBB. On September 15, 1999, Moody's assigned Unicom a
first time issuer rating of Baa3. On June 29, 1999, S&P raised its rating on
Unicom's senior debt obligations to BBB.
The above ratings reflect only the views of such rating agencies and each
rating should be evaluated independently from any other rating. Generally,
rating agencies base their ratings on information furnished to themdeclaration by the issuing company andBoard of
Directors each quarter, to declare annual dividends on investigations, studies and assumptions by the rating
agencies. There is no assurance that any particular rating will continue for
any given periodits common stock of time or that it will not be changed or withdrawn entirely
if, in the judgment of the rating agency, circumstances so warrant. Such
ratings are not a recommendation to buy, sell or hold securities.$1.69
per share.
ITEM 6. SELECTED FINANCIAL DATA.
Exelon
The following is a brief summary of the meanings of the above ratings and
the relative rank of the above ratings within each rating agency's
classification system.
Moody's top four long-term debt ratings (Aaa, Aa, A and Baa) are generally
considered "investment grade." Obligations rated Baa are considered as medium
grade obligations, neither highly protected nor poorly secured. Such
obligations lack outstanding investment characteristics and in fact have
speculative characteristics. A numerical modifier in Moody's system shows
relative standing within the principal rating category, with 1 indicating the
high end of that category, 2 the mid-range
23
and 3 the low end. S&P's top four bond ratings (AAA, AA, A and BBB) are
generally considered to describe obligations in which investment
characteristics predominate. Obligations rated BBB are regarded as having an
adequate capacity to pay interest and repay principal. Such obligations
normally exhibit adequate protection parameters, but adverse economic
conditions or changing circumstances are more likely to lead to weakened
capacity to pay. A plus or minus sign in S&P's system shows relative standing
within its rating categories.
Both S&P and Moody's preferred stock ratings represent relative security of
dividends. Moody's top four preferred stock ratings (aaa, aa, a and baa) are
generally considered "investment grade." Moody's baa rating describes a
medium grade preferred stock, neither highly protected nor poorly secured.
S&P's top four preferred stock ratings (AAA, AA, A and BBB) are generally
considered "investment grade." S&P's BBB rating applies to medium grade
preferred stock which is below A ("sound") and above BB ("lower grade").
Duff & Phelps' credit rating scale has 17 alphabetical categories, of which
ratings AAA (the highest rating) through BBB represent investment grade
securities. Ratings of BBB+, BBB and BBB- represent the lowest category of
"investment grade" rating. This category describes securities with below
average protection factors but which are considered sufficient for
institutional investment. Considerable variability in risk occurs during
economic cycles.
Moody's P-2 rating of commercial paper is the second highest of three
possible ratings. P-2 describes a strong capacity for repayment of short-term
promissory obligations. S&P rates commercial paper in four basic categories
with A-2 being the second highest category. Duff & Phelps rates commercial
paper in three basic categories, with D-2 indicating the middle category.
Further explanations of the significance of ratings may be obtained from the
rating agencies.
Additional information required by this Item 5 is incorporated herein by
reference to "Selected Financial Data" in Exhibit 99-1 to Exelon's Current
Report on Form 8-K dated March 16, 2001.
PECO
The selected consolidated financial data presented below has been
derived from the "Price Rangeaudited financial statements of PECO. This data is qualified in
its entirety by reference to, and Cash Dividends Paid per Shareshould be read in conjunction with PECO's
Consolidated Financial Statements and Management's Discussion and Analysis of
Common
Stock"Financial Condition and Results of Operations included herein.
For the Years Ended December 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------------------
(in millions)
Statement of Income Data:
Operating Revenues $ 5,950 $ 5,478 $ 5,325 $ 4,601 $ 4,284
Operating Income 1,222 1,373 1,268 1,006 1,249
Income before Extraordinary Items
and Cumulative Effect of a Change in
Accounting Principle 487 619 533 337 517
Extraordinary Items (net of income taxes) (4) (37) (20) (1,834) --
Cumulative Effect of a Change in
Accounting Principle 24 -- -- -- --
Net Income (Loss) on Common Stock 497 570 500 (1,514) 499
At December 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------------------
(in millions)
Balance Sheet Data:
Current Assets $ 1,779 $ 1,221 $ 582 $ 1,003 $ 420
Property, Plant and Equipment, net 5,158 5,004 4,804 4,671 10,942
Deferred Debits and Other Assets 7,839 6,862 6,662 6,683 3,899
-------- -------- -------- -------- --------
Total Assets $ 14,776 $ 13,087 $ 12,048 $ 12,357 $ 15,261
======== ======== ======== ======== ========
Current Liabilities $ 2,818 $ 1,286 $ 1,735 $ 1,619 $ 1,103
Long-Term Debt 6,002 5,969 2,920 3,853 3,936
Deferred Credits and Other Liabilities 4,016 3,738 3,756 3,576 4,982
Company-Obligated Mandatorily Redeemable
Preferred Securities 128 128 349 352 302
Mandatorily Redeemable Preferred Stock 37 56 93 93 93
Shareholders' Equity 1,775 1,910 3,195 2,864 4,845
-------- -------- -------- -------- --------
Total Liabilities and Shareholders' Equity $ 14,776 $ 13,087 $ 12,048 $ 12,357 $ 15,261
======== ======== ======== ======== ========
33
ComEd
The selected consolidated financial data presented below has been
derived from the audited financial statements of ComEd. This data is qualified
in its entirety by reference to, and should be read in conjunction with ComEd's
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations included herein.
The information for the year ended 2000 is presented for the periods
before and after the merger. For additional information, see ITEM 8. - Financial
Statements and Supplementary Data - ComEd, Notes 1 and 2 of the Notes to
Consolidated Financial Statements.
Oct. 20 - Jan. 1 - For the Years Ended December 31,
Dec. 31 Oct. 19 ------------------------------------------------
2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
(in millions)
Statement of Income Data:
Operating Revenues $ 1,310 $ 5,702 $ 6,793 $ 7,150 $ 7,076 $ 6,935
Operating Income 338 1,048 1,549 1,387 1,214 1,724
Income (Loss) before
Extraordinary Items
And Cumulative Effect
of a Change in
Accounting Principle 133 603 651 594 (160) 743
Extraordinary Item
(net of income taxes) -- (4) (28) -- (810) --
Cumulative Effect of
a Change in
Accounting Principle -- -- -- -- 196 --
Net Income (Loss)
on Common Stock $ 133 $ 599 $ 623 $ 594 $ (774) $ 743
34
At December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------
(in millions)
Balance Sheet Data:
Current Assets $ 2,410 $ 4,045 $ 4,974 $ 1,745 $ 1,398
Property, Plant and Equipment, net 7,657 11,993 13,300 16,622 17,395
Deferred Debits and Other Assets 10,214 6,538 6,583 3,397 3,756
------- ------- ------- ------- -------
Total Assets $20,281 $22,576 $24,857 $21,764 $22,549
======= ======= ======= ======= =======
Current Liabilities $ 1,806 $ 3,427 $ 3,309 $ 2,223 $ 1,921
Long-Term Debt 6,882 6,962 7,677 5,563 5,958
Deferred Credits and Other Liabilities 5,082 6,456 7,770 8,050 7,671
Mandatorily Redeemable Preference Stock -- 69 171 205 249
Company Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts
Holding the Company's Subordinated Debt
Securities 328 350 350 350 200
Shareholders' Equity 6,183 5,312 5,580 5,373 6,550
------- ------- ------- ------- -------
Total Liabilities and Shareholders' Equity $20,281 $22,576 $24,857 $21,764 $22,549
======= ======= ======= ======= =======
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Exelon
The information required by this Item is incorporated herein by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Exhibit 99-2 to Exelon's Current Report on page F-4.Form 8-K
dated March 16, 2001.
35
PECO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
On October 20, 2000, PECO became a wholly owned subsidiary of Exelon as
a result of the transactions relating to the merger of PECO and Unicom.
During January 2001, Exelon undertook a restructuring to separate its
generation and other competitive businesses from its regulated energy delivery
business. As part of the restructuring, the non-regulated operations and related
assets and liabilities of PECO, representing the Generation and Enterprises
business segments were transferred to separate subsidiaries of Exelon. As a
result, beginning January 2001, the operations of PECO consist of its retail
electricity distribution and transmission business in southeastern Pennsylvania
and itsnatural gas distribution business located in the Pennsylvania counties
surrounding the City of Philadelphia.
As a result of retail competition in Pennsylvania, all of PECO's retail
electric customers have the right to choose their generation suppliers. In
addition to retail competition for generation services, PECO's 1998 settlement
of its restructuring case mandated by the Competition Act requires PECO to
provide generation services to customers who do not or cannot choose an
alternate generation supplier through December 31, 2010 and established caps on
generation and distribution rates. The settlement also authorized PECO to
recover $5.3 billion of stranded costs and to securitize up a portion of its
stranded cost recovery. For additional information, see Item 6. Selected Financial Data.1. Business and
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Item 7A. QuantitativeOperation - Exelon.
Significant Operating Trends
Percentage of Total Operating Revenues Percentage Dollar Changes
- -------------------------------------- ---------------------------
2000 1999 1998 2000 vs.1999 1999 vs.1998
---- ---- ---- ------------ ------------
100% 100% 100% Operating Revenues 9% 3%
---- ---- ----
36% 39% 34% Fuel and Purchased Power (1)% 19%
30% 27% 23% Operating and Maintenance 23% 21%
4% -- -- Merger-Related Costs N.M. N.M.
-- -- 2% Early Retirement and Separation Program N.M. N.M.
5% 4% 12% Depreciation and Amortization 37% (63)%
4% 5% 5% Taxes Other Than Income (10)% (6)%
----- ----- -----
79% 75% 76% Total Operating Expenses 15% 1%
---- ---- ----
21% 25% 24% Operating Income (11)% 8%
---- ---- ----
N.M. - not meaningful
36
Results of Operations
Year Ended December 31, 2000 Compared To Year Ended December 31, 1999
Net Income
Net income increased $48 million, or 8% in 2000, before giving effect
to extraordinary items, the cumulative effect of a change in accounting
principle and Qualitative Disclosures About Market Risk
Item 8. Financial Statementsnon-recurring items. Net income, inclusive of a $4 million
extraordinary charge, a $24 million benefit for the cumulative effect of a
change in accounting principle and Supplementary Data.
The information requirednon-recurring items relating to
merger-related costs of $159 million and a writedown of a communications
investment of $21 million, decreased $75 million, or 13% in 2000.
Energy Delivery's results improved because of favorable rate
adjustments partially offset by Items 6, 7, 7A and 8 is incorporated herein by
referencelower margins due to the "Summaryunplanned return of
Selectedcertain commercial and industrial customers, milder weather, increased
depreciation and amortization expense and higher interest expense. Generation's
results improved as a result of higher margins on wholesale and unregulated
retail energy sales. Enterprises' results were adversely impacted by lower
margins on its infrastructure services businesses, increased amortization of
goodwill and costs to integrate the businesses acquired in 1999 and 2000.
Operating Revenue
2000 1999 $ Variance % Variance
---- ---- ---------- ----------
(in millions, except percentage data)
Energy Delivery $3,373 $3,265 $ 108 3.3%
Generation 1,931 2,097 (166) (7.9)%
Enterprises 646 116 530 456.9%
------ ------ ------
$5,950 $5,478 $ 472 8.6%
====== ====== ======
Energy Delivery
The increase in Energy Delivery's operating revenue was attributable to
higher electric revenue of $32 million and additional gas revenue of $76
million. The increase in electric revenue reflects $102 million from customers
in Pennsylvania selecting PECO as their electric generation supplier and rate
adjustments in Pennsylvania, partially offset by a decrease of $69 million as a
result of lower summer volume. Regulated gas revenue reflected increases of $44
million related to higher prices, $29 million attributable to increased volume
from new and existing customers and $24 million from increased winter volume.
These increases were partially offset by $21 million of lower gross receipts tax
collections as a result of the repeal of the gross receipts tax on gas sales in
connection with gas restructuring in Pennsylvania.
Generation
The decrease in Generation's operating revenue was a result of lower
electric revenue of $180 million partially offset by higher gas revenue of $14
million. The decrease in electric revenue was principally attributable to lower
sales of competitive retail electric generation services of $132 million, of
which $196 million represented decreased volume that was partially offset by $64
million from higher prices. In addition, the termination of the management
agreement for Clinton resulted in lower revenues of $99 million. As a result of
the acquisition by AmerGen of Clinton in December 1999, the management agreement
was terminated and, accordingly, the operations have been included in Equity in
Earnings (Losses) of Unconsolidated Affiliates on PECO's Consolidated Financial Data"Statements
of Income since that date. These decreases were partially offset by an increase
of $50 million from higher wholesale revenue attributable to $199 million
associated with higher prices partially offset by $149 million related to lower
volume. Unregulated gas revenue increased primarily as a result of $11 million
from wholesale sales of excess natural gas.
Enterprises
The increase in Enterprises' operating revenue was attributable to $530
million from the acquisition of thirteen infrastructure services companies
during 2000 and 1999.
37
Fuel and Purchased Power Expense
2000 1999 $ Variance % Variance
---- ---- ---------- ----------
(in millions, except percentage data)
Energy Delivery $ 462 $ 370 $ 92 24.9%
Generation 1,665 1,782 (117) (6.6)%
------- ------- -------
$ 2,127 $ 2,152 $ (25) (1.2)%
======= ======= =======
Energy Delivery
Energy Delivery's increase in fuel and purchased power expense was
primarily attributable to $73 million from additional volume and increased
prices related to gas, $13 million as a result of favorable weather conditions
and $4 million in additional PJM ancillary charges.
Generation
Generation's decrease in fuel and purchased power expense was primarily
attributable to $262 million principally related to reduced sales of competitive
retail electric generation services partially offset by an increase of $120
million in the cost to supply Energy Delivery and an increase of $5 million from
wholesale operations principally related to $97 million as a result of increased
prices partially offset by $92 million as a result of decreased volume.
Operating and Maintenance Expense
2000 1999 $ Variance % Variance
---- ---- ---------- ----------
(in millions, except percentage data)
Energy Delivery $ 491 $ 434 $ 57 13.1%
Generation 616 721 (105) (14.6)%
Enterprises 650 136 514 377.9%
Corporate 34 163 (129) (79.1)%
------ ------ ------
$1,791 $1,454 $ 337 23.2%
====== ====== ======
Energy Delivery
Energy Delivery's increase in Operating and Maintenance (O&M) expense
was primarily attributable to the direct charging to the business segments of
O&M expenses that were previously reported at PECO Corporate.
Generation
Generation's decrease in O&M expense was primarily attributable to O&M
expenses related to the management agreement for Clinton of $70 million in 1999
which has since been terminated, $15 million related to the abandonment of two
information systems implementations in 1999, $17 million related to lower
administrative and general expenses related to the unregulated retail sales of
electricity and $15 million related to lower joint-owner expenses.
Enterprises
Enterprises' O&M expense increased $505 million from the infrastructure
services business as a result of acquisitions.
Corporate
PECO Corporate's decrease in O&M expense was primarily attributable to
expenses of $56 million related to lower Year 2000 remediation expenditures,
lower pension and postretirement benefits expense of $31 million and the direct
charging to business segments of O&M expenses that were previously recorded at
Corporate.
38
Merger-Related Costs
Merger-related costs charged to income in 2000 were $248 million
consisting of $132 million of direct incremental costs and $116 million for
employee costs. Direct incremental costs represent expenses associated with
completing the merger, including professional fees, regulatory approval and
settlement costs, and settlement of compensation arrangements. Employee costs
represent estimated severance payments and pension and postretirement benefits
provided under Exelon's Merger Separation Plan (MSP) for 642 eligible PECO
employees who are expected to be involuntarily terminated before October 2002
upon completion of integration activities for the merged companies.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $88 million, or 37%, to
$325 million in 2000. The increase was primarily attributable to $57 million of
amortization of PECO's CTC which commenced in 2000 and $29 million related to
depreciation and amortization expense associated with the infrastructure
services business acquisitions.
Taxes Other Than Income
Taxes other than income decreased $25 million, or 10%, to $237 million
in 2000. The decrease was primarily attributable to lower real estate taxes of
$18 million relating to a change in tax laws for utility property in
Pennsylvania and $11 million as a result of the elimination of the gross
receipts tax on page F-
natural gas sales net of an increase in gross receipts tax on
electric sales. This decrease was partially offset by a non-recurring $22
million capital stock tax credit related to a 1999 adjustment associated with
the impact of PECO's 1997 restructuring charge.
Interest Charges
Interest charges consist of interest expense and distributions on
Company-Obligated Mandatorily Redeemable Preferred Securities of a Partnership
(COMRPS) . Interest charges increased $48 million, or 12%, to $465 million in
2000. The increase was primarily attributable to interest on the Transition
Bonds issued to securitize PECO's stranded cost recovery of $104 million,
partially offset by the reduction of PECO's long-term debt with the proceeds
from Transition Bonds, which reduced interest charges by $77 million.
Equity in Earnings (Losses) of Unconsolidated Affiliates
Equity in earnings (losses) of unconsolidated affiliates decreased $3
million, or 8%, to losses of $41 million in 2000 as compared to losses of $38
million in 1999. The decrease was primarily attributable to $8 million of
additional losses from communications joint ventures, partially offset by $4
million of earnings from AmerGen as a result of the acquisitions of Clinton and
TMI in December 1999 and Oyster Creek in September 2000.
Other Income and Deductions
Other income and deductions excluding interest charges and equity in
earnings (losses) of unconsolidated affiliates decreased $18 million, or 31%, to
$41 million in 2000 as compared to $59 million in 1999. The decrease in other
income and deductions was primarily attributable to the writedown of a
communications investment of $33 million, a $10 million gain on the disposal of
assets in 1999 and a decrease in interest income of $2 million. These decreases
were partially offset by a $15 million write-off in 1999 of the investment in a
cogeneration facility in connection with the settlement of litigation and gains
on sales of investments of $13 million.
Income Taxes
The effective tax rate was 35.7% in 2000 as compared to 36.6% in 1999.
39
Extraordinary Items
In 2000, PECO incurred extraordinary charges aggregating $6 million ($4
"Management's Discussionmillion, net of tax) related to prepayment premiums and Analysisthe write-off of
Financial Conditionunamortized deferred financing costs associated with the early retirement of
debt with a portion of the proceeds from the securitization of PECO's stranded
cost recovery in May 2000.
In 1999, PECO incurred extraordinary charges aggregating $62 million
($37 million, net of tax) related to prepayment premiums and Resultsthe write-off of
Operations"unamortized debt costs associated with the repayment and refinancing of debt.
Cumulative Effect of a Change in Accounting Principle
In 2000, PECO recorded a benefit of $40 million ($24 million, net of
tax) representing the cumulative effect of a change in accounting method for
nuclear outage costs in conjunction with the synchronization of accounting
policies in connection with the merger.
Preferred Stock Dividends
Preferred stock dividends decreased $2 million, or 17%, to $10 million
as compared 1999. The decrease was attributable to the redemption of $37 million
of Mandatorily Redeemable Preferred Stock in August 1999 with a portion of the
proceeds from the issuance of Transition Bonds. In addition, PECO redeemed $19
million of Mandatorily Redeemable Preferred Stock in August 2000.
Year Ended December 31, 1999 Compared To Year Ended December 31, 1998
Net Income
Net income increased $69 million, or 13%, to $582 million in 1999. The
increase in net income was primarily attributable to lower depreciation and
amortization expense as a result of the full amortization in 1998 of a
regulatory asset and the absence of charges associated with 1998's Early
Retirement and Separation Program. These increases were partially offset by
lower margins as a result of higher fuel prices, an increase in O&M expense
associated with infrastructure service's business acquisitions during 1999 and
increased interest expense related to the securitization of PECO's stranded
costs.
Operating Revenues
1999 1998 $ Variance % Variance
---- ---- ---------- ----------
(in millions, except percentage data)
Energy Delivery $3,265 $3,799 $ (534) (14.1)%
Generation 2,097 1,513 584 38.6%
Enterprises 116 13 103 792.3%
------ ------ ------
$5,478 $5,325 $ 153 2.9%
====== ====== ======
Energy Delivery
The decrease in Energy Delivery's operating revenues was primarily
attributable to lower volume associated with the effects of retail competition
of $508 million and $278 million related to the 8% across-the-board rate
reduction mandated by the settlement of PECO's restructuring case. These
decreases were partially offset by $149 million of PJM network transmission
service revenue and $59 million related to higher volume as a result of
favorable weather conditions as compared to 1998. PJM network transmission
service revenues and charges which commenced April 1, 1998 were recorded in
Generation in 1998 but were recognized by Energy Delivery in 1999 as a result of
FERC approval of the PJM regional transmission owners' rate case settlements.
Stranded cost recovery was included in PECO's retail electric rates beginning
January 1, 1999. In addition, gas revenues increased $50 million primarily
attributable to increased volume as a result of favorable weather conditions of
$27 million and from new and existing customers of $20 million.
40
Generation
The increase in Generation's operating revenues was primarily
attributable to $473 million from increased volume in Pennsylvania as a result
of the sale of competitive retail electric generation services, increased
wholesale revenues of $133 million from the marketing of excess generation
capacity as a result of retail competition and revenues of $99 million from the
sale of generation from Clinton to Illinois Power (IP), partially offset by the
inclusion of $116 million of PJM network transmission service revenue in 1998.
Under the amended management agreement with IP, PECO was responsible
for the payment of all direct O&M costs and direct capital costs incurred by IP
and allocable to the operation of Clinton. These costs are reflected in O&M
expenses. IP was responsible for fuel and indirect costs such as pension
benefits, payroll taxes and property taxes. Following the restart of Clinton on
pages F-5June 2, 1999, and through F-24, QuantitativeDecember 15, 1999, PECO sold 80% of the output of
Clinton to IP. The remaining output was sold by PECO in the wholesale market.
Under a separate agreement with PECO, British Energy agreed to share 50% of the
costs and Qualitative
Disclosures about Market Riskrevenues associated with the management agreement. Effective December
15, 1999, AmerGen acquired Clinton. Accordingly, the results of operations of
Clinton have been accounted for under the equity method of accounting in PECO's
Consolidated Statements of Income since the acquisition date.
Enterprises
The increase in Enterprises' operating revenue was attributable to the
effects of the infrastructure services company acquisitions made in 1999.
Fuel and Purchased Power Expense
1999 1998 $ Variance % Variance
---- ---- ---------- ----------
(in millions, except percentage data)
Energy Delivery $ 370 $ 191 $ 179 93.7%
Generation 1,782 1,620 162 10.0%
------ ------ ------
$2,152 $1,811 $ 341 18.8%
====== ====== ======
Energy Delivery
Energy Delivery's increase in fuel and purchased power expense was
attributable to $98 million of PJM network transmission service charges, $51
million of purchases in the spot market and $30 million of additional volume as
a result of weather conditions.
Generation
Generation's increase in fuel and purchased power expense was primarily
attributable to $565 million related to increased volume from the sale of
competitive electric generation services and a $36 million reserve related to a
power supply contract in Massachusetts as a result of higher than anticipated
cost of supply in the New England power pool. These increases were partially
offset by $277 million of fuel savings from wholesale operations as a result of
lower volume and efficient operation of generating assets, the inclusion of PJM
network transmission service charges of $116 million in 1998, and the reversal
of $27 million in reserves associated with a cogeneration facility in connection
with the final settlement of litigation and expected prices of electricity over
the remaining life of the power purchase agreements for the facility. In
addition, the full return to service of Salem in April 1998 resulted in $19
million of fuel savings associated with a reduction in purchased power costs.
41
Operating and Maintenance Expense
1999 1998 $ Variance % Variance
---- ---- ---------- ----------
(in millions, except percentage data)
Energy Delivery $ 434 $ 431 $ 3 0.7%
Generation 721 543 178 32.8%
Enterprises 136 38 98 257.9%
Corporate 163 186 (23) (12.4)%
------ ------ ------
$1,454 $1,198 $ 256 21.4%
====== ====== ======
Energy Delivery
Energy Delivery's O&M expenses included $11 million of additional
expenses related to restoration activities as a result of Hurricane Floyd in
1999 which were offset by lower electric transmission and distribution expenses.
Generation
Generation's increase in O&M expense was primarily a result of $70
million related to Clinton operations in connection with the management
agreement, $24 million related to the growth of Exelon Energy, $15 million of
charges related to the abandonment of two information systems implementations,
$10 million associated with the Salem inventory write-off for excess and
obsolete inventory, and $7 million related to the true-up of 1998 reimbursement
of joint-owner expenses. These decreases were partially offset by $10 million of
lower O&M expenses as a result of the full return to service of Salem in April
1998.
Enterprises
Enterprises' increase in O&M expense was related to the infrastructure
services business acquisitions made in 1999.
Corporate
PECO Corporate costs decreased $17 million primarily as a result of lower
pension and postretirement benefits expense attributable to the performance of
the investments in PECO's pension plan.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $406 million, or 63%,
to $237 million in 1999. The decrease in depreciation and amortization expense
was associated with the December 1997 restructuring charge through which PECO
wrote down a significant portion of its generating plant and regulatory assets.
In connection with this restructuring charge, PECO reduced generation-related
assets by $8.4 billion, established a regulatory asset, Deferred Generation
Costs Recoverable in Current Rates of $424 million, which was fully amortized in
1998, and established an additional regulatory asset, CTC, of $5.3 billion. CTC
is being amortized over an eleven-year period ending December 31, 2010.
Taxes Other Than Income
Taxes other than income decreased $18 million, or 6%, to $262 million
in 1999. The decrease in taxes other than income was primarily attributable to a
$34 million credit related to an adjustment of PECO's Pennsylvania capital stock
tax base as a result of the 1997 restructuring charge, partially offset by an
increase of $17 million in real estate taxes as a result of changes in tax laws
for utility property in Pennsylvania.
Interest Charges
Interest charges increased $55 million, or 15%, to $417 million in
1999. The increase in interest charges was primarily attributable to interest on
page F-13, the auditedTransition Bonds issued to securitize PECO's stranded cost recovery of $179
million, partially offset by a $99 million reduction in interest charges
resulting from the use of securitization proceeds to retire long-term debt and
redeem COMRPS. In addition, PECO's ongoing program to reduce or refinance higher
cost, long-term debt reduced interest charges by $26 million.
42
Equity in Earnings (Losses) of Unconsolidated Affiliates
Equity in earnings (losses) of unconsolidated affiliates increased $16
million or 30%, to losses of $38 million in 1999 as compared to losses of $54
million in 1998. The lower losses were primarily attributable to customer base
growth for communications joint ventures.
Other Income and Deductions
Other income and deductions, excluding interest charges and equity in
earnings (losses) of unconsolidated affiliates, increased $58 million, to income
of $59 million in 1999 as compared to income of $1 million in 1998. The increase
in other income and deductions was primarily attributable to $28 million of
interest income earned on the unused portion of stranded cost recovery prior to
application, $14 million of gain on the sale of assets, a $10 million donation
to a City of Philadelphia street lighting project in 1998 and a $7 million
write-off of a non-regulated business venture in 1998. These increases were
partially offset by a $15 million write-off of an investment in connection with
the settlement of litigation.
Income Taxes
The effective tax rate was 36.6% in 1999 as compared to 37.5% in 1998.
The decrease in the effective tax rate was primarily attributable to an income
tax benefit of approximately $11 million related to the favorable resolution of
certain outstanding issues in connection with the settlement of an Internal
Revenue Service audit and tax benefits associated with the implementation of
state tax planning strategies, partially offset by the non-recognition for state
income tax purposes of certain operating losses.
Extraordinary Items
In 1999, PECO incurred extraordinary charges aggregating $62 million
($37 million, net of tax) related to prepayment premiums and the write-off of
unamortized debt costs associated with the repayment and refinancing of debt.
In 1998, PECO incurred extraordinary charges aggregating $34 million
($20 million, net of tax) related to prepayment premiums and the write-off of
unamortized debt costs associated with the repayment of debt.
Preferred Stock Dividends
Preferred stock dividends decreased $1 million or 8%, to $12 million in
1999. The decrease was attributable to the redemption of $37 million of
Mandatorily Redeemable Preferred Stock in August 1999 with a portion of the
proceeds from the issuance of Transition Bonds.
Liquidity and Capital Resources
Cash flows from operations were $756 million in 2000 as compared to
$895 million in 1999 and $1,499 million in 1998. The decrease in 2000 was
principally attributable to changes in working capital of $343 million partially
offset by an increase in cash generated by operations of $204 million.
Cash flows used in investing activities were $894 million in 2000 as
compared to $886 million in 1999 and $521 million in 1998. The increase in 2000
was primarily attributable to increased capital expenditures of $58 million,
additional other investing activities of $45 million and additional
infrastructure service business acquisitions of $23 million, partially offset by
$118 million of investments in and advances to joint ventures that occurred in
1999.
Cash flows provided by financing activities were $213 million and $171
million in 2000 and 1999, respectively and cash flows used by financing
activities of $963 million in 1998. Cash flows from financing activities were
2000 primarily reflect PECO's additional securitization of stranded cost
recovery and the use of related proceeds.
PECO's capital resources are primarily provided by internally generated
cash flows from utility operations and, to the extent necessary, external
financing. In connection with its request to securitize an additional $1 billion
of its
43
stranded cost recovery, PECO agreed to provide its customers with additional
rate reductions of $60 million in 2001. Under the settlement agreement entered
into by PECO relating to the PUC's approval of the merger, PECO agreed to $200
million in aggregate rate reductions for all customers over the period January
1, 2002 through 2005 and extended the cap on PECO's transmission and
distribution rates through December 31, 2006. These rate reductions will be more
than offset by the discontinuance of the 6% across-the-board rate reduction in
effect in 2000.
Capital resources are used primarily to fund PECO's capital
requirements, including construction, repayments of maturing debt and preferred
securities and payment of common and preferred stock dividends. PECO's estimated
capital expenditures in 2001 are approximately $260 million. PECO's proposed
capital expenditures are subject to periodic review and revision to reflect
changes in economic conditions and other factors.
Under PUHCA and the Federal Power Act, PECO can only pay dividends from
retained or current earnings. At December 31, 2000, PECO had retained earnings
of $197 million.
On May 2, 2000, PETT issued an additional $1 billion aggregate
principal amount of Transition Bonds to securitize a portion of PECO's
authorized stranded cost recovery. As a result, PECO has securitized a total of
$5 billion of its $5.26 billion of stranded cost recovery through the issuance
by PETT of Transition Bonds. The Transition Bonds are solely obligations of
PETT, secured by intangible transition property sold by PECO to PETT
concurrently with the issuance of the Transition Bonds and certain other related
collateral, but are included in the consolidated long-term debt of PECO. PECO
has used the proceeds from the securitizations to reduce PECO's stranded costs
and related capitalization. The proceeds of the Transition Bonds issued in May
2000 were used to repurchase 12 million shares of common stock, to retire $422
million principal amount of debt, to repurchase $50 million of accounts
receivable and to pay transaction expenses.
As a result of the issuance of the Transition Bonds and the application
of the proceeds thereof, at December 31, 2000, PECO's capital structure
consisted of 23.9% common equity, 5.8% notes payable, 3.1% preferred stock and
COMRPS (which comprised 1.8% of PECO's total capitalization structure), and
67.2% long-term debt including Transition Bonds issued by PETT (which comprised
73.8% of PECO's long-term debt).
PECO meets its short-term liquidity requirements primarily through the
issuance of commercial paper and borrowings under bank credit facilities. PECO,
along with Exelon and ComEd, entered into a $2 billion unsecured revolving
credit facility on December 20, 2000 with a group of banks. PECO has an $800
million sublimit under this 364-day credit facility and expects to use the
credit facility principally to support its $800 million commercial paper
program. This credit facility requires PECO to maintain a debt to total
capitalization ratio of less than 65% or less (excluding Transition Bonds). At
December 31, 2000, PECO's debt to total capitalization ratio on that basis was
48%.
At December 31, 2000, PECO had outstanding $163 million of notes
payable consisting principally of commercial paper. Also, PECO had a $400
million intercompany payable with ComEd bearing interest at an average
annualized interest rate for the period it was outstanding of 6.5%. In addition,
PECO had a $696 million note payable with Exelon, incurred in connection with
the Sithe acquisition. The note is interest bearing with an average annualized
interest rate for the period it was outstanding of 7.6%.
44
ComEd
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
On October 20, 2000, ComEd became a 99.9% owned subsidiary of Exelon
as a result of the transactions relating to the merger of PECO and Unicom. As a
result of the merger, ComEd's consolidated financial statementsinformation for the period
after the merger has a different cost basis than that of previous periods.
Management has based its discussion and notes theretoanalysis of results of operations for
2000 as compared to 1999 on pages F-26 through F-61,the combined results of operations for the full year
of 2000. Material variances caused by the different cost basis have been
disclosed where applicable.
Through December 31, 2000, ComEd operated as one business segment, that
of a vertically integrated electric utility. During January 2001, Exelon
undertook a restructuring to separate its generation and Supplementary
Data on page F-4. Reference is also made to "Item 1. Business," subcaptions
"Changes in the Electric Utility Industry," "Construction Program" and
"Regulation," for additional information.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officersother competitive
businesses from its regulated energy delivery business. As part of the
Registrant.restructuring, the non-regulated operations and related assets and liabilities
of ComEd were transferred to separate subsidiaries of Exelon. As a result,
beginning January 2001, the operations of ComEd consist of its retail
electricity distribution and transmission business in northern Illinois.
Under Illinois legislation, as of December 31, 2000, all
non-residential customers were eligible to choose a new electric supplier or
elect a power purchase option. The information required by Item 10 relatingpower purchase option allows the purchase of
electric energy from ComEd at market-based prices. ComEd's residential customers
become eligible to directors and nomineeschoose a new electric supplier in May 2002. As of December
31, 2000, over 9,500 non-residential customers, representing approximately 27%
of ComEd's retail kilowatt-hour sales for election as directors at Unicom's Annual Meeting of shareholders is
incorporated herein by referencethe twelve months prior to the
introduction of retail competition, elected to receive their electric energy
from an alternative electric supplier or chose the power purchase option. For
additional information, 24
under the heading "Security Ownership of Certain Beneficial Owners and
Management" in Unicom's definitive Proxy Statement ("2000 Proxy Statement") to
be filed with the SEC prior to April 30, 2000, pursuant to Regulation 14A
under the Securities Exchange Act of 1934. The information required by Item 10
relating to executive officers is set forth under "Itemsee ITEM 1. Business"
subcaption "Executive Officers of the Registrant" - Energy Delivery and under the heading
"Security Ownership of Certain Beneficial Owners and Management" in Unicom's
2000 Proxy Statement, which is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated herein by reference to
the information labelled "Board Compensation" and the paragraphs under the
heading "Executive Compensation" (other than the paragraphs under the heading
"Corporate Governance and Compensation Committee Report on Executive
Compensation") in Unicom's 2000 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated herein by reference to
the stock ownership information under the heading "Security Ownership of
Certain Beneficial Owners and Management" in Unicom's 2000 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
None.
25
ANNUAL REPORT ON FORM 10-K FOR COMMONWEALTH EDISON COMPANY
PART I
Item 1. Business.
See Unicom's "Item 1. Business" (other than the paragraphs under the
headings "General--Unregulated Operations," "Construction Program--Unregulated
Operations" and "Executive Officers of the Registrant"), which is incorporated
herein by this reference.
Executive Officers of the Registrant
The effective year of election of the officers to their present positions
and the prior positions they have held with ComEd or other companies, since
January 1, 1995, are described below.
Name and Age Position
---------------------------- -----------------------------------------------
*John W. Rowe, 54 Chairman, President and Chief Executive Officer
of ComEd and Unicom since March 1998; previ-
ously President and Chief Executive Officer of
New England Electric System.
*Paul A. Elbert, 50 Executive Vice President of ComEd and Unicom
and President Unicom Enterprises Inc. since
October 1999; previously President and Chief
Executive Officer--Gas for Consumers Energy
Company from August 1997 to September 1999;
previously Executive Vice President and Chief
Operating Officer--Gas at Consumers Energy
Company from December 1994 to August 1997.
*Oliver D. Kingsley, Jr., 57 Executive Vice President of ComEd and Unicom
and President and Chief Nuclear Officer--Nu-
clear Generation Group of ComEd since October
1997; previously Chief Nuclear Officer at the
Tennessee Valley Authority.
*Pamela B. Strobel, 47 Executive Vice President and General Counsel of
ComEd and Unicom since January 1999; previ-
ously Senior Vice President and General Coun-
sel of ComEd and Unicom, October 1997 to De-
cember 1998; previously Vice President and
General Counsel of ComEd.
*Frank M. Clark, 54 Senior Vice President of ComEd and Unicom since
January 1999; previously Vice President of
ComEd, January 1997 to December 1998; previ-
ously Governmental Affairs Vice President 1996
to January 1997 and Governmental Affairs Man-
ager.
*Christopher M. Crane, 41 Senior Vice President of ComEd since July 1999;
previously Vice President of ComEd, October
1998 to July 1999 and Vice President Tennessee
Valley Authority
*Carl J. Croskey, 48 Senior Vice President of ComEd and Unicom and
President of Distribution at ComEd since Au-
gust 1999; previously President of MichCon En-
terprises Inc., a subsidiary of Michigan Con-
solidated Gas Company from January 1998 to Au-
gust 1999; previously Senior Vice President of
Operations for Michigan Consolidated Gas Com-
pany from April 1995 to January 1998.
26
Name and Age Position
----------------------- ----------------------------------------------------
*Ruth Ann M. Gillis, 45 Senior Vice President and Chief Financial Officer of
ComEd and Unicom since January 1999; previously
Vice President and Treasurer of ComEd and Unicom,
September 1997 to December 1998; previously Vice
President, Chief Financial Officer and Treasurer of
the University of Chicago Hospitals and Health Sys-
tem from 1996 to 1997 and Senior Vice President and
Chief Financial Officer of American National Bank
and Trust Company.
*David R. Helwig, 49 Senior Vice President of ComEd since January 1999;
previously Vice President of ComEd, January 1998 to
December 1998; previously General Manager of Gen-
eral Electric Company's Nuclear Services Company,
1997 to January 1998 and Vice President at PECO.
*Elizabeth A. Moler, 50 Senior Vice President of ComEd and Unicom since Jan-
uary 2000; previously Director of Unicom and ComEd
from December 1998 to December 1999, and partner at
Vinson & Elkins, LLP from
December 1998 to December 1999; previously Deputy
Secretary of the U.S. Department of Energy, 1997 to
1998 and chair of the Federal Energy Regulatory
Commission, 1993 to 1997
*S. Gary Snodgrass, 48 Senior Vice President of ComEd and Unicom since Oc-
tober 1997; Vice President of ComEd and Unicom,
September 1997 to October 1997; previously Vice
President of USG Corporation.
*Robert E. Berdelle, 44 Vice President and Comptroller of ComEd and Unicom
since January 1999; previously Comptroller of ComEd
and Unicom, July 1997 to December 1998; previously
held various financial reporting and analysis posi-
tions within ComEd.
T. Oliver Butler, 48 Vice President of ComEd since July 1997; previously
Purchasing Vice President of ComEd, 1994 to 1997.
John T. Costello, 51 Vice President of ComEd and Unicom since 1996; pre-
viously Manager of Corporate Relations of ComEd,
1995 to 1996.
John T. Hooker, 51 Vice President of ComEd and Unicom since December
1999; previously Governmental Affairs Vice Presi-
dent of ComEd, 1998 to December 1999 and Director
of Governmental Services of ComEd
Arlene A. Juracek, 49 Vice President of ComEd and Unicom since December
1999; previously Assistant Vice President of ComEd,
February 1994 to December 1999.
Emerson W. Lacey, 58 Vice President of ComEd.
Robert K. McDonald, 44 Vice President of ComEd and Unicom Since December
1999; previously Strategic Planning Vice President
and Director of Strategic Planning of ComEd, Sep-
tember 1994 to December 1999.
J. Stephen Perry, 61 Vice President of ComEd since 1994.
James A. Small, 56 Vice President of ComEd.
Vito Stagliano, 57 Vice President of ComEd and Unicom since December
1999; previously Energy Policy and Planning Vice
President of ComEd since November 1998; previously
Managing Director of Energy Security Analysis Inc.
during 1997 to 1998; previously visiting scholar at
Resources for the Future during 1994 to 1996.
Harold Gene Stanley, 59 Vice President of ComEd since September 1997; Site
Vice President at Braidwood Station, 1996 to 1997;
previously Vice President at Pennsylvania Power and
Light Company.
27
Name and Age Position
------------------------ ---------------------------------------------------
Patricia L. Kampling, 40 Treasurer of ComEd and Unicom since February 1999;
previously Manager of Finance of ComEd and Unicom,
May 1998 to February 1999; previously Assistant
Treasurer of ComEd and Unicom.
John P. McGarrity, 38 Associate General Counsel and Secretary of ComEd
and Unicom since January 1999; previously Associ-
ate General Counsel of ComEd and Unicom, December
1997 to January 1999; previously a partner with
Sidley & Austin.
--------
* Executive Officers for Section 16 reporting purposes.
The present term of office of each of the above executive officers extends
to the first meeting of ComEd's Board of Directors after the next annual
election of Directors.
There are no family relationships among the executive officers, directors
and nominees for director of ComEd.
Item 2. Properties.
See Unicom's "Item 2. Properties," which is incorporated herein by this
reference.
Item 3. Legal Proceedings.
See Unicom's "Item 3. Legal Proceedings," which is incorporated herein by
this reference.
Item 4. Submission of Matters to a Vote by Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
See Unicom's "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters", other than the last paragraph thereof and any references
to Unicom's senior debt obligations rating, which is incorporated herein by
reference.
Additional information required by Item 5 is incorporated herein by
reference to the "Cash Dividends Paid per Share of Common Stock" on page F-4.
Item 6. Selected Financial Data.
ItemITEM 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data.
The information required by Items 6, 7, 7A and 8 is incorporated herein by
reference to the "Summary of Selected Consolidated Financial Data" on page 5,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 6 through 22, Quantitative and Qualitative Disclosures
about Market Risk on page 14, the audited consolidated financial statements
and notes thereto on pages 24 through 56, and Supplementary Data on page 56 of
ComEd's March 30, 2000 Form 8-K Report. Reference is also made to "Item 1.
Business," subcaptions "Changes in the Electric Utility Industry,"
"Construction Program" and "Regulation," for additional information.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
28
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 relating to directors and nominees for
election as directors at ComEd's Annual Meeting of shareholders is
incorporated herein by reference to information under the subheadings
"Nominees" "Security Ownership of Certain Beneficial Owners and Management"
under the heading "Item A: Election of Directors" in ComEd's definitive
Information Statement ("2000 Information Statement") to be filed with the SEC
prior to April 30, 2000, pursuant to Regulation 14C under the Securities
Exchange Act of 1934. The information required by Item 10 relating to
executive officers is set forth under "Item 1. Business," subcaption
"Executive Officers of the Registrant" and under the subheading "Security
Ownership of Certain Beneficial Owners and Management" under the heading "Item
A: Election of Directors" in ComEd's 2000 Information Statement, which is
incorporated herein by reference.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated herein by reference to
the paragraph labelled "Compensation of Directors" under the subheading
"Additional Information Concerning Board of Directors" under the heading "Item
A: Election of Directors" and the paragraphs under the heading "Executive
Compensation" (other than the paragraphs under the subheading "Compensation
Committee Report on Executive Compensation") in ComEd's 2000 Information
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated herein by reference to
the stock ownership information under the subheading "Security Ownership of
Certain Beneficial Owners and Management" under the heading "Item A: Election
of Directors" in ComEd's 2000 Information Statement.
Item 13. Certain Relationships and Related Transactions.
None.
29
ANNUAL REPORTS ON FORM 10-K FOR UNICOM CORPORATION AND COMMONWEALTH EDISON
COMPANY
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)See page F-1 for references to Unicom's Financial Statements and
Unicom's and ComEd's Financial Statement Schedules required by this
item. See page 37 for the Report of Independent Public Accountants on
Supplemental Schedule on ComEd's Financial Statement Schedules
required by this item.
1. Exhibits:
The following exhibits are filed with the indicated Annual Report on Form
10-K or incorporated therein by reference. Documents indicated by an
asterisk (*) are incorporated by reference to the File No. indicated.
Documents indicated by a plus sign (+) identify management contracts or
compensatory plans or arrangements.Operation - Exelon.
Significant Operating Trends
Exhibit
Number DescriptionPercentage of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
*(2)-1 Asset Sale Agreement dated March 22, 1999 between x
ComEd and Edison Mission Energy. (File No. 1-
1839, Form 10-K for the year ended December 31,
1998, Exhibit (2)-1).
*(2)-2 Amended and Restated Agreement and Plan of Ex-
change and Merger, dated as of September 22,
1999, amended and restated as of January 7,Total Operating Revenue Percentage Dollar Changes
- -------------------------------------- ---------------------------
2000 among Unicom, PECO and Newholdco. (File
Nos. 1-11375 and 1-1839, Current Report on Form
8-K dated January 7, 2000, Exhibit (2)-1). x x
*(3)-1 Articles of Incorporation of Unicom effective
January 28,
1994. (File No. 1-11375, Form 10-K for the year
ended
December 31, 1994, Exhibit (3)-1). x
*(3)-2 Restated Articles of Incorporation of ComEd ef-
fective February 20, 1985, including Statements
of Resolution Establishing Series, relating to
the establishment of three new series of ComEd
preference stock known as the "$9.00 Cumulative
Preference Stock," the "$6.875 Cumulative Pref-
erence Stock" and the "$2.425 Cumulative Prefer-
ence Stock." (File No.
1-1839, Form 10-K for the year ended December
31, 1994, Exhibit (3)-2). x
*(3)-3 By-Laws of Unicom Corporation, effective January
28, 1994 as amended through May 28, 1998 (File
No. 1-11375, Form 10-Q for the quarter ended
June 30, 1998, Exhibit (3)-3). x
*(3)-4 By-Laws of Commonwealth Edison Company, effective
September 2, 1988 as amended through May 28,
1998 (File No. 1-1839, Form 10-Q for the quarter
ended June 30, 1998, Exhibit (3)-4). x
*(4)-1 Mortgage of ComEd to Illinois Merchants Trust
Company, Trustee (Harris Trust and Savings Bank,
as current successor Trustee), dated July 1,
1923, Supplemental Indenture thereto dated Au-
gust 1, 1944, and amendments and supplements
thereto dated, respectively, August 1, 1946,
April 1, 1953, March 31, 1967, April 1, 1967,
July 1, 1968, October 1, 1968, February 28,
1969, May 29, 1970, June 1, 1971, May 31, 1972,
June 15, 1973, May 31, 1974, June 13, 1975, May
28, 1976 and June 3, 1977 (File No. 2-60201,
Form S-7, Exhibit 2-1). x
30
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
*(4)-2 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, May 17, 1978, August
31, 1978, June 18, 1979, June 20, 1980, April
16, 1981, April 30, 1982, April 15, 1983, April
13, 1984 and April 15, 1985 (File No. 2-99665,
Form S-3, Exhibit (4)-3). x
*(4)-3 Supplemental Indenture to Mortgage dated July 1,
1923 dated April 15, 1986 (File No. 33-6879,
Form S-3, Exhibit (4)-9). x
*(4)-4 Supplemental Indentures to Mortgage dated July 1,
1923 dated June 15, 1990 (File No. 33-38232,
Form S-3, Exhibit (4)-12). x
*(4)-5 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, June 1, 1991, October
1, 1991 and October 15, 1991 (File No. 33-44018,
Form S-3, Exhibits (4)-12, (4)-13 and (4)-14). x
*(4)-6 Supplemental Indenture to Mortgage dated July 1,
1923 dated February 1, 1992 (File No. 1-1839,
Form 10-K for the year ended December 31, 1991,
Exhibit (4)-18). x
*(4)-7 Supplemental Indenture to Mortgage dated July 1,
1923 dated May 15, 1992 (File No. 33-48542, Form
S-3, Exhibit (4)-14). x
*(4)-8 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, July 15, 1992 and Sep-
tember 15, 1992 (File No. 33-53766, Form S-3,
Exhibits (4)-13 and (4)-14). x
*(4)-9 Supplemental Indenture to Mortgage dated July 1,
1923 dated February 1, 1993 (File No. 1-1839,
Form 10-K for the year ended December 31, 1992,
Exhibit (4)-14). x
*(4)-10 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, April 1, 1993 and
April 15, 1993 (File No. 33-64028, Form S-3, Ex-
hibits (4)-12 and (4)-13). x
*(4)-11 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, June 15, 1993 and July
1, 1993 (File No. 1-1839, Form 8-K dated May 21,
1993, Exhibits (4)-1 and (4)-2). x
*(4)-12 Supplemental Indenture to Mortgage dated July 1,
1923 dated July 15, 1993 (File No. 1-1839, Form
10-Q for the quarter ended June 30, 1993, Ex-
hibit (4)-1). x
*(4)-13 Supplemental Indenture to Mortgage dated July 1,
1923 dated January 15, 1994 (File No. 1-1839,
Form 10-K for the year ended December 31, 1993,
Exhibit (4)-15). x
*(4)-14 Supplemental Indenture to Mortgage dated July 1,
1923 dated December 1, 1994 (File No. 1-1839,
Form 10-K for the year ended December 31, 1994,
Exhibit (4)-16). x
*(4)-15 Supplemental Indenture to Mortgage dated July 1,
1923 dated June 1, 1996 (File No. 1-1839, Form
10-K for the year ended December 31, 1996, Ex-
hibit (4)-16). x
31
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
*(4)-16 Instrument of Resignation, Appointment and Ac-
ceptance dated January 31, 1996, under the pro-
visions of the Mortgage dated July 1, 1923, and
Indentures Supplemental thereto (File No. 1-
1839, Form 10-K for the year ended December 31,
1995, Exhibit (4)-28). x
*(4)-17 Instrument dated as of January 31, 1996, for
trustee under the Mortgage dated July 1, 1923
and Indentures Supplemental thereto (File No. 1-
1839, Form 10-K for the year ended December 31,
1995, Exhibit (4)-29). x
*(4)-18 Indentures of ComEd to The First National Bank of
Chicago, Trustee (Amalgamated Bank of Chicago,
as current successor Trustee), dated April 1,
1949, October 1, 1949, October 1, 1950, October
1, 1954, January 1, 1958, January 1, 1959 and
December 1, 1961 (File No. 1-1839, Form 10-K for
the year ended December 31, 1982, Exhibit (4)-
20). x
*(4)-19 Indenture dated as of September 1, 1987 between
ComEd and Citibank, N.A., Trustee relating to
Notes (File No. 33-20619, Form S-3, Exhibit (4)-
13). x
*(4)-20 Supplemental Indenture to Indenture dated Septem-
ber 1, 1987 dated July 14, 1989 (File No. 33-
32929, Form S-3, Exhibit (4)-16). x
*(4)-21 Supplemental Indenture to Indenture dated Septem-
ber 1, 1987 dated January 1, 1997. x
(4)-22 Credit Agreement dated as of December 17, 1999,
among ComEd, as borrower, the Banks named
therein and the other Lenders from time to time
parties thereto, and Citibank, N.A. x
(4)-23 Credit Agreement dated as of December 17, 1999,
among ComEd, as borrower, the Banks named
therein and the other Lenders from time to time
parties thereto, and Citibank, N.A. x
(4)-24 Credit Agreement dated as of December 17, 1999,
among Unicom Enterprises, the Banks Named
Therein and Bank One, N.A. x
(4)-25 Guaranty dated as of December 17, 1999, by Unicom
in favor of the Lenders and LC Banks parties to
the aforementioned Credit Agreement with Unicom
Enterprises. x
*(4)-26 Indenture dated September 1, 1995 between ComEd
and Wilmington Trust Company. (File No. 1-1839,
Form 10-K for the year ended December 31, 1996,
Exhibit (4)-34). x
*(4)-27 First Supplemental Indenture dated September 19,
1995 to Indenture dated September 1, 1995. (File
No. 1-1839, Form 10-K for the year ended Decem-
ber 31, 1996, Exhibit (4)-35). x
32
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
*(4)-28 Second Supplemental Indenture dated January 24,
1997 to Indenture dated September 1, 1995. (File
No. 1-1839, Form 10-K for the year ended Decem-
ber 31, 1996, Exhibit (4)-36). x
*(4)-29 Rights Agreement dated as of February 2, 1998 be-
tween Unicom Corporation and First Chicago Trust
Company of New York, as Rights Agent, which in-
cludes as Exhibit A the form of Rights Certifi-
cate and as Exhibit B, the Summary of Rights to
Purchase Common Stock (File No. 1-11375, Current
Report on Form 8-K dated February 2, 1998, Ex-
hibit 4). x
*(4)-30 Amendment dated as of September 22, 1999 to the
aforemention Rights Agreement between Unicom
Corporation and First Chicago Trust Company of
New York, as Rights Agent (File Nos. 1-11375 and
1-1839, Current Report on Form 8-K dated Septem-
ber 22, 1999, Exhibit (4)-1).
*(10)-1 Nuclear Fuel Lease Agreement dated as of November
23, 1993, between CommEd Fuel Company, Inc., as
Lessor, and ComEd, as Lessee (File No. 1-1839,
Form 10-K for the year ended December 31, 1993,
Exhibit (10)-1). x
+*(10)-2 Unicom Corporation Amended and Restated Long-Term
Incentive Plan (File No. 1-11375, Unicom Proxy
Statement dated April 7, 1999, Exhibit A). x
+*(10)-3 1997 Long-Term Performance Unit Award for Execu-
tive and Group Level Employees Payable in 2000
under the Unicom Corporation Long-Term Incentive
Plan. (File Nos. 1-11375 and 1-1839, Form 10-K
for the year ended December 31, 1996, Exhibit
(10)-12). x x
+*(10)-4 1998 Long-Term Performance Unit Award for
Executive and Group Level Employees Payable in
2001 under the Unicom Corporation Long-Term
Incentive Plan. (File Nos. 1-11375 and 1-1839,
Form 10-K for the year ended December 31, 1997,
Exhibit (10)-6). x x
+(10)-5 1999 Long-Term Performance Unit Award for Execu-
tive and Group Level Employees Payable in 2002
under the Unicom Corporation Long-Term Incentive
Plan. x x
+*(10)-6 Unicom Corporation General Provisions Regarding
1996 Stock Option Awards Granted under the
Unicom Corporation Long-Term Incentive Plan.
(File Nos. 1-11375 and 1-1839, Form 10-K for the
year ended December 31, 1996, Exhibit (10)-9). x x
+*(10)-7 Unicom Corporation General Provisions Regarding
1996B Stock Option Awards Granted under the
Unicom Corporation Long-Term Incentive Plan.
(File Nos. 1-11375 and 1-1839, Form 10-K for the
year ended December 31, 1996, Exhibit (10)-11). x x
+*(10)- Unicom Corporation General Provisions Regarding
8 Stock Option Awards Granted under the Unicom
Corporation Long-Term Incentive Plan (Effective
July 10, 1997). x x
33
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
+(10)-9 1999 Annual Incentive Award for Management
Employees under the Unicom Corporation Long-Term
Incentive Plan. x x
+*(10)-10 Unicom Corporation Deferred Compensation Unit
Plan, as amended (File Nos. 1-11375 and 1-1839,
Form 10-K for the year ended December 31, 1995,
Exhibit (10)-12). x x
+*(10)-11 Deferred Compensation Plan (included in Article
Five of Exhibit (3)-2 above). x
+*(10)-12 Management Incentive Compensation Plan, effective
January 1, 1989 (File No. 1-1839, Form 10-K for
the year ended December 31, 1988, Exhibit (10)-
4). x
+*(10)-13 Amendments to Management Incentive Compensation
Plan, dated December 14, 1989 and March 21, 1990
(File No. 1-1839, Form 10-K for the year ended
December 31, 1989, Exhibit (10)-5). x
+*(10)-14 Amendment to Management Incentive Compensation
Plan, dated March 21, 1991 (File No. 1-1839,
Form 10-K for the year ended December 31, 1991,
Exhibit (10)-6). x
+*(10)-15 Retirement Plan for Directors, effective
September 1, 1994, as amended through March 12,
1997. (File No. 1-11375, Form 10-K for the year
ended December 31, 1996, Exhibit (10)-19). x
+*(10)-16 Retirement Plan for Directors, effective January
1, 1987, as amended through March 12, 1997.
(File No. 1-1839 Form 10-K for the year ended
December 31, 1996, Exhibit (10)-20) x
+*(10)-17 Unicom Corporation 1996 Directors' Fee Plan (File
No. 1-11375, Unicom Proxy Statement dated April
8, 1996, Appendix A). x x
+*(10)-18 Employment Agreement among Unicom, ComEd and John
W. Rowe dated as of March 10, 1998. (File Nos.
1-11375 and 1-1839, Form 10-Q for the quarter
ended March 31, 1998, Exhibit (10)-3). x x
+*(10)-19 First Amendment dated December 1, 1998 to
Employment Agreement dated March 10, 1998
between Unicom, ComEd and John Rowe. (File Nos.
1-11375 and 1-1839, Form 10-K for the year ended
December 31, 1998, Exhibit (10)-19). x x
+*(10)-20 Second Amendment dated January 27, 1999 to
Employment Agreement dated March 10, 1998
between Unicom, ComEd and John Rowe. (File Nos.
1-11375 and 1-1839, Form 10-K for the year ended
December 31, 1998, Exhibit (10)-20). x x
+*(10)-21 Third Amendment dated March 8, 1999 to Employment
Agreement dated March 10, 1998 between Unicom,
ComEd and John Rowe. (File Nos. 1-11375 and 1-
1839, Form 10-K for the year ended December 31,
1998, Exhibit (10)-21). x x
+*(10)-22 Employment Agreement dated November 1, 1997
between ComEd and Oliver D. Kingsley, Jr. (File
Nos. 1-11375 and 1-1839, Form 10-K for the year
ended December 31, 1998, Exhibit (10)-22). x x
34
Exhibit
Number Description of Document Unicom ComEd
------- -------------------------------------------- ------ -----
+*(10)-23 Unicom Corporation Stock Award Agreement
dated January 25, 1999 between Unicom
Corporation and Oliver D. Kingsley, Jr.
(File Nos. 1-11375 and 1-1839, Form 10-K
for the year ended December 31, 1998,
Exhibit (10)-23). x x
+*(10)-24 Change in Control Agreement between Unicom
Corporation, ComEd and certain senior
executives. (File Nos. 1-11375 and 1-1839,
Form 10-K for the year ended December 31,
1998, Exhibit (10)-24). x x
+*(10)-25 Executive Group Life Insurance Plan (File
No. 1-1839, Form 10-K for the year ended
December 31, 1980, Exhibit (10)-3). x
+*(10)-26 Amendment to the Executive Group Life Insur-
ance Plan (File No. 1-1839, Form 10-K for
the year ended December 31, 1981, Exhibit
(10)-4). x
+*(10)-27 Amendment to the Executive Group Life Insur-
ance Plan dated December 12, 1986 (File No.
1-1839, Form 10-K for the year ended Decem-
ber 31, 1986, Exhibit (10)-6). x
+*(10)-28 Amendment of Executive Group Life Insurance
Plan to implement program of "split dollar
life insurance" dated December 13, 1990
(File No. 1-1839, Form 10-K for the year
ended December 31, 1990, Exhibit (10)-10). x
+*(10)-29 Commonwealth Edison Company Supplemental
Management Retirement Plan. (File No. 1-
1839, Form 10-K for the year ended December
31, 1998, Exhibit (10)-29). x
+*(10)-30 Amendment of Executive Group Life Insurance
Plan to stabilize the death benefit appli-
cable to participants dated July 22, 1992
(File No. 1-1839, Form 10-K for the year
ended December 31, 1992, Exhibit (10)-13). x
+*(10)-31 Commonwealth Edison Company Excess Benefit
Savings Plan (File No. 1-1839, Form 10-Q
for the quarter ended September 30, 1998,
Exhibit (10)-1). x
+*(10)-32 Amendment No. 1 to Commonwealth Edison Com-
pany Excess Benefit Savings Plan dated May
24, 1995 (File No. 1-1839, Form 10-K for
the year ended December 31, 1995, Exhibit
(10)-30). x
+*(10)-33 Amendment No. 2 to Commonwealth Edison Com-
pany Excess Benefit Savings Plan effective
as of September 1, 1997. (File No. 1-1839,
Form 10-K for the year ended December 31,
1997, Exhibit (10)-34) x
+*(10)-34 Unicom Corporation Stock Bonus Deferral Plan
(File Nos. 1-11375 and 1-1839, Form 10-Q
for the quarter ended September 30, 1998,
Exhibit (10)-3) x x
+*(10)-35 Form of Stock Award Agreement under the
Unicom Corporation Long-Term Incentive Plan
(File Nos. 1-11375 and 1-1839, Form 10-K
for the year ended December 31, 1997, Ex-
hibit (10)-37). x x
35
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
(10)-38 Amended and Restated Key Management Severance
Plan for Unicom Corporation and Commonwealth Ed-
ison Company dated March 8, 1999. x x
(12) Statement re computation of ratios of earnings to
fixed charges and ratios of earnings to fixed
charges and preferred and preference stock divi-
dend requirements for ComEd. x
*(18) Letter from independent public accountants re-
garding change in accounting principle (File
Nos. 1-11375 and 1-1839, Form 10-K for the year
ended December 31, 1997, Exhibit (18)). x x
(21)-1 Subsidiaries of Unicom. x
(21)-2 Subsidiaries of ComEd. x
(23)-1 Consent of experts for Unicom. x
(23)-2 Consent of experts for ComEd. x
(24)-1 Powers of attorney of Directors whose names are
signed to the Unicom and ComEd Annual Report on
Form 10-K pursuant to such powers. x x
(27) Unicom Financial Data Schedule x
(99)-1 ComEd's Current Report on Form 8-K dated March
30, 2000. x
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Unicom and ComEd
hereby agree to furnish to the SEC, upon request, any instrument
defining the rights of holders of long-term debt of ComEd not filed as
an exhibit herein. No such instrument authorizes securities in excess
of 10% of the total assets of ComEd.
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated October 12, 1999 was filed by
Unicom and ComEd providing additional information regarding the
transactions contemplated by the Merger Agreement before Unicom
commences repurchases of shares of its common stock.
A Current Report on Form 8-K dated December 15, 1999 was filed by
Unicom and ComEd announcing the completion on the sale of its fossil
generating plants to EME.
36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To Commonwealth Edison Company:
We have audited, in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Commonwealth
Edison Company and subsidiary companies incorporated by reference in this
Annual Report on Form 10-K, and have issued our report thereon dated January
31, 2000.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14.(a), is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
January 31, 2000
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the city of Chicago and state of Illinois on the 30th
day of March, 2000.
UNICOM CORPORATION
/s/ John W. Rowe
By
--------------------------------
John W. Rowe, Chairman,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 30th day of
March, 2000.
Signature
- ----------------------------
Title
---------------------
/s/ John W. Rowe Chairman, President and
- ---------------------------- Chief Executive Officer
John W. Rowe and Director (principal
executive officer)
/s/ Ruth Ann M. Gillis
- ---------------------------- Senior Vice
Ruth Ann M. Gillis President(principal
financial officer)
/s/ Robert E. Berdelle Vice President and Comptroller
- ---------------------------- (principal accounting officer)
Robert E. Berdelle
Edward A. Brennan* Director
Carlos Cantu* Director
James W. Compton* Director
Bruce DeMars* Director
Sue L. Gin* Director
Donald P. Jacobs* Director
Edgar D. Jannotta* Director
John W. Rogers, Director
Jr.*
Richard L. Thomas* Director
/s/ John P. McGarrity
*By
--------------------------------
John P. McGarrity, Attorney-
in-fact
[Signature page to Unicom Corporation Annual Report on Form 10-K]
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the city of Chicago and state of Illinois on the 30th
day of March, 2000.
COMMONWEALTH EDISON COMPANY
/s/ John W. Rowe
By
--------------------------------
John W. Rowe, Chairman,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 30th day of
March, 2000.
Signature
- ----------------------------
Title
---------------------
/s/ John W. Rowe Chairman, President and
- ---------------------------- Chief Executive Officer
John W. Rowe and Director (principal
executive officer)
/s/ Ruth Ann M. Gillis
- ---------------------------- Senior Vice
Ruth Ann M. Gillis President(principal
financial officer)
/s/ Robert E. Berdelle Vice President and Comptroller
- ---------------------------- (principal accounting officer)
Robert E. Berdelle
Edward A. Brennan* Director
Carlos Cantu* Director
James W. Compton* Director
Bruce DeMars* Director
Sue L. Gin* Director
Donald P. Jacobs* Director
Edgar D. Jannotta* Director
John W. Rogers, Director
Jr.*
Richard L. Thomas* Director
/s/ John P. McGarrity
*By
--------------------------------
John P. McGarrity, Attorney-
in-fact
[Signature page to Commonwealth Edison Company Annual Report on Form 10-K]
39
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
INDEX
Page
----
Definitions............................................................... F-2
Supplementary Data
- ------------------
Operating Statistics...................................................... F-3
Summary of Selected Consolidated Financial Data........................... F-4
Price Range and Cash Dividends Paid per Share of Common Stock............. F-4
Quarterly Financial Data.................................................. F-4
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... F-5
Report of Independent Public Accountants.................................. F-25
Consolidated Financial Statements
- ---------------------------------
Statements of Consolidated Operations for the years 1999 1998 and 1997... F-26
Consolidated Balance Sheets as of December 31,2000 vs.1999 1999 and 1998.............. F-27
Statements of Consolidated Capitalization as of December 31, 1999 and
1998..................................................................... F-29
Statements of Consolidated Retained Earnings/(Deficit) for the years 1999,
1998 and 1997............................................................ F-30
Statements of Consolidated Comprehensive Income for the years 1999, 1998
and 1997................................................................. F-30
Statements of Consolidated Cash Flows for the years 1999, 1998 and 1997... F-31
Notes to Financial Statements............................................. F-32
Financial Statement Schedules
- -----------------------------
Schedule II--Valuation and Qualifying Accounts for the years 1997-1999.... F-62
The individual financial statements and schedules of ComEd's nonconsolidated
wholly owned subsidiaries have been omitted from Unicom and ComEd's Annual
Reports on Form 10-K because the investments are not material in relation to
ComEd's financial position or results of operations. As of December 31, 1999,
the assets of the nonconsolidated subsidiaries, in the aggregate, were less
than 1% of ComEd's consolidated assets. The 1999 revenues of the
nonconsolidated subsidiaries, in the aggregate, were less than 1% of ComEd's
consolidated annual revenues.
F-1
DEFINITIONS
The following terms are used in this document with the following meanings:
Term Meaning
---------------------- -------------------------------------------------------
1997 Act Illinois Electric Service Customer Choice and Rate
Relief Law of 1997, as amended
AFUDC Allowance for funds used during construction
APB Accounting Principles Board
APX Automated Power Exchange Inc., a California company
ARES Alternative Retail Electric Suppliers
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended
City City of Chicago
ComEd Commonwealth Edison Company, a Unicom subsidiary
ComEd Funding ComEd Funding, LLC, a ComEd subsidiary
ComEd Funding Trust ComEd Transitional Funding Trust, a ComEd Funding
subsidiary
Congress U.S. Congress
Cotter Cotter Corporation, a ComEd subsidiary
CTC Non-bypassable "competitive transition charge"
DOE U.S. Department of Energy
Edison Development Edison Development Canada Inc., a ComEd subsidiary
EME Edison Mission Energy, an Edison International
subsidiary
EPS Earnings/(Loss) per Common Share
ESPP Employee Stock Purchase Plan
FAC Fuel adjustment clause
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Fossil Plant ComEd's six coal-fired generating plants, an oil and
gas-fired plant, and nine peaking unit sites
GAAP Generally Accepted Accounting Principles
ICC Illinois Commerce Commission
IDR Illinois Department of Revenue
Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd
subsidiary
INPO Institute of Nuclear Power Operations
ISO Independent System Operator
MGP Manufactured gas plant
NEIL Nuclear Electric Insurance Limited
Northwind Midway Northwind Midway, LLC, a UT Holdings subsidiary
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
PECO PECO Energy Company, a Pennsylvania company
RES Retail Electric Supplier
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
SPEs Special purpose entities
S&P Standard & Poor's
Trusts ComEd Financing I and ComEd Financing II, ComEd
subsidiaries
Trust Securities ComEd-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely ComEd's
subordinated debt securities
Unicom Unicom Corporation
Unicom Energy Services Unicom Energy Services Inc., a Unicom Enterprises
subsidiary
Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary
Unicom Investment Unicom Investment Inc., a Unicom Enterprises subsidiary
Unicom Power Holdings Unicom Power Holdings Inc., a Unicom Enterprises
subsidiary
Unicom Thermal Unicom Thermal Technologies Inc., a UT Holdings
subsidiary
U.S. EPA U.S. Environmental Protection Agency
UT Holdings UT Holdings Inc., a Unicom Enterprises subsidiary
F-2
Operating Statistics
Year Ended December 31
-------------------------------------
1999 1998 1997
----------- ----------- -----------
Operating Revenues (thousands of dol-
lars):
Residential........................... $ 2,205,066 $ 2,551,741 $ 2,552,742
Small commercial and industrial....... 2,196,069 2,187,532 2,153,113
Large commercial and industrial....... 1,290,926 1,406,720 1,467,574
Public authorities.................... 463,482 510,185 505,907
Electric railroads.................... 20,317 31,022 29,785
Provisions for revenue refunds--ulti-
mate consumers....................... -- (21,848) (45,470)
Sales for resale...................... 490,938 349,818 336,480
Other revenues........................ 181,149 88,240 82,891
----------- ----------- -----------
Total.............................. $ 6,847,947 $ 7,103,410 $ 7,083,022
=========== =========== ===========
Sales (millions of kilowatthours):
Residential........................... 23,716 23,942 22,151
Small commercial and industrial....... 29,125 27,005 25,859
Large commercial and industrial....... 22,474 24,043 24,074
Public authorities.................... 7,778 7,472 7,323
Electric railroads.................... 408 433 418
Sales for resale...................... 19,487 12,262 15,679
----------- ----------- -----------
Total.............................. 102,988 95,157 95,504
=========== =========== ===========
Sources of Electric Energy (millions of
kilowatthours):
Generation--
Nuclear.............................. 73,684 53,958 49,136
Fossil............................... 25,873 29,212 36,604
Fast-start peaking units............. 127 132 121
----------- ----------- -----------
Net generation..................... 99,684 83,302 85,861
Purchased power....................... 11,079 20,704 16,672
Company use and losses................ (7,775) (6,367) (7,029)
----------- ----------- -----------
Total.............................. 102,988 97,639 95,504
=========== =========== ===========
Cost of Fuel Consumed (per kilowatt-
hours):
Nuclear............................... 0.52c 0.53c 0.54c
Coal.................................. 2.26c 2.51c 2.44c
Oil................................... 5.43c 6.26c 5.50c
Natural gas........................... 3.22c 3.04c 3.50c
Average all fuels..................... 1.00c 1.27c 1.40c
Peak Load (kilowatts).................. 21,243,000 19,012,000 18,497,000
Number of Customers (at end of year):
Residential........................... 3,145,712 3,134,490 3,123,364
Small commercial and industrial....... 309,828 304,208 291,143
Large commercial and industrial....... 1,783 1,794 1,566
Public authorities and electric rail-
roads................................ 18,196 14,051 12,182
Sales for resale...................... 58 62 51
----------- ----------- -----------
Total.............................. 3,475,577 3,454,605 3,428,306
=========== =========== ===========
Average Annual Revenue per Residential
Customer.............................. $ 700.98 $ 814.08 $ 817.31
Average Kilowatthour Use per Residen-
tial Customer......................... 7,546 7,642 7,108
Average Revenue per Kilowatthour:
Residential........................... 9.30c 10.66c 11.52c
Small commercial and industrial....... 7.54c 8.10c 8.33c
Large commercial and industrial....... 5.74c 5.85c 6.10c
F-3
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
Summary of Selected Consolidated Financial Data
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(Millions Except per Share Data)
Operating revenues........... $ 6,848 $ 7,103 $ 7,083 $ 6,937 $ 6,910
Net income (loss)............ $ 570(1) $ 510 $ (853)(2) $ 666 $ 640(3)
Basic earnings (loss) per
common share................ $ 2.62(1) $ 2.35 $ (3.94)(2) $ 3.09 $ 2.98(3)
Diluted earnings (loss) per
common share................ $ 2.61(1) $ 2.34 $ (3.94)(2) $ 3.09 $ 2.98(3)
Cash dividends declared per
common share................ $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60
Total assets (at end of
year)....................... $23,406 $25,690 $22,700 $23,388 $23,250
Long-term obligations at end
of year excluding current
portion:
Long-term debt, preference
stock and preferred
securities subject to
mandatory redemption
requirements.............. $ 7,480 $ 8,212 $ 6,262 $ 6,487 $ 7,011
Accrued spent nuclear fuel
disposal fee and related
interest................... $ 763 $ 728 $ 693 $ 657 $ 624
Capital lease obligations... $ 162 $ 334 $ 438 $ 477 $ 376
Other long-term obligations. $ 3,182 $ 2,951 $ 3,183 $ 1,991 $ 1,826
- --------
(1) Includes an extraordinary loss related to the early redemption of long-
term debt of $28 million (after-tax) or $0.13 per common share (diluted).
Also, includes $12 million (after-tax), or $0.05 per common share
(diluted), for premiums paid in connection with the redemption of
preference stock.
(2) Includes an extraordinary loss for the write-off of generation-related net
regulatory assets of $810 million (after-tax), or $3.75 per common share
(basic), the loss on the early retirement of Zion nuclear generating
station of $523 million (after-tax), or $2.42 per common share (basic),
and the positive impact of a one-time cumulative effect for a change in
accounting principle for revenue recognition of $197 million (after-tax),
or $0.91 per common share (basic).
(3) Includes an extraordinary loss related to the early redemption of long-
term debt of $20 million (after-tax), or $0.09 per common share (basic).
Price Range* and Cash Dividends Paid per Share of Common Stock
1999 (by quarters) 1998 (by quarters)
--------------------------------- ---------------------------------
Fourth Third Second First Fourth Third Second First
-------- ------- -------- ------- -------- ------ -------- --------vs.1998
---- ---- ---- ------------ ------------
Price range:
High................... 39 9/16 42 3/16 42 13/16 39 1/4 41 3/16 38 36 15/16 35 13/16
Low.................... 30 15/16 35 5/8 35 1/2 33 9/16 36 13/16 33 3/8 32 9/16 30
Cash dividends paid..... 40c 40c 40c 40c 40c 40c 40c 40c100% 100% 100% Operating Revenue 3% (5)%
---- ---- ----
28% 23% 26% Fuel and Purchased Power 28% (16)%
30% 35% 32% Operating and Maintenance (12)% 3%
1% -- -- Merger-Related Costs N.M. N.M.
14% 12% 13% Depreciation and Amortization 19% (11)%
7% 7% 10% Taxes Other Than Income -- (27)%
---- ---- -----
80% 77% 81% Total Operating Expenses 7% (9)%
20% 23% 19% Operating Income (11)% 12%
=== ==== -===
* As reported as NYSE Composite Transactions.N.M. - --------
Unicom's common stock is traded on the New York, Chicago and Pacific stock
exchanges, with the ticker symbol UCM. Atnot meaningful
45
Results of Operations
Year Ended December 31, 2000 Compared To Year Ended December 31, 1999
there were
approximately 111,167 holdersNet Income
Net Income increased $128 million, or 20% in 2000, before giving effect
to extraordinary items and non-recurring items. Net income, inclusive of recordthe $4
million and $28 million extraordinary items for 2000 and 1999, respectively, and
non-recurring items relating to merger-related costs of Unicom's common stock.
Quarterly Financial Data$43 million , increased
$109 million, or 18% in 2000.
Operating Revenue
Operating revenue was $7,012 million in 2000, an increase of $219
million, or 3% from 1999. The increase in operating revenue was primarily
attributable to a $467 million increase in sales for resale, partially offset by
a $266 million reduction in sales to retail customers, reflecting, in both
cases, the migration of non-residential customers to alternate electric
suppliers who purchased a portion of their supply requirements from ComEd and
also reflecting increased sales to other utilities due to the increased
availability of nuclear generation. The decrease in retail revenues also
reflects the further election of the power purchase option by non-residential
customers. Kilowatt-hour sales increased 17% over 1999, reflecting an increase
in kWh sales for resale of 77% and increased retail kWh sales of 3%.
Fuel and Purchased Power Expense
Fuel and purchased power expense was $1,977 million in 2000, an
increase of $428 million, or 28% from 1999. The increase in fuel and purchased
power expense was primarily attributable to the effects of the power purchase
agreements (PPAs) that ComEd entered into upon the sale of its fleet of fossil
stations in December 1999, which resulted in increased purchased power costs,
but lower fuel costs.
Operating and Maintenance Expense
Average
Number of Diluted
Common Earnings
Shares Per
Operating Operating Net Outstanding Common
Three Months Ended Revenues Income Income (Diluted) Share
- ------------------2000 1999 $ Variance % Variance
---- ---- ---------- --------- -------- ----------- --------
(Thousands Except per Share Data)----------
(in millions, except percentage data)
March 31, 1999............... $1,537,804 $255,951Generation Stations $ 69,643 217,780 $0.32
June 30, 1999................ $1,685,714 $227,270 $119,392 218,330 $0.55
September 30, 1999........... $2,084,454 $429,428 $279,752 218,265 $1.28
December 31, 1999............ $1,539,975 $273,791 $100,879 217,980 $0.46
March 31, 1998............... $1,664,897 $195,902 $ 53,715 217,386 $0.25
June 30, 1998................ $1,779,146 $220,616 $ 80,458 217,643 $0.37
September 30, 1998........... $2,095,699 $400,186 $264,822 217,761 $1.22
December 31, 1998............ $1,563,668 $225,713 $111,189 217,994 $0.51738 $1,004 $(266) (26)%
Transmission and Distribution 458 355 103 29 %
Customer-Related 223 258 (35) (14)%
Other 657 735 (78) (11)%
------ ------ -----
$2,076 $2,352 $(276) (12)%
====== ====== =====
F-4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ChangesThe decrease in operating and maintenance (O&M) expenses related to the
Electric Utility Industry
Unicom and its predominant business, electric energy generation transmission and distribution, are in a period of fundamental change. These
changes arestations was primarily attributable to changesa $220 million reduction in
technology and regulation. Federal law
and regulations have been amended to provide for open transmission system
access, and various states, including Illinois, are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers, in addition to the local utility.
Electric Utility Industry. The electric utility industry historically has
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on recovery of some
or all of such prudently incurred costs plus a return on invested capital.
Such rate regulation, and the ability of utilities to recover investment and
other costs through rates, have provided the basis for recording certain costsexpenses as regulatory assets. These assets represent costs which are allocated over
future periods reflecting related regulatory treatment, rather than expensed
in the current period.
Federal Regulation. The Federal Energy Policy Act of 1992, among other
things, empowered the FERC to introduce a greater level of competition into
the wholesale marketplace for electric energy. Under FERC Order No. 888,
utilities are required to file open access tariffs with regard to their
transmission systems. These tariffs set forth the terms, including prices,
under which other parties and the utility's wholesale marketing function may
use the utility's transmission system. ComEd has an approved open access
tariff with the FERC. A companion FERC rule, Order No. 889, requires the
separation of the transmission operations and wholesale marketing functions so
as to ensure that unaffiliated third parties have access to the same
information as to system availability and other requirements. The FERC Order
further requires utilities to operate an electronic bulletin board to make
transmission price and access data available to all potential users. A key
feature of FERC Order No. 888 is that it contemplates full recovery of a
utility's costs "stranded" by competition. These costs are "stranded" or
"strandable" to the extent market-based rates would be insufficient to allow
for their full recovery. To recover stranded costs, the utility must show that
it had a reasonable expectation that it would continue to serve the customer
in question under its regulatory compact. In addition, some governmental
entities, such as cities, may elect to "municipalize" a utility's distribution
facilities through condemnation proceedings. Such municipalities would then be
able to purchase electric power on a wholesale basis and resell it to
customers over the newly acquired facilities. The FERC Order provides for the
recovery of a utility's investment stranded by municipalization.
The 1997 Act. In December 1997, the Governor of Illinois signed into law the
1997 Act, which established a phased process to introduce competition into the
electric industry in Illinois under a less regulated structure. The 1997 Act
was amended in June 1999.
As a result of the 1997 Act and FERC rules, prices forsale of the supply of
electric energy are expected to change from cost-based, regulated rates to
rates determined by competitive market forces. Accordingly, the 1997 Act
provides for, among other things, gradual customer access to other electric
suppliers or a power purchase option which allows the purchase of electric
energy from ComEd at
F-5
market based prices, and the collection of a CTC from customers who choose to
purchase electric energy from a RES or elect the power purchase option during
a transition period that extends through 2006. Effective October 1,fossil generation stations in December
1999 the
CTC was established in accordance with a formula defined in the 1997 Act. The
CTC, which is applied on a cents per kilowatthour basis, considers the revenue
which would have been collected from a customer under tariffed rates, reduced
by the revenue the utility will receive for providing delivery services to the
customer, the market price for electricity and a defined mitigation factor,
which represents the utility's opportunity to develop new revenue sources$46 million reduction in expenses associated with shorter refueling
outages and achieve cost savings.fewer forced outages at nuclear generation stations.
The CTC allows ComEd to recover some of its costs which
might otherwise be unrecoverable under market-based rates. Nonetheless, ComEd
will need to take steps to address the portion of such costs which are not
recoverable through the CTC. Such steps may include cost control efforts,
developing new sources of revenue and asset dispositions. See "Response to
Regulatory Changes" and "Fossil Plant Sale" below for additional information.
On October 1, 1999, more than 41,000 non-residential customers became
eligible to choose a new electric supplier or elect the purchase power option.
The remainder of the non-residential customers will become eligible to choose
an electric supplier or the purchase power option between June 1 and
December 31, 2000. As of December 31, 1999, over 4,700 non-residential
customers, representing approximately ten percent of ComEd's 1998 retail
kilowatthour sales, elected to receive their electric energy from a RES or
chose the purchase power option. As a result of the collection of CTC's from
such customers, ComEd does not expect these elections to have a material
effect on its results of operationsincrease in the near term.
Utilities are required to continue to offer delivery services, includingO&M expenses associated with the transmission and
distribution system was primarily attributable to ComEd's increased efforts to
improve the reliability of electric energy, such that customers who
select a RES can receive electric energy from that supplier using existingits transmission and distribution facilities. Such services will continuesystem.
The decrease in O&M expenses associated with customer-related
activities was primarily attributable to be
offerednon-recurring costs incurred in 1999 to
address billing and collection problems encountered following the implementation
of a new customer information and billing system in July 1998.
46
The decrease in other O&M expenses was primarily attributable to lower
general and administrative costs.
Merger-Related Costs
Merger-related costs charged to expense in 2000 were $67 million
consisting of $26 million of direct incremental costs and $41 million for
employee costs. Direct incremental costs represent expenses directly associated
with completing the merger, including professional fees, regulatory approval and
other merger integration costs. Employee costs represent estimated severance
payments provided under cost-based, regulated rates. The ICC issued orders in August and
September approving, with modifications, ComEd's delivery service tariffs.
The 1997 Act committed ComEdExelon's Merger Separation Plan (MSP) for eligible
employees whose positions were eliminated before October 20, 2000 due to
spend at least $2 billion during the period
1999 through 2004 on transmission and distribution facilities outsideintegration activities of the Citymerged companies.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $162 million, or 19%,
to contribute $250$998 million in 2000. The increase was primarily attributable to an environmental trust, as a result of
closing$220
million increase in regulatory asset amortization in accordance with the
earnings provisions of the Illinois legislation, goodwill amortization of $23
million associated with the merger, partially offset by an $81 million decrease
in depreciation expense reflecting the fossil plantstation sale and the fair value
adjustment of ComEd's nuclear stations associated with the application of
purchase accounting upon completion of the merger on October 20, 2000.
Taxes Other Than Income
Taxes other than income taxes for 2000 were consistent with 1999.
Interest Charges
Interest charges consist of interest expense and provisions for
dividends on Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts. Interest charges for 2000 were essentially unchanged from
1999.
Other Income and Deductions
Other income and deductions, excluding interest charges, was $308
million for 2000, an increase of $248 million from 1999. The increase was
primarily attributable to a $166 million increase in interest income on ComEd's
notes receivables with affiliates related to the sale of ComEd's fossil
stations. The increase also reflects the effects of a $113 million gain on the
forward share repurchase that occurred in 2000, compared to a $44 million loss
recorded in 1999 on the same agreement.
Income Taxes
The effective income tax rate was 31.1% in 2000 compared to 33.4% in
1999. The decrease in the effective tax rate was primarily attributable to the
effects of the gain on the forward share repurchase agreement, compared to the
loss that was recorded in 1999 on the same agreement both of which were not
recognized for tax purposes. The decrease was partially offset by the investment
tax credit amortization recorded in 1999 related to the fossil station sale.
Extraordinary Item
ComEd incurred extraordinary charges aggregating $6 million ($4
million, net of tax) and $46 million ($28 million, net of tax) in 2000 and 1999,
respectively, consisting of prepayment premiums and the write-off of unamortized
deferred financing costs associated with the early retirement of debt.
47
Year Ended December 31, 1999 Compared To Year Ended December 31, 1998
Net Income
Net income increased $57 million, or 10% in 1999, before giving effect
to the extraordinary item in 1999. Net income, inclusive of the $28 million
extraordinary item, increased $29 million, or 5% in 1999.
Operating Revenue
Operating revenue was $6,793 million for 1999, a decrease of $357
million, or 5%, from 1998. The 1997 Act also provides for adecrease in operating revenue was primarily
attributable to the impact of the 15% residential base rate reduction, which
became effectivetook effect on August 1, 1998, and an additional 5% residential base rate
reduction in October 2001. ComEd's operating revenues were reduced by
approximately $170 million in 1998 due to the 15% residential base rate
reduction. The 15% rate reduction further reduced ComEd's operating revenues
by approximatelyof $226 million and $174 million associated with
the change in presentation for certain state and municipal taxes from operating
revenue and tax expense to collections recorded as liabilities. Kilowatt-hour
sales increased 8% in 1999 compared to 1998 rate levels.
Notwithstanding the rate reductions and subject to certain earnings tests, a
rate freeze will generally be in effect until at least January 1, 2005. During
this period, utilities may reorganize, sell or assign assets, retire or remove
plants from service, and accelerate depreciation or amortization of assets
with limited ICC regulatory review. A utility may request a rate increase
during the rate freeze period only when necessary to ensure the utility's
financial viability, but not before January 1, 2000. Under the earnings
provision of the 1997 Act, if the earned return on common equity of a utility
during this period exceeds an established threshold, one-half of the excess
earnings must be refunded to customers. The threshold rate of return on common
equity for ComEd is based on the 30-Year Treasury Bond rate, plus 5.5% in the
years 1998 and 1999, and plus 8.5% in the years 2000 through 2004. The
utility's earned return on common equity and the threshold return on common
equity are each calculated on a two-year average basis. The earnings sharing
provision is applicable only to ComEd's earnings. In accordance with the
provisions of the 1997 Act, increased amortization of regulatory assets may be
recorded, thereby reducing the earned return on common equity, if earnings
otherwise would have exceeded the maximum allowable rate of return. The
potential for earnings sharing or increased amortization of regulatory assets
could limit earnings in future periods.
F-6
The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a SPE.
The proceeds, net of transaction costs, from such security issuances must be
used to refinance outstanding debt or equity or for certain other limited
purposes. The total amount of such securities that may be issued is
approximately $6.8 billion. In December 1998, ComEd initiated the issuance of
$3.4 billion of transitional trust notes through its SPEs, ComEd Funding and
ComEd Funding Trust. See "Liquidity and Capital Resources," subcaption
"UTILITY OPERATIONS--Capital Resources" below, and Notes 3 and 7 of Notes to
Financial Statements, for additional information regarding the redemptions and
repurchases of debt and equity.
The 1997 Act also requires utilities to establish or join an ISO that will
independently manage and control utility transmission systems. Additionally,
the 1997 Act includes the leveling of certain regulatory requirements to
permit operational flexibility, the leveling of certain regulatory and tax
provisions as applied to various electric suppliers and a new, more stringent,
reliability requirement applicable to ComEd in the event of a major outage.
See "Response to Regulatory Changes" below for additional information.
See Notes 1, under "Regulatory Assets and Liabilities," and 3 of Notes to
Financial Statements for the accounting effects related to the 1997 Act.
Response to Regulatory Changes. Unicom has announced several business and
operational objectives designed to focus efforts in responding to the energy
market changes that are expected to develop from the 1997 Act. Among other
things, these strategic objectives call for a focus on operations to: (1)
provide a reliable supply of electricity as the competitive marketplace
evolves, (2) become a top quartile operator of competitive nuclear plants, (3)
deliver competitive earnings while restructuring the balance sheet to reflect
the realities of the marketplace, (4) expand the offering of energy-related
products and services, and (5) transform the corporate culture of Unicom.
Under the 1997 Act, the role of electric utilities in the supply and
delivery of energy is expected to change. Utilities, such as ComEd,
traditionally have been responsible for providing both adequate supply and
reliable delivery of electricity to customers within their service areas. In
the future, ComEd will continue to be obligated to provide a reliable delivery
system. However, ComEd will be obligated to supply electricity only to those
customers that it continues to serve under tariffs for electricity, but not
for those customers who choose to rely on the marketplace. Nonetheless, during
the transition periodprimarily due to a competitive supply marketplace, ComEd must provide
both an adequate supply59% increase in
sales for resale which reflects increased availability of lower cost nuclear
generation.
Fuel and reliable deliveryPurchased Power Expense
Fuel and purchased power expense was $1,549 million for 1999, a
decrease of electricity. Given$304 million, or 16%, from 1998. The decrease in fuel and purchased
power expense was primarily attributable to improved nuclear and fossil
operating performance, which reduced the tight
capacity situationneed to purchase power from other
parties.
Operating and Maintenance Expense
1999 1998 $ Variance % Variance
---- ---- ---------- ----------
(in millions, except percentage data)
Generation Stations $1,004 $ 1,121 $(117) (10)%
Transmission and Distribution 355 278 77 28%
Customer-Related 258 218 40 18%
Other 735 657 78 12%
------ ------ -------
$2,352 $2,274 $ 78 3%
====== ====== =======
The decrease in ComEd's market, ComEd will be working to maintain its
available capacity, as well as working to assist in the development of a
competitive supply marketplace in Illinois.
ComEd has a significant commitment to, and investment in, nuclear generating
capacity. ComEd has installed a management team responsible for improving
nuclear operations. Such improvements are aimed at increasing levels of energy
generation, or capacity factors, at ComEd's nuclear generating units while
simultaneously improving ComEd's record of meeting NRC requirements and INPO
performance standards. Increased capacity factors generally result in lower
unit production costs and an improved opportunity to generate and sell
electricity in a competitive marketplace. Efforts are also being made to
control capital and operating costs through increased efficiencies, such as
the reduction of downtime andO&M expenses associated with generating unitthe generation stations
was primarily attributable to a $42 million reduction in plant refurbishment and
maintenance costs at the fossil generation stations and a $75 million reduction
in expenses due to shorter refueling outages.
ComEd also evaluatedoutages and fewer forced outages at the
recoverability of its generating plant investmentnuclear generation stations.
The increase in 1998 as a result of the 1997 Act. See Note 1 of NotesO&M expenses associated with ComEd's transmission and
distribution system was primarily attributable to Financial
Statements, under "Regulatory Assets and Liabilities," for additional
information. Notwithstanding these efforts, there continuesComEd's system improvement
initiatives in response to be an ongoing
analysis of the ability of ComEd's various nuclear plants to generate and
deliver electric energy safely at
F-7
competitive prices in the competitive market for energy. Although short-term
system reliability and capacity constraints are likely to support the
continued operation of ComEd's nuclear units in the near term, expected longer
term developments are likely to make decision-making a function of economic
considerations. In the absence of short-term reliability and capacity
constraints, if a generating plant cannot produce power safely at a cost below
the competitive market price, it will be disposed of or closed. Plant
impairment adjustments have reduced the carrying value of nuclear plants, and
depreciation rates reflecting shortened estimated useful lives for certain
stations will reduce the carrying value furtheroutages that occurred during the next several years.
However, closuresummer of a plant could involve additional charges1999. The
increase also reflects service restoration and other outage-related costs
associated with the write-offsummer of its then-current carrying value. In January 1998, Unicom1999 heat wave.
The increase in O&M expenses associated with customer-related
activities was primarily attributable to $35 million of costs incurred in 1999
to address billing and ComEd announcedcollection problems encountered following the
decisionimplementation of a new customer information and billing system in July 1998.
The increase in other O&M expenses was primarily attributable to permanently cease nuclear generating
operations atan
increase of $68 million in ComEd's Zion Station. The related retirement resulted in a
charge in 1997estimated environmental liability for the
remediation of $523 million (after-tax), or $2.42 per common share
(diluted), reflecting both a write down of the plant's carrying valueformer manufactured gas plant sites, and a liability for future closing costs. A portion of Zion Station is used to
provide voltage support in the transmission system that serves ComEd's
northern region. See Note 5 of Notes to Financial Statements for additional
information.
ComEd joined with other Midwestern utilities to design the Midwest ISO in
1998. These utilities have agreed to place their transmission systems under
the control of the Midwest ISO as soon as it achieves operational status in
2001. The Midwest ISO, a key element in accommodating the FERC-directed
restructuring of the electric industry, is expected to promote enhanced
reliability of the transmission system, equal access to the transmission
system, and foster increased competition. The Midwest ISO will control the
transmission system and will have authority to require modification in the
operation of generators connected to that system during system emergencies.
ComEd, like other utilities, will retain ownership of its transmission lines.
The formation of the Midwest ISO was approved by the FERC in September 1998,
subject to certain conditions. In December 1999, ComEd and other Midwestern
utilities filed a request with the FERC for a Declaratory Order approving a
different organizational template for the regional transmission grid. The
request seeks approval for the creation of for-profit transmission companies,
operating under the general oversight of the Midwest ISO, but fully separated
from their previous vertically integrated utilities. The request was approved,
in part, on February 24, 2000, subject to further development of its elements.
In the absence of an ISO-related power exchange, ComEd has also agreed to
cooperate with APX in the creation of the first electronic energy exchange in
Illinois. Initial products may include hourly, daily and weekly electricity
delivered to and from interconnection points on ComEd's transmission system,
and a standard system of credit and trading interfaces. Unicom has made a $3$25 million venture capital investment in APX in order to help finance its
expansion in Midwest. Neither ComEd nor Unicom will receive any voting rights.
The power exchange will be independently owned and managed by APX and will
allow wholesale and retail market participants to trade electricity
anonymously through an internet-based computerized system. ComEd will be
treated like any other market participant and will be an active participant in
the power exchange which opened in Illinois in the fourth quarter of 1999.
Merger Agreement. In September 1999, the Boards of Directors of Unicom and
PECO approved a merger of equals that will create a new holding company,
Exelon. The merger is conditioned, among other things, upon the approvals of
the shareholders of both companies and by various regulatory bodies. The
merger is currently expected to be completed in the latter half of 2000.
Under the merger agreement, as amended and restated in January 2000, PECO
and ComEd will become the principal utility subsidiaries of Exelon. This
result will be achieved by a mandatory exchange of the outstanding common
stock of PECO for common stock of Exelon, and a merger of Unicom with and into
Exelon wherein holders of Unicom common stock will receive 0.875 shares of
Exelon common stock plus $3.00 in cash for each of their shares of Unicom
common stock. The merger transaction will be accounted for as a purchase of
Unicom by PECO.
F-8
Prior to the consummation of the merger, Unicom expects to repurchase
approximately $1.0 billion of its outstanding common shares. These share
repurchases are in addition to 26.3 million shares of Unicom common stock that
Unicom repurchased in January 2000 upon settlement of certain forward purchase
contracts. The $1.0 billion additional share repurchases will be funded from
available funds, including fundscharge
resulting from the fossil plant sale.
The Amended and Restated Agreement and Plansettlement of Exchange and Merger, dated as
of January 7, 2000, was filed on January 13, 2000 by Unicom with the SEC as an
exhibit to a Form 8-K, and reference to that filing is made for more detailed
information.
Fossil Plant Sale. In December 1999, ComEd completed the sale of its fossil
generating assets to EME for a cash purchase price of $4.8 billion. The fossil
plant assets represent an aggregate generating capacity of approximately 9,772
megawatts.
Just prior to the consummation of the fossil plant sale, ComEd transferred
these assets to an affiliate, Unicom Investment. In consideration for the
transferred assets, Unicom Investment paid ComEd consideration totalling
approximately $4.8 billion in the form of a demand note in the amount of
approximately $2.4 billion and an interest-bearing Note with a maturity of
twelve years. Unicom Investment immediately sold the fossil plant assets to
EME, in consideration of which Unicom Investment received approximately $4.8
billion in cash from EME. Immediately after its receipt of the cash payment
from EME, Unicom Investment paid the $2.4 billion aggregate principal due to
ComEd under the demand note. Unicom Investment will use the remainder of the
cash received from EME to fund other business opportunities, including the
share repurchases. Of the cash received by ComEd, $1.8 billion is expected to
be used to pay the costs and taxesissues associated with the fossil plant sale
including ComEd's contributionfranchise agreement
between ComEd and the City of $250Chicago.
48
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $102 million, of the proceedsor 11% to
an
environmental trust as required by the 1997 Act.$836 million in 1999. The remainder of the demand
note proceeds will be available to ComEd to fund, among other things,
transmission and distribution projects, nuclear generation station projects,
and environmental and other initiatives.
The sale produced an after-tax gain of approximately $1.6 billion, after
recognizing commitments associated with certain coal contracts ($350 million),
recognizing employee-related costs ($112 million) and contributingdecrease was primarily attributable to the environmental trust. The coal contract costs include the amortization of the
remaining balance of ComEd's regulatory asset for unrecovered coal reserves of
$178 million and the recognition of $172 million of settlement payments
related to the above-market portion of coal purchase commitments ComEd
assigned to EME at market value upon completion of the fossil plant sale. The
severance costs included pension and post-retirement welfare benefit
curtailment and special termination benefit costs of $51 million and
transition, separation and retention payments of $61 million. A total of 1,730
fossil
station employee positions were eliminated upon completion of the
fossil plant sale on December 15, 1999. As of December 31, 1999, 1,590 of the
employees whose positions were eliminated had been terminated and 140 affected
employees were in a transition program which generally extends 60 days from
the date of the fossil plant sale. Consistent with the provisions of Illinois legislation, the
1997
Act, the (pre-tax)pre-tax gain on the fossil station sale of $2.587 billion$2,587 million resulted in a
regulatory liability, which was used to recover regulatory assets. Therefore,
the gain on the sale, excludingnet of $43 million of amortization of investment tax
credits, was recorded as a regulatory liability in the amount of $2.544 billion$2,544 million
and amortized in the fourth quarter of 1999. The amortization of the regulatory
liability and additional regulatory asset amortization of $2.456 billion$2,456 million are
reflected in depreciation and amortization expense on Unicom's StatementComEd's Consolidated
Statements of Consolidated OperationsIncome and resulted in a net reduction to depreciation and
amortization expense of $88 million.
As partTaxes Other Than Income
Taxes other than income taxes decreased by $191 million, or 27%, to
$507 million in 1999. The decrease was primarily attributable to the change in
presentation for certain state and municipal taxes in the amount of $174
million.
Interest Charges
Interest charges increased $100 million, or 19%, to $632 million in
1999. The increase in interest charges was primarily attributable to a full
year's effect of the sale transaction, ComEd entered intoissuance of the transitional limited
term power purchase agreementstrust notes in 1998, partially
offset by lower interest charges as a result of the retirement of long-term debt
with a portion of the transitional trust note proceeds. For additional
information, see ITEM 1. Business - Related Entities.
Other Income and Deductions
Other income and deductions, excluding interest charges, decreased $30
million, or 33%, to $60 million in 1999. The decrease was attributed to a $44
million loss associated with the buyer. Such purchase power agreements
willforward share repurchase agreement in 1999, and
a $34 million decrease in gains on the disposal of assets, partially offset by
the $45 million increase ComEd's purchased power costs.
F-9
in interest income from the investment of the $3.4
billion in proceeds from transitional trust notes issued in 1998 prior to
application to reduce capitalization.
Income Taxes
The effective tax rate was 33.4% in 1999 compared to 37.1% in 1998. The
decrease in the effective tax rate was primarily attibutable to the impact of
property basis differences and increased amortization of the investment tax
credits resulting from the fossil station sale, partially offset by the
unrealized loss on the forward share repurchase agreement, which was not
recognized for tax purposes.
Extraordinary Items
ComEd incurred extraordinary charges aggregating $46 million ($28
million, net of tax) in 1999 consisting of prepayment premiums and the write-off
of unamortized deferred financing costs associated with the early retirement of
debt.
Liquidity and Capital Resources
UTILITY OPERATIONS
Construction Program. ComEd has a construction program for the year 2000,
which consists principally of improvements to its existing nuclear production,
transmissionCash flows provided by operations were $1,574 million, $1,245 million,
and distribution facilities. The program, as currently approved
by ComEd, includes the following estimated expenditures (excluding nuclear
fuel expenditures of approximately $260 million).
2000
----
(Millions
of Dollars)
Nuclear................................................... $215
Transmission and Distribution............................. 536
General................................................... 146
----
$897
====
In response to several outages in the summer of 1999, ComEd conducted an
extensive evaluation of the reliability of its transmission and distribution
systems. The construction program above reflects a preliminary evaluation of
improvements necessary to improve reliability of ComEd's transmission and
distribution systems. ComEd is currently evaluating its construction program
for the years 2000, 2001 and 2002. The final results of this planning process
cannot be determined at this time.
ComEd's forecasts of peak load for its traditional service territory
indicate a need for additional resources to meet demand, through generating
capacity, equivalent purchased power and/or the development of additional
demand-side management resources,$1,552 million in 2000, 1999, and each year thereafter for the
foreseeable future. ComEd believes that adequate resources, including cost-
effective demand-side management resources, nonutility generation resources,
power purchases1998 respectively. The increase in cash
flows in 2000 was primarily attributable to an increase in cash generated from
operations and generation resources from ARES, can be obtaineda non-recurring $250 million contribution to an environmental
trust in sufficient quantities1999.
49
Cash flows used in investing activities were $1,603 million in 2000
compared to meet such forecasted needs. See "Unregulated
Operations," subcaption "Construction Program" below, for additional
information.
Purchase commitments for ComEd, principally related to construction, nuclear
fuel and coal in supportcash flows provided by investing activities of certain power purchase agreements approximated
$670$1,144 million at December 31, 1999. In addition, ComEd's estimated commitments
for expected capacity payments and fixed charges related to power purchase
agreements were as follows:
Commitments(1)
Period ($Millions)
------ --------------
2000............................... $ 783
2001............................... 698
2002............................... 427
2003-2004.......................... 540
2005-2012.......................... 1,039
------
$3,487
======
--------
(1) Capacity payments may be adjusted based on certain conditions. No
estimate of future cost escalation has been made.
See "Changes in the Electric Utility Industry," subcaptions "The 1997 Act"
and "Fossil Plant Sale" above, for additional information.
Capital Resources. In December 1998, ComEd initiated the issuance of $3.4
billion of transitional trust notes through its SPEs, ComEd Funding and ComEd
Funding Trust. The proceeds from the transitional trust notes, net of
transaction costs, were, as required, used to redeem $1,101 million of long-
term debt and $607 million of preference stock in
1999 and reduce ComEd's
outstanding short-term debtcash flows used by $500 million. In 1999, ComEd recorded an
extraordinary loss relatedinvesting activities of $1,135 million in 1998. The
decrease in cash flows in 2000 was primarily attributable to the early
F-10
redemptions of such long-term debt, which reduced net income on common stock
by approximately $28 million (after-tax), or $0.13 per common share (diluted).
ComEd also recorded $12 million (after-tax), or $0.05 per common share
(diluted), for premiums paidproceeds received
in connection with the redemptionsale of preference
stock. As more fully described below, Unicom has repurchased approximately
26.3ComEd's fossil generation stations of $4,886
million sharesin 1999, partially offset by $2,209 million of Unicomaffiliate notes
receivable in 1999.
Cash flows used in financing activities were $1,310 million and $3,939
million in 2000 and 1999, respectively, compared to cash flows provided by
financing activities of $2,600 million in 1998. The decrease in cash flows used
in financing activities in 2000 compared to 1999 reflects significant
retirements of long-term debt, redemptions of preferred securities and common
stock using $924 million of proceeds it
received from ComEd's repurchase of its common stock held by Unicom. The
remainingforward repurchases in 1999 utilizing the proceeds from the issuance of
the transitional trust notes will bein 1998, partially offset by the issuance of $450
million of long-term debt in 2000.
ComEd's capital resources are primarily provided by internally
generated cash flows from operations and, to the extent necessary, external
financing. Capital resources are used forprimarily to fund ComEd's capital
requirements, including construction, repayments of maturing debt and preferred
securities and the payment of feesdividends.
For the year ended December 31, 2000, capital expenditures for ComEd
were $1,406 million, including expenditures related to its nuclear generation
facilities which were transferred to Generation, effective January 1, 2001.
ComEd estimates that it will spend approximately $900 million in 2001,
principally for intensive efforts to continue to improve the reliability of its
transmission and distribution systems. ComEd's proposed capital expenditures are
subject to periodic review and revision to reflect changes in economic
conditions and other factors. ComEd anticipates that it will obtain external
financing, when necessary, through borrowings or issuance of preferred
securities or capital contributions from Exelon.
Under PUHCA and the Federal Power Act, ComEd can only pay dividends
from retained or current earnings. However, the SEC has authorized ComEd to pay
up to $500 million in dividends out of additional paid-in capital, provided
ComEd may not pay dividends out of paid-in capital after December 31, 2002 if
its common equity is less than 30% of its total capitalization (including
transitional trust notes). At December 31, 2000, ComEd had retained earnings of
$133 million.
At December 31, 2000, ComEd's capital structure consisted of 53% of
long-term debt, 45% of common stock, repurchases.
Inand 2% of preferred securities of
subsidiaries. Long-term debt includes $2,720 million of transitional trust notes
constituting obligations of certain consolidated special purpose entities
representing 20% of capitalization.
ComEd meets its short-term liquidity requirements primarily through the
fourth quarterissuance of 1998, Unicomcommercial paper and borrowings under bank credit facilities. ComEd,
along with Exelon and PECO, entered into a forward purchase
arrangement for the repurchase$2 billion unsecured revolving credit
facility with a group of banks. ComEd has a $200 million of its common stock. This
contract, which was accounted for as an equity instrument as of December 31,
1998, was settled on a net cash basis in February 1999.
During 1999, Unicom also entered into forward purchase arrangements with
financial institutions for the repurchase of approximately 26.3 million shares
of Unicom common stock. The repurchase arrangements were settled in January
2000 on a physical basis. Effective January 2000, the share repurchases will
reduce outstanding sharessublimit under this
364-day credit facility and reduce common stock equity. Priorexpects to settlement,
the repurchase arrangements were recorded as a receivable on the Consolidated
Balance Sheets based on the aggregate market value of the shares deliverable
under the arrangements. In 1999, net unrealized losses of $44 million (after-
tax), or $0.20 per common share were recorded related to the arrangements. The
settlement of the arrangements in January 2000 resulted in a gain of $113
million (after-tax). See Note 25 of Notes to Financial Statements for
additional information.
See Notes 3 and 7 of Notes to Financial Statements for additional
information regarding the redemptions and repurchases of debt and equity.
ComEd forecasts that internal sources will provide approximately three-
fourths of the funds required for ComEd's 2000 construction program and other
capital requirements, including nuclear fuel expenditures, contributions to
nuclear decommissioning funds, sinking fund obligations and scheduled debt
maturities. See Notes 10 and 12 of Notes to Financial Statements for the
summaries of the annual sinking fund requirements and scheduled maturities for
ComEd preference stock and long-term debt, respectively.
See "Changes in the Electric Utility Industry," subcaption "Fossil Plant
Sale" above, for a description of ComEd's planned uses of the fossil plant
sale proceeds.
The type and amount of external financing will depend on financial market
conditions and the needs and capital structure of ComEd at the time of such
financing. ComEd had total unused bank lines of credit of $800 million at
December 31, 1999, which may be borrowed at various interest rates. Of that
amount, $500 million expires on December 15, 2000 and $300 million expires on
December 17, 2002. The interest rate is set at the time of a borrowing and is
based on several floating rate bank indices plus a spread, which is dependent
uponuse the credit ratings of ComEd's outstanding first mortgage bonds or onfacility principally to
support its $200 million commercial paper program. This credit facility requires
ComEd to maintain a
prime interest rate. See Note 13 of Notes to Financial Statements for
additional information concerning lines of credit. See the Statements of
Consolidated Cash Flows for the construction expenditures and cash flow from
operating activities for the years 1999, 1998 and 1997. Cash flows from
operating activities were adversely affected in 1998 and positively affected
in 1999 as a result of delayed billings related to the transition to a new
customer information and billing system beginning in July 1998. See Note 1 of
Notes to Financial Statements, under "Customer Receivables and Revenues", for
additional information.
As of January 31, 2000, ComEd has an effective "shelf" registration
statement with the SEC for the future sale of up to an additional $280 million
of debt securities and cumulative preference stock for general corporate
purposes of ComEd, including the discharge or refund of other outstanding
securities.
F-11
ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
Standard Duff &
Moody's & Poor's Phelps
------- -------- ------
First mortgage and secured pollution control bonds..... Baa1 BBB+ A-
Publicly-held debentures and unsecured pollution con-
trol obligations...................................... Baa2 BBB BBB+
Convertible preferred stock............................ baa3 BBB- BBB
Preference stock....................................... Baa2 BBB- BBB
Trust Securities....................................... baa3 BBB- BBB
Commercial paper....................................... P-2 A-2 D-1
ComEd Funding Trust's securities are currently rated by three principal
securities rating agencies as follows:
Standard Duff &
Moody's & Poor's Phelps
------- -------- ------
Transitional trust notes.......................... Aaa AAA AAA
All three agencies raised their ratings for ComEd in 1999: Duff & Phelps in
December, Moody's in September; and S&P in June.
Capital Structure. ComEd's ratio of long-term debt to total capitalization has decreased to 55.2% atratio of 65% or less (excluding
transitional trust notes). At December 31, 1999 from 58.0%2000, ComEd's debt to total
capitalization ratio on that basis was 43%.
50
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Exelon
The information required by this Item is incorporated herein by
reference to the information appearing under the subheading "Quantitative and
Qualitative Disclosures About Market Risk" under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Exhibit 99-2 to
Exelon's Current Report on Form 8-K dated March 16, 2001.
PECO
PECO is exposed to market risks associated with commodity price,
credit and interest rates.
Commodity Price Risk
As part of Exelon's corporate restructuring, PECO entered into a power
purchase agreement with Generation to meet its retail customer obligations for
generation services at prices consistent with prices amounts collected through
customer rates. As a result, PECO's exposure to commodity price risk is not
material.
Credit Risk
PECO is obligated to provide service to all customers within its
franchised territory and, as a result, has a broad customer base. For the year
ended December 31, 1998.2000, PECO's ten largest customers represented approximately
10% of its retail electric revenues. PECO manages credit risk using credit and
collection policies which are regulated by the PUC.
Interest Rate Risk
PECO uses a combination of fixed rate and variable rate debt to reduce
interest rate exposure. Interest rate swaps may be used to adjust exposure when
deemed appropriate, based upon market conditions. These strategies are employed
to maintain the lowest cost of capital. As of December 31, 19992000, a hypothetical
10% increase in the interest rates associated with variable rate debt would
result in an $2 million decrease in pre-tax earnings for 2001.
PECO has entered into interest rate swaps to manage interest rate
exposure associated with two classes of floating rate Transition Bonds issued to
securitize stranded cost recovery. At December 31, 2000, these interest rate
swaps had a fair market value of $21 million based on the present value
difference between the contract and 1998, $716 million and $494 million, respectively,market rates at December 31, 2000.
The aggregate fair value of retained earningsthe Transition Bond derivative instruments
that would have resulted from a hypothetical 50 basis point decrease in the spot
yield at December 31, 2000 is estimated to be $17 million. If the derivative
instruments had been appropriated for Unicom's future dividend
payments.
Yearterminated at December 31, 2000, Conversion. Unicom completed a successful transitionthis estimated fair value
represents the amount to be paid by PECO to the Year
2000 as systems performed without interruption duringcounterparties.
The aggregate fair value of the rolloverTransition Bond derivative instruments
that would have resulted from a hypothetical 50 basis point increase in the spot
yield at December 31, 19992000 is estimated to January 1, 2000. All Unicom Yearbe $59 million. If the derivative
instruments had been terminated at December 31, 2000, Command Centers
were activated duringthis estimated fair value
represents the critical rollover period.amount to be paid by the counterparties to PECO.
In addition to 12/31/99, other key YearFebruary 2000, dates that Unicom has completed
without Year 2000 problems are 1/1/99, 4/9/99 (99th dayPECO entered into forward starting interest rate
swaps for a notional amount of 1999), 8/21/99
(Global Positioning System rollover), 9/9/99 and the rollover from 2/28/00 to
2/29/00.
Unicom depends upon third parties, including customers, suppliers,
government agencies and financial institutions, to reliably deliver its
products and services. Unicom completed an analysis$1 billion in anticipation of the Yearissuance of $1
billion of Transition Bonds in the second quarter of 2000. In May 2000, readiness
programs of its critical vendorsPECO
settled these forward starting interest rate swaps and obtained Year 2000 warranties in certain
new contractspaid the counterparties
$13 million which was deferred and licenses. Unicom also has introduced protocols for assuring
that software and embedded systems remain Year 2000 ready on a continuing
basis. Even though mission critical products and servicesis being amortized over the life of the
Unicom supply
chain are Year 2000 ready, contingency plans were developed to prevent or
mitigate interruptions caused by Unicom suppliers.
As of December 31, 1999, approximately $37.4 million has been expended for
external labor, hardware and software costs, and for the costs of Unicom
employees who are dedicated full-time to the Year 2000 project. All of such
costs were expensedTransition Bonds as incurred. The foregoing amounts do not include the cost
of new software applications installed as a result of strategic replacement
projects. Such replacement projects were not accelerated because of Year 2000
issues. Unicom expects to incur minimal expenditures for final project wrap-up
activities.
Unicom's Year 2000 project focused on those facets of its business that are
required to deliver reliable electric service. The project encompassed the
computer systems that support core business
F-12
functions, such as customer information and billing, finance, procurement,
supply and personnel, as well as the components of metering, transmission,
distribution and generation support. The project also focused on embedded
systems, instrumentation and control systemsan increase in facilities and plants. In
accordance with business plans, Unicom has replaced certain of its financial,
human resources and payroll and customer service and billing software with new
software that is Year 2000 ready and that addresses Unicom's strategic needs
as it enters a less regulated environment.
Market Risks.interest expense.
ComEd
ComEd is exposed to market risks associated with commodity prices,
credit and interest rates.
Commodity Price Risk
As part of Exelon's corporate restructuring, ComEd has entered into a
power purchase agreement with Generation to meet its retail customer obligations
at fixed prices. ComEd's principal exposure to commodity price risk dueis in
relation to changes in interest
ratesrevenues collected from customers who elect the power purchase
option at market-based prices, and CTC revenues which are calculated to provide
the customer with a credit for the market price for electricity. Exposure for interest rate changes
relatesComEd has
performed a sensitivity analysis to its long-term debt and preferred equity obligations. Exposure to
electricitydetermine the net impact of a 10% decrease
in the average around-the-clock market price risk relates to forward activities taken to manage
effectivelyof electricity. Because the
supply of, and demand for,decrease in revenues from customers electing the electric generation capability
of ComEd's generating plants. ComEd has implemented an integrated risk
management framework to manage such risks. A corporate Risk Management
Committee defines the Company's risk tolerance and establishes appropriate
position limits, and corporate policies and procedures have been implemented
to minimize the exposure to market risk.power purchase option is
significantly offset by increased CTC revenues, ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes.
See "Energybelieve that its
exposure to such a market price decrease would be material.
Credit Risk
Management Contracts" in Note 1ComEd is obligated to provide service to all customers within its
franchised territories and, as a result, has a broad customer base. For the year
ended December 31, 2000, ComEd's ten largest customers represented approximately
3% of Notes to Financial
Statements regardingits retail electric revenues. ComEd manages credit risk using credit and
collection policies which are regulated by the accounting for energy risk management contracts.ICC.
Interest Rate Exposure.Risk
ComEd uses a combination of fixed rate and variable rate debt to reduce
interest rate exposure. As of December 31, 2000, a hypothetical 10% increase in
the interest rates associated with variable rate debt would result in a decrease
in pre-tax earnings for 2001 of less than $1 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Exelon
The table below providesinformation required by this Item is incorporated herein by
reference to the fair valueConsolidated Statements of Income for the years 2000, 1999 and
average
interest or fixed dividend rates1998; Consolidated Statements of Unicom's outstanding debtCash Flows for the years 2000, 1999 and preferred
stock equity instruments1998;
Consolidated Balance Sheets as of December 31, 1999.2000 and 1999; Consolidated
Statements of Changes in Shareholders' Equity and Comprehensive Income for the
years 2000, 1999 and 1998; and Notes to Consolidated Financial Statements
appearing in Exhibit 99-3 to Exelon's Current Report on Form 8-K dated March 16,
2001.
51
PECO
Report of Independent Accountants
To the Board of Directors and Shareholders
of PECO Energy Company:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(2)(i) present fairly, in all material respects, the
financial position of PECO Energy Company and Subsidiary Companies (PECO) at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14(a)(2)(ii) presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of PECO's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 4 to the consolidated financial statements, PECO changed
its method of accounting for nuclear outage costs in 2000.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 30, 2001, except for Note 22 PETT Refinancing,
for which the date is March 1, 2001
52
PECO Energy Company and Subsidiary Companies
Consolidated Statements of Income
Expected Maturity Date Fair Value
UnicomFor the Years Ended December 31,
2000 1999 1998
------- ------- -------
(In Millions)
-----------
Operating Revenues $ 5,950 $ 5,478 $ 5,325
Operating Expenses
Fuel and Purchased Power 2,127 2,152 1,811
Operating and Maintenance 1,791 1,454 1,198
Merger-Related Costs 248 -- --
Early Retirement and Separation Program -- -- 125
Depreciation and Amortization 325 237 643
Taxes Other Than Income 237 262 280
------- ------- -------
Total Operating Expenses 4,728 4,105 4,057
------- ------- -------
Operating Income 1,222 1,373 1,268
------- ------- -------
Other Income and Deductions
Interest Expense (457) (396) (331)
Company-Obligated Mandatorily Redeemable Preferred
Securities of a Partnership, which holds Solely
Subordinated Debentures of the Company (8) (21) (31)
Equity in Earnings (Losses) of Unconsolidated Affiliates (41) (38) (54)
Other, Net 41 59 1
------- ------- -------
Total Other Income and Deductions (465) (396) (415)
------- ------- -------
Income Before Income Taxes, Extraordinary Items and
Cumulative Effect of a Change in Accounting Principle 757 977 853
Income Taxes 270 358 320
------- ------- -------
Income Before Extraordinary Items and Cumulative
Effect Of a Change in Accounting Principle 487 619 533
Extraordinary Items (net of income taxes of $2, $25,
and $14 for 2000, 1999, and 1998, respectively) (4) (37) (20)
Cumulative Effect of a Change in Accounting
Principle (net of income taxes of $16) 24 -- --
------- ------- -------
Net Income 507 582 513
Preferred Stock Dividends 10 12 13
------- ------- -------
Net Income on Common Stock $ 497 $ 570 $ 500
======= ======= =======
See Notes to Consolidated Financial Statements
53
PECO Energy Company and Subsidiary Companies
Consolidated Statements of Cash Flows
For the Years Ended December 31,
--------------------------------
2000 1999 1998
------- ------- -------
(In Millions)
Cash Flows from Operating Activities
Net Income $ 507 $ 582 $ 513
Adjustments to reconcile Net Income to Net
Cash Flows provided by Operating Activities:
Depreciation and Amortization 437 358 765
Extraordinary Items (net of income taxes) 4 37 20
Cumulative Effect of a Change in Accounting
Principle (net of income taxes) (24) -- --
Provision for Uncollectible Accounts 68 59 72
Deferred Income Taxes 118 7 (115)
Merger-Related Costs 248 -- --
Early Retirement and Separation Program -- -- 125
Deferred Energy Costs (79) 23 6
Equity in (Earnings) Losses of Unconsolidated Affiliates 41 38 54
Other Operating Activities (6) 6 (22)
Changes in Working Capital:
Accounts Receivable (264) (159) 3
Repurchase of Accounts Receivable (50) (150) --
Inventories (45) (43) 14
Accounts Payable, Accrued Expenses & Other
Current Liabilities (170) 149 63
Other Current Assets (29) (12) 1
------- ------- -------
Net Cash Flows provided by Operating Activities 756 895 1,499
Cash Flows from Investing Activities
Investment in Plant (549) (491) (415)
Exelon Infrastructure Services Acquisitions (245) (222) --
Investments in and Advances to Joint Ventures -- (118) (59)
Contributions to Nuclear Decommissioning Trust Funds (26) (26) (21)
Other Investing Activities (74) (29) (26)
------- ------- -------
Net Cash Flows used in Investing Activities (894) (886) (521)
Cash Flows from Financing Activities
Issuance of Long-Term Debt, net of issuance costs 1,021 4,170 13
Common Stock Repurchases (496) (1,705) --
Retirement of Long-Term Debt (557) (1,343) (842)
Change in Intercompany Payable - Affiliates 400 -- --
Change in Notes Payable -- Bank -- (388) 124
Redemption of COMRPS -- (221) (81)
Issuance of COMRPS -- -- 78
Redemptions of Mandatorily Redeemable Preferred Stock (19) (37) --
Dividends on Preferred and Common Stock (167) (208) (236)
Capital Lease Payments -- (139) (60)
Other Financing Activities 31 42 41
------- ------- -------
Net Cash Flows provided by (used in) Financing Activities 213 171 (963)
------- ------- -------
Increase in Cash and Cash Equivalents 75 180 15
Cash and Cash Equivalents at beginning of period 228 48 33
------- ------- -------
Cash and Cash Equivalents at end of period $ 303 $ 228 $ 48
======= ======= =======
See Notes to Consolidated Financial Statements
54
PECO Energy Company and Subsidiary Companies
Consolidated Balance Sheets
At December 31,
2000 1999
-------- --------
(In Millions)
Assets
Current Assets
Cash and Cash Equivalents $ 303 $ 228
Accounts Receivable, net
Customer 774 344
Other 250 360
Inventories, at average cost
Fossil Fuel 135 113
Materials and Supplies 122 93
Other 195 83
-------- --------
Total Current Assets 1,779 1,221
-------- --------
Property, Plant and Equipment, net 5,158 5,004
Deferred Debits and Other Assets
Regulatory Assets 6,026 6,072
Nuclear Decommissioning Trust Funds 440 408
Investments 847 130
Goodwill, net 326 121
Other 200 131
-------- --------
Total Deferred Debits and Other Assets 7,839 6,862
-------- --------
Total Assets $ 14,776 $ 13,087
======== ========
Liabilities and Shareholders' Equity
Current Liabilities
Notes Payable - Bank $ 163 $ 163
Intercompany Payable - Affiliates 1,096 --
Long-Term Debt Due Within One Year 553 128
Accounts Payable 403 270
Accrued Expenses 481 616
Deferred Income Taxes 27 14
Other 95 95
-------- --------
Total Current Liabilities 2,818 1,286
-------- --------
Long-Term Debt 6,002 5,969
Deferred Credits and Other Liabilities
Deferred Income Taxes 2,532 2,411
Unamortized Investment Tax Credits 271 286
Pension Obligations 281 213
Non-Pension Postretirement Benefits Obligation 505 443
Other 427 385
-------- --------
Total Deferred Credits and Other Liabilities 4,016 3,738
-------- --------
Company-Obligated Mandatorily Redeemable Preferred Securities
of a Partnership, which holds Solely Subordinated Debentures of
the Company 128 128
Mandatorily Redeemable Preferred Stock 37 56
Commitments and Contingencies
Shareholders' Equity
Common Stock 1,449 3,577
Preferred Stock 137 137
Deferred Compensation (7) (3)
Retained Earnings (Accumulated Deficit) 197 (100)
Treasury Stock, at cost -- (1,705)
Accumulated Other Comprehensive Income (1) 4
-------- --------
Total Shareholders' Equity 1,775 1,910
-------- --------
Total Liabilities and Shareholders' Equity $ 14,776 $ 13,087
======== ========
See Notes to Consolidated Financial Statements
55
PECO Energy Company and Subsidiary ---------------------------------------- asCompanies
Consolidated Statements of Companies (millions)Changes in Shareholders' Equity and Comprehensive Income
Year Ended December 31, 2000 2001 2002 2003 2004 Thereafter Total 12/31/991999 1998
- -------------------------------------------- ---- ---- ----
---- ---- ----------Shares Amount Shares Amount Shares Amount
------ ---------------- ------ ------ ------ ------
(dollars in millions and shares in thousands)
Long-Term Debt-
Fixed Rate............. $387 $ 11 $311 $111 $241 $3,694 $4,755 $4,695
Average Interest Rate.. 6.74% 6.75% 7.93% 6.62% 7.53% 7.68%
Variable Rate.......... $ 92 $ 92 $ 92
Average Interest Rate.. 5.49%
Transitional Trust
Notes................. $350 $340 $340 $340 $340 $1,360 $3,070 $2,894
Average Interest Rate.. 5.31% 3.32% 5.38% 5.42% 5.44% 5.66%Common Stock
Balance at Beginning of Year 225,354 $3,577 224,684 $3,558 222,547 $3,507
Capital Stock Activity:
Cancellation of Treasury Shares (54,875) (2,175) -- --
Long Term Incentive Plan Issuances 47 670 19 2,137 51
------------------------------------------------------------------
Balance at End of Year 170,479 $1,449 225,354 $3,577 224,684 $3,558
Preferred Stock without Mandatory Redemption
Balance at Beginning and Preference
Stock-
Subject to Mandatory
Redemption............ $ 69 $ 69 $ 70
Average Dividend Rate.. 6.93%
Not Subject to Manda-
tory Redemption....... $End of Year 1,375 $137 1,375 $137 1,375 $137
Deferred Compensation
Balance at Beginning of Year $(3) $-- $--
Amortization 5 2 $ 2 $ 1
Average Dividend Rate.. 4.48%
Trust Securities........ $ 350 $ 350 $ 339
Average Dividend Rate.. 8.49%--
Long Term Incentive Plan Issuances (9) (5) --
------------------------------------------------------
Balance at End of Year $(7) $(3) $--
Retained Earnings (Accumulated Deficit)
Balance at Beginning of Year $(100) $(501) $(781)
Net Income 507 582 513
Dividends:
Common Stock (157) (196) (223)
Preferred Stock (10) (12) (13)
Unicom Merger Consideration (45)
Capital Stock Activity:
Expenses of Capital Stock Activity -- -- 3
Stock Forward Repurchase Contract (5) 12 (8)
Long Term Incentive Plan Issuances 7 15 8
------------------------------------------------------
Balance at End of Year $197 $(100) $(501)
Treasury Shares
Balance at Beginning of Year 44,082 $(1,705) $-- $--
Capital Stock Activity:
Repurchase of Common Stock 11,950 (496) 22,610 (1,009) --
Stock Forward Repurchase Contract 21,489 (696)
Long Term Incentive Plan Issuances (195) 7
Stock Option Exercises (962) 19 (17) -- --
Cancellation of Treasury Shares (54,875) 2,175 -- --
-------------------------------------------------------------
Balance at End of Year -- $-- 44,082 $(1,705) $--
Accumulated Other Comprehensive Income
Balance at Beginning of Year $4 $-- $--
Unrealized Gain (Loss) on Marketable Securities,
net of income taxes of $(3), $3, and $0 tax,
respectively (5) 4
------------------------------------------------------
Balance at End of Year $(1) $4 $--
Total Shareholder's Equity $1,775 $1,910 $3,194
====== ====== ======
Comprehensive Income
Net Income $507 $582 $513
Other Comprehensive Income, net of
income taxes (5) 4 --
----------- ---------- ----------
Total Comprehensive Income $502 $586 $513
========== ========== ==========
Market Price Exposure. ComEd'sSee Notes to Consolidated Financial Statements
56
PECO Energy Company and Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
1. Significant Accounting Policies
Description of Business
Incorporated in Pennsylvania in 1929, PECO Energy Company (PECO), is
engaged principally in the production, purchase, transmission, distribution and
sale of electricity to residential, commercial, industrial and wholesale
customers and the distribution and sale of natural gas to residential,
commercial and industrial customers. Pursuant to the Pennsylvania Electricity
Generation Customer Choice and Competition Act (Competition Act), the
Commonwealth of Pennsylvania has required the unbundling of retail electric
services in Pennsylvania into separate generation, transmission and distribution
services with open retail competition for generation services. Since the
commencement of deregulation in 1999, PECO serves as the local distribution
company providing electric distribution services in its franchised service
territory in southeastern Pennsylvania and bundled electric service to customers
who do not choose an alternate electric generation supplier.
PECO also engages in the wholesale marketing of electricity on a
national basis. Through its Exelon Energy division, PECO is a competitive
generation supplier offering competitive energy purchases from other suppliers have
increased assupply to customers throughout
Pennsylvania. PECO's infrastructure services subsidiary, Exelon Infrastructure
Services, Inc. (EIS), provides utility infrastructure services to customers in
several regions of the United States. PECO owns a 50% interest in AmerGen Energy
Company, LLC (AmerGen), a joint venture with British Energy, Inc., a
wholly-owned subsidiary of British Energy plc (British Energy), to acquire and
operate nuclear generating facilities. PECO also participates in joint ventures
which provide communications services in the Philadelphia metropolitan region.
As a result of reductionsthe corporate restructuring effective January 1, 2001, these
operations were separated from the regulated energy delivery business. See Note
22 - Subsequent Events - Restructuring.
Basis of Presentation
The consolidated financial statements of PECO include the accounts of
its majority-owned subsidiaries after the elimination of intercompany
transactions. PECO accounts for its 20% to 50% owned investments and joint
ventures, in which it exerts significant influence, under the equity method of
accounting. PECO consolidates its proportionate interest in its jointly owned
generating capabilityelectric utility plants. PECO accounts for its less than 20% owned investments
under the cost method of accounting. Accounting policies for regulated
operations are in accordance with those prescribed by the regulatory authorities
having jurisdiction, principally the Pennsylvania Public Utility Commission
(PUC), the Federal Energy Regulatory Commission (FERC) and system
load growth.the Securities and
Exchange Commission (SEC) under the Public Utility Holding Company Act of 1935
(PUHCA).
Exelon Corporation (Exelon), formed as a wholly owned subsidiary of
PECO in 1999, became the parent company of PECO when each share of outstanding
common stock of PECO was exchanged for one share of Exelon common stock in
connection with the merger. See Note 2 - Merger.
Accounting for the Effects of Regulation
PECO accounts for all of its regulated electric and gas operations in
accordance with Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation," requiring PECO to
record the financial statement effects of the rate regulation to which such
operations are currently subject. Use of SFAS No. 71 is applicable to the
utility operations of PECO which meet the following criteria: (1) third-party
regulation of rates; (2) cost-based rates; and (3) a reasonable assumption that
all costs will be recoverable from customers through rates. PECO believes that
it is probable that regulatory assets associated with these operations will be
recovered. If a separable portion of PECO's business no longer meets the
provisions of SFAS No. 71, PECO is required to eliminate the financial statement
effects of regulation for that portion.
57
Use of Estimates
The market pricepreparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenues
Operating revenues are recorded as service is rendered or energy is
delivered to customers. At the end of each month, PECO accrues an estimate for
the unbilled amount of energy isdelivered or services provided to its electric and
gas customers. PECO recognizes contract revenue and profits on long-term,
fixed-price contracts from its services businesses by the
percentage-of-completion method of accounting based on costs incurred as a
percentage of estimated total costs of individual contracts.
Purchased Gas Adjustment Clause
PECO's natural gas rates are subject to price volatilitya fuel adjustment clause
designed to recover or refund the difference between the actual cost of
purchased gas and the amount included in base rates. Differences between the
amounts billed to customers and the actual costs recoverable are deferred and
recovered or refunded in future periods by means of prospective quarterly
adjustments to rates.
Nuclear Fuel
The cost of nuclear fuel is capitalized and charged to fuel expense
using the unit of production method. Estimated costs of nuclear fuel disposal
are charged to fuel expense as the related fuel is consumed.
Depreciation, Amortization and Decommissioning
Depreciation is provided over the estimated service lives of property,
plant and equipment on a straight line basis. Annual depreciation provisions for
financial reporting purposes, expressed as a percentage of average service life
for each asset category are presented below:
Asset Category 2000 1999 1998
- -------------- ---- ---- ----
Electric -- Transmission and Distribution 1.82% 1.83% 1.96%
Electric -- Generation 5.15% 5.12% 5.26%
Gas 2.39% 2.36% 2.40%
Common 2.10% 2.13% 4.54%
Other Property and Equipment 7.82% 8.61% 2.80%
Amortization of regulatory assets is provided over the recovery period
as specified in the related regulatory agreement. Goodwill associated with
acquisitions is being amortized on a straight line basis over 20 years.
Accumulated amortization of goodwill was $10 million and $1 million at December
31, 2000 and 1999, respectively.
PECO's estimate of the costs for decommissioning its nuclear generating
stations is currently included in regulated rates. The amounts recovered from
customers are deposited in trust accounts and invested for funding of future
costs for current plants. PECO accounts for the current period's cost of
decommissioning its operating nuclear units by recording a charge to
depreciation expense and a corresponding liability in accumulated depreciation.
PECO believes that the amounts being recovered from customers through electric
rates along with the earnings on the trust funds will be sufficient to fully
fund its decommissioning obligations.
58
Capitalized Interest
PECO uses SFAS No. 34, "Capitalizing Interest Costs," to calculate the
costs during construction of debt funds used to finance its non-regulated
construction projects. PECO recorded capitalized interest of $2 million, $6
million and $7 million in 2000, 1999 and 1998, respectively.
Allowance for Funds Used During Construction (AFUDC) is the cost during
the period of construction of debt and equity funds used to finance construction
projects for regulated operations. AFUDC is recorded as a charge to Construction
Work in Progress and as a non-cash credit to AFUDC which is included in Other
Income and Deductions. The rates used for capitalizing AFUDC are computed under
a method prescribed by regulatory authorities.
Income Taxes
Deferred Federal and state income taxes are provided on all significant
temporary differences between book bases and tax bases of assets and
liabilities, transactions that reflect taxable income in a year different from
book income and tax carryforwards. Investment tax credits previously utilized
for income tax purposes have been deferred on PECO's Consolidated Balance Sheets
and are recognized in book income over the life of the related property. PECO
and its subsidiaries file a consolidated Federal income tax return with Exelon.
Income taxes are allocated to PECO and each of its subsidiaries within the
consolidated group based on the separate return method.
Gains and Losses on Reacquired Debt
Gains and losses on reacquired debt are being recognized in PECO's
Consolidated Statements of Income as incurred. Gains and losses on reacquired
debt related to regulated operations incurred prior to January 1, 1998, have
been deferred and are being amortized to interest expense over the period
approved for ratemaking purposes.
Comprehensive Income
Comprehensive income includes all changes in supplyequity during a period
except those resulting from investments by and demanddistributions to shareholders.
Comprehensive income is reflected in PECO's Consolidated Statements of Changes
in Shareholders' Equity and Comprehensive Income.
Cash and Cash Equivalents
PECO considers all temporary cash investments purchased with an
original maturity of three months or less to be cash equivalents.
Marketable Securities
Marketable securities are classified as available-for-sale securities
and are reported at fair value, with the unrealized gains and losses, net of
tax, reported in other comprehensive income. Unrealized gains and losses on
marketable securities held in the electric supply markets.nuclear decommissioning trust funds are
reported in accumulated depreciation. At December 31, 2000 and 1999, PECO had no
held-to-maturity or trading securities.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. PECO evaluates the
carrying value of property, plant and equipment and other long-term assets based
upon current and anticipated undiscounted cash flows, and recognizes an
impairment when it is probable that such estimated cash flows will be less than
the carrying value of the asset. Measurement of the amount of impairment, if
any, is based upon the difference between carrying value and fair value. The
cost of maintenance, repairs and minor replacements of property are charged to
maintenance expense as incurred.
Upon retirement, the cost of regulated property plus removal costs less
salvage value are charged to accumulated depreciation in accordance with the
provisions of SFAS No. 71. For unregulated property, the cost and accumulated
depreciation of property, plant and equipment retired or otherwise disposed of
are removed from the related accounts and included in the determination of the
gain or loss on disposition.
59
Capitalized Software Costs
Costs incurred during the application development stage of software
projects for software which is developed or obtained for internal use are
capitalized. At December 31, 2000 and 1999, capitalized software costs totaled
$131 million and $105 million, respectively, net of $49 million and $32 million
of accumulated amortization, respectively. Such capitalized amounts are
amortized ratably over the expected lives of the projects when they become
operational, not to exceed ten years.
Retail and Wholesale Energy Commitments
In the normal course of business, ComEdPECO utilizes contracts for the
forward sale and purchase of energy to assure system reliability and manage
effectively the utilization of its available
generating capability. ComEdcapability and provision of wholesale energy to its retail
affiliates. PECO also utilizes put and callenergy option contracts and energy financial swap
arrangements to limit the market price risk associated with the forward energy
commodity contracts. The
estimatedThrough December 31, 19992000, PECO recognized any gains or
losses on forward commodity contracts when the underlying transactions affect
earnings. Revenues and expenses associated with market price risk management
contracts are amortized over the terms of such contracts.
At December 31, 2000, PECO's retail and wholesale activities included
short-term and long-term commitments, which are carried at the lower of cost or
market, to purchase and sell energy and energy-related products in the retail
and wholesale markets with the intent and ability to deliver or take delivery.
Revenue and expense associated with energy commitments are reported at the time
the underlying physical transaction affects earnings.
Hedge Accounting
Hedge accounting is applied only if the derivative reduces the risk of
the underlying hedged item and is designated at inception as a hedge, with
respect to the hedged item. If a derivative instrument ceased to meet the
criteria for deferral, any gains or losses are recognized in income.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," to
establish accounting and reporting standards for derivatives. The new standard
requires recognizing all derivatives as either assets or liabilities on the
balance sheet at their fair value and specifies the accounting for changes in
fair value depending upon the intended use of the forward contracts, including
options,derivative. In June 1999, the
FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the purchaseEffective Date of FASB Statement No. 133," which
delayed the effective date for SFAS No. 133 until fiscal years beginning after
June 15, 2000. The effect of adopting SFAS No. 133 in the first quarter of 2001
will result in a cumulative after-tax increase in net income of $17 million and
saleother comprehensive income of energy for the years 2000 through 2007,
was approximately $(70)$21 million. The estimated fair valueadoption will also impact the
assets and liabilities recorded on the Consolidated Balance Sheets of PECO and
may result in future earnings volatility. See Note 22 - Subsequent Events -
Restructuring. The determination of the impact of SFAS No. 133 is based on
the
estimated net settlement valuecurrent interpretations of SFAS No. 133, including interpretations of the
Derivatives Implementation Group of the FASB, related to the treatment of
electricity capacity contracts. If final guidance, when issued, changes the
treatment of electricity capacity contracts, derivedthe effects of the implementation
of SFAS No. 133 may differ from forward price
curvesthe amounts disclosed above.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and market quotes, discountedServicing of Financial Assets and Extinguishments of Liabilities,
a Replacement of FASB Statement No, 125." This new standard revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries over most
of the provisions of SFAS No. 125 without reconsideration. SFAS No. 140 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. SFAS No. 140 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001 and should be applied prospectively. At December
31, 2000, PECO did not anticipate entering into any transactions that would be
subject to the provisions of SFAS No. 140 when it becomes effective.
60
Reclassifications
Certain prior year amounts have been reclassified for comparative
purposes. These reclassifications had no effect on net income.
2. Merger
On October 20, 2000, Exelon became the parent corporation for each of
PECO and Commonwealth Edison Company (ComEd) as a result of the completion of
the transactions contemplated by an Agreement and Plan of Exchange and Merger,
as amended (Merger Agreement), among PECO, Unicom Corporation (Unicom) and
Exelon. Pursuant to the Merger Agreement, (a) each share of outstanding common
stock of PECO was exchanged for one share of common stock of Exelon (Share
Exchange) and (b) Unicom merged with and into Exelon (Merger and together with
the Share Exchange, Merger Transaction). In the Merger Transaction, each share
of the outstanding common stock of Unicom was converted into 0.875 shares of
common stock of Exelon plus $3.00 in cash. Also pursuant to the Merger
Agreement, PECO and Unicom repurchased approximately $1.5 billion of common
stock prior to the closing of the Merger Transaction, with Unicom repurchasing
approximately $1.0 billion of its common stock, and PECO repurchasing
approximately $500 million of its common stock. As a result of the Share
Exchange, Exelon became the owner of all of the common stock of PECO. As a
result of the Merger, Unicom ceased to exist and its subsidiaries, including
ComEd, became subsidiaries of Exelon.
PECO's merger-related costs charged to expense in 2000 were $248
million consisting of $132 million of direct incremental costs and $116 million
for employee costs. Direct incremental costs represent expenses directly
associated with completing the Merger Transaction, including professional fees,
regulatory approval and settlement costs, and settlement of compensation
arrangements. Employee costs represent estimated severance payments and pension
and postretirement benefits provided under Exelon's Merger Separation Plan (MSP)
for eligible employees who are expected to be involuntarily terminated before
October 2002 due to integration activities of the merged companies.
Approximately 642 positions have been identified to be eliminated as a
result of the Merger Transaction. PECO anticipates that $116 million of employee
costs will be funded from its pension and postretirement benefit plans.
3. Acquisitions
Sithe Energies, Inc. Acquisition
On December 18, 2000, PECO acquired 49.9% of the outstanding common
stock of Sithe Energies, Inc. (Sithe) through an intercompany transaction with
Exelon for $696 million in cash and $8 million of acquisition costs. The
transaction includes an option to purchase the remaining common stock
outstanding exercisable between December 2002 and December 2005, at a 10% rate. A 10% increaseprice to
be determined based on prevailing market conditions. See Note 20 - Related-Party
Transactions.
Sithe is an independent power generator in North America utilizing
primarily fossil and hydro generation. The purchase involves approximately
10,000 megawatts (MW) of generation consisting of 3,800 MW of existing merchant
generation, 2,500 MW under construction, and another 3,700 MW of generation in
various stages of development, as well as Sithe's domestic marketing and
development businesses. The generation assets are located primarily in
Massachusetts and New York, but also include plants in Pennsylvania, California,
Colorado and Idaho, as well as Canada and Mexico.
Exelon Infrastructure Services Acquisitions
In 2000, EIS, an unregulated majority owned subsidiary of PECO,
acquired the forwardstock or assets of seven utility service contracting companies for
an aggregate purchase price of electricity would decreaseapproximately $245 million, net of cash acquired
of $9 million, including EIS common stock valued at $14 million. The
acquisitions
61
were accounted for using the December 31, 1999 fair valuepurchase method of accounting. The initial estimate
of the forward energy contracts for the years 2000- 2007 by approximately $120
million,excess of which approximately $65 million is for contracts for the period
2000-2002. Likewise, a 10% decrease would increasepurchase price over the fair value of net assets acquired
(goodwill) was approximately $216 million.
The allocation of purchase price to the fair value of assets acquired
and liabilities assumed in these acquisitions is as follows:
Current Assets (net of cash acquired) $ 63
Property, Plant and Equipment 17
Goodwill 216
Current Liabilities (51)
-----
Total $ 245
=====
Goodwill associated with these acquisitions is being amortized over 20
years.
At December 31, 2000 and 1999, Current Assets includes $70 million and
$48 million, respectively, of Costs and Earnings in Excess of Billings on
uncompleted contracts and Current Liabilities includes $23 million and $9
million, respectively, of Billings and Earnings in Excess of Costs on
uncompleted contracts, related to EIS.
AmerGen Energy Company, LLC
In August 2000, AmerGen completed the purchase of Oyster Creek Nuclear
Generating Facility (Oyster Creek) from GPU, Inc. (GPU) for $10 million. Under
the terms of the purchase agreement, GPU agreed to fund outage costs not to
exceed $89 million, including the cost of fuel, for a refueling outage that
occurred in 2000. AmerGen will repay these costs to GPU in nine equal annual
installments beginning in August 2001. In addition, AmerGen assumed full
responsibility for the ultimate decommissioning of Oyster Creek. At the closing
of the sale, GPU provided funding for the decommissioning trust of $440 million.
In conjunction with this acquisition, AmerGen has received a fully funded
decommissioning trust fund which has been computed assuming the anticipated
costs to appropriately decommission Oyster Creek discounted to net present value
using the NRC's mandated rate of 2%. AmerGen believes that the amount of the
trust fund and investment earnings thereon will be sufficient to meet its
decommissioning obligation. GPU is purchasing the electricity generated by
Oyster Creek pursuant to a three-year power purchase agreement.
4. Accounting Change
During the fourth quarter of 2000, as a result of the synchronization
of accounting policies with Unicom in connection with the Merger Transaction,
PECO changed its method of accounting for nuclear outage costs to record such
costs as incurred. Previously, PECO accrued these costs over the operating
cycle. As a result of the change in accounting method for nuclear outage costs,
PECO recorded income of $24 million, net of income taxes of $16 million. The
change is reported as a cumulative effect of a change in accounting principle on
PECO's Consolidated Statements of Income as of December 31, 2000, representing
the balance of the nuclear outage cost reserve at January 1, 2000. Exclusive of
the cumulative effect of a change in accounting principle, the change in
accounting method for nuclear outage costs did not have a material impact on
PECO's financial position, results of operations or cash flows in 2000. On a pro
forma basis, PECO reported net income for 1999 and 1998 would have been
decreased by $6 million and increased by $11 million, respectively.
5. Regulatory Issues
In addition to retail competition for generation services, PECO's 1998
settlement of its restructuring case mandated by the Competition Act required
PECO to provide generation services to customers who do not or cannot choose an
alternate supplier through December 31, 2010 and established caps on generation
and distribution rates. The settlement also authorized PECO to recover $5.3
billion of stranded costs and to securitize a portion of its stranded cost
recovery.
62
Customer Choice
The PUC's Final Restructuring Order provided for the phase-in of
customer choice of electric generation supplier (EGS) for all customers:
one-third of the peak load of each customer class on January 1, 1999; one-third
on January 2, 1999; and the remaining one-third on January 1, 2000. The Final
Restructuring Order also established market share thresholds to ensure that a
minimum number of residential and commercial customers choose an EGS or a PECO
affiliate. If less than 35% and 50% of residential and commercial customers have
chosen an EGS, including residential customers assigned to an EGS as a provider
of last resort default supplier, by January 1, 2001 and January 1, 2003,
respectively, the number of customers sufficient to meet the necessary threshold
levels shall be randomly selected and assigned to an EGS through a
PUC-determined process. On January 1, 2001, the 35% threshold was met for all
three customer classes as a result of agreements assigning customers to New
Power Company and Green Mountain as providers of last resort default service. At
December 31, 2000, approximately 18% of PECO's residential load, 46% of its
commercial load and 42% of its industrial load were purchasing generation from
an alternative generation supplier.
Rate Reductions and Caps
Under the Final Restructuring Order, retail electric rates were capped
at year-end 1996 levels (system-wide average of 9.96 cents/kilowatt-hour (kWh))
through June 2005. The Final Restructuring Order required PECO to reduce its
retail electric rates by 8% from the 1996 system-wide average rate on January 1,
1999. This rate reduction decreased to 6% on January 1, 2000 until January 1,
2001. The transmission and distribution rate component was capped at a
system-wide average rate of 2.98 cents/kWh through June 30, 2005. Additionally,
generation rate caps, defined as the sum of the applicable transition charge and
energy and capacity charge, will remain in effect through 2010.
On March 16, 2000, the PUC issued an order authorizing PECO to
securitize up to an additional $1 billion of its authorized stranded costs
recovery. In accordance with the terms of that order, PECO will provide its
retail customers with rate reductions in the total amount of $60 million
beginning on January 1, 2001. This rate reduction will be effective for calendar
year 2001 only.
Under a comprehensive settlement agreement in connection with achieving
regulatory approval of the Merger Transaction, PECO agreed to $200 million in
rate reductions for all customers in Pennsylvania over the period January 1,
2002 through 2005 and extended the rate caps on PECO's retail electric
distribution charges through December 31, 2006.
6. Supplemental Financial Information
Supplemental Income Statement Information
Taxes Other Than Income
For the Years Ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
Gross receipts $144 $155 $156
Real estate 45 72 51
Payroll 27 28 30
Other 21 7 43
------ ------ ------
Total $237 $262 $280
====== ====== ======
63
Other, Net
For the years ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
Interest income $ 50 $ 52 $ 26
Gain (loss) on disposition of assets, net (20) (1) (5)
Settlement of power purchase agreement 6 -- 14
AFUDC 2 4 4
Other 3 4 (38)
---- ---- ----
Total $ 41 $ 59 $ 1
==== ==== ====
Supplemental Cash Flow Information
For the years ended December 31,
2000 1999 1998
---- ---- ----
Cash paid during the year:
Interest (net of amount capitalized) $431 $350 $385
Income taxes (net of refunds) $261 $304 $347
Noncash investing and financing:
Investment in Sithe $696 -- --
Issuance of EIS stock $ 14 $ 11 --
Capital lease obligations incurred -- -- $ 38
Depreciation and amortization:
Property, plant and equipment $229 $207 $190
Nuclear fuel 112 104 62
Regulatory assets 57 -- 424
Decommissioning 29 29 29
Goodwill 10 1 --
Leased property -- 17 60
---- ---- ----
$437 $358 $765
==== ==== ====
Supplemental Balance Sheet Information
Investments
December 31,
2000 1999
---- ----
Investment in Sithe $704 $ --
Energy services and other ventures 64 57
Investment in AmerGen 44 40
Communications ventures 35 24
Marketable securities -- 9
------- --------
Total $847 $130
======= ========
64
Regulatory Assets
December 31,
2000 1999
---- ----
Competitive transition charge $ 5,218 $ 5,275
Recoverable deferred income taxes (see Note 12) 661 638
Loss on reacquired debt 64 71
Compensated absences 5 4
Non-pension postretirement benefits 78 84
------- -------
Long-Term Regulatory Assets 6,026 6,072
Deferred energy costs (current asset) 86 7
------- -------
Total $ 6,112 $ 6,079
======= =======
At December 31, 2000 and 1999, the Competitive Transition Charge (CTC)
includes the unamortized balance of $4.8 billion and $3.9 billion, respectively,
of Intangible Transition Property (ITP) sold to PECO Energy Transition Trust
(PETT) in connection with the securitization of PECO's stranded cost recovery.
ITP represents the irrevocable right of PECO or its assignee to collect
non-bypassable charges from customers to recover stranded costs. During 2000,
PECO securitized an additional $1 billion of its authorized stranded cost
recovery, and accordingly converted an additional $1 billion of CTC to ITP.
7. Accounts Receivable
Accounts receivable -- Customer at December 31, 2000 and 1999 included
unbilled operating revenues of $180 million and $153 million, respectively. The
allowance for uncollectible accounts at December 31, 2000 and 1999 was $131
million and $112 million, respectively.
Accounts receivable -- Other at December 31, 2000 and 1999 included
notes receivable from a communications investment in the amount of $153 million.
The average interest rate on the notes receivable was 6.22% and 5.66% at
December 31, 2000 and 1999, respectively. Interest income related to the notes
receivable was $10 million and $6 million in 2000 and 1999, respectively.
PECO is party to an agreement with a financial institution under which
it can sell or finance with limited recourse an undivided interest, adjusted
daily, in up to $225 million of designated accounts receivable until November
2005. At December 31, 2000, PECO had sold a $225 million interest in accounts
receivable, consisting of a $185 million interest in accounts receivable which
PECO accounted for as a sale under SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," and a $40
million interest in special-agreement accounts receivable which were accounted
for as a long-term note payable. See Note 11 -- Long-Term Debt. PECO retains the
servicing responsibility for these receivables. The agreement requires PECO to
maintain the $225 million interest, which, if not met, requires PECO to deposit
cash in order to satisfy such requirements. At December 31, 2000 and 1999, PECO
met this requirement and was not required to make any cash deposits.
65
8. Property, Plant and Equipment
A summary of property, plant and equipment by classification as of
December 31, 2000 and 1999 is as follows:
2000 1999
---- ----
Electric -- Transmission & Distribution $3,836 $3,953
Electric -- Generation 2,086 1,942
Gas 1,181 1,176
Common 408 408
Nuclear Fuel 1,664 1,551
Construction Work in Progress 498 232
Leased Property 2 2
Other Property, Plant and Equipment 197 152
------ ------
Total Property, Plant and Equipment 9,872 9,416
Less Accumulated Depreciation (including accumulated
amortization of nuclear fuel of $1,445 and $1,281 in
2000 and 1999, respectively) 4,714 4,412
------ ------
Property, Plant and Equipment, net $5,158 $5,004
====== ======
9. Jointly Owned Electric Utility Plant
PECO's ownership interests in jointly owned electric utility plant at December
31, 2000, were as follows:
Production Plants Transmission
Peach Bottom Salem Keystone Conemaugh and Other Plant
Operator PECO PSEG Sithe Sithe Various Co.
- -------- ---- ---- ----- ----- -----------
Participating interest 46.25% 42.59% 20.99% 20.72% 21% to 43%
PECO's share:
Utility plant $378 $ 3 $120 $190 $ 80
Accumulated depreciation $214 $ 3 $ 94 $118 $ 31
Construction work in progress $ 41 $ 41 $ 4 $ 10 $ --
PECO's undivided ownership interests are financed with PECO funds and,
when placed in service, all operations are accounted for as if such
participating interests were wholly owned facilities.
On September 30, 1999, PECO reached an agreement to purchase an
additional 7.51% ownership interest in Peach Bottom Atomic Power Station (Peach
Bottom) from Atlantic City Electric Company and Delmarva Power & Light Company
for $18 million. On December 24, 2000, PECO completed the purchase of Delmarva
Power & Light Company's 3.755% interest in Peach Bottom for $9 million. The
purchase of Atlantic City Electric Company's ownership interest is still pending
regulatory approval which is expected in 2001.
10. Notes Payable - Banks
2000 1999 1998
---- ---- ----
Average borrowings $186 $242 $209
Average interest rates, computed on daily basis 6.62% 5.62% 5.83%
Maximum borrowings outstanding $500 $728 $525
Average interest rates, at December 31 7.18% 6.80% 6.17%
66
PECO, along with Exelon and ComEd, entered into a $2 billion unsecured
revolving credit facility on December 20, 2000 with a group of banks. PECO has
an $800 million sublimit under the 364-day facility and expects to use the
credit facility principally to support its $800 million commercial paper
program. At December 31, 2000 and 1999, the amount of commercial paper
outstanding was $161 million and $142 million, respectively. At December 31,
1999, PECO had $21 million of borrowings on lines of credit.
11. Long-Term Debt
Maturity At December 31,
Rates Date 2000 1999
----- ---- ---- ----
PETT Transition Bonds Series 1999-A:
Fixed rates 5.48%-6.13% 2001-2008(a) $2,706 $2,826
Floating rates 6.955%-7.03% 2004-2007(a) 1,132 1,132
PETT Transition Bonds Series 2000-A: 7.18%-7.65% 2001-2009(a) 1,000 --
First and Refunding Mortgage Bonds (b) (c):
Fixed rates 5.625%-10.25% 2001-2024 1,148 1,538
Floating rates 4.28% 2011-2015 154 154
Notes payable 7.25% 2003-2004 14 38
Pollution control notes:
Floating rates 4.28% 2012-2034 369 369
Notes payable - accounts
receivable agreement 6.66% 2005 40 49
-------- --------
Total Long-Term Debt (d) 6,563 6,106
Unamortized debt discount and premium, net (8) (9)
Due within one year (553) (128)
--------- --------
Long-Term Debt $6,002 $5,969
========= ========
(a) The maturity date represents the expected final payment date which is the
date when all principal and interest of the related class of transition bonds is
expected to be paid in full in accordance with the expected amortization
schedule for the applicable class. The date when all principal and interest must
be paid in full for the PETT Series 1999-A Transition Bonds and 2000-A
Transition Bonds are 2003 through 2009 and 2003 through 2010, respectively. The
current portion of transition bonds is based upon the expected maturity date.
(b) Utility plant of PECO is subject to the lien of its mortgage indenture.
(c) Includes first mortgage bonds issued under the PECO mortgage indenture
securing pollution control notes.
(d) Long-term debt maturities in the period 2001 through 2005 and thereafter are
as follows:
2001 $ 553
2002 639
2003 920
2004 518
2005 617
Thereafter 3,316
--------
Total $6,563
======
67
In 1999, PECO entered into treasury forwards associated with the
anticipated issuance of Series 2000-A Transition Bonds. On May 2, 2000, these
instruments were settled with net proceeds to the counterparties of $13 million
which has been deferred and is being amortized over the life of the Series
2000-A Transition Bonds as an increase to interest expense consistent with
PECO's hedge accounting policy. In 1998, PECO entered into treasury forwards and
forward starting interest rate swaps to manage interest rate exposure associated
with the anticipated issuance of Series 1999-A Transition Bonds. On March 18,
1999, these instruments were settled with net proceeds to PECO of $80 million
which were deferred and are being amortized over the life of the Series 1999-A
Transition Bonds as a reduction of interest expense consistent with PECO's hedge
accounting policy. At December 31, 2000 and 1999, the unamortized net gain was
$51 million and $71 million, respectively.
In 2000, 1999 and 1998, PECO incurred extraordinary charges aggregating
$6 million ($4 million, net of tax), $62 million ($37 million, net of tax) and
$34 million ($20 million, net of tax), respectively, consisting of prepayment
premiums and the write-off of unamortized deferred financing costs associated
with the early retirement of debt.
12. Income Taxes
Income tax expense (benefit) is comprised of the following components:
For the Year Ended December 31,
2000 1999 1998
- --------------------------------------------------------------------------------------
Included in operations:
Federal
Current $ 181 $ 293 $ 358
Deferred 91 6 (109)
Investment tax credit, net (15) (14) (18)
State
Current 2 72 95
Deferred 11 1 (6)
-------- -------- ---------
$ 270 $ 358 $ 320
======== ======== =========
Included in extraordinary item:
Federal
Current $ (2) $ (19) $ (11)
State
Current -- (6) (3)
-------- -------- ---------
$ (2) $ (25) $ (14)
======== ======== =========
Included in cumulative effect of a change in accounting principle:
Federal
Deferred $ 13 $ -- $ --
State
Deferred 3 -- --
-------- -------- ---------
$ 16 $ -- $ --
======== ======== =========
68
The total income tax provisions, excluding extraordinary items and cumulative
effect of a change in accounting principle, differed from amounts computed by
applying the federal statutory tax rate to pretax income as follows:
For the Year Ended December 31,
2000 1999 1998
- -------------------------------------------------------------------------------------
Income Before Extraordinary Items and
Cumulative Effect of a Change in
Accounting Principle $ 487 $ 619 $ 533
Income Taxes 270 358 320
----- ----- -----
Income Before Income Taxes,
Extraordinary Items and Cumulative
Effect of a Change in Accounting
Principle $ 757 $ 977 $ 853
===== ===== =====
Income taxes on above at Federal
statutory rate of 35% $ 265 $ 342 $ 299
Increase (decrease) due to:
Property basis differences 5 (8) (10)
State income taxes, net of Federal income
tax benefit 9 46 58
Amortization of investment tax credit (15) (14) (18)
Prior period income taxes 4 (7) (13)
Other, net 2 (1) 4
------ ------- ------
Income Taxes $ 270 $ 358 $ 320
===== ===== =====
Effective income tax rate 35.7% 36.6% 37.5%
===== ===== =====
Provisions for deferred income taxes consist of the tax effects of the following
temporary differences:
For the Year Ended December 31,
2000 1999 1998
- -------------------------------------------------------------------------------------
Depreciation and amortization $ 135 $ 23 $ 140
Deferred generation charges recoverable (23) -- (175)
Transition bond hedge 29 (29) --
Deferred energy costs 10 (9) (2)
Retirement and separation programs (39) 7 (51)
Merger cost (25) -- --
Alternative minimum tax credits (3) -- (42)
Other 18 15 15
------ ------ -------
Subtotal 102 7 (115)
Cumulative effect of a change in
accounting principle 16 -- --
------ ------- --------
Total $118 $ 7 $(115)
====== ======= ========
The tax effect of temporary differences giving rise to PECO's net deferred tax
liability as of December 31, 2000 and 1999 is as follows:
2000 1999
---- ----
Nature of temporary difference:
Plant basis difference $2,839 $2,703
Deferred investment tax credit 271 286
Deferred debt refinancing costs 34 37
Deferred pension and postretirement obligations (187) (148)
Other, net (127) (167)
------ ------
Deferred income taxes (net) on the balance sheet $2,830 $2,711
====== ======
69
In accordance with SFAS No. 71, PECO has recorded a recoverable
deferred income tax asset of $661 million and $638 million at December 31, 2000
and 1999, respectively. These balances are applicable only to regulated assets,
as a result of the discontinuance of SFAS No. 71 for PECO's electric generation
operations. These recoverable deferred income taxes include the deferred tax
effects associated principally with liberalized depreciation accounted for in
accordance with the ratemaking policies of the PUC, as well as the revenue
impacts thereon, and assume continued recovery of these costs in future rates.
The Internal Revenue Service is currently auditing PECO's Federal tax
returns for 1996 through 1999. The current audits are not expected to have a
material adverse effect on the financial condition or results of operations of
PECO.
13. Retirement Benefits
PECO and its subsidiaries have a defined benefit pension plan and
postretirement benefit plans applicable to essentially all employees. Benefits
under these plans reflect each employee's compensation, years of service and age
at retirement. Funding is based upon actuarially determined contributions that
take into account the amount deductible for income tax purposes and the minimum
contribution required under the Employee Retirement Income Security Act of 1974,
as amended. The following provides a reconciliation of benefit obligations, plan
assets and funded status of the plans.
Pension Benefits Other Postretirement Benefits
2000 1999 2000 1999
------- ------- ------- -------
Change in Benefit Obligation:
Net benefit obligation at beginning of year $ 2,054 $ 2,310 $ 798 $ 848
Service cost 24 29 18 19
Interest cost 158 154 66 57
Plan amendments -- 25 -- --
Actuarial (gain)loss 140 (300) 69 (77)
Curtailments/Settlements (74) -- 4 --
Special termination benefits 96 -- 11 --
Gross benefits paid (168) (164) (44) (49)
------- ------- ------- -------
Net benefit obligation at end of year $ 2,230 $ 2,054 $ 922 $ 798
======= ======= ======= =======
Change in Plan Assets:
Fair value of plan assets at beginning of year $ 2,982 $ 2,745 $ 244 $ 223
Actual return on plan assets 190 400 8 20
Employer contributions 1 1 54 50
Plan participants' contributions -- -- 1 --
Gross benefits paid (168) (164) (44) (49)
------- ------- ------- -------
Fair value of plan assets at end of year $ 3,005 $ 2,982 $ 263 $ 244
======= ======= ======= =======
Funded status at end of year $ 775 $ 928 $ (659) $ (554)
Unrecognized net actuarial (gain)loss (960) (1,129) 36 (43)
Unrecognized prior service cost 77 85 -- --
Unrecognized net transition obligation (asset) (21) (26) 122 154
------- ------- ------- -------
Net amount recognized at end of year $ (129) $ (142) $ (501) $ (443)
======= ======= ======= =======
Amounts recognized in the consolidated balance sheets consist of:
Prepaid benefit cost $ 152 $ 71 4 N/A
Accrued benefit cost (281) (213) (505) (443)
------- ------- ------- -------
Net amount recognized at end of year $ (129) $ (142) $ (501) $ (443)
======= ======= ======= =======
70
Pension Benefits Other Postretirement Benefits
-------------------- ----------------------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Weighted-average assumptions as of December 31,
Discount rate 7.60% 8.00% 7.00% 7.60% 8.00% 7.00%
Expected return on plan assets 9.50% 9.50% 9.50% 8.00% 8.00% 8.00%
Rate of compensation increase 5.00% 5.00% 5.00% 4.30% 5.00% 5.00%
Health care cost trend on covered charges N/A N/A N/A 7.00% 8.00% 6.50%
decreasing decreasing decreasing
to ultimate to ultimate to ultimate
trend of 5.0% trend of 5.0% trend of 5.0%
in 2005 in 2006 in 2002
Pension Benefits Other Postretirement Benefits
-------------------- ----------------------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Components of net periodic benefit
cost (benefit):
Service cost $25 $29 $30 $18 $19 $18
Interest cost 158 154 154 66 57 54
Expected return on assets (238) (222) (210) (18) (16) (13)
Amortization of:
Transition obligation (asset) (5) (4) (5) 12 12 15
Prior service cost 7 5 6 -- -- --
Actuarial (gain)loss (26) (8) (7) -- -- --
Curtailment charge (credit) (12) -- (62) 24 -- 53
Settlement charge (credit) (16) -- (13) -- -- --
----- ----- ----- ----- ----- -----
Net periodic benefit cost (benefit) $(107) $(46) $(107) $102 $72 $127
===== ===== ===== ===== ===== =====
Special termination benefit charge $96 $ -- $114 $11 $ -- $30
===== ===== ===== ===== ===== =====
Sensitivity of retiree welfare results:
Effect of a one percentage point increase in assumed health care cost trend
on total service and interest cost components $ 11
on postretirement benefit obligation $ 102
Effect of a one percentage point decrease in assumed health care cost trend
on total service and interest cost components $ (9)
on postretirement benefit obligation $ (85)
Prior service cost is amortized on a straight line basis over the
average remaining service period of employees expected to receive benefits under
the plans.
During 2000, costs were recognized for special termination benefits in
connection with the enhanced retirement and severance benefits provided to
employees expected to be terminated as a result of the Merger Transaction.
Special termination benefits of $96 million represent PECO's accelerated
separation and enhanced benefits under the MSP. In addition, PECO recognized
settlement and curtailment credits of $28 million in connection with the MSP.
During 1999, all retirees and beneficiaries who began receiving benefit payments
prior to January 1, 1994 were granted a cost-of-living adjustment resulting in a
$25 million increase in the projected benefit obligation. During 1998, costs
were recognized for special termination benefits in connection with the
retirement incentives and enhanced severance benefits provided under the Early
Retirement and Separation Program.
PECO provides certain health care and life insurance benefits for
retired employees. PECO employees become eligible for these benefits if they
retire from PECO with ten years of service. Certain benefits for active
employees are provided by several insurance companies whose premiums are based
upon the benefits paid during the year.
PECO sponsors savings plans for the majority of its employees. The
plans allow employees to contribute a portion of their pretax income in
accordance with specified guidelines. PECO matches a percentage of the employee
contribution up to certain limits. The cost of PECO's matching contribution to
the savings plans totaled $11 million, $7 million, and $7 million in 2000, 1999,
and 1998, respectively.
71
14. Preferred and Preference Stock
At December 31, 2000 and 1999, Series Preference Stock, no par value,
consisted of 100,000,000 shares authorized, of which no shares were outstanding.
At December 31, 2000 and 1999, cumulative Preferred Stock, no par value,
consisted of 15,000,000 shares authorized and the amounts set forth below:
At December 31,
--------------------------------------------
Current Shares Outstanding Amount
Redemption ------------------ -------
Price (a) 2000 1999 2000 1999
--------- ---- ---- ---- ----
Series (without mandatory redemption)
$4.68 $104.00 150,000 150,000 $ 15 $ 15
$4.40 $112.50 274,720 274,720 27 27
$4.30 $102.00 150,000 150,000 15 15
$3.80 $106.00 300,000 300,000 30 30
$7.48 (b) 500,000 500,000 50 50
--------- --------- --- ---
1,374,720 1,374,720 137 137
Series (with mandatory redemption)
$6.12 (c) 370,800 556,200 37 56
--------- --------- --- ---
Total preferred stock 1,745,520 1,930,920 $174 $193
========= ========= === ===
(a) Redeemable, at the option of PECO, at the indicated dollar amounts per
share, plus accrued dividends.
(b) None of the shares of this series are subject to redemption prior to April
1, 2003.
(c) PECO exercised its right to double (to 370,800 shares, from the original
185,400 share requirement) the first annual sinking fund requirement for the
$6.12 Series on August 2, 1999. PECO made the annual sinking fund payment of
$18.5 million on August 2, 2000. Future annual sinking fund requirements in 2001
and 2002 are $18.5 million.
15. Company-Obligated Mandatorily Redeemable Preferred Securities of a
Partnership
At December 31, 2000 and 1999, PECO Energy Capital, L.P. (Partnership),
a Delaware limited partnership of which a wholly owned subsidiary of PECO is the
sole general partner, had outstanding Company-Obligated Mandatorily Redeemable
Preferred Securities of a Partnership (COMRPS) as set forth in the following
table:
At December 31,
---------------------------------------
Mandatory Trust Receipts Outstanding Amount
Redemption Distribution Liquidation -------------------------- -------
Series Date Rate Value 2000 1999 2000 1999
- ------ ---- ---- ----- ---- ---- ---- ----
PECO Energy
Capital Trust II 2037 8.00% $ 25 2,000,000 2,000,000 $ 50 $ 50
PECO Energy
Capital Trust III 2028 7.38% $1,000 78,105 78,105 78 78
--------- --------- ----- ------
Total 2,078,105 2,078,105 $ 128 $ 128
========= ========= ===== ======
The securities issued by the PECO trusts represent COMRPS having a
distribution rate and liquidation value equivalent to the trust securities. The
COMRPS are the sole assets of these trusts and represent limited partnership
interests of the Partnership. Each holder of a trust's securities is entitled to
withdraw the corresponding number of COMRPS from the trust in exchange for the
trust securities so held. Each series of COMRPS is supported by PECO's
deferrable interest subordinated debentures, held by the Partnership, which bear
interest at rates equal to the distribution rates on the related series of
COMRPS.
The interest expense on the debentures is included in Other Income and
Deductions in PECO's Consolidated Statements of Income and is deductible for tax
purposes.
72
16. Common Stock
At December 31, 2000 and 1999, common stock without par value consisted
of 500,000,000 shares authorized and 170,478,507 and 181,271,692 shares
outstanding, respectively.
Stock Repurchase
In January 2000, in connection with the Merger Agreement, PECO entered
into a forward purchase agreement to purchase $500 million of its common stock
from time to time. Settlement of this forward purchase agreement was, at PECO's
election, on a physical, net share or net cash basis. In May 2000, PECO utilized
the proceeds from the securitization of a portion of its stranded cost recovery
to physically settle this agreement, resulting in the repurchase of 12 million
shares of common stock for $496 million. In connection with the settlement of
this agreement, PECO received $1 million in accumulated dividends on the
repurchased shares and paid $6 million of interest.
During 1997, PECO's Board of Directors authorized the repurchase of up
to 25 million shares of its common stock from time to time through open-market,
privately negotiated and/or other types of transactions in conformity with the
rules of the SEC. Pursuant to these authorizations, PECO entered into forward
purchase agreements to be settled from time to time, at PECO's election, on a
physical, net share or net cash basis. PECO utilized the proceeds from the
securitization of a portion of its stranded cost recovery in the first quarter
of 1999 to physically settle these agreements, resulting in the purchase of 21
million shares of common stock for $696 million. In connection with the
settlement of these agreements, PECO received $18 million in accumulated
dividends on the repurchased shares and paid $6 million of interest.
17. Financial Instruments
Fair values of financial instruments, including liabilities, are
estimated based on quoted market prices for the same or similar issues. The
carrying amounts and fair values of PECO's financial instruments as of December
31, 2000 and 1999 were as follows:
2000 1999
----------------------- ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
Non-derivatives:
Assets
Cash and cash equivalents $ 303 $ 303 $ 228 $ 228
Trust accounts for decommissioning
nuclear plants $ 440 $ 440 $ 408 $ 408
Marketable securities -- -- $ 9 $ 9
Liabilities
Long-term debt (including amounts due
within one year) $6,555 $6,797 $6,097 $5,822
COMRPS $ 128 $ 122 $ 128 $ 117
Mandatorily Redeemable Preferred Stock $37 $30 $56 $43
Derivatives:
Interest rate swaps -- $(19) -- $36
Forward interest rate swaps -- $ 40 -- $66
Financial instruments which potentially subject PECO to concentrations
of credit risk consist principally of cash equivalents and customer accounts
receivable. PECO places its cash equivalents with high-credit quality financial
institutions. Generally, such investments are in excess of the Federal Deposit
73
Insurance Corporation limit. Concentrations of credit risk with respect to
customer accounts receivable are limited due to PECO's large number of customers
and their dispersion across many industries.
The fair value of derivatives generally reflects the estimated amounts
that PECO would receive or pay to terminate the contracts at the reporting date,
thereby taking into account the current unrealized gains or losses of open
contracts. Dealer quotes are available for all of PECO's derivatives.
PECO has entered into interest rate swaps relating to two classes of
floating rate transition bonds in the aggregate notional amount of $1.1 billion
with an average interest rate of 6.65%. PECO has also entered into forward
starting interest rate swaps relating to two classes of floating rate transition
bonds in the aggregate notional amount of $1.1 billion with an average interest
rate of 6.01%. In anticipation of the refinancing of a portion of its two
variable rate series of transition bonds in the first quarter of 2001, PECO
settled $318 million of the forward starting interest rate swaps in December
2000. The notional amount of derivatives do not represent amounts that are
exchanged by $120 million. Notwithstandingthe parties and, thus, are not a measure of PECO's exposure. The
amounts exchanged are calculated on the basis of the notional or contract
amounts, as well as on the other terms of the derivatives, which relate to
interest rates and the volatility of these price risk management
activities,rates.
PECO would be exposed to credit-related losses in the event of
non-performance by the counterparties that issued the derivative instruments.
PECO does not expect that counterparties to the interest rate swaps will fail to
meet these obligations, given their high credit ratings. The credit exposure of
derivatives contracts is represented by the fair value of contracts at the
reporting date. PECO's interest rate swaps are documented under master
agreements. Among other things, these agreements provide for a maximum credit
exposure for both parties. Payments are required by the appropriate party when
the maximum limit is reached.
18. Commitments and Contingencies
Capital Commitments
PECO estimates that it will spend approximately $260 million for
capital expenditures and other investments in 2001.
Nuclear Insurance
The Price-Anderson Act limits the liability of nuclear reactor owners
for claims that could arise from a single incident. The current limit is $9.5
billion and is subject to change to account for the effects of inflation and
changes in the number of licensed reactors. Through its subsidiaries, PECO
carries the maximum available commercial insurance of $200 million and the
remaining $9.3 billion is provided through mandatory participation in a
financial protection pool. Under the Price-Anderson Act, all nuclear reactor
licensees can be assessed up to $89 million per reactor per incident, payable at
no more than $10 million per reactor per incident per year. This assessment is
subject to inflation and state premium taxes. In addition, the U.S. Congress
could impose revenue-raising measures on the nuclear industry to pay claims.
PECO carries property damage, decontamination and premature
decommissioning insurance for each station loss resulting from damage to its
nuclear plants. In the event of an unexpected lossaccident, insurance proceeds must first be
used for reactor stabilization and site decontamination. If the decision is made
to decommission the facility, a portion of generating capability or reduction in demandthe insurance proceeds will be
allocated to a fund, which PECO is required by the Nuclear Regulatory Commission
(NRC) to maintain, to provide for decommissioning the facility. PECO is unable
to predict the timing of the availability of insurance proceeds to PECO and the
amount of such proceeds which would be available. Under the terms of the various
insurance agreements, PECO could increase ComEd's exposurebe assessed up to market price risks and$20 million for losses
incurred at any plant insured by the insurance companies. PECO is self-insured
to the extent that any losses may exceed the amount of insurance maintained.
Such losses could have a material adverse effect on operating results.
F-13PECO's financial condition
and results of operations.
74
UEI has entered into gas sales contractsAdditionally, through its subsidiaries, PECO is a member of an industry
mutual insurance company that provides replacement power cost insurance in the
event of a major accidental outage at a nuclear station. The premium for this
coverage is subject to assessment for adverse loss experience. PECO's maximum
share of any assessment is $8 million per year.
In addition, PECO participates in the American Nuclear Insurers Master
Worker Program, which provides coverage for worker tort claims filed for bodily
injury caused by a nuclear energy accident. This program was modified, effective
January 1, 1998, to provide coverage to all workers whose "nuclear-related
employment" began on or after the commencement date of reactor operations. PECO
will not be liable for a retrospective assessment under this new policy.
However, in the event losses incurred under the small number of policies in the
old program exceed accumulated reserves, a maximum retroactive assessment of up
to $12 million could apply.
See Note 22 - Subsequent Events - Restructuring.
Nuclear Decommissioning and Spent Fuel Storage
PECO's current estimate of its nuclear facilities' decommissioning cost
is $1.7 billion. Decommissioning costs are hedged with gas supply
contracts at lower prices. UEI's margin per thermrecoverable through regulated rates.
Under rates in effect through December 31, 2000, PECO collected and expensed
approximately $29 million in 2000 from customers which was accounted for as a
component of gas delivered is not
significantly affected by the market price of gas. UEI has also entered into
electricity contracts for which the mark-to-marketdepreciation expense and accumulated depreciation. At December 31,
2000 and 1999, $412 million and $383 million, respectively, were included in
accumulated depreciation. In order to fund future decommissioning costs, at
December 31, 2000 and 1999, is not
material.
UNREGULATED OPERATIONS
Unicom Enterprises is engaged, through subsidiaries,PECO held $440 million and $408 million,
respectively, in energy service
activitiestrust accounts which are not subjectincluded as Investments in PECO's
Consolidated Balance Sheets and include both net unrealized and realized gains.
Net unrealized gains of $41 million and $45 million, respectively, were
recognized in accumulated depreciation in PECO's Consolidated Balance Sheets at
December 31, 2000 and 1999, respectively. Net realized gains of $10 million and
$14 million were also recognized in accumulated depreciation in PECO's
Consolidated Balance Sheets at December 31, 2000 and 1999, respectively. PECO
believes that the amounts being recovered from customers through regulated rates
and earnings on nuclear decommissioning trust funds will be sufficient to utility regulation by federal or state
agencies. Onefully
fund the unrecorded portion of these subsidiaries, UT Holdings, provides district cooling
and related services to offices and other buildings inits decommissioning obligation.
Under the central business
districtNuclear Waste Policy Act of 1982 (NWPA), the City and in other cities in North America, generally working
with local utilities. District cooling involves, in essence, the productionU.S. Department
of chilled water at one or more central locations and its circulation to
customers' buildings through a closed circuit of supply and return piping.
Such waterEnergy (DOE) is circulated through customers' premises primarily for air
conditioning. This process is used by customers in lieu of self-generated
cooling.
Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged
in providing energy services, including gas services, performance contracting,
distributed energy and energy management systems. Through an alliance with
AlliedSignal Power Systems, Inc., a subsidiary of AlliedSignal Inc., Unicom
Energy Services is an exclusive distributorresponsible for the Parallon 75(TM)
TurboGenerator system, which was developedselection and development of repositories
for, and the disposal of, spent nuclear fuel and high-level radioactive waste
(SNF). PECO, as required by AlliedSignalthe NWPA, signed a contract with the DOE (Standard
Contract) to provide customersfor disposal of SNF from their respective nuclear
generating stations. In accordance with on-site electricity production. Unicom Energy Services'
exclusive territory for distributing the Parallon 75(TM) system encompasses 12
Midwest states, Ontario, Canada and Puerto Rico.
Unicom Power Holdings, another subsidiary of Unicom Enterprises, is
developing certain generation and cogeneration projects.
Unicom Energy Inc. and Unicom Gas Services, LLC, also subsidiaries of Unicom
Enterprises, are currently engaged in providing retail gas services to
commercial and industrial customers in the Midwest region. Unicom Energy Inc.
also provides retail electric services as an unregulated retail energy
supplier.
Unicom Mechanical Services Inc., a subsidiary of Unicom Enterprises, engages
in the design, installation and servicing of heating, ventilation and air
conditioning facilities for commercial and industrial customers in the City
and surrounding area through subsidiaries conducting business as Midwest
Mechanical and V.A. Smith Company.
Construction Program. Unicom has approved capital expenditures for 2000 of
approximately $85 million for UT Holdings, primarily related to an expansion
of its Chicago district cooling facilitiesNWPA and the related distribution piping
and plants in other cities. AsStandard Contract, PECO
pays the DOE one mill ($.001) per kilowatt-hour of December 31, 1999, UT Holdings' purchase
commitments, principally related to construction, were approximately $27
million.
Unicom has approved capital expendituresnet nuclear generation for
2000 of approximately $15
million for Unicom Energy Services. As of December 31, 1999, Unicom Energy
Services had purchase commitments of approximately $24 million.
Unicom has approved capital expenditures for 2000 of approximately $221
million for Unicom Power Holdings. As of December 31, 1999, Unicom Power
Holdings had purchase commitments of approximately $78 million.
Unicom Power Holdings intends to purchase approximately 440 MW of combustion
turbine generators and auxiliary equipment. Such generators will either be
sold or placed into cogeneration or
F-14
other peaking applications. Unicom Power Holdings is evaluating the costs and
economics of such alternatives. Unicom Power Holdings anticipates that the
equipment purchases will cost approximately $165 million, of which
approximately $90 million has been incurred as of December 31, 1999. Unicom
Power Holdings may incur significant additional costs to site and install such
power generation equipment.
Capital Resources. Unicom expects to obtain funds to invest in its
unregulated subsidiaries principally from the fossil plant sale proceeds
received by Unicom Investment, although it may also obtain funds from
dividends received on its ComEd common stock and from borrowings. The
availability of ComEd's dividends to Unicom is dependent on ComEd's financial
performance and cash position, as well as legal restrictions on the payment of
dividends by public utilities. Other forms of financing by ComEd to Unicom or
the unregulated subsidiaries of Unicom, such as additional loans or additional
equity investments, which are not expected, would be subject to prior approval
by the ICC.
The fossil plant sale proceeds received by Unicom Investment, after the
payment of the demand note to ComEd, will be used to fund share repurchases
and to invest in new business opportunities. See "Changes in the Electric
Utility Industry" subcaption "Fossil Plant Sale" above, for additional
information.
Unicom Enterprises has an unused $400 million credit facility which will
expire December 15, 2000. The credit facility can be used by Unicom
Enterprises to finance investments in unregulated businesses and projects,
including UT Holdings and Unicom Energy Services, and for general corporate
purposes. The credit facility is guaranteed by Unicom and includes certain
covenants with respect to Unicom and Unicom Enterprises' operations. Interest
rates for borrowings under the credit facility are set at the time of a
borrowing and are based on either a prime interest rate or a floating rate
bank index plus a spread which varies with the credit rating of ComEd's
outstanding first mortgage bonds. See Note 13 of Notes to Financial Statements
for additional information regarding certain covenants with respect to Unicom
and Unicom Enterprises' operations.
In July 1998, Unicom Thermal issued a $120 million 7.38% unsecured
guaranteed senior Note due May 2012, the proceeds of which were used to
refinance existing debt. The Note is guaranteed by Unicom and includes certain
covenants with respect to Unicom and Unicom Thermal's operations.
In June 1999, Northwind Midway issued $12 million of 7.68% guaranteed senior
Notes due June 2023, the proceeds of which will be used primarily to finance
certain project construction costs. The Notes are guaranteed by Unicom and
include certain covenants with respect to Unicom and Northwind Midway's
operations.
On November 5, 1999, Duff & Phelps assigned an initial implied senior
unsecured debt rating of BBB- to Unicom, and placed the rating on "Rating
Watch-Up." S&P's current corporate credit rating for Unicom is BBB. On
September 23, 1999, in response to the announced Unicom and PECO merger
agreement, S&P placed Unicom on credit watch with positive implications, and
Moody's confirmed the first-time issuer rating of Baa3 it had assigned to
Unicom on September 15, 1999.
Regulation
ComEd and Indiana Company are subject to federal and state regulation in the
conduct of their respective businesses. Such regulation includes rates,
securities issuance, nuclear operations, environmental and other matters.
Particularly in the cases of nuclear operationsfuel long-term storage and environmental matters,
such regulation candisposal. This fee may be
adjusted prospectively in order to ensure full cost recovery. The NWPA and does affect operational and capital expenditures.
F-15
Rate Matters. See "Changes in the
Electric Utility Industry," subcaption
"The 1997 Act" above, for information regardingStandard Contract required the effectDOE to begin taking possession of the 1997 Act on
rate matters.
Nuclear Matters. Nuclear operations have been, and remain, an important
focus of ComEd. ComEd operates five nuclear plants--Braidwood, Byron, Dresden,
LaSalle and Quad Cities Stations, and is committed to safe, reliable and
efficient operation. See "Changes in the Electric Utility Industry,"
subcaption "Response to Regulatory Changes" above, for information regarding
ComEd's permanent cessation of nuclear generation operations at its Zion
Station.
On May 6, 1999, ComEd's LaSalle Station was officially removed from the
NRC's listing of plants that require increased regulatory scrutiny. LaSalle
Station had been on this list since January 1997. Concurrent with the LaSalle
Station action, the NRC announced the formal removal of the Quad Cities
Station from its list of plants with declining performance trends. Quad Cities
Station had been on the declining trend list since January 1998. With these
actions, all of ComEd's nuclear plants are now placed in the NRC's "routine
oversight" category. This represents the first time since 1990 that none of
ComEd'sSNF generated
by nuclear generating units are under special NRC oversight.by no later than January 1998. The NRC and representatives of ComEd's management have met, and will
continueDOE, however,
failed to meet periodically as part of the NRC's normal oversight process,
to discuss the overallthat deadline and its performance of the ComEd nuclear program.
Based on ComEd's most recent study, decommissioning costs are estimated to
be $5.7 billion in current-year (2000) dollars, including a contingency
allowance. This estimate includes $617 million of non-radiological costs,
which are included in ComEd's proposed rider for recovery, as discussed below.
ComEd's decommissioning cost expenditures at the end of the units' operating
lives are estimated to total approximately $13.8 billion. These expenditures
are expected to occur primarily during the period from 2007 through 2034. All
such costs areis expected to be fundeddelayed
significantly. The DOE's current estimate for opening an SNF facility is 2010.
This extended delay in SNF acceptance by the external decommissioning trusts,
which ComEd establishedDOE has led to PECO's consideration
of additional dry storage alternatives.
In July 2000, PECO entered into an agreement with the DOE relating to
the Peach Bottom nuclear generating station to address the DOE's failure to
begin removal of SNF in compliance with Illinois law and into which ComEd
has been making annual contributions. Future decommissioning cost estimates
may be significantly affectedJanuary 1998 as required by the adoption of or changesStandard Contract. Under
that agreement, the DOE agrees to NRC
regulations, as well as changes inprovide PECO with credits against PECO's
future contributions to the assumptions used in making such
estimates, including changes in technology, available alternatives for the
disposal of nuclear waste and inflation.
Since 1995, ComEd has collected decommissioningfund over the next ten years to
compensate PECO for SNF storage costs from its ratepayers in
conjunction with a rider to its tariffs. The rider allows annual adjustments
to decommissioning cost collections outside the context of a traditional rate
proceeding and will continue under the 1997 Act. The current estimated
decommissioning costs include a contingency allowance, but, except at Dresden
Unit 1, exclude amounts for alternative spent fuel storage installations,
which may be necessary to store spent fuel during the period beginning at the
end of the NRC license lives of the plants to the date when the DOE accepts
the spent fuel for permanent storage. Contingency allowances used in
decommissioning cost estimates provide for currently unspecifiable costs that
are likely to occur after decommissioning begins and generally range from 20%
to 25% of the currently specifiable costs. Under its most recent annual rider,
filed with the ICC on February 26, 1999, ComEd has proposed to increase its
estimated annual decommissioning cost accrual from $84 million to $130
million. The proposed increase primarily reflects an increase in low-level
waste disposal cost escalation, the inclusion of $219 million in current-year
(2000) dollars for safety-related costs of maintaining Zion Station in a
mothballed condition until dismantlement begins, and the inclusion of non-
radiological costs in the decommissioning cost estimates for recovery under
the rider. See Note 1 of Notes to Financial Statements, under "Depreciation,
Amortization of Regulatory Assets and Liabilities, and Decommissioning," for
additional information regarding decommissioning costs.
Environmental Matters. ComEd is involved in administrative and legal
proceedings concerning air quality, water quality and other matters. The
outcome of these proceedings may require
F-16
increases in future construction expenditures and operating expenses and
changes in operating procedures. See Note 22 of Notes to Financial Statements
for additional information.
Results of Operations
Unicom's basic and diluted earnings/(loss) per common share for 1999, 1998
and 1997 were as follows:
1999 1998 1997
----- ----- ------
Basic Earnings/(Loss) per Common Share...................... $2.62 $2.35 $(3.94)
===== ===== ======
Diluted Earnings/(Loss) per Common Share.................... $2.61 $2.34 $(3.94)
===== ===== ======
Substantially all of the results of operations for Unicom are the results of
operations for ComEd. As such, the following section generally discusses, in
more detail, the effect of ComEd's operations on Unicom's financial results.
All EPS computations shown below reflect the impact on Unicom's diluted EPS.
Net Income for the Year 1999. The increase in Unicom's net income in 1999
reflects, among other factors, ComEd's increased energy sales, the fossil
plant sale, improved nuclear performance which resulted in lower fuel and
purchased power costs and lower taxes except income taxes.
Kilowatthour sales increased 8% for the year 1999, compared to 1998, driven
largely by a 59% increase in kilowatthour sales for resale. See "Operating
Revenues" below for additional information.
Fuel and purchased power costs decreased 14% in 1999, compared to 1998,
resulting from improved nuclear performance. See "Fuel Costs" and "Purchased
Power" below for additional information.
O&M expenses increased 6% for the year 1999, compared to the year 1998, as
discussed in "Operation and Maintenance Expenses" below.
Earnings for the year were positively impacted by the fossil plant sale.
Consistent with the provisions of the 1997 Act, the after-tax gain on the
fossil plant sale of $1.56 billion ($7.12 per common share) resulted in a
regulatory liability. Increased regulatory asset amortization amounted to
$2.46 billion, before tax, ($6.76 per common share, after-tax) as discussed in
Note 5 of Notes to Financial Statements. The earnings increase was also
partially offset by a net unrealized loss of $44 million (after-tax), or $0.20
per common share, related to forward share repurchase arrangements, a charge
of $41 million (after-tax), or $0.19 per common share, for an increase in the
estimated liability for the remediation of former MGP sites, extraordinary
losses related to the early redemptions of long-term debt, which reduced net
income on common stock by $28 million (after-tax), or $0.13 per common share,
and premiums of $12 million (after-tax), or $0.05 per common share, paid in
connection with the redemption of preference stock. ComEd's net income for the
year 1999 represents the maximum return on average common equity allowable for
the year before triggering the earnings sharings provision of the 1997 Act.
Taxes other than income taxes decreased by $17 million or $0.05 per common
share after excluding the effects of the change in presentation for certain
state and municipal taxes ($174 million) as discussed in "Operating Revenues"
below. The $17 million decrease is principally due to lower municipal
compensation taxes.
Net Income for the Year 1998. The increase in earnings for 1998 was
primarily due to increased kilowatthour sales, which increased both operating
revenues and energy costs, reduced
F-17
O&M expenses, lower depreciation and amortization expenses, lower than
expected Zion Station closing costs, gains on the sales of certain assets and
a lower effective income tax rate. In December 1997, ComEd discontinued
regulatory accounting practices for the generation portion of its business and
recorded other non-recurring accounting chargesincurred as a result of the 1997 Act,
which primarily contributedDOE's breach
of the contract. The agreement also provides that, upon PECO's request, the DOE
will take title to the lossSNF and the interim storage facility at Peach Bottom
provided certain conditions are met. In November 2000, eight utilities with
nuclear power plants filed a Joint Petition for 1997. The 1997 operating results
alsoReview against the DOE with the
United States Court of Appeals for the Eleventh Circuit seeking to invalidate
that portion of the agreement providing for credits to PECO against nuclear
waste fund payments on the ground that such provision is a violation of the
NWPA. PECO has intervened as a defendant in that case, which is ongoing.
See Note 22 - Subsequent Events - Restructuring.
75
Energy Commitments
PECO's wholesale operations include the write-offphysical delivery and marketing
of power obtained through its generation capacity, and long, intermediate and
short-term contracts. PECO maintains a net positive supply of energy and
capacity, through ownership of generation assets and power purchase and lease
agreements, to protect it from the potential operational failure of one of its
owned or contracted power generating units. PECO has also contracted for access
to additional generation through bilateral long-term power purchase agreements.
These agreements are firm commitments related to power generation of specific
generation plants and/or are dispatchable in nature - similar to asset
ownership. PECO enters into power purchase agreements with the objective of
obtaining low-cost energy supply sources to meet its physical delivery
obligations to its customers. PECO has also purchased firm transmission rights
to ensure that it has reliable transmission capacity to physically move its
power supplies to meet customer delivery needs. The intent and business
objective for the closureuse of its capital assets and contracts is to provide PECO
with physical power supply to enable it to deliver energy to meet customer
needs. Except for hedging purposes, PECO does not use financial contracts in its
wholesale marketing activities. In 2001, PECO anticipates the use of financial
contracts to manage the risk surrounding trading for profit activities.
PECO has entered into bilateral long-term contractual obligations for
sales of energy to load-serving entities, including electric utilities,
municipalities, electric cooperatives, and retail load aggregators. PECO also
enters into contractual obligations to deliver energy to wholesale market
participants who primarily focus on the resale of energy products for delivery.
PECO provides delivery of its energy to these customers through access to its
transmission assets or rights for firm transmission.
In addition, PECO has entered into long-term power purchase agreements
with Independent Power Producers (IPP) under which PECO makes fixed capacity
payments to the IPP in return for exclusive rights to the energy and capacity of
the Zion nuclear generating station, partially offset by a cumulative one-time positive impact of $197
million (after-tax), or $0.91 per common share,units for a changefixed period. The terms of the long-term power
purchase agreements enable PECO to supply the fuel and dispatch energy from the
plants.
At December 31, 2000, PECO had long-term commitments, in accounting
methodmillions of
megawatt-hours (MWh) and dollars, relating to the purchase and sale of energy,
capacity and transmission rights from unaffiliated utilities and others as
expressed in the tables below:
Power Only
-------------------------------------------
Purchases Sales
--------- -----
MWh Dollars MWh Dollars
--- ------- --- -------
2001 16 $335 27 $ 705
2002 9 131 10 257
2003 7 94 9 228
2004 5 71 4 110
2005 4 61 4 109
Thereafter 5 81 3 72
---- ------
Total $773 $1,481
==== ======
Capacity Capacity Transmission
Purchases Sales Rights Purchases
in Dollars in Dollars in Dollars
---------- ---------- ----------
2001 $ 167 $ 32 $ 100
2002 307 21 35
2003 334 16 32
2004 325 3 25
2005 297 3 25
Thereafter 4,399 8 79
------ ---- ----
Total $5,829 $ 83 $296
====== ==== ====
76
In 1997, PECO entered into a power supply contract in Massachusetts. In
1999, PECO determined that, based upon anticipated prices of energy in
Massachusetts through the remaining life of the power supply contract, it had
incurred a loss of approximately $36 million.
In 1999, PECO entered into a final settlement of litigation that
resulted in a restructuring of power purchase agreements between PECO and a
cogeneration facility. The settlement also required PECO to contribute its
partnership interest in the cogeneration facility to the remaining partners.
Accordingly, PECO recorded a charge to earnings of $15 million for revenue recognition to record ComEd's revenuesthe transfer
of its partnership interest which is recorded in Other Income and Deductions on
PECO's Consolidated Statements of Income. The settlement also resolved related
litigation with Westinghouse Power Generation and the Chase Manhattan Bank.
Subsequently, in 1999, PECO revised its estimate for losses associated with servicethe
cogeneration facility power purchase agreements and reversed approximately $26
million of reserves, which consisted principally of the remaining balance of a
reserve previously recognized in 1997.
See Note 22 - Subsequent Events - Restructuring.
Environmental Issues
PECO's operations have in the past and may in the future require
substantial capital expenditures in order to comply with environmental laws.
Additionally, under Federal and state environmental laws, PECO, through its
subsidiaries, is generally liable for the costs of remediating environmental
contamination of property now or formerly owned by PECO and of property
contaminated by hazardous substances generated by PECO. PECO owns or leases a
number of real estate parcels, including parcels on which its operations or the
operations of others may have resulted in contamination by substances which are
considered hazardous under environmental laws. PECO has identified 28 sites
where former manufactured gas plant (MGP) activities have or may have resulted
in actual site contamination. PECO is currently involved in a number of
proceedings relating to sites where hazardous substances have been provideddeposited and
may be subject to customers but has not yet been billedadditional proceedings in the future.
As of December 31, 2000 and 1999, PECO had accrued $54 million and $57
million, respectively, for environmental investigation and remediation costs,
including $30 million and $32 million, respectively, for MGP investigation and
remediation, that currently can be reasonably estimated. PECO cannot reasonably
estimate whether it will incur other significant liabilities for additional
investigation and remediation costs at the endthese or additional sites identified by
PECO, environmental agencies or others, or whether such costs will be
recoverable from third parties.
Leases
Minimum future operating lease payments as of each accounting period, retroactiveDecember 31, 2000 were:
2001 $ 49
2002 43
2003 43
2004 30
2005 33
Remaining years 543
---
Total minimum future lease payments $741
====
Rental expense under operating leases totaled $36 million, $54 million,
and $69 million in 2000, 1999, and 1998, respectively.
See Note 22 - Subsequent Events - Restructuring.
Early Retirement and Separation Program
At December 31, 1998, PECO incurred a charge of $125 million ($74
million, net of income taxes) for its Early Retirement and Separation Program
relating to January 1, 1997.
Fuel and purchased power costs increased 10% in 1998, compared1,157 employees. The estimated cost of separation benefits was
77
approximately $47 million. Retirement benefits of approximately $78 million are
being paid to the year
1997, reflecting increased demand for electricity, as well as the effects of
higher purchased power prices. See "Purchased Power" below for additional
information.
O&M expenses decreased 6% for the year 1998, compared to the year 1997, as
discussed in "Operation and Maintenance Expenses" below.
The year 1998 includes a 6% decrease in depreciation and amortization
expenses, as discussed in "Depreciation and Amortization" below, and a $15
million (after-tax), or $0.07 per common share, reduction in the estimated
liability for closing costsretirees over their lives. All cash payments related to the
Zion nuclear generating station,
both of which increased operating results.
Also, 1998 operating results reflect realized gains onEarly Retirement and Separation Program were funded through the sales of certain assets of $31 million (after-tax), or $0.14 per common share.PECO's
Service Annuity Plan. The sold assets
consisted principallyEarly Retirement and Separation Program terminated on
June 30, 2000.
Litigation
Cajun Electric Power Cooperative, Inc. On May 27, 1998, the United States
Department of surplus inventoryJustice, on behalf of emission allowances.
Net Lossthe Rural Utilities Service and the Chapter
11 Trustee for the Year 1997. ComEd's kilowatthour sales, including salesCajun Electric Power Cooperative, Inc. (Cajun), filed an
action claiming breach of contract against PECO in the United States District
Court for the Middle District of Louisiana arising out of PECO's termination of
the contract to wholesale customers, increased 5% during 1997, compared to 1996, as discussed
below. In 1997, O&M expenses increased 13%, as discussed below.
Also, 1997 operating results were reduced by $336 million for increased fuel
and purchasedpurchase Cajun's interest in the River Bend nuclear power costs, as discussed below. In addition, a 4% increaseplant.
This action seeks the full purchase price of the 30% interest in depreciation expense, primarily due to an increase in certainthe River Bend
nuclear plant, depreciation, resulted$50 million, plus interest and consequential damages. While PECO
cannot predict the outcome of this matter, PECO believes that it validly
exercised its right of termination and did not breach the agreement.
Pennsylvania Real Estate Tax Appeals PECO is involved in tax appeals regarding
two of its nuclear facilities, Limerick (Montgomery County) and Peach Bottom
(York County). PECO is also involved in the tax appeal for Three Mile Island
Unit No. 1 Nuclear Generating Facility (Dauphin County) through AmerGen. PECO
does not believe the outcome of these matters will have a chargematerial adverse
effect on PECO's results of $23 million (after-tax),operations or $0.11 per
common share.
ComEd discontinued regulatory accounting practices forfinancial condition.
General PECO is involved in various other litigation matters. The ultimate
outcome of such matters, while uncertain, is not expected to have a material
adverse effect on PECO's financial condition or results of operations.
19. Segment Information
PECO evaluates the generation
portionperformance of its business insegments based on
Earnings Before Interest Expense and Income Taxes (EBIT). PECO's general
corporate expenses and certain non-recurring expenses are excluded from the
fourth quarterinternal evaluation of 1997 due to the expected
transition of electric generation services to market-based pricing as a result
of the 1997 Act. Accordingly, ComEd's generation-related net regulatory
assets, which represent assets and liabilities properly recorded under
regulatory accounting practices but which would not be recorded under GAAP for
non-regulated entities, were written off, resulting in an extraordinary charge
in 1997 of $810 million (after-tax), or $3.75 per common share.
In addition, pursuant to an option contained in the 1997 Act, ComEd filed a
tariff in December 1997 to eliminate its FAC. Under ComEd's regulated rates,
the FAC provided for the recovery of changes in fossil and nuclear fuel costs
and the energy portion of purchased power costs, compared to the fuel and
purchased energy costs included in ComEd's base rates. The 1997 Act provided
that upon the elimination of the FAC, ComEd would be required to refund to
customers the net FAC charges billed during the calendar year 1997. Net FAC
charges billed by ComEd during the year 1997 were $25 million (after tax) or
$0.12 per common share (diluted). These costs, as well as deferred,
underrecovered energy costs of $19 million (after-tax), or $0.08 per common
share (diluted), which ComEd would have been entitled to recover if the FAC
had remained in effect, were recorded as a charge to operating results in the
fourth quarter of 1997. Elimination of the FAC could increase volatility in
future earnings due to changes in fuel and purchased power costs.
F-18
Additionally, the elimination of the FAC and the transition to market-based
pricing for generation-related costs required ComEd to write-off its
investment in uranium-related properties. An impairment study indicated the
expected incremental costs of mining and milling uranium at those properties
would exceed the expected market price for uranium. These costs, which were
previously recoverable through the FAC, are not expected to be recoverable in
a competitive market. A write-off of uranium-related properties to reflect
market value resulted in a charge of $60 million (after-tax), or $0.28 per
common share (diluted), in December 1997.
Partially offsetting the charges to operations for 1997 was a change in the
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive to January 1,
1997. This change in accounting method had a one-time cumulative positive
impact for years prior to 1997 of $197 million (after-tax), or $0.91 per
common share.
The year 1997 also included a charge of $523 million (after-tax), or $2.42
per common share, reflecting the write-off of the unrecoverable portion ofreportable segment performance. General corporate
expenses include the cost of ComEd's Zion Station plantexecutive management, corporate accounting and
inventories,finance, information technology, risk management, human resources and a liability for future
closing costs, resulting fromlegal
functions and employee benefits.
Energy Delivery consists of the decisionretail electricity distribution and
transmission business in January 1998 to permanently
cease nuclear generationsoutheastern Pennsylvania and the natural gas
distribution business. Generation consists of electric generating facilities,
power marketing operations, at Zion Station.
Operating Revenues. ComEd's electric operating revenues reflect revenues
fromand PECO's interests in Sithe and AmerGen.
Enterprises consists of competitive retail energy sales, to ultimate consumers (including residential, commercialenergy and
industrial customers within its service territory)infrastructure services, communications and revenues from sales for
resale (i.e., sales to wholesale customers, principally other electric
utilities). Operating revenues are affected by kilowatthour salesrelated investments. An analysis and
rate
levels. Kilowatthour sales, in turn, are affected by weather, the levelreconciliation of economic activity within ComEd's service area, and off-system or wholesale
sales to other utilities. Off-system sales are affected by a number of
factors, including nuclear generating station availability and performance.
Revenues have also been reduced by a change in presentation for certain
utility taxes. The 1997 Act changed the nature of several state and municipal
taxes that are collected through customer billings. Before August 1998, the
utility taxes were assessed against the utility. Effective August 1998, the
utility taxes are assessed on the electric consumer rather than the utility.
Accordingly, ComEd records the collections as liabilities and no longer
records the taxes collected through billing as revenues and tax expense. The
change in presentation for utility taxes did not have an effect on results of
operations. See Note 1 of Notes to Financial Statements, under "Use of
Estimates" and "Customer Receivables and Revenues", for additional
information.
ComEd's operating revenues decreased $322 million in 1999, compared to 1998,
due in partPECO's business segment information to the approximately $226 million impact of the 15% residential
base rate reduction that took effect August 1, 1998. Operating revenues for
1999 also were reduced by approximately $174 million, compared to 1998, due to
the change in presentation for certain state and municipal taxes. Kilowatthour
sales increased 8%, primarily due to sales for resale. In 1998, operating
revenues increased $15 million, compared to the year 1997, primarily due to
warmer summer weather experienced in 1998 and continued economic growth in
ComEd's service territory, partially offset by a 15% residential rate
reduction ($170 million) and reserves for various federal and state litigation
matters ($35 million). Operating revenues for 1998 were reduced by
approximately $110 million, as compared to 1997, due to the change in
presentation for certain state and municipal taxes. During 1997, electric
operating revenues increased $139 million, primarily due to a 29% increase in
kilowatthour sales to wholesale customers. Kilowatthour sales to ultimate
consumers during 1997 increased 1%, compared to 1996, reflecting continued
economic growth in ComEd's service territory. Operating revenues in 1997 were
reduced by the provision for revenue refunds of $45 million, including revenue
taxes, related to the elimination of the FAC.
Unicom's unregulated businesses' operating revenues increased $87 million in
1999, compared to 1998. The increase is primarily due to increased revenues
related to performance contracting and district cooling services and the
acquisition of new businesses in 1999.
F-19
Fuel Costs. Changes in fuel expense for the years 1999, 1998 and 1997
primarily resulted from changesrespective
information in the average cost of fuel consumed, changes
in the mix of fuel sources of electric energy generated and changes in net
generation of electric energy. Fuel mix is determined primarily by system
load, the costs of fuel consumed and the availability of nuclear generating
units. The cost of fuel consumed, net generation of electric energy and fuel
sources of kilowatthour generation wereconsolidated financial statements are as follows:
78
1999 1998 1997
----------------------- ------------------------ ------------------------
Fuel Costs Cost per KWh Fuel Costs Cost per KWh Fuel Costs Cost per KWhEnergy Intersegment
Delivery Generation Enterprises Corporate Revenues Consolidated
-------- ---------- ----------- ----------- --------- ------------ ---------- ------------ ---------- ------------
(000's) (000's) (000's)
CostRevenues:
2000 $3,373 $2,803 $697 $ -- $(923) $5,950
1999 $3,265 $2,896 $116 $ -- $(799) $5,478
1998 $3,799 $2,523 $12 $ -- $(1,009) $5,325
EBIT:
2000 $1,231 $375 $(69) $(315)(a) $ -- $1,222
1999 $1,386 $239 $(41) $(190) $ -- $1,394
1998 $1,378 $233 $(139) $(257)(a) $ -- $1,215
Depreciation and Amortization:
2000 $195 $99 $31 $ -- $ -- $325
1999 $108 $125 $4 $ -- $ -- $237
1998 $533 $110 $ -- $ --
$ -- $643
Capital Expenditures:
2000 $219 $243 $64 $23 $ -- $549
1999 $205 $245 $1 $40 $ -- $491
1998 $175 $205 $6 $29 $ -- $415
Total Assets:
2000 $13,100 $1,648 $991 $(963) $ -- $14,776
1999 $10,306 $1,734 $640 $407 $ -- $13,087
1998 $9,759 $1,687 $217 $385 $ -- $12,048
(a) Includes non-recurring items of fuel consumed:
Nuclear........................ $380,489 0.52c $ 286,619 0.53c $ 263,163 0.54c
Coal........................... 525,896 2.26 626,442 2.51 810,144 2.44
Oil............................ 7,854 5.43 20,822 6.26 17,829 5.50
Natural gas.................... 83,023 3.22 123,644 3.04 113,082 3.50
-------- ---- ---------- ---- ---------- ----
Total/Average all fuels........ $997,262 1.00c $1,057,527 1.27c $1,204,218 1.40c
======== ==== ========== ==== ========== ====
Net generation of electric energy
(millions of kilowatthours)..... 99,684 83,302 85,861
Fuel sources of kilowatthour gen-
eration:
Nuclear........................ 74% 65% 57%
Coal........................... 23 30 39
Oil............................ -- -- --
Natural gas.................... 3 5 4
-------- ---------- ----------
100% 100% 100%
======== ========== ==========$248 million for merger-related expenses in
2000 and $125 million in 1998 for the Early Retirement and Separation Program.
The increasesEquity in net generationlosses of electric energy and nuclear generation
for 1999, compared to the prior years, are primarily due to significant
improvement in the performancecommunications investments of ComEd's nuclear fleet. The overall nuclear
capacity factor was 89% for 1999, compared to 66% for 1998 and 49% for 1997.
The decreases in the net generation of electric energy for 1998, compared to
1997, are primarily due to the sales of State Line and Kincaid Station in
December 1997 and February 1998, respectively, and lower nuclear plant
availability in 1997. The decrease in net generation of electric energy from
1997 to 1998 due to the sale of State Line Station was 2,378,413 megawatthours
and the decrease from 1997 to 1998 due to the sale of Kincaid Station was
2,357,488 megawatthours. See "Regulation," subcaption "Nuclear Matters" above,
for information regarding ComEd's nuclear generating stations.
Purchased Power. Amounts of purchased power are primarily affected by system
load, the availability of ComEd's generating units and the availability and
cost of power from other utilities. Purchased power decreased $196$45 million, $38
million, and increased $348$54 million infor 2000, 1999, and 1998, compared to 1998respectively, are included in
the Enterprises business unit's EBIT. Equity in earnings (losses) of AmerGen of
$4 million and 1997,
respectively.$(0.5) million for 2000 and 1999, respectively, are included in
Generation's EBIT.
20. Related-Party Transactions
At December 31, 2000, PECO had a $696 million note payable maturing on
or before June 30, 2001, with Exelon, which is reflected in current liabilities
in PECO's Consolidated Balance Sheets. The decreaseaverage annual interest rate on this
note for the period it was outstanding was 7.6%. At December 31, 2000, PECO had
a $400 million intercompany payable with ComEd, which is also reflected in
1999current liabilities in PECO's Consolidated Balance Sheets. The average annual
interest rate on this note for the period was due6.5%.
PECO incurred $45 million of merger costs that were directly associated
with the acquisition of Unicom on behalf of Exelon prior to the improved nuclearShare Exchange.
These costs consisted principally of investment banker, legal and fossil
operating performance,accounting
fees. Immediately after the Share Exchange, PECO transferred these costs as a
dividend to Exelon for inclusion in the application of purchase accounting to
the Unicom assets acquired and liabilities assumed.
79
21. Quarterly Data (Unaudited)
The data shown below include all adjustments which reduced the need to purchase power from other
parties. The increase in purchased power costs in 1998 reflects the effectsPECO considers
necessary for a fair presentation of an extraordinary combination of heat, storms and equipment problems
experienced throughout the Midwest in late June 1998 which resulted in
unprecedented purchased power price levels. See "Regulation," subcaption
"Nuclear Matters" above, for information regarding ComEd's nuclear generating
stations. For additional information concerning ComEd's purchase power
commitments see "Liquidity and Capital Resources," subcaption "UTILITY
OPERATIONS--Construction Program," above and Note 22 of Notes to Financial
Statements.
The number and average cost of kilowatthours purchased were as follows:such amounts:
Income (Loss) Before
Extraordinary Items and
Operating Operating Cumulative Effect of a Net
Revenues Income Change in Accounting Principle Income (Loss)
2000 1999 1998 1997
------ ------ ------2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----- ---- ----
Kilowatthours (millions)............................. 11,561 20,704 16,672
Cost per kilowatthour................................ 4.77c 3.84c 2.40c
Quarter ended:
March 31 ............. $1,352 $1,267 $343(a)(b) $365 $166(a)(b) $157 $195(a)(b) $157
June 30 .............. $1,385 $1,213 $313(a)(b) $245 $124(a)(b) $ 96 $118(a)(b) $ 69
September 30 ......... $1,629 $1,729 $449(a)(b) $471 $238(a)(b) $231 $235(a)(b) $231
December 31 .......... $1,584 $1,269 $117(a)(b) $292 $(41)(a)(b) $135 $(41)(a) $125
(a) Reflects incremental merger expenses of $11 million, $9 million, $13 million
and $215 million ($129 million, net of tax) for each of the four quarters in
2000, respectively, which were reflected in Operating and Maintenance expense.
(b) Reflects a Cumulative Effect of a Change in Accounting Principle of $24
million as a result of PECO's change in accounting method for nuclear outages to
recognize such expense as incurred rather than accrued over the operating cycle.
See Note 4 - Accounting Change. The effects of the change in accounting method
were $29 million, $(3) million, and $(2) million in each of the first three
quarters of 2000, respectively.
F-20
The22. Subsequent Event
Restructuring
During January 2001, Exelon undertook a corporate restructuring to
separate PECO's generation and other competitive businesses from its regulated
energy delivery business. As part of the restructuring, the non-regulated
operations and related assets and liabilities of PECO, representing the
Generation and Enterprises business segments were transferred to separate
subsidiaries of Exelon. As a result, beginning January 2001, the operations of
PECO consist of its retail electricity distribution and transmission business in
southeastern Pennsylvania and its natural gas distribution business located in
the Pennsylvania counties surrounding the City of Philadelphia. In connection
with the transfer, PECO entered into a power purchase agreement (PPA) with
Generation. Under the terms of the PPA, PECO will obtain all of its supply from
Generation through 2010. Also, under the terms of the transfer, PECO assigned
its rights and obligations under various PPAs and fuel supply agreements to
Generation. Generation will supply power to PECO from the transferred generation
assets, assigned PPAs and other market price for electricity issources.
As a result of the corporate restructuring, certain risks and
commitments that have been disclosed in Note 18 - Commitments and Contingencies
and the future financial condition and results of operations will change
significantly. On a prospective basis, PECO will not be subject to price volatilitythe risks
associated with changes in supplynuclear insurance, decommissioning, spent fuel disposal and
demandenergy commitments, other than its purchase power agreement with Generation. See
Note 19 - Segment Information for additional financial information.
PETT Refinancing
On March 1, 2001, PECO refinanced $805 million of floating rate Series
1999-A Transition Bonds through the issuance by PETT of fixed-rate transition
bonds.
80
ComEd
Report of Independent Accountants
To the Board of Directors and Shareholders of
Commonwealth Edison Company:
In our opinion, the consolidated financial statements listed in the electric supply markets. ComEd
utilizes energy putindex
appearing under Item 14(a)(3)(i) present fairly, in all material respects, the
financial position of Commonwealth Edison Company and call option contracts and energy swap arrangements to
limit market price risk associated with forward commodity contracts. See
"Liquidity and Capital Resources," subcaption "UTILITY OPERATIONS--Market
Risks" above, for additional information.
Operation and Maintenance Expenses. O&M expenses include the expenses
associated with operating and maintaining ComEd's generation, transmission and
distribution assets, as well as administrative overhead and support,Subsidiary Companies
(ComEd) at December 31, 2000, and the expenses associatedresults of their operations and their cash
flows for the periods from January 1, 2000 through October 19, 2000 and from
October 20, 2000 through December 31, 2000, in conformity with Unicom's unregulated businesses. Givenaccounting
principles generally accepted in the varietyUnited States of expense categories covered, there are a number of factors which affectAmerica. In addition, in
our opinion, the level of such expenses within any given period. Two major components of such
expenses, however,financial statement schedule listed in the index appearing
under Item 14(a)(3)(ii) for the year ended December 31, 2000, presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and the financial statement schedule are the costs associatedresponsibility of
ComEd's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit. We
conducted our audit of these statements in accordance with operatingauditing standards
generally accepted in the United States of America, which require that we plan
and maintaining
ComEd's generating facilities. Generating station expensesperform the audit to obtain reasonable assurance about whether the financial
statements are affected byfree of material misstatement. An audit includes examining, on a
test basis, evidence supporting the cost of materials, regulatory requirementsamounts and expectations, the age of
facilities and cost control efforts.
During the three years presenteddisclosures in the financial
statements, the aggregate
level of O&M expenses increased 6% in 1999 compared to 1998, decreased 6% in
1998 compared to 1997, and increased 13% in 1997 compared to 1996.
O&M expenses associated with nuclear generating stations decreased $75
million and $172 million and increased $122 million for years 1999, 1998 and
1997, respectively. The decrease in 1999 was due to shorter refueling outages
and fewer forced outages. The decrease in 1998 was principally due to the
permanent cessation of nuclear generation operations at Zion Station. The
increase in 1997 was a result of increased levels of activities associated
with the repair, replacement and improvement of nuclear generating facility
equipment. See "Changes in the Electric Utility Industry," subcaption
"Response to Regulatory Changes" above, regarding the permanent cessation of
nuclear operations at Zion Station.
O&M expenses associated with fossil generating stations decreased $42
million and $5 million and increased $31 million for the years 1999, 1998 and
1997, respectively. The decrease in 1999 was primarily due to reductions in
plant refurbishment and maintenance costs. The decrease related to fossil
generating stations in 1998 was primarily due to the sales of State Line and
Kincaid Stations in December 1997 and February 1998, respectively ($25
million), partially offset by plant refurbishment costs ($19 million).
O&M expenses associated with ComEd's transmission and distribution system
increased $77 million, $32 million and $15 million for the years 1999, 1998
and 1997, respectively. The increase in 1999 was primarily due to an increase
in tree trimming expenses and the costs associated with ComEd's extensive
evaluation of the reliability of its transmission and distribution system
following outages which occurred during the summer of 1999. The increase also
reflects restoration and other outage-related costs associated with the
summer heat wave. The 1998 and 1997 increases were primarily due to increased
emergency restoration of electric service, higher maintenance expenses and
tree trimming costs. O&M expenses associated with customer-related activities
increased $40 million, $19 million and $11 million for the years 1999, 1998
and 1997, respectively. The increase in 1999 was primarily due to the ongoing
implementation of a new customer information and billing system.
O&M expenses for the year 1999 reflect an increase of $68 million in ComEd's
estimated environmental liability for the remediation of former manufactured
gas plant sites.
O&M expenses also include employee benefits expenses. Since 1995, ComEd has
reduced the size of its workforce by offering incentives for employees to
leave the company voluntarily. Such incentives included both current payments
and earlier eligibility for postretirement health care benefits, in
F-21
addition to certain other employee-related costs, resulting in charges of $10
million, $48 million and $39 million for the years 1999, 1998 and 1997,
respectively.
Other ComEd employee benefits expenses, excluding the effects of employee
separation plans and certain other employee-related costs increased
$16 million and $41 million and decreased $11 million for the years 1999, 1998
and 1997, respectively. The increase for the year 1999 was primarily due to
higher accruals for incentive compensation. The increase in 1998 was primarily
due to accruals for estimated incentive compensation recorded in 1998. The
decrease in 1997 was primarily due to a reduction in medical costs for active
employees.
O&M expenses included a $25 million charge for the year 1999 as a result of
a franchise related settlement agreement between ComEd and the City.
O&M expenses associated with certain administrative and general costs
decreased $7 million and $22 million and increased $35 million for the years
1999, 1998 and 1997, respectively. The 1999 decrease was due to a variety of
reasons, including reductions in nuclear insurance ($38 million), partially
offset by increased charges for uncollectible accounts resulting from billing
and collection delays experienced following the implementation of a new
customer information system ($25 million). The decrease in 1998 reflects a
reduction of $34 million in certain nuclear maintenance costs due to
technological improvements, compared to 1997. The effects of inflation have
also increased O&M expenses during the years and are also reflected in the
increases and decreases discussed herein.
O&M expenses associated with Unicom's unregulated businesses increased $82
million in 1999, compared to 1998. The increase is primarily related to their
increased level of operation and the acquisition of new businesses in 1999.
Depreciation, Amortization and Decommissioning. Depreciation, amortization
and decommissioning expense decreased $100 million and $62 million and
increased $36 million for the years 1999, 1998 and 1997, respectively. The
decrease in the year 1999 was primarily due to the fossil plant sale.
Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale
of $2.587 billion resulted in a regulatory liability, which was used to
recover regulatory assets. Therefore, the gain on the sale, excluding $43
million of amortization of investment tax credits, was recorded as a
regulatory liability in the amount of $2.544 billion and amortized in the
fourth quarter of 1999. The amortization of the regulatory liability and
additional regulatory asset amortization of $2.456 billion are reflected in
depreciation and amortization expense on Unicom's Statements of Consolidated
Operations and resulted in a net reduction to depreciation and amortization
expense of $88 million. Depreciation expense decreased $95 million and
increased $36 million for the years 1998 and 1997, respectively. The decrease
in 1998 reflects the retirement of Zion Station ($31 million), the reduction
in depreciable plant due to the plant impairment recorded by ComEd in the
second quarter of 1998 ($65 million), the sales of State Line and Kincaid ($4
million), lower depreciation of steam generators at Byron Unit 1 and Braidwood
Unit 1 in 1998 compared to 1997 ($25 million), partially offset by plant
additions ($16 million) and shortened depreciable lives for certain nuclear
stations ($14 million). The $36 million increase in depreciation expense in
1997 is principally due to the early retirement of the steam generators at
Byron Unit 1 and Braidwood Unit 1. See Note 1 of Notes to Financial
Statements, under "Depreciation, Amortization of Regulatory Assets and
Liabilities, and Decommissioning," for additional information.
The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry, including ComEd, regarding the
recognition, measurement and classification of decommissioning costs for
nuclear generating stations in the financial statements of electric utilities.
In response to these questions, the FASB is reviewingassessing the accounting for asset
removal costs including those related to nuclear decommissioning. If current
electric utility industry accounting practices for
F-22
such decommissioning costs are changed, annual provisions for decommissioning
could increaseprinciples used and significant estimates
made by management, and evaluating the estimated costs of decommissioning could be recorded as
a liability rather than as accumulated depreciation. Decommissioning costs of
currently retired nuclear plants are recorded as a liability. Unicom and ComEd
do notoverall financial statement presentation.
We believe that such changes, if required, would have an adverse effect on
their results of operations due to ComEd's ability to recover decommissioning
costs through rates.
Interest on Debt. Changes in interest on long-term debt and notes payableour audit provides a reasonable basis for the years 1999, 1998 and 1997 were due to changes in average interest
rates and in the amounts of long-term debt and notes payable outstanding.
Changes in interest on ComEd's long-term debt also reflected new issues of
debt, the retirement and early redemption of debt, and the retirement and
redemption of issues which were refinanced at generally lower rates of
interest. See Notes 3 and 7 of Notes to Financial Statements for information
regarding the redemptions and repurchases of debt and equity. The average
amounts of ComEd's long-term debt and notes payable outstanding and average
interest rates thereon were as follows:
1999 1998 1997
------ ------ ------
Long-term debt outstanding:
Average amount (millions)............................. $8,119 $6,099 $6,256
Average interest rate................................. 6.76% 7.06% 7.65%
Notes payable outstanding:
Average amount (millions)............................. $ 320 $ 344 $ 153
Average interest rate................................. 5.82% 5.68% 5.95%
Other Items. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual capitalization
rates asour opinion.
As discussed in Note 12 to the consolidated financial statements, effective
October 20, 2000, Exelon Corporation acquired Unicom Corporation, the parent
company of Notes to Financial Statements, under "AFUDC
and Interest Capitalized." ComEd, discontinued SFAS No. 71 regulatory
accounting practices in December 1997a business combination accounted for the generation portion of its
business, and as a result, began capitalizing interest in 1998. ComEd
capitalized $22 million and $28 million for the years 1999 and 1998,
respectively, of interest costs on its generation-related construction work in
progress and nuclear fuel in process. AFUDC and interest capitalized do not
contribute to the current cash flow of Unicom or ComEd.
ComEd's ratios of earnings to fixed charges for the years 1999, 1998 and
1997 were 2.45, 2.59 and 0.58, respectively. ComEd's ratios of earnings to
fixed charges and preferred and preference stock dividend requirements for the
years 1999, 1998 and 1997 were 2.32, 2.24 and 0.49, respectively.
Business corporations, in general, have been adversely affected by inflation
because amounts retained after the payment of all costs have been inadequate
to replace, at increased costs, the productive assets consumed. Electric
utilities, in particular, have been especially affected as a result of their
capital intensive nature and regulation which limits capital recovery and
prescribes installation or modification of facilities to comply with
increasingly stringent safety and environmental requirements. Because the
regulatory process limits the amount of depreciation expense included in
ComEd's revenue allowance to the original cost of utility plant investment,
the resulting cash flows are inadequate to provide for replacement of that
investment in future years or preserve the purchasing power of common equity
capital previously invested.
Foward-Looking Information. Except for historical data, the information
contained herein constitutes forward-looking statements. Forward-looking
statements are inherently uncertain and subject to risks. Such statements
should be viewed with caution. Actual results or experience could differ
materially from the forward-looking statements as a result of many factors.
Forward-looking statements in this report include, but are not limited to: (1)
statements regarding expectations of revenue reductions and collections of
future CTC revenues aspurchase. As a
result of the 1997 Act in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," subcaption
F-23
"Changes inacquisition, the Electric Utility Industry--The 1997 Act," and in Notes 1 and 3
of Notes to Financial Statements, (2) statements regarding estimated capital
expenditures in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," subcaptions "Liquidity and Capital Resources--
UTILITY OPERATIONS--Construction Program" and "Liquidity and Capital
Resources--UNREGULATED OPERATIONS--Construction Program," and "Changes inconsolidated financial information for the Electric Utility Industry--Response to Regulatory Changes," (3) statements
regarding the costs of decommissioning nuclear generating stations in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Regulation--Nuclear Matters," and in Note 1 of Notes
to Financial Statements, under "Depreciation, Amortization of Regulatory
Assets and Liabilities and Decommissioning," (4) statements regarding cleanup
costs associated with MGPs and other remediation sites in Note 22 of Notes to
Financial Statements, (5) statements regarding the estimated fair value of
forward energy contracts in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Liquidity and Capital
Resources--UTILITY OPERATIONS--Market Risks," (6) statements regarding the
risks and uncertainties relating to Year 2000 issues set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS--
Year 2000 Conversion," including Unicom's dependence upon the Year 2000
readiness of third parties with whom it has significant business relationships
and the estimated costs for final project wrap-up activities, (7) statements
regarding the use of fossil plant sale proceeds in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," subcaptions
"Changes in the Electric Utility Industry--Fossil Plant Sale," "Liquidity and
Capital Resources--UTILITY OPERATIONS--Construction Program," and "Liquidity
and Capital Resources--UNREGULATED OPERATIONS--Capital Resources," and in Note
5 of Notes to Financial Statements, (8) statements regarding estimates of
claims resulting from the summer of 1999 outages set forth in Note 22 of Notes
to Financial Statements and (9) statements regarding the Merger Agreement in
Note 2 of Notes to Financial Statements and in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" subcaption "Changes
in the Electric Utility Industry--Merger Agreement." Management cannot predict
the course of future events or anticipate the interaction of multiple factors
beyond management's control and their effect on revenues, project timing and
costs. The statements regarding revenue reductions and collections of future
CTC revenues are subject to unforeseen developments in the market for
electricity in Illinois resulting from regulatory changes. The statements
regarding estimated capital expenditures, decommissioning costs, cleanup costs
and Year 2000 wrap-up costs are subject to changes in the scope of work and
manner in which the work is performed and consequent changes in the timing and
level of the projected expenditure, and are also subject to changes in laws
and regulations or their interpretation or enforcement. The statements
regarding expectations for Year 2000 readiness are also subject to the risk
that Year 2000 remediation efforts of other parties with whom Unicom has
significant business relationships are not successful. The statements
regarding the fair value of forward energy contracts are subject to changes in
generating capability and reduction in the demand for electricity. The
statement regarding the use of proceeds from the fossil plant sale is subject
to the possibility that regulatory action might affect the amount and use of
such proceeds and the possibility that, due to changing market conditions,
Unicom and ComEd may determine that other uses of the proceeds may be in their
best interest. The statements regarding estimates of claims resulting from the
summer of 1999 outages are subject to the risk that the actual amount of
losses suffered by customers and restoration costs may exceed the estimated
amounts. The statements regarding the Merger Agreement and the associated
repurchase of shares are subject to the risk of a significant delay in the
expected completion of, and unexpected consequences resulting from, the
transactions contemplated by the Merger Agreement, including the inability to
close the transaction, and to changes in the number of shares of outstanding
common stock of Unicom and PECO for unforeseen reasons. Unicom and ComEd make
no commitment to disclose any revisions to the forward-looking statements, or
any facts, events or circumstancesperiod
after the date hereofacquisition is presented on a different cost basis than that may bear upon
forward-looking statements.
F-24for the
periods before the acquisition and therefore, is not comparable.
PricewaterhouseCoopers LLP
Chicago, Illinois
January 30, 2001
81
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTSReport Of Independent Public Accountants
To the Shareholders of Unicom Corporation:Commonwealth Edison Company:
We have audited the accompanying consolidated balance sheets and statementssheet of
consolidated capitalization of UNICOM CORPORATIONCommonwealth Edison Company (an Illinois corporation) and subsidiary companiesSubsidiary Companies
as of December 31, 1999, and 1998, and the related consolidated statements of consolidated operations, retained earnings/(deficit),income, cash
flows, and changes in shareholders' equity and comprehensive income and cash flows for each of
the threetwo years in the period ended December 31, 1999. These financial statements
and the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Unicom
CorporationCommonwealth Edison
Company and subsidiary companiesSubsidiary Companies as of December 31, 1999, and 1998, and the results of
their operations and their cash flows for each of the threetwo years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item
14.(a)14(a)(3)(ii) for each of the two years in the period ended December 31, 1999, is
presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
January 31, 2000
F-2582
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED OPERATIONS
The following Statements of Consolidated Operations for the years 1999, 1998
and 1997 reflect the results of past operations and are not intended as any
representation as to results of operations for any future period. Future
operations will necessarily be affected by various and diverse factors and
developments, including changes in electric prices, regulation, population,
business activity, asset dispositions, competition, taxes, environmental
control, energy use, fuel, cost of labor, purchased power and other matters,
the nature and effect of which cannot now be determined.
Commonwealth Edison Company and Subsidiary Companies
Consolidated Statements of Income
For the period For the
Oct. 20 - | Jan. 1 - Years Ended
Dec. 31 | Oct. 19 December 31,
2000 | 2000 1999 1998
1997
---------- ---------- ------------------ | ------- ------- -------
| (In Millions)
|
|
Operating Revenues........................ $6,847,947 $7,103,410Revenues $ 7,083,022
---------- ---------- -----------1,310 | $ 5,702 $ 6,793 $ 7,150
Operating Expenses |
Fuel and Taxes:
Fuel.................................... $ 997,262 $1,057,527 $ 1,204,218
Purchased power......................... 551,575 748,017 400,055
OperationPower 322 | 1,655 1,549 1,853
Operating and maintenance............... 2,427,599 2,285,034 2,438,944Maintenance 423 | 1,653 2,352 2,274
Merger-Related Costs 14 | 53 -- --
Depreciation and amortization........... 843,248 943,288 1,005,089Amortization 130 | 868 836 938
Taxes (except income)................... 508,453 699,834 800,886Other Than Income taxes............................ 359,198 355,023 317,558
Investment tax credits deferred--net ... (25,828) (27,730) (31,015)
---------- ---------- -----------
$5,661,507 $6,060,993 $ 6,135,735
---------- ---------- -----------83 | 425 507 698
------- | ------- ------- -------
|
Total Operating Income.......................... $1,186,440 $1,042,417 $ 947,287
---------- ---------- -----------Expenses 972 | 4,654 5,244 5,763
| ------- ------- -------
Operating Income 338 | 1,048 1,549 1,387
| ------- ------- -------
Other Income and (Deductions):Deductions |
Interest Expense (127) | (469) (602) (502)
Provision for Dividends on long-term debt, net of
interest capitalized................... $ (544,962) $ (444,322) $ (488,033)
Interest on notes payable............... (18,602) (19,560) (9,134)
Allowance for funds used during
construction........................... 21,812 16,464 42,325
Income taxes applicable to nonoperating
activities............................. 27,083 4,974 11,010
Provisions for dividends and redemption
premiums--
Preferred and preference stocks of
ComEd................................. (23,756) (56,884) (60,486)
ComEd-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely ComEd's
subordinated debt securities.......... (29,710) (29,710) (28,860)
Loss on nuclear plant closure........... -- -- (885,611)
Income tax effects of nuclear plant
closure................................ -- -- 362,952
Miscellaneous--net...................... (21,060) (3,195) (130,665)
---------- ---------- -----------
$ (589,195) $ (532,233) $(1,186,502)
========== ========== ===========
Net Income/(Loss) before Extraordinary
Items and Cumulative Effect of Change in
Accounting Principle..................... $ 597,245 $ 510,184 $ (239,215)
Extraordinary Losses, less Applicable
Income Taxes............................. (27,579) -- (810,335)
Cumulative Effect of Change in Accounting
Principle................................ -- -- 196,700
---------- ---------- -----------
Net Income/(Loss)......................... $ 569,666 $ 510,184 $ (852,850)
---------- ---------- -----------
Earnings/(loss) per common share before
extraordinary items and cumulative effect
of change in accounting principle--
Basic................................... $ 2.75 $ 2.35 $ (1.10)
Diluted................................. $ 2.74 $ 2.34 $ (1.10)
Extraordinary losses, less applicable
income taxes (basic and diluted)......... $ (0.13) $ -- $ (3.75)
Cumulative effect of change in accounting
principle (basic and diluted)............ $ -- $ -- $ 0.91
Earnings/(loss) per common share--
Basic................................... $ 2.62 $ 2.35 $ (3.94)
Diluted................................. $ 2.61 $ 2.34 $ (3.94)
Cash Dividends Declared per Common Share.. $ 1.60 $ 1.60 $ 1.60
The accompanying Notes to Financial Statements are an integral part of the
above statements.
F-26
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
December 31
------------------------
ASSETS 1999 1998
------ ----------- -----------
(Thousands of Dollars)
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $672 million and
$858 million, respectively)....................... $25,007,637 $27,801,246
Less--Accumulated provision for depreciation....... 13,729,223 15,234,320
----------- -----------
$11,278,414 $12,566,926
Nuclear fuel, at amortized cost.................... 843,724 874,979
----------- -----------
$12,122,138 $13,441,905
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds...................... $ 2,546,540 $ 2,267,317
Subsidiary companies............................... 50,417 41,150
Other, at cost..................................... 470,848 275,794
----------- -----------
$ 3,067,805 $ 2,584,261
----------- -----------
Current Assets:
Cash and temporary cash investments................ $ 1,696,336 $ 55,828
Cash held for redemption of securities............. 285,056 3,062,816
Other cash investments............................. 62 --
Special deposits................................... 1,845,730 271
Receivables--
Customers........................................ 1,224,678 1,369,701
Forward share repurchase contract................ 813,046 --
Other............................................ 181,532 136,701
Provisions for uncollectible accounts............ (50,814) (48,645)
Coal and fuel oil, at average cost................. 15,613 135,415
Materials and supplies, at average cost............ 221,157 232,246
Deferred income taxes related to current assets and
liabilities....................................... 60,056 24,339
Prepayments and other.............................. 36,268 20,301
----------- -----------
$ 6,328,720 $ 4,988,973
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 1,792,907 $ 4,578,427
Other.............................................. 94,463 96,907
----------- -----------
$ 1,887,370 $ 4,675,334
----------- -----------
$23,406,033 $25,690,473
=========== ===========
The accompanying Notes to Financial Statements are an integral part of the
above statements.
F-27
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
December 31
-----------------------
CAPITALIZATION AND LIABILITIES 1999 1998
------------------------------ ----------- -----------
(Thousands of Dollars)
Capitalization (see accompanying statements):
Common stock equity.................................. $ 5,332,611 $ 5,099,444
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements.......... 1,790 74,488
Subject to mandatory redemption requirements....... -- 69,475
ComEd-obligated mandatorily redeemable preferred se-
curities of subsidiary trusts holding solely ComEd's
subordinated debt securities*....................... 350,000 350,000
Long-term debt....................................... 7,129,906 7,792,502
----------- -----------
$12,814,307 $13,385,909
----------- -----------
Current Liabilities:
Notes payable........................................ $ 4,750 $ 292,963
Current portion of long-term debt, redeemable prefer-
ence stock and capitalized lease obligations of sub-
sidiary companies................................... 915,439 2,314,443
Accounts payable..................................... 582,920 604,936
Accrued interest..................................... 146,718 180,674
Accrued taxes........................................ 1,386,930 134,976
Dividends payable.................................... 94,090 105,133
Customer deposits.................................... 68,128 56,954
Accrued plant closing costs.......................... -- 78,430
Other................................................ 316,542 155,262
----------- -----------
$ 3,515,517 $ 3,923,771
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes................................ $ 2,484,883 $ 3,805,460
Nuclear decommissioning liability for retired plants. 1,259,700 1,215,400
Accumulated deferred investment tax credits.......... 484,717 562,285
Accrued spent nuclear fuel disposal fee and related
interest............................................ 763,427 728,413
Obligations under capital leases of subsidiary compa-
nies................................................ 161,611 333,653
Regulatory liabilities............................... 596,157 595,005
Other................................................ 1,325,714 1,140,577
----------- -----------
$ 7,076,209 $ 8,380,793
----------- -----------
Commitments and Contingent Liabilities (Note 22)
$23,406,033 $25,690,473
=========== ===========
*As described in Note 11 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. The sole asset of ComEd Financing II, also a subsidiary trust of
ComEd, is $154.6 million principal amount of ComEd's 8.50% subordinated
deferrable interest debentures due January 15, 2027.
The accompanying Notes to Financial Statements are an integral part of the
above statements.
F-28
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
December 31
------------------------
1999 1998
----------- -----------
(Thousands of Dollars)
Common Stock Equity:
Common stock, without par value--
Outstanding--217,835,570 shares and 217,094,560
shares, respectively.............................. $ 4,971,618 $ 4,966,630
Preference stock expense of ComEd................... (72) (3,199)
Retained earnings................................... 363,621 142,813
Accumulated other comprehensive income.............. 7,539 --
Treasury stock--264,406 shares and 178,982 shares,
respectively....................................... (10,095) (6,800)
----------- -----------
$ 5,332,611 $ 5,099,444
----------- -----------
Preferred and Preference Stocks of ComEd--
Without Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--No shares and 13,499,549 shares,
respectively.................................... $ -- $ 504,957
Current redemption requirements for preference
stock included in current liabilities............ -- (432,320)
$1.425 convertible preferred stock, cumulative,
without par value--
Outstanding--56,291 shares and 58,211 shares,
respectively.................................... 1,790 1,851
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding............................ -- --
----------- -----------
$ 1,790 $ 74,488
----------- -----------
Subject to Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--700,000 shares and 1,720,345 shares,
respectively.................................... $ 69,475 $ 171,348
Current redemption requirements for preference
stock included
in current liabilities........................... (69,475) (101,873)
----------- -----------
$ -- $ 69,475
----------- -----------
ComEd-ObligatedCompany-Obligated |
Mandatorily Redeemable Preferred Securities of |
Subsidiary Trusts Holding Solely ComEd'sthe Company's |
Subordinated Debt Securities.................Securities (6) | (24) (30) (30)
Other, Net 31 | 277 60 90
------- | ------- ------- -------
|
|
Total Other Income and Deductions (102) | (216) (572) (442)
------- | ------- ------- -------
Income Before Income Taxes and Extraordinary Items 236 | 832 977 945
Income Taxes 103 | 229 326 351
------- | ------- ------- -------
|
Income Before Extraordinary Items 133 | 603 651 594
Extraordinary Items (net of income taxes of $2 and $18 |
for the periods ending Oct. 19, 2000 and Dec. 31, 1999, |
respectively) -- | (4) (28) --
------- | ------- ------- -------
|
Net Income 133 | 599 623 594
Preferred and Preference Stock Dividends -- | 3 24 57
------- | ------- ------- -------
|
Net Income on Common Stock $ 350,000133 | $ 350,000
----------- -----------596 $ 599 $ 537
======= | ======= ======= =======
See Notes to Consolidated Financial Statements
83
Commonwealth Edison Company and Subsidiary Companies
Consolidated Statements of Cash Flows
For the period
--------------------------------------
Oct. 20 - Dec. 31 | Jan.1 - Oct. 19 For the Years Ended December 31,
2000 | 2000 1999 1998
---- | ---- ---- ----
|
| (In Millions)
Cash Flows from Operating Activities |
Net Income $ 133 | $ 599 $ 623 $ 594
Adjustments to reconcile Net Income to Net |
Cash Flows provided by Operating Activities: |
Depreciation and Amortization 174 | 1,012 902 954
Extraordinary Items (net of income taxes) -- | 4 28 --
(Gain)/loss on Forward Share Arrangements -- | (113) 44 --
Provision for Uncollectible Accounts 16 | 30 87 61
Deferred Income Taxes 72 | 886 (1,378) 103
Merger-Related Costs 14 | 53 -- --
Early Retirement and Separation Program -- | 28 (62) 10
Contribution to Environmental Trust -- | -- (250) --
Recovery of Coal Reserve Regulatory Assets -- | -- 198 108
Other Operating Activities (69) | (10) (77) 29
Changes in Working Capital: |
Accounts Receivable (61) | 86 (171) (547)
Inventories 97 | 17 (6) 8
Accounts Payable & Accrued Expenses (52) | (1,175) 1,183 90
Other Current Assets & Liabilities 176 | (343) 124 142
------- | ------- ------- -------
Net Cash Flows provided by Operating Activities 500 | 1,074 1,245 1,552
|
Cash Flows from Investing Activities |
Investment in Plant (196) | (1,210) (1,337) (1,095)
Plant Removals, net (11) | (14) (75) (87)
Sales of Generating Plants -- | -- 4,886 177
Contributions to Nuclear Decommissioning Trust Funds (89) | (39) (90) (137)
Intercompany Receivables from Affiliates (417) | 302 (2,209) --
Other Investments (63) | 125 (39) --
Other Investing Activities -- | 9 8 7
------- | ------- ------- -------
|
Net Cash Flows (used in) provided by Investing |
Activities (776) | (827) 1,144 (1,135)
|
Cash Flows from Financing Activities |
Issuance of Long-Term Debt:
First mortgage bonds:
Maturing 2000 through 2004--6 3/8% to 9 3/8%......Debt, net of issuance costs -- | 450 -- 3,605
Common Stock Repurchases -- | (153) (115) --
Retirement of Long-Term Debt (84) | (755) (1,558) (498)
Change in Short-Term Debt -- | (5) (272) 118
Redemption of Preferred Securities of Subsidiaries -- | (71) (534) (34)
Dividends on Capital Stock (95) | (260) (392) (430)
Common Stock Forward Repurchases -- | (67) (813) (7)
Nuclear Fuel Lease Principal Payments -- | (270) (255) (255)
Proceeds from the Sale/Leaseback of Nuclear Fuel -- | -- -- 101
------- | ------- ------- -------
Net Cash Flow (used in) provided by Financing |
Activities (179) | (1,131) (3,939) 2,600
------- | ------- ------- -------
|
Cash, Cash Equivalents and Restricted Cash: |
Increase (Decrease) (455) | (884) (1,550) 3,017
Balance at beginning of period 656 | 1,540 3,090 73
------- | ------- ------- -------
Balance at end of period $ 698,245201 | $ 1,080,000
Maturing 2005 through 2014--4.40% to 8 3/8%....... 1,299,400 1,485,400
Maturing 2015 through 2023--5.85% to 9 7/8%....... 1,589,443 1,981,000
----------- -----------656 $ 3,587,0881,540 $ 4,546,400
Transitional trust notes, due 2000 through 2008--
5.29% to 5.74%..................................... 3,070,000 3,400,000
Sinking fund debentures, due 2001 through 2011--2
3/4% to 7 5/8%..................................... 30,866 94,159
Pollution control obligations, due 2007 through
2014--5.3% to 5 7/8%............................... 139,200 140,700
Other long-term debt................................ 1,089,347 1,259,204
Current maturities of long-term debt included in
current liabilities................................ (737,615) (1,585,281)
Unamortized net debt discount and premium........... (48,980) (62,680)
----------- -----------
$ 7,129,906 $ 7,792,502
----------- -----------
$12,814,307 $13,385,909
----------- -----------3,090
======= | ======= ======= =======
The accompanyingSee Notes to Consolidated Financial Statements
are an integral part of the
above statements.
F-2984
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS/(DEFICIT)Commonwealth Edison Company and Subsidiary Companies
Consolidated Balance Sheets
At December 31,
2000 1999
-------- --------
Assets (In Millions)
-----------
|
Current Assets |
Cash and Cash Equivalents $ 141 | $ 1,255
Restricted Cash 60 | 285
Accounts Receivable, net |
Customer 970 | 1,134
Other 279 | 1,005
Inventories, at average cost |
Fossil Fuel 12 | 14
Materials and Supplies 174 | 220
Deferred Income Taxes 89 | 55
Intercompany Receivable from Affiliate 400 | --
Other 285 | 77
-------- | --------
Total Current Assets 2,410 | 4,045
-------- | --------
|
Property, Plant and Equipment, net 7,657 | 11,993
|
Deferred Debits and Other Assets |
Regulatory Assets 1,110 | 1,326
Nuclear Decommissioning Trust Funds 2,669 | 2,547
Investments 175 | 141
Goodwill, net 4,766 | --
Notes Receivable from Affiliates 1,316 | 2,451
Other 178 | 73
-------- | --------
Total Deferred Debits and Other Assets 10,214 | 6,538
-------- | --------
Total Assets $ 20,281 | $ 22,576
======== | ========
|
Liabilities and Shareholders' Equity |
|
Current Liabilities |
Notes Payable, Bank $ -- | $ 5
Long-Term Debt Due Within One Year 348 | 732
Accounts Payable 597 | 415
Accrued Expenses 148 | 120
Accrued Interest 222 | 215
Accrued Taxes 162 | 1,421
Other 329 | 519
-------- | --------
Total Current Liabilities 1,806 | 3,427
-------- | --------
|
Long-Term Debt 6,882 | 6,962
|
Deferred Credits and Other Liabilities |
Deferred Income Taxes 1,837 | 2,456
Unamortized Investment Tax Credits 59 | 485
Nuclear Decommissioning Liability for Retired Plants 1,301 | 1,260
Pension Obligations 285 | 477
Non-Pension Postretirement Benefits Obligation 315 | 442
Other 1,285 | 1,336
-------- | --------
Total Deferred Credits and Other Liabilities 5,082 | 6,456
-------- | --------
|
Mandatorily Redeemable Preference Stock -- | 69
|
Company-Obligated Mandatorily Redeemable Preferred |
Securities of Subsidiary Trusts Holding the Company's |
Subordinated Debt Securities 328 | 350
|
Commitments and Contingencies |
|
Shareholders' Equity |
Common Stock 2,678 | 2,678
Preferred and Preference Stock 7 | 9
Other Paid in Capital 5,388 | 2,211
Retained Earnings 133 | 433
Treasury Stock, at cost (2,023) | (27)
Accumulated Other Comprehensive Income -- | 8
-------- | --------
Total Shareholders' Equity 6,183 | 5,312
-------- | --------
Total Liabilities and Shareholders' Equity $ 20,281 | $ 22,576
======== | ========
See Notes to Consolidated Financial Statements
85
Commonwealth Edison Company and Subsidiary Companies
Statement of Changes in Shareholders' Equity and Comprehensive Income
Year Ended December 31, 2000 1999 1998
1997
-------- -------- ----------
(Thousands of Dollars)- ----------------------- ---- ---- ----
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
(dollars in millions and shares in thousands)
Common Stock
Balance at Beginning of Period................. $142,813 $(21,184) $1,177,997
Add--Net income/(loss)......................... 569,666 510,184 (852,850)Year 214,238 $ 2,678 214,236 $ 2,678 214,228 $ 2,678
Conversion of $1.425 Preferred Stock 4 -- 2 -- 8 --
-------- -------- ----------
$712,479 $489,000 $ 325,147
-------- -------- ----------
Deduct--
Cash dividends declared on
common stock.............................. $347,783 $347,161 $ 346,225
Other capital stock transactions--net....... 1,075 (974) 106
-------- -------- ----------
$348,858 $346,187 $ 346,331
-------- -------- ----------
Balance at End of Year 214,242 $ 2,678 214,238 $ 2,678 214,236 $ 2,678
Preferred and Preference Stock
Balance at Beginning of Year 57 $ 9 13,561 $ 524 13,566 $ 507
Preferred and Preference Stock Redemptions (56) (2) (13,504) (515) (8) --
Preference Stock Issuance -- -- 3 17
-------- -------- -------- -------- -------- --------
Balance at End of Year 1 $ 7 57 $ 9 13,561 $ 524
Other Paid in Capital
Balance at Beginning of Year $ 2,211 $2,208 $2,208
Capital Stock and Warrant Expense -- 3 --
--------
Balance at October 19, 2000 2,211
- -----------------------------------------------------------------------------
Merger Fair Value Adjustment 3,177
-------- -------- --------
Balance at End of Year $ 5,388 $2,211 $2,208
Retained Earnings
Balance at Beginning of Year $ 433 $ 177 $ (19)
Net Income 599 623 594
Dividends:
Common Stock (238) (342) (343)
Preferred and Preference Stock (1) (9) (55)
Capital Stock Activity:
Expenses of Capital Stock Activity (1) (16) --
---------
Balance at October 19, 2000 792
Merger Fair Value Adjustment (792)
Net Income for Post Merger Period
(Includes $716
million, $494 million and $331 million of
appropriated retained earnings at(from October 20, 2000 to December 31, 1999, 1998 and 1997, respectively)....... $363,621 $142,813 $ (21,184)
======== ======== ==========
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
1999 1998 19972000) 133
-------- -------- ----------
(Thousands--------
Balance at End of Dollars)
Net Income/(Loss) onYear $ 133 $ 433 $ 177
Treasury Shares
Balance at Beginning of Year 264 $ (27) 179 $ (7) -- $ --
Capital Stock Activity:
Repurchase of Common Stock.............. $569,666 $510,184Stock 3,964 (153) 85 (20) 179 (7)
Stock Forward Repurchase Contract 26,268 (993) -- -- --
-------- --------
Balance at October 19, 2000 30,496 (1,173)
- -----------------------------------------------------------------------------
Repurchase of Common Stock 19,941 (850)
-------- -------- -------- -------- -------- --------
Balance at End of Year 50,437 $(2,023) 264 $ (852,850)(27) 179 $ (7)
Accumulated Other Comprehensive Income
Unrealized gains on securities...............Balance at Beginning of Year $ 12,4718 $ -- $ --
Income taxesUnrealized Gain(Loss) on other comprehensive income... (4,932)Marketable Securities,
net of income tax of $0 and $5, respectively (2) 8 --
--------------
Balance at October 19, 2000 6
- -----------------------------------------------------------------------------
Merger Fair Value Adjustment (6)
-------- -------- ----------
Other comprehensive income, net of tax....... $ 7,539 $ -- $ --
-------- -------- ----------
Comprehensive Income/(Loss).................... $577,205 $510,184 $ (852,850)
======== ======== ==========
The accompanying Notes to Financial Statements are an integral part of the
above statements.
F-30
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
1999 1998 1997
----------- ----------- -----------
(Thousands of Dollars)
Cash Flow from Operating Activities:
Net income/(loss)...................... $ 569,666 $ 510,184 $ (852,850)
Adjustments to reconcile net
income/(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 908,894 994,861 1,051,543
Deferred income taxes and investment
tax credits--net.................... (1,448,363) 69,768 (345,042)
Contribution to environmental trust.. (250,000) -- --
Recovery of coal reserve regulatory
assets.............................. 197,974 108,372 82,441
Increase in MGP liability............ 68,078 -- --
Extraordinary loss related to write-
off of certain net regulatory
assets.............................. -- -- 810,335
Cumulative effective of change in
accounting principle................ -- -- (196,700)
Loss on nuclear plant closure........ -- -- 885,611
Write-down of uranium-related
properties.......................... -- -- 64,387
Provisions/(payments) for revenue
refunds--net........................ (22,603) (23,622) 45,470
Equity component of allowance for
funds used during construction...... (7,789) (6,959) (23,770)
Provisions/(payments) for liability
for separation costs--net........... (62,396) 9,757 15,986
Net effect on cash flows of changes
in:
Receivables........................ 103,515 (486,838) 24,083
Coal and fuel oil.................. 618 (14,751) 19,698
Materials and supplies............. (5,202) 19,805 41,659
Accounts payable excluding nuclear
fuel lease principal payments and
separation costs--net............. (19,251) 97,094 259,810
Accrued interest and taxes......... 1,246,007 (27,201) (17,903)
Other changes in certain current
assets and liabilities............ 124,154 144,290 39,005
Other--net........................... (43,257) 27,525 109,927
----------- ----------- -----------
$ 1,360,045 $ 1,422,285 $ 2,013,690
----------- ----------- -----------
Cash Flow from Investing Activities:
Construction expenditures.............. $(1,204,064) $ (966,494) $(1,043,311)
Nuclear fuel expenditures.............. (253,483) (166,168) (185,373)
Sales of generating plants............. 4,885,720 177,454 60,791
Equity component of allowance for
funds used during construction........ 7,789 6,959 23,770
Contributions to nuclear
decommissioning funds................. (89,945) (136,771) (114,825)
Other investments and special
deposits.............................. (1,886,323) (10,965) (13,246)
Plant removals--net.................... (74,584) (86,988) (85,923)
----------- ----------- -----------
$ 1,385,110 $(1,182,973) $(1,358,117)
----------- ----------- -----------
Cash Flow from Financing Activities:
Issuance of securities--
Transitional trust notes.............. $ -- $ 3,382,629 $ --
Other long-term debt.................. 201,764 382,270 362,663
Company-obligated mandatorily
redeemable preferred securities if
subsidiary trust holding solely the
Company's subordinated debt
securities........................... -- -- 150,000
Capital stock......................... 20,941 16,644 15,778
Retirement and redemption of
securities--
Transitional trust notes.............. (330,000) -- --
Other long-term debt.................. (1,431,545) (615,858) (746,240)
Capital stock......................... (639,342) (34,066) (44,111)
Repurchase of common stock............. (813,046) (6,800) --
Cash dividends paid on common stock.... (347,564) (346,954) (345,936)
Proceeds from sale/leaseback of
nuclear fuel.......................... -- 101,038 149,955
Nuclear fuel lease principal payments.. (255,402) (255,605) (166,411)
Increase/(decrease) in short-term
borrowings............................ (288,213) 134,813 29,400
----------- ----------- -----------
$(3,882,407) $ 2,758,111 $ (594,902)
----------- ----------- -----------
Change in Net Cash Balance.............. $(1,137,252) $ 2,997,423 $ 60,671
Cash, Temporary Cash Investments and
Cash Held for Redemption of Securities:
Balance at Beginning of Period....... 3,118,644 121,221 60,550
----------- ----------- -----------
Balance at End of Period.............Year $ 1,981,392-- $ 3,118,6448 $ 121,221
=========== =========== ===========
The accompanying--
Total Shareholders' Equity $ 6,183 $ 5,312 $5,580
======== ======== ========
Comprehensive Income
Net Income $ 732 $ 623 $ 594
Other Comprehensive Income, net of income tax -- 8 --
-------- -------- --------
Total Comprehensive Income $ 732 $ 631 $ 594
======== ======== ========
See Notes to Consolidated Financial Statements
are an integral part of the
above statements.
F-31
86
UNICOM CORPORATION AND SUBSIDIARY COMPANIESCommonwealth Edison Company and Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(1) Summary ofSTATEMENTS
(Dollars in millions, unless otherwise noted)
1. Significant Accounting Policies.
Corporate StructurePolicies
Description of Business
Commonwealth Edison Company (ComEd) is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to 3.5
million retail customers. ComEd's retail electric service territories are
located principally in northern Illinois including metropolitan Chicago,
spanning an area of approximately 11,300 square miles. ComEd operates as one
business segment, that of a vertically integrated electric utility. See Note 19
- - Subsequent Event, regarding Exelon Corporation's (Exelon's) corporate
restructuring.
Basis of Presentation. Unicom is the parent holding
company of ComEd and Unicom Enterprises. ComEd, a regulated electric utility,
is the principal subsidiary of Unicom. Unicom Enterprises is an unregulated
subsidiary of Unicom and is engaged, through its subsidiaries, in energy
service activities.Presentation
The consolidated financial statements of ComEd include the accounts of
Unicom, ComEd, Commonwealth Edison Company of Indiana, Company,Inc. , Edison Development the Trusts,Canada
Inc. , ComEd Financing I and ComEd Financing II , ComEd Funding LLC (ComEd
Funding), and ComEd Transitional Funding Trust and Unicom's unregulated subsidiaries.(ComEd Funding Trust). All
significant intercompany transactions have been eliminated. Although the
accounts of ComEd Funding and ComEd Funding Trust, which are SPEs,Special Purpose
Entities (SPEs), are included in the consolidated financial statements, as
required by GAAP,generally accepted accounting principles (GAAP), ComEd Funding and
ComEd Funding Trust are legally separatedseparate legal entities from Unicom and ComEd. The assets of the
SPEs are not available to creditors of Unicom or ComEd and the transitional property held
by the SPEs are not assets of ComEd. Accounting policies for regulated
operations are in accordance with those prescribed by the regulatory authorities
having jurisdiction, principally the Illinois Commerce Commission (ICC), the
Federal Energy Regulatory Commission (FERC) and the Securities and Exchange
Commission (SEC) under the Public Utility Holding Company Act of 1935 (PUHCA).
ComEd, a regulated electric utility, is a principal subsidiary of
Exelon, which owns 99.9% of ComEd common stock. ComEd was the principal
subsidiary of Unicom or ComEd.Corporation (Unicom) prior to the merger with Exelon. See
Note 2 - Merger. The merger was accounted for using the purchase method of
accounting in accordance with GAAP. The effects of the purchase method are
reflected on the financial statements of ComEd as of the merger date.
Accordingly, the financial statements presented for the period after the merger
reflect a new basis of accounting. ComEd's financial statements for 2000,
separated by a bold black line, are presented for periods prior to and
subsequent to the merger.
Accounting for the Effects of Regulation
ComEd accounts for its regulated electric operations in accordance with
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the
Effects of Certain Types of Regulation," requiring ComEd to record in the
financial statement the effects of the rate regulation to which these operations
are currently subject. Use of Estimates.SFAS No. 71 is applicable to the utility
operations of ComEd that meet the following criteria: (1) third-party regulation
of rates; (2) cost-based rates; and (3) a reasonable assumption that all costs
will be recoverable from customers through rates. ComEd believes that it is
probable that regulatory assets associated with these operations will be
recovered. If a separable portion of ComEd's business no longer meets the
provisions of SFAS No. 71, ComEd is required to eliminate the financial
statement effects of regulation for that portion.
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Due to the transition to a new
customer information and billing system, a larger portion of customer87
Revenues
Operating revenues and net receivables were based on estimates for the period July 1998 through
November 1999 than in previous periods.
Regulation. ComEd is subject to regulation as to accounting and ratemaking
policies and practices by the ICC and FERC. ComEd's accounting policies and
the accompanying consolidated financial statements conform to GAAP applicable
to rate-regulated enterprises for the non-generation portion of its business,
including the effects of the ratemaking process in accordance with SFAS
No. 71, Accounting for the Effects of Certain Types of Regulation. Such
effects on the non-generation portion of its business concern mainly the time
at which various items enter into the determination of operating results in
order to follow the principle of matching costs with the applicable revenues
collected from or returned to customers through future rates. See Note 3 for
information regarding the write-off of generation-related regulatory assets
and liabilities in December 1997.
ComEd's investment in generation-related net utility plant, not subject to
cost-based rate regulation, including construction work in progress and
nuclear fuel, and excluding the decommissioning costs included in the
accumulated provision for depreciation was $7.8 billion and $9.2 billion as of
December 31, 1999 and 1998, respectively. See "Regulatory Assets and
Liabilities" below regarding the plant impairment recorded by ComEd in the
second quarter of 1998.
F-32
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Regulatory Assets and Liabilities. Regulatory assets are incurred costs
which have been deferred and are amortized for ratemaking and accounting
purposes. Regulatory liabilities represent amounts to be settled with
customers through future rates. Regulatory assets and liabilities reflected on
the Consolidated Balance Sheets at December 31, 1999 and 1998 were as follows:
December 31
---------------------
1999 1998
---------- ----------
(Thousands of
Dollars)
Regulatory assets:
Impaired production plant............................... $ 366,221 $2,955,154
Deferred income taxes (1)............................... 688,946 680,356
Nuclear decommissioning costs--Dresden Unit 1........... 202,308 255,031
Nuclear decommissioning costs--Zion Units 1 and 2....... 496,638 443,130
Coal reserves........................................... -- 197,975
Unamortized loss on reacquired debt (2)................. 38,794 46,781
---------- ----------
$1,792,907 $4,578,427
========== ==========
Regulatory liabilities:
Deferred income taxes (1)............................... $ 596,157 $ 595,005
========== ==========
- --------
(1) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes, for
non-generation related temporary differences.
(2) Amortized over the remaining lives of the non-generation related long-term
debt issued to finance the reacquisition. See "Loss on Reacquired Debt"
below for additional information.
ComEd performed a SFAS No. 121 impairment analysis in 1998 which concluded
that future revenues, excluding the collection of the CTC expected to be
recovered from electric supply services, would be insufficient to cover the
costs of certain of its generating assets. Because future regulated cash
flows, which include the CTC, tariff revenues and gains from the disposition
of assets, are expected to provide recovery of the impaired plant assets, a
regulatory asset was recorded for the same amount. This regulatory asset is
currently being amortized as it is recovered through regulated cash flows over
a transition period that extends through 2006. Consistent with the provisions
of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion resulted in
a regulatory liability, which was used to recover regulatory assets.
Therefore, the gain on the sale, excluding $43 million of amortization of
investment tax credits, wasgenerally recorded as a regulatory liability in the amount
of $2.544 billion and amortized in the fourth quarter of 1999. The
amortization of the regulatory liability and additional regulatory asset
amortization of $2.456 billion are reflected in depreciation and amortization
expense on Unicom's Statements of Consolidated Operations and resulted in a
net reductionservice is rendered or
energy is delivered to depreciation and amortization expense of $88 million. See
Note 3 for additional information regarding amortization of regulatory assets
with respect to limits on ComEd's earnings due to statutory sharing
provisions. See Note 5 for additional information regarding the fossil plant
sale.
The regulatory assets for Dresden Unit 1 and Zion Units 1 and 2 represent
unrecovered nuclear decommissioning costs, which are expected to be recovered
over the periods 2000-2011 and 2000-2013, respectively, through a separate
rate recovery rider provided for by the 1997 Act. See "Depreciation,
Amortization of Regulatory Assets and Liabilities and Decommissioning" below
for additional information.
F-33
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Depreciation, Amortization of Regulatory Assets and Liabilities, and
Decommissioning. Depreciation, amortization of regulatory assets and
liabilities, and decommissioning for the years 1999, 1998 and 1997 were as
follows:
1999 1998 1997
-------- -------- ----------
(Thousands of Dollars)
Depreciation expense.............................. $713,340 $788,057 $ 881,196
Amortization of regulatory assets and
liabilities--net................................. 46,088 65,211 15,272
-------- -------- ----------
$759,428 $853,268 $ 896,468
Decommissioning expense........................... 83,820 90,020 108,621
-------- -------- ----------
$843,248 $943,288 $1,005,089
======== ======== ==========
Provisions for depreciation, including nuclear plant, were at average annual
rates of average depreciable utility plant and equipment for the years 1999,
1998 and 1997 as follows:
1999 1998 1997
---- ---- ----
Average annual depreciation rates............................. 2.66% 3.02% 3.36%
Depreciation is provided on a straight-line basis by amortizing the cost of
depreciable plant and equipment over estimated service lives for each class of
plant. The decrease in the average depreciation rates for the year 1999,
compared to 1998, relates primarily to a reduction in nuclear depreciation
rates due to the partial impairment of production plant, which was recorded as
a component of accumulated depreciation, partially offset by shortened
depreciable lives for certain nuclear stations. See "Regulatory Assets and
Liabilities" above for additional information on the partial impairment of
production plant.
Nuclear plant decommissioning costs generally are accrued over the current
NRC license lives of the related nuclear generating units. The accrual is
based on an annual levelized cost of the unrecovered portion of estimated
decommissioning costs, which are escalated for expected inflation to the
expected time of decommissioning and are net of expected earnings on the trust
funds. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Results of Operations--Depreciation,
Amortization and Decommissioning," for a discussion of questions raised by the
staff of the SEC and a FASB review regarding the electric utility industry's
method of accounting for decommissioning costs. Dismantling is expected to
occur relatively soon aftercustomers. At the end of the current NRC license life of each generating station currently operating. The accrual for decommissioning is
based on the prompt removal method authorized by NRC guidelines. ComEd's ten
operating units have remaining current NRC license lives ranging from 7 to 28
years. ComEd's Zion Station and its first nuclear unit, Dresden Unit 1, are
retired and are expected to be dismantled beginning in the years 2014 and
2011, respectively, which is consistent with the regulatory treatment for
recovery of the related decommissioning costs.
Based on ComEd's most recent study, decommissioning costs are estimated to
be $5.7 billion in current-year (2000) dollars, including a contingency
allowance. Thismonth, ComEd accrues an
estimate includes $617 million of non-radiological costs,
which are included in ComEd's proposed rider for recovery, as discussed below.
ComEd's decommissioning cost expenditures at the end of the units' operating
lives are estimated to total approximately $13.8 billion. These expenditures
are expected to occur primarily during the period from 2007 through 2034. All
such costs are expected to be funded by the external decommissioning trusts,
which ComEd established in compliance with Illinois law and into which ComEd
has been making annual contributions. Future decommissioning cost estimates
may be significantly affected by
F-34
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
the adoption of or changes to NRC regulations, as well as changes in the
assumptions used in making such estimates, including changes in technology,
available alternatives for the disposalunbilled amount of nuclear waste and inflation.
Since 1995, ComEd has collected decommissioning costs from its ratepayers in
conjunction with a riderenergy delivered or services provided to its
tariffs. The rider allows annual adjustments
to decommissioning cost collections outside the context of a traditional rate
proceeding and will continue under the 1997 Act. The current estimated
decommissioning costs include a contingency allowance, but, except at Dresden
Unit 1, exclude amounts for alternative spent fuel storage installations,
which may be necessary to store spent fuel during the period beginning at the
end of the NRC license lives of the plants to the date when the DOE accepts
the spent fuel for permanent storage. Contingency allowances used in
decommissioning cost estimates provide for currently unspecifiable costs that
are likely to occur after decommissioning begins and generally range from 20%
to 25% of the currently specifiable costs. In February 1998, the ICC
authorized a reduction in the annual decommissioning cost accrual from $109
million to $84 million. The reduction primarily reflected stronger than
expected after-tax returns on the external trust funds and lower than expected
escalation in low-level waste disposal costs, partially offset by the higher
current-year cost estimates, including a contingency allowance.
Under its most recent annual rider, filed with the ICC on February 26, 1999,
ComEd has proposed to increase its estimated annual decommissioning cost
accrual from $84 million to $130 million. The proposed increase primarily
reflects an increase in low-level waste disposal cost escalation, the
inclusion of $219 million in current-year (2000) dollars for safety-related
costs of maintaining Zion Station in a mothballed condition until
dismantlement begins, and the inclusion of non-radiological costs in the
decommissioning cost estimates for recovery under the rider.
The proposed annual decommissioning cost accrual of $130 million was
determined using the following assumptions: the decommissioning cost estimate
of $5.7 billion in current-year (2000) dollars, after-tax earnings on the tax-
qualified and nontax-qualified decommissioning funds of 7.49% and 6.83%,
respectively, and an escalation rate for future decommissioning costs of
4.84%. The proposed annual accrual provided over the current NRC license lives
of the nuclear plants, coupled with the expected fund earnings and amounts
previously recovered in rates, is expected to aggregate to approximately $13.8
billion.
For the ten operating nuclear units, decommissioning cost accruals are
recorded as portions of depreciation expense and accumulated provision for
depreciation on the Statements of Consolidated Operations and the Consolidated
Balance Sheets, respectively, as such costs are recovered through rates. As of
December 31, 1999, the total decommissioning costs included in the accumulated
provision for depreciation were $2,100 million.
For ComEd's retired nuclear units, the total estimated liability for nuclear
decommissioning in current-year (2000) dollars is recorded as a noncurrent
liability. The unrecovered portion of the liability is recorded as a
regulatory asset. The nuclear decommissioning liability for retired plants as
of December 31, 1999 was as follows:
Zion
Dresden Units
Unit 1 1 and 2 Total
-------- -------- ----------
(Thousands of Dollars)
Amounts recovered through rates and investment
fund earnings.................................... $104,792 $455,962 $ 560,754
Unrecovered portion of the liability.............. 202,308 496,638 698,946
-------- -------- ----------
Nuclear decommissioning liability for retired
plants.......................................... $307,100 $952,600 $1,259,700
======== ======== ==========
F-35
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts. Consequently, such collections do not add to
the cash flows available for general corporate purposes. The ICC has approved
ComEd's funding plan, which provides for annual contributions of current
accruals and ratable contributions of past accruals over the remaining current
NRC license lives of the nuclear plants. The fair value of funds accumulated
in the external trusts at December 31, 1999 was $2,547 million, which includes
pre-tax unrealized appreciation of $721 million. The earnings on the external
trusts for operating plants accumulate in the fund balance and accumulated
provision for depreciation.customers.
Nuclear decommissioning funding as of December 31,
1999 was as follows:
(Thousands of Dollars)
Amounts recovered through rates and investment fund
earnings for operating plants (included in the
accumulated provision for depreciation)................ $2,099,796
Amounts recovered through rates and investment fund
earnings for retired plants............................ 560,754
Less past accruals not yet contributed to the trusts.... 114,010
----------
Fair value of external trust funds..................... $2,546,540
==========
Customer Receivables and Revenues. ComEd is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to a
diverse base of residential, commercial, industrial and wholesale customers.
ComEd's electric service territory has an area of approximately 11,300 square
miles and an estimated population of approximately eight million as of
December 31, 1999. It includes the City, an area of about 225 square miles
with an estimated population of approximately three million from which ComEd
derived approximately 30 percent of its ultimate consumer revenues in 1999.
ComEd had approximately 3.5 million electric customers at December 31, 1999.
Revenues are recognized as electric and delivery services are provided to
customers.
As a result of the implementation of a new customer billing and information
system in July 1998, billing and collection delays have temporarily increased
accounts receivable from customers. ComEd has recorded increased provisions
for uncollectible accounts to recognize the estimated portion of the
receivables that are not expected to be recoverable. Such provisions increased
O&M expenses by $35 million and $10 million in 1999 and 1998, respectively,
compared to normally expected levels. See "Use of Estimates" above for
additional information regarding ComEd's revenues and net receivables.
See Notes 3 and 19 for additional information.
Nuclear Fuel.Fuel
The cost of nuclear fuel is amortizedcapitalized and charged to fuel expense based on
the quantity of heat produced
using the unit of production method. As
authorized by the ICC, provisions for spentEstimated costs of nuclear fuel disposal
are charged to fuel expense as the related fuel is consumed.
Depreciation, Amortization and Decommissioning
Depreciation is provided over the estimated service lives of property,
plant, and equipment on a straight line basis. Annual depreciation provisions
for financial reporting purposes, expressed as a percentage of average service
life for each asset category are presented below:
Asset Category 2000 | 1999 1998
-------------- ---- | ---- ----
|
Electric -- Transmission and Distribution 5.95% | 3.24% 3.23%
Electric -- Generation 4.87% | 2.20% 2.79%
Other Property and Equipment 8.51% | 5.71% 5.22%
Regulatory assets are amortized over a recovery period specified in the
related legislation or regulatory agreement. Goodwill associated with the merger
is being amortized on a straight line basis over 40 years. See Note 2 - Merger.
Accumulated amortization of goodwill was $23 million at December 31, 2000.
ComEd's estimate of the costs have
been recorded atfor decommissioning its nuclear
generating stations is currently included in regulated rates. The amounts
recovered from customers are deposited in trust accounts and invested for
funding of future costs for current and retired plants. ComEd accounts for the
current period's cost of decommissioning by recording a level requiredcharge to recoverdepreciation
expense and a corresponding liability in accumulated depreciation for its
operating nuclear units and a reduction to regulatory assets for its retired
units. ComEd believes that the fee payableamounts being recovered from customers through
electric rates along with the earnings on the current
nuclear-generated and sold electricity andtrust funds will be sufficient to
fully fund its decommissioning obligations.
Capitalized Interest
ComEd uses SFAS No. 34, Capitalizing Interest Costs, to calculate the
current interest accrual on the
one-time fee payable to the DOE for nuclear generation prior to April 7, 1983.
The one-time fee and interest thereon have been recovered and the current fee
and interest on the one-time fee are presently being recovered through base
rates. See Note 14 for additional information concerning the disposalcosts during construction of spent
nuclear fuel, one-time fee and interest accrual on the one-time fee. Nuclear
fuel expenses, including leased fuel costs and provisions for spent nuclear
fuel disposal costs, were $380 million, $325 million and $298 million for the
years 1999, 1998 and 1997, respectively.
Income Taxes. Deferred income taxes are provided for income and expense
items recognized for financial accounting purposes in periods that differ from
those for income tax purposes. Income taxes deferred in prior years are
charged or credited to income as the book/tax temporary differences reverse.
Prior years' deferred investment tax credits are amortized through credits to
income generally over the lives of the related property. Income tax credits
resulting from interest charges applicable to nonoperating activities,
principally construction, are classified as other income.
F-36
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
AFUDC and Interest Capitalized. In accordance with the uniform systems of
accounts prescribed by regulatory authorities, ComEd capitalizes AFUDC,
compounded semiannually, which represents the estimated cost ofdebt funds used to finance its non-regulated
construction program for the non-generation portionprojects. ComEd recorded capitalized interest of its
business. The equity component of AFUDC is recorded on an after-tax basis and
the borrowed funds component of AFUDC is recorded on a pre-tax basis. The
average annual capitalization rates were 7.81%, 8.34% and 9.39% for the years
1999, 1998 and 1997, respectively. ComEd discontinued SFAS No. 71 regulatory
accounting practices in December 1997 for the generation portion of its
business, and as a result began capitalizing interest in 1998. ComEd
capitalized$5 million, $22
million and $28 million for the yearsin 2000, 1999 and 1998, respectively,respectively.
Allowance for Funds Used During Construction (AFUDC) is the cost,
during the period of construction, of debt and equity funds used to finance
construction projects for regulated operations. AFUDC is recorded as a charge to
Construction Work in interest costsProgress and as a non-cash credit to AFUDC which is
included in Other Income and Deductions. The rates used for capitalizing AFUDC
are computed under a method prescribed by regulatory authorities.
Income Taxes
Deferred Federal and state income taxes are provided on its generation-related construction workall significant
temporary differences between book bases and tax bases of assets and
liabilities, transactions that reflect taxable income in progressa year different from
book income and nuclear fueltax carryforwards. Investment tax credits previously used for
income tax purposes have been deferred on ComEd's Consolidated Balance Sheets
and are recognized in process. AFUDCbook income over the life of the related property. ComEd
files a consolidated Federal and interest capitalized do not
contributestate income tax returns with Exelon, and was
previously included in Unicom's consolidated income tax returns. Current and
deferred income taxes of the consolidated group are allocated to the current cash flowComEd as if
ComEd filed separate income tax returns.
88
Gains and Losses on Reacquired Debt
Gains and losses on reacquired debt are recognized in ComEd's
Consolidated Statements of Unicom or ComEd.
Interest. Total interest costsIncome as incurred. Gains and losses on reacquired
debt related to regulated operations incurred on debt, leasesprior to January 1, 1998, have
been deferred and other
obligations were $642 million, $538 million and $598 million for the years
1999, 1998 and 1997, respectively.
Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt of ComEd are being amortized to interest expense over the period
approved for ratemaking purposes.
Comprehensive Income
Comprehensive income includes all changes in equity during a period
except those resulting from investments by and distributions to shareholders.
Comprehensive income is reflected in ComEd's Consolidated Statements of Changes
in Shareholders' Equity and Comprehensive Income.
Cash and Cash Equivalents
ComEd considers all temporary cash investments purchased with an
original maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash reflects unused cash proceeds from the issuance of the
transitional trust notes and escrowed cash to be applied to the principal and
interest payment on the transitional trust notes.
Marketable Securities
Marketable securities are classified as available-for-sale securities
and are reported at fair value, with the unrealized gains and losses, net of
tax, reported in other comprehensive income. Unrealized gains and losses on
marketable securities held in the nuclear decommissioning trust funds are
reported in accumulated depreciation for operating units and as a reduction of
regulatory assets for retired units. At December 31, 2000 and 1999, ComEd had no
held-to-maturity or trading securities.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. ComEd evaluates the
carrying value of property, plant and equipment and other long-term assets based
upon current and anticipated undiscounted cash flows, and recognizes an
impairment when it is probable that such estimated cash flows will be less than
the carrying value of the asset. Measurement of the amount of impairment, if
any, is based upon the difference between carrying value and fair value. The
cost of maintenance, repairs and minor replacements of property are charged to
maintenance expense as incurred.
Upon retirement, the cost of regulated property plus removal costs less
salvage, are charged to accumulated depreciation in accordance with the
provisions of SFAS No. 71. For unregulated property, the cost and accumulated
depreciation of property, plant and equipment retired or otherwise disposed of
are removed from the related accounts and included in the determination of the
gain or loss on disposition.
Capitalized Software Costs
Costs incurred during the application development stage of software
projects which are developed or obtained for internal use are capitalized. At
December 31, 2000 and 1999, capitalized software costs totaled $154 million and
$112 million, respectively, net of $4 million and $12 million accumulated
amortization, respectively. Such capitalized amounts are amortized ratably over
the expected lives of the respective
issues.
Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition, in connection with the refinancing of first
mortgage bonds, sinking fund debentures and pollution control obligations
priorprojects when they become operational, not to their scheduled maturity dates,exceed
10 years. Certain capitalized software is deferred andbeing amortized over the
lives of the long-term debt issued15 years pursuant
to finance the reacquisition for non-
generation related financings. See "Regulatory Assetsregulatory approval.
Retail and Liabilities" above
and Note 3 for additional information.
Stock Option Awards/Employee Stock Purchase Plan. Unicom has elected to
adopt SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure
purposes only. Unicom accounts for its stock option awards and ESPP under APB
Opinion No. 25, Accounting for Stock Issued to Employees. See Note 8 for
additional information.
Average Common Shares Outstanding. The number of average outstanding common
shares used to compute basic and diluted EPS for the years, 1999, 1998 and
1997 were as follows:
1999 1998 1997
------- ------- -------
(Thousands of Shares)
Average Number of Common Shares Outstanding:
Average Number of Common Shares--Basic................. 217,303 216,942 216,330
Potentially Dilutive Common Shares--Treasury Method:
Stock Options........................................ 660 633 136
Other Convertible Securities......................... 88 85 98
------- ------- -------
Average Number of Common Shares--Diluted................ 218,051 217,660 216,564
======= ======= =======
Wholesale Energy Risk Management Contracts.Commitments
In the normal course of business, ComEd utilizes contracts for the
forward sale and purchase of energy to manage effectively the utilization of its available
generating capability.capability and provision of wholesale energy to its retail
affiliates. ComEd also utilizes put and callenergy option contracts and energy financial
swap arrangements to limit the market price risk associated with the forward
energy commodity contracts. AsThrough December 31, 2000, ComEd does not currently utilize financial or commodity instruments for
trading or speculative purposes,generally
recognized any gains or losses on forward commodity contracts are recognized when the
underlying transactions affectaffected earnings. Revenues and expenses associated with
market price risk management contracts are amortized over the terms of such
contracts.
F-3789
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--ContinuedNew Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," to
establish accounting and reporting standards for derivatives. The new standard
requires recognizing all derivatives as either assets or liabilities on the
balance sheet at their fair value and specifies the accounting for changes in
fair value depending upon the intended use of the derivative. In June 1999, the
FASB issued SFAS No. 133, Accounting137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," which
establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded ondelayed the Consolidated Balance Sheets as either an asset or liability measured at its
fair value.effective date for SFAS No. 133 requires that changes in the derivative's fair value
be recognized currently in earnings, unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item on the Statements of
Consolidated Operations, and requires Unicom and ComEd to formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
The effective date of SFAS No. 133 has been delayed for one year, tountil fiscal years beginning after
June 15, 2000. SFAS No. 133 may be implemented prior to
June 15, 2000, but such implementation cannot be applied retroactively. SFAS
No. 133 must be applied to (i) derivative instruments and (ii) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after January 1, 1998 or January 1, 1999
at the Company's election.
Unicom and ComEd are in the process of reviewing their various contracts to
determine which contracts meet the requirements of SFAS No. 133 and would need
to be reflected as derivatives under the standard and accounted for at fair
value. Among the contracts that are being reviewed are purchase power
agreements, contracts related to electricity purchases and sales, contracts
related to gas purchases and sales, normal purchase orders, securities issued
and insurance contracts. Unicom and ComEd have not yet quantified the effects
on their financial statementsThe effect of adopting SFAS No. 133. However, adoption133 in the first quarter of 2001
is not expected to have a material effect on ComEd's financial statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
a Replacement of FASB Statement No, 125." This new standard revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries over most
of the provisions of SFAS No. 133 could increase volatility in earnings125 without reconsideration. SFAS No. 140 provides
accounting and other comprehensive
income.
Reclassifications.reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. SFAS No. 140 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001 and should be applied prospectively. At December
31, 2000, ComEd did not anticipate entering into any significant transactions
that would be subject to the provisions of SFAS No. 140 when it becomes
effective.
Reclassifications
Certain prior year amounts have been reclassified to
conform with current period presentation.for comparative
purposes. These reclassifications had no effect on operating results.
Cash Held for Redemptionnet income.
2. Merger
On October 20, 2000, Exelon became the parent corporation of Securities. As of December 31, 1999, the cash
held for redemption of securities reported on the Consolidated Balance Sheets
includes $222 million in unused cash proceeds from the issuancePECO
Energy Company (PECO) and ComEd as a result of the transitional trust notescompletion of the
transactions contemplated by an Agreement and $63 millionPlan of escrowed cashExchange and pending
instrument funding charges collected from ComEd customers to be appliedMerger, as
amended (Merger Agreement), among PECO, Unicom Corporation (Unicom) and Exelon.
Pursuant to the principalMerger Agreement, Unicom merged with and interest payment oninto Exelon (Merger).
In the transitional trust notes. See Note 3 for
additional information.
Special Deposits. As of December 31, 1999, special deposits included $1.8
billion for cash deposited by Unicom Investments in connection with a
contemplated like-kind exchange transaction involving certain of the sold
fossil plants.
Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, and cash held for
redemption of securities are considered to be cash equivalents. Supplemental
cash flow information for the years 1999, 1998 and 1997 was as follows:
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)............ $597,984 $454,091 $512,050
Income taxes (net of refunds)................... $455,180 $272,476 $264,802
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Capital lease obligations incurred by subsidiary
companies........................................ $ 1,744 $106,370 $158,412
F-38
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(2) Merger, Agreement. In September 1999, the Boards of Directors of Unicom
and PECO approved a merger of equals that will create a new holding company,
Exelon. The merger is conditioned, among other things, upon the approvals of
the shareholders of both companies and by various regulatory bodies. The
merger is currently expected to be completed in the latter half of 2000.
Under the merger agreement, as amended and restated in January 2000, PECO
and ComEd will become the principal utility subsidiaries of Exelon. This
result will be achieved by a mandatory exchangeeach share of the outstanding common stock of PECO forUnicom was
converted into 0.875 shares of common stock of Exelon and a merger of Unicom with and into
Exelon wherein holders of Unicom common stock will receive 0.875 shares of
Exelon common stock plus $3.00 in cash for each of their shares of Unicom
common stock. The merger transaction will be accounted for as a purchase of
Unicom by PECO.
Prior to the consummation of the merger, Unicom expects to repurchase
approximately $1.0 billion of its outstanding common shares. These share
repurchases are in addition to 26.3 million shares of Unicom common stock that
Unicom repurchased in January 2000 upon settlement of certain forward purchase
contracts. The $1.0 billion additional share repurchases will be funded from
available funds, including funds resulting from the fossil plant sale.
(3) Accounting Effects Related to the 1997 Act. In December 1997, the
Governor of Illinois signed into law the 1997 Act, which established a phased
process to introduce competition into the electric industry in Illinois under
a less regulated structure. The 1997 Act was amended in June 1999.cash. As a
result of the 1997 ActMerger, Unicom ceased to exist and FERC rules, pricesits subsidiaries, including
ComEd, became subsidiaries of Exelon.
The Merger was accounted for using the purchase method of accounting.
Purchase transactions resulting in one entity becoming substantially wholly
owned by the acquiror establish a new basis of accounting in the acquired
entity's records for the supply of
electric energy are expected to transition from cost-based, regulated rates to
rates determined by competitive market forces. Accordingly, the 1997 Act
provides for, among other things, gradual customer access to other electric
suppliers or a power purchase option which allowspurchased assets and liabilities. Thus, the purchase
of electric
energy from ComEd at market based prices, and the collection of a CTC from
customers who choose to purchase electric energy from a RES or elect the power
purchase option during a transition period that extends through 2006.
Effective October 1, 1999, the CTC was established in accordance with a
formula defined in the 1997 Act. The CTC, which is applied on a cents per
kilowatthour basis, considers the revenue which would haveprice has been collected from
a customer under tariffed rates, reduced by the revenue the utility will
receive for providing delivery servicesallocated to the customer,underlying assets purchased and liabilities
assumed based on their estimated fair values at the market price for
electricity and a defined mitigation factor, which represents the utility's
opportunity to develop new revenue sources and achieve cost savings. The CTC
allows ComEd to recover some of its costs which might otherwise be
unrecoverable under market-based rates. Nonetheless, ComEd will need to take
steps to address the portion of such costs which are not recoverable through
the CTC. Such steps may include cost control efforts, developing new sources
of revenue and asset dispositions. See Note 5 for additional information.
On October 1, 1999, more than 41,000 non-residential customers became
eligible to choose a new electric supplier or elect the purchase power option.
The remainder of non-residential customers will become eligible to choose an
electric supplier or the purchase power option between June 1 and December 31,
2000. As of December 31, 1999, over 4,700 non-residential customers,
representing approximately ten percent of ComEd's 1998 retail kilowatthour
sales, elected to receive their electric energy from a RES or chose the
purchase power option.acquisition date. As a
result of the collectionapplication of CTC's from such
customers, ComEd does not expect these elections to have a material effect on
its resultsthe purchase method of operations inaccounting, the near term.
Utilities are required to continue to offer delivery services,following
fair value adjustments, including the transmissionelimination of accumulated depreciation,
retained earnings and distribution of electric energy, such that customers who
select a RES can receive electric energy from
F-39other comprehensive income, were recorded in ComEd's
Consolidated Balance Sheets on October 20, 2000:
Increase (Decrease) in Assets
-----------------------------
Property, Plant and Equipment, net $(4,790)
Goodwill 4,789
Other Assets 106
(Increase) Decrease in Liabilities
----------------------------------
and Shareholders' Equity
------------------------
Deferred Income Taxes 1,645
Unamortized Investment Tax Credits 401
Merger Severance Liability (307)
Pension and Postretirement Benefit Obligations 459
Long-Term Debt and Preferred Securities 116
Other Liabilities (40)
Other Paid in Capital (3,177)
Retained Earnings 792
Accumulated Other Comprehensive Income 6
90
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
that supplier using existing transmission and distribution facilities. Such
services will continue to be offered under cost-based, regulated rates. The
ICC issued orders in August and September 1999 approving, with modifications,
ComEd's delivery service tariffs.
The 1997 Act also provides for a 15% residential base rate reduction which
became effective August 1, 1998 and an additional 5% residential base rate
reduction in October 2001. ComEd's operating revenues were reduced by
approximately $170 million in 1998 dueReductions to the 15% residential base rate
reduction. The 15% rate reduction further reduced ComEd's operating revenues
by approximately $226 million in 1999, compared to 1998 rate levels.
Notwithstandingcarrying value of property, plant and equipment balances
primarily reflect the rate reductions and subject to certain earnings tests, a
rate freeze will generally be in effect until at least January 1, 2005. During
this period, utilities may reorganize, sell or assign assets, retire or remove
plants from service, and accelerate depreciation or amortization of assets
with limited ICC regulatory review. A utility may request a rate increase
during the rate freeze period only when necessary to ensure the utility's
financial viability, but not before January 1, 2000. Under the earnings
provisionfair value of the 1997 Act, if the earned return on common equity of a utility
during this period exceeds an established threshold, one-half of the excess
earnings must be refunded to customers. The threshold rate of return on common
equity isnuclear generating assets based on
the 30-Year Treasury Bond rate, plus 5.5% in the years 1998discounted cash flow analyses and 1999, and plus 8.5% in the years 2000 through 2004. The utility's earned
return on common equity and the threshold return on common equity for ComEd
are each calculated on a two-year average basis. The earnings sharing
provision is applicable onlyindependent appraisals. Adjustments to
ComEd's earnings. Consistent with the
provisions of the 1997 Act, increased amortization of regulatory assets may be
recorded, thereby reducing the earned return on common equity, if earnings
otherwise would have exceeded the maximum allowable rate of return. The
potential for earnings sharing or increased amortization of regulatory assets
could limit earnings in future periods.
The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a SPE.
The proceeds, net of transaction costs, from such security issuances must be
used to refinance outstanding debt or equity or for certain other limited
purposes. The total amount of such securities that may be issued is
approximately $6.8 billion. In December 1998, ComEd initiated the issuance of
$3.4 billion of transitional trust notes through its SPEs, ComEd Funding and
ComEd Funding Trust. The proceeds from the transitional trust notes, net of
transaction costs, were, as required, used to redeem $1,101 million of long-
termdeferred income taxes, long-term debt and $607 million of preference stock in 1999preferred securities, and reduce by $500
million ComEd's outstanding short-term debt. During the year 1999, ComEd
recorded an extraordinary loss related to the early redemptions of such long-
term debt, which reduced net income on common stock by approximately $28
million (after-tax), or $0.13 per common share (diluted). ComEd also recorded
$12 million (after-tax), or $0.05 per common share (diluted), for premiums
paid in connection with the redemption of such preference stock. The
preference stock premiums were included in the provision for dividends for
preference stocks of ComEd on the Statements of Consolidated Operations. As
more fully described in Note 7, Unicom has repurchased approximately 26.3
million shares of Unicom common stock using $924 million of proceeds it
received from ComEd's repurchase of its common stock held by Unicom. The
remaining proceeds from the issuance of the transitional trust notes will be
used for the payment of fees and additional common stock repurchases. See Note
7 for additional information regarding Unicom's share repurchases.
Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion
F-40
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
of its business in December 1997. ComEd evaluated the regulatory assets and
liabilities related to the generation portion of its business and determined
that it was not probable that such costs would be recovered through the cash
flows from the regulated portion of its business. Accordingly, the generation-
related regulatoryother assets
and liabilities were written offrecorded based on the estimate of fair market value.
Reductions to unamortized investment tax credits represents the adjustment of
nuclear generating asset investment tax credits to fair value. Merger severance
obligations relating to ComEd's employee exit costs were recorded in the
fourth
quarterpurchase price allocation. Reductions to pension and postretirement benefit
obligations primarily reflect elimination of 1997, resultingunrecognized net actuarial gains,
prior service costs and transition obligations.
Goodwill represents the purchase price allocation to ComEd of the cost in an extraordinary chargeexcess
of $810net assets acquired in the Merger, which will be amortized over forty years.
Merger-Related Costs
In connection with the Merger, ComEd recorded certain reserves for
restructuring costs. Costs incurred prior to the Merger were charged to expense.
Costs incurred subsequent to the Merger were reflected as part of the
application of purchase accounting and did not affect results of operations.
ComEd's Merger-related costs charged to expense in 2000 were $67
million (after-
tax), or $3.75 per common share (diluted).consisting of $26 million of direct incremental costs and $41 million
for employee costs. Direct incremental costs represent expenses directly
associated with completing the Merger, including professional fees, regulatory
approval and other merger integration costs. Employee costs represent estimated
severance payments provided under Exelon's Merger Separation Plan (MSP) for
eligible employees whose positions were eliminated before October 20, 2000 due
to integration activities of the merged companies.
Included in the purchase price allocation is a liability for exit costs
of $307 million for additional employee costs and additional liabilities of
approximately $32 million for estimated costs of exiting business activities
that were not compatible with the strategic business direction of Exelon. The
fourth quarteremployee costs include employee severance, actuarially determined pension and
postretirement costs, and relocation and other benefits of 1997 also
reflected charges totaling $44$128 million, (after-tax), or $0.20 per common share
(diluted),$158
million and $21 million, respectively. The involuntary terminations are a result
of merger integration and reengineering of processes, primarily in the areas of
corporate support, generation, and energy delivery. The $307 million estimated
liability is subject to a final determination of the level of benefits to be
provided to a portion of the employees whose positions are expected to be
eliminated as a result of ComEd's eliminationthe Merger but who are not eligible for the MSP.
Adjustments to the liability to reflect final determination of its FAC pursuantbenefit levels
will be recorded as an adjustment to an option
in the 1997 Act, andgoodwill.
Approximately 2,300 positions have been identified to be eliminated as
a charge of $60 million (after-tax), or $0.28 per common
share (diluted), for a write down of ComEd's investment in uranium-related
properties to realizable value. Projectionsresult of the market priceMerger. ComEd anticipates that $167 million of employee costs
will be funded from its pension and postretirement benefit plans and $181
million will be funded from general corporate funds. At December 31, 2000, the
reserve balance for uranium
indicated that the expected incremental costs of miningemployee severance, relocation and milling uranium at
the properties would exceed the expected market price for uraniumother benefits was $144
million, which is reflected in other current liabilities in ComEd's Consolidated
Balance Sheets, and such
costs are notis expected to be recoverable in a competitive market.
The 1997 Act also requires utilities to establish or join an ISO that will
independently manage and control utility transmission systems. Additionally,
the 1997 Act includes the leveling of certain regulatory requirements to
permit operational flexibility, the leveling of certain regulatory and tax
provisions as applied to various electric suppliers and a new, more stringent,
liability standard applicable to ComEd in the event of a major outage.
(4) Cumulative Effect of a Change in Accounting Principle. In the fourth
quarter of 1997, ComEd changed its accounting method for revenue recognition
to record revenues associated with service which has been provided to
customers but has not yet been billed at the end of each accounting period,
retroactive to January 1, 1997. This change in accounting method increased
operating results for the year 1997 to reflect the one-time cumulative effect
of the change for years prior to 1997expended by $197 million (after-tax), or $0.91
per common share.
(5)October 2002.
3. Fossil Plant Sale of Plants and Closure.
In December 1999, ComEd completed the sale of its fossil generating
assets to EMEEdison Mission Energy, an Edison International subsidiary (EME), for a
cash purchase price of $4.8 billion. The fossil generating assets representrepresented an
aggregate generating capacity of approximately 9,772 megawatts.
Just prior to the consummation of the fossil plant sale, ComEd
transferred these assets to an affiliate, Unicom Investment.Investment, Inc. (Unicom
Investment). In consideration for the transferred assets, Unicom Investment paid
ComEd consideration totallingtotaling approximately $4.8 billion in the form of a demand
note in the amount of approximately $2.4 billion and an interest-bearing Notenote
with a maturity of twelve
91
years. Unicom Investment immediately sold the fossil plant assets to EME, in
consideration of which Unicom Investment received approximately $4.8 billion in
cash from EME. Immediately after its receipt of the cash payment from EME,
Unicom Investment paid the $2.4 billion aggregate principal due to
ComEd under the demand note.note in full. Unicom Investment will useused the
remainder of the cash received from EME to fund other business opportunities,
including the share repurchases. Of the cash received by ComEd, $1.8 billion is expected to
bewas
used to pay the costs and taxes associated with the fossil plant sale, including
ComEd's contribution of $250 million of the proceeds to an environmental trust
as required by the 1997 Act.Illinois legislation. The remainder of the demand note proceeds
will bewas available to ComEd to fund, among other things, transmission and
distribution projects, nuclear generation station projects, and environmental
and other initiatives.
The sale produced an after-tax gain of approximately $1.6 billion,
after recognizing commitments associated with certain coal contracts ($350 million),
recognizingof $350
million, employee-related costs ($112 million)of $112 million and contributing to the
environmental trust. The coal contract costs include the amortization of the
F-41
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
remaining balance of ComEd's regulatory asset for unrecovered coal reserves of
$178 million and the recognition of $172 million of settlement payments related
to the above-market portion of coal purchase commitments ComEd assigned to EME
at market value upon completion of the fossil plant sale. The severance costs
included pension and post-retirementpostretirement welfare benefit curtailment and special
termination benefit costs of $51 million and transition, separation and
retention payments of $61 million. A total of 1,730 fossil station employee
positions were eliminated upon completion of the fossil plant sale on December
15, 1999. As of December 31, 1999, 1,590 of theThe employees whose positions were eliminated hadhave been terminated and 140 affected
employees were in a transition program which generally extends 60 days from
the date of the fossil plant sale.terminated.
Consistent with the provisions of Illinois legislation, the 1997
Act, the (pre-tax)pre-tax gain on the
sale of $2.587 billion$2,587 million resulted in a regulatory liability, which was used to
recover regulatory assets. Therefore, the gain on the sale, excluding $43
million of amortization of investment tax credits, was recorded as a regulatory
liability in the amount of $2.544 billion$2,544 million and amortized in the fourth quarter of
1999. The amortization of the regulatory liability and additional regulatory
asset amortization of $2.456 billion$2,456 million are reflected in depreciation and
amortization expense on Unicom's StatementComEd's Consolidated Statements of Consolidated Operations and resulted in a net reductionIncome.
4. Regulatory Issues
In 2000, the phased process to depreciation and
amortization expense of $88 million. See Note 1, under "Regulatory Assets and
Liabilities," for additional information.
In January 1998,implement competition into the Boards of Directors of Unicom and ComEd authorized the
permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge in the fourth quarter of 1997 of $523 million
(after-tax), or $2.42 per common share (diluted). The charge included a
liability for estimated future closing costs associated with the retirement of
the station, excluding severance costs, resulting in a charge of $117 million
(after-tax). ComEd has recorded reductions to the expected liability for
future closing costs of $16 million (after-tax), or $0.07 per common share
(diluted), and $15 million (after-tax), or $0.07 per common share (diluted),
in 1999 and 1998, respectively, to reflect employees being reassigned or
removed from the payroll sooner than anticipated, and lower support costs and
use of contractors. See Note 17 for information regarding costs of voluntary
employee separation plans.
ComEd completed the sale of its State Line and Kincaid coal-fired generating
stations (representing 1,598 megawatts of generating capacity) in December
1997 and February 1998, respectively. The net proceeds of the sales, after
income tax effects and closing costs, were approximately $190 million. The
proceeds were used to retire or redeem existing debt in the first quarter of
1998. ComEd has entered into 15-year purchased power agreements for the output
of the stations.
(6) Authorized Shares, Voting Rights and Stock Rights of Capital Stock. At
December 31, 1999, Unicom's authorized shares consisted of 400,000,000 shares
of common stock. The authorized shares of ComEd preferred and preference
stocks at December 31, 1999 were: preference stock--7,510,451 shares; $1.425
convertible preferred stock--56,291 shares; and prior preferred stock--850,000
shares. The preference and prior preferred stocks are issuable in series and
may be issued with or without mandatory redemption requirements. Holders of
outstanding Unicom shares are entitled to one vote for each share held on each
matter submitted to a vote of such shareholders; and holders of outstanding
ComEd shares are entitled to one vote for each share held on each matter
submitted to a vote of such shareholders. All such shares have the right to
cumulate votes in elections for the directors of the corporation which issued
the shares.
F-42
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Pursuant to a plan adoptedelectric
industry continued as mandated by the Unicom Boardrequirements of Directors on February 2,
1998, each share of Unicom's common stock carries the right (referred to
herein as a "Right") to purchase one-thousandth of one share of Unicom's
common stock at a purchase price of $100 per whole share of common stock,
subject to adjustment. The plan was amended on September 22, 1999 to render
the Rights inapplicable to the transactions contemplated by the Merger
Agreement. The Rights are tradable only with Unicom's common stock until they
become exercisable. The Rights become exercisable upon the earlier of ten days
following a public announcement that a person (an "Acquiring Person") has
acquired 15% or more of Unicom's outstanding common stock or ten business days
(or such later date as may be determined by action of the Board of Directors)
following the commencement of a tender or exchange offer which, if
consummated, would result in a person or group becoming an Acquiring Person.
The Rights are subject to redemption by Unicom at a price of $0.01 per Right,
subject to certain limitations, and will expire on February 2, 2008. If a
person or group becomes an Acquiring Person, each holder of a Right will
thereafter have the right to receive, upon exercise, Unicom common stock at a
50% discount from the then current market price. If Unicom is acquired in a
merger or other business combination transaction in which Unicom is not the
survivor, or 50% or more of Unicom's assets or earning power is sold or
transferred, each holder of a Right shall then have the right to receive, upon
exercise, common stock of the acquiring company at a 50% discount from the
then current market price of such common stock. Rights held by an Acquiring
Person become void upon the occurrence of such events.
(7) Common Equity. In the fourth quarter of 1998, Unicom entered into a
forward purchase arrangement for the repurchase of $200 million of its common
stock. This contract, which was accounted for as an equity instrument as of
December 31, 1998, was settled on a net cash basis in February 1999, resulting
in a $16 million reduction to common stock equity on the Consolidated Balance
Sheets.
During 1999, Unicom also entered into forward purchase arrangements with
financial institutions for the repurchase of approximately 26.3 million shares
of Unicom common stock. The repurchase arrangements were settled in January
2000 on a physical basis. Effective January 2000, the share repurchases will
reduce outstanding shares and reduce common stock equity. Prior to the
settlement, the repurchase arrangements were recorded as a receivable on the
Consolidated Balance Sheets based on the aggregate market value of the shares
deliverable under the arrangements. In 1999, net unrealized losses of $44
million (after-tax), or $0.20 per common share, were recorded related to the
arrangements. The settlement of the arrangements in January 2000 resulted in a
gain of $113 million (after-tax).
At December 31, 1999, shares of Unicom common stock were reserved for the
following purposes:
Long-Term Incentive Plan........................................ 2,231,763
Employee Stock Purchase Plan.................................... 323,797
Shareholder Rights Plan......................................... 400,000
Exchange for ComEd common stock not held by Unicom.............. 87,650
1996 Directors' Fee Plan........................................ 162,459
---------
3,205,669
=========
F-43
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Common stock issued for the years 1999, 1998 and 1997 was as follows:
1999 1998 1997
------- -------- --------
Shares of Common Stock Issued:
Long-Term Incentive Plan......................... 451,501 494,302 208,104
Employee Stock Purchase Plan..................... 89,500 94,270 196,003
Employee Savings and Investment Plan............. -- -- 274,203
Exchange for ComEd common stock not held by
Unicom.......................................... (2,454) 12,757 12,370
1996 Directors' Fee Plan......................... 5,521 12,733 14,175
Treasury Stock................................... (85,424) (178,982) --
------- -------- --------
458,644 435,080 704,855
======= ======== ========
(Thousands of Dollars)
Changes in Common Stock Accounts:
Total shares issued.............................. $21,290 $ 16,847 $ 15,768
Net cash settlement of forward share repurchase
contract........................................ (16,454)
Shares held by trustee for Unicom Stock Bonus De-
ferral Plan..................................... -- 6,775 (2,476)
Other............................................ 151 (203) 10
------- -------- --------
$ 4,987 $ 23,419 $ 13,302
======= ======== ========
Illinois legislation.
Customer Choice
As of December 31, 1999 and 1998, 264,406 and 178,982 shares, respectively,2000, all non-residential customers were eligible to
choose a new electric supplier or elect the power purchase option which allows
the purchase of Unicom common stock were reacquired and held as treasury stock at a cost of
$10 million and $7 million, respectively.
At December 31, 1999 and 1998, 75,692 and 76,079, respectively, of ComEd
common stock purchase warrants were outstanding. The warrants entitle the
holders to convert such warrants into common stock ofelectric energy from ComEd at market-based prices. ComEd's
residential customers become eligible to choose a conversion
rate of one share of common stock for three warrants.new electric supplier in May
2002. As of December 31, 1999 and 1998, $716 million and $494 million,
respectively,2000, over 9,500 non-residential customers,
representing approximately 27% of retained earnings had been appropriatedComEd's retail kilowatt-hour sales for future dividend
payments.
(8) Stock Option Awards/Employee Stock Purchase Plan. Unicom has a
nonqualified stock option awards program under its Long-Term Incentive Plan.
The stock option awards program was adopted by Unicom in July 1996 to reward
valued employees responsible for, or contributingthe
twelve months prior to the management, growthintroduction of retail competition, had elected to
receive their electric energy from an alternative electric supplier or had
chosen the power purchase option. ComEd is unable to predict the long-term
impact of customer choice on results of operations.
Rate Reductions and profitabilityCaps
The Illinois legislation also provided a 15% residential base rate
reduction effective August 1, 1998 with an additional 5% residential base rate
reduction to be implemented in October 2001. Notwithstanding the rate reductions
and subject to certain earnings tests, a rate freeze will generally be in effect
until at least January 1, 2005. A utility may request a rate increase during the
rate freeze period only when necessary to ensure the utility's financial
viability. Under the Illinois legislation, if the earned return on common equity
of Unicom and its subsidiaries. The stock options granted
expire ten years from their grant date. One-thirda utility during this period exceeds an established threshold, one-half of
the shares subjectexcess earnings must be refunded to customers. The threshold rate of return
on common equity is based on the options vest on each30-Year Treasury Bond rate plus 8.5% in the
years 2000 through 2004. Earnings for purposes of ComEd's rate cap include
ComEd's net income calculated in accordance with GAAP and may include
accelerated amortization of regulatory assets and the amortization of goodwill.
As a result of the first three anniversaries of the option grant
date. In addition, the stock options will become fully vested immediately if
the holder dies, retires, is terminated by the Company, other than for cause,
or qualifies for long-term disability. Options granted before July 22, 1998
also vest in full upon a change in control, while options granted on or after
July 22, 1998 vest in full if the option holder is terminated within 24 months
after a change of control.
F-44
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Stock option transactions for the years 1999, 1998 and 1997 are summarized
as follows:
Number of Weighted Average
Options Exercise Price
--------- ----------------
Outstanding as of January 1, 1997................... 1,188,000 $25.500
Granted during the year............................. 1,339,350 22.313
Exercised during the year........................... (23,423) 25.500
Expired/cancelled during the year................... (212,549) 23.632
---------
Outstanding as of December 31, 1997................. 2,291,378 23.810
Granted during the year............................. 1,379,525 35.234
Exercised during the year........................... (404,082) 24.244
Expired/cancelled during the year................... (123,928) 25.715
---------
Outstanding as of December 31, 1998................. 3,142,893 28.694
Granted during the year............................. 1,848,050 35.750
Exercised during the year........................... (313,231) 24.102
Expired/cancelled during year....................... (179,076) 33.551
---------
Outstanding as of December 31, 1999................. 4,498,636 31.719
=========
Of the stock options outstandingIllinois legislation, at December 31, 1999, 1,676,8542000, ComEd had vesteda
regulatory asset with an unamortized balance of $385 million that it expects to
fully recover and
92
amortize by the end of 2003. The utility's earned return on common equity and
the threshold return on common equity for ComEd are each calculated on a
weightedtwo-year average exercise price of $27.basis. The fair value of each stock optionearnings sharing provision is estimated onapplicable only to
ComEd's earnings. ComEd did not trigger the date of grant usingearnings sharing provision in 2000
and does not currently expect to trigger the Black-Scholes option-pricing model withearnings sharing provisions in the
following weighted average
assumptions:years 2001 through 2004.
5. Supplemental Financial Information
Supplemental Income Statement Information
Stock Option Grant Date
-----------------------Taxes Other Than Income
For the period For the
Oct. 20 - | Jan. 1 - Years Ended
Dec. 31 | Oct. 19 December 31,
2000 | 2000 1999 1998
1997------- | ------- ------- -------
| Expected option life.................................... 7 years 7 years 7 years
Dividend yield.......................................... 4.50% 4.54% 7.20%
Expected volatility..................................... 23.02% 21.95% 22.29%
Risk-free interest rate................................. 4.83% 5.58% 6.25%
Gross receipts $ 15 | $ 72 $101 $268
Real estate 22 | 101 114 124
Payroll 12 | 57 70 70
Illinois electric distribution tax 22 | 83 114 110
Municipal compensation 15 | 69 73 89
Other (3) | 43 35 37
---- | ---- ---- ----
Total $ 83 | $425 $507 $698
==== | ==== ==== ====
Other, Net
For the period For the
Oct. 20 - | Jan. 1 - Years Ended
Dec. 31 | Oct. 19 December 31,
2000 | 2000 1999 1998
------- | ------- ------- -------
Interest income $ 38 | $188 $ 60 $ 15
Gain (loss) on forward share repurchases -- | 113 (44) ---
Gain (loss) on disposition of assets, net -- | (31) 13 47
AFUDC -- | 19 22 16
Other (7) | (12) 9 12
---- | ---- ----- ------
Total $ 31 | $277 $ 60 $ 90
==== | ==== ===== ======
Supplemental Cash Flow Information
For the period For the
Oct. 20 - | Jan. 1 - Years Ended
Dec. 31 | Oct. 19 December 31,
2000 | 2000 1999 1998
------- | ------- ------- -------
Cash paid during the year:
Interest (net of amount capitalized) $ 88 | $ 418 $ 588 $ 440
Income taxes (net of refunds) $ 11 | $1,190 $ 485 $ 302
Noncash investing and financing: |
Capital lease obligations incurred -- | -- $ 2 $ 106
Common stock repurchase $ 850 | $ -- -- --
|
Depreciation and amortization: |
Property, plant and equipment $ 95 | $ 530 $ 706 $ 783
Nuclear fuel 44 | 144 66 16
Regulatory assets (4) | 270 46 65
Decommissioning 16 | 68 84 90
Goodwill 23 | -- -- --
------ | ------ ------ ------
Total $ 174 | $1,012 $ 902 $ 954
====== | ====== ====== ======
93
Supplemental Balance Sheet Information
Regulatory Assets
December 31,
2000 | 1999
---- | ----
Nuclear decommissioning costs $ 719 | $ 699
Recoverable transition costs 385 | 660
Loss on reacquired debt 35 | 39
Deferred taxes ( 29) | (72)
------- | -------
Total $ 1,110 | $ 1,326
======= | =======
6. Accounts Receivable
Receivables from customers included $29 million and $103 million as of
December 31, 2000 and 1999, respectively, in estimated unbilled revenue for
service that has been provided to customers, but for which bill issuance was
delayed beyond the normal date of issuance. The December 31, 1999 accounts
receivable balance reflects temporary billing and collection delays experienced
following the implementation of a new customer billing and information system in
July 1998. ComEd recorded increased provisions for uncollectible accounts to
recognize the estimated weighted average fair value for each stock option grantedportion of the receivables that are not expected to be
recoverable. Such provisions increased O&M expenses by $35 million in 1999
1998compared to normally expected levels. The allowance for uncollectible accounts
at December 31, 2000 and 19971999 was $6.48, $6.62$60 million and $2.79,$49 million, respectively.
The ESPP allows employeesReceivables from customers as of December 31, 2000 and 1999 also included $318
million and $294 million, respectively, for estimated unbilled revenues for
electric service that has been provided to purchase Unicom common stock at a ten percent
discount from market value. Substantially allcustomers subsequent to the normal
billing date and prior to the end of the employeesreporting period.
7. Property, Plant and Equipment
A summary of Unicom,property, plant and equipment by classification as of December 31,
2000 and 1999 is as follows:
2000 | 1999
---- | ----
Electric -- Transmission & Distribution $5,612 | $ 9,289
Electric -- Generation 1,957 | 13,826
Nuclear Fuel 677 | 2,030
Construction Work in Progress 683 | 654
Plant Held for Future Use 50 | 44
Other Property, Plant and Equipment 912 | 1,194
------ | -------
Total Property, Plant and Equipment $9,891 | $27,037
Less Accumulated Depreciation 2,234 | 15,044
------ | -------
Property, Plant and Equipment, net $7,657 | $11,993
====== | =======
Accumulated depreciation includes accumulated amortization of nuclear
fuel of $52 million and $1,315 million, respectively, as well as the
decommissioning liability for operating units of $2.1 billion as of December 31,
2000 and 1999. See Note 2 - Merger.
8. Jointly Owned Electric Utility Plant
ComEd and their subsidiaries are eligible to participatehas a 75% undivided ownership interest in the ESPP. Unicom
issued 89,500, 94,270 and 196,003 sharesQuad Cities nuclear
generating station. ComEd's net plant investment of common stock during the year 1999,
1998 and 1997, respectively, under the ESPP$120 million at a weighted average annual
purchase price of $33.58, $33.11 and $19.15, respectively.
Unicom has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, Unicom has adopted APB No. 25, and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If Unicom had recorded compensation expense for the stock options
granted and the shares of common stock issued under the ESPPDecember 31,
2000, reflects $38 million in accordance
with SFAS No. 123 using the fair value based method of accounting, the
additional charge to operations would have been $4 million (after-tax), or
$0.02 per common share (diluted), $2 million (after-tax), or $0.01 per common
share (diluted),construction in progress and $2 million (after tax), or $0.01 per common share
(diluted),in
accumulated depreciation. ComEd's undivided ownership interest is financed with
its funds, and is accounted for the yearsas if such participating interest was a wholly
owned facility.
94
9. Notes Payable - Banks
2000 1999 1998
and 1997, respectively.
F-45
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(9) ComEd Preferred and Preference Stocks Without Mandatory Redemption
Requirements. During the year 1999, 13,499,549 shares of preferred or
preference stock without mandatory redemption requirements were redeemed and
no shares were issued. No shares of ComEd preferred or preference stocks
without mandatory redemption requirements were issued or redeemed during 1998
and 1997. All series other than Series $1.425 have been redeemed.
The---- ---- ----
Average borrowings $214 $7 $ 32
Average interest rates, computed on daily basis 6.56% 7.75% 7.82%
Maximum borrowings outstanding shares of ComEd's $1.425 convertible preferred stock are
convertible at the option of the holders thereof, at any time, into common
stock of ComEd at the rate of 1.02 shares of common stock for each share of
convertible preferred stock, subject to future adjustment. The convertible
preferred stock may be redeemed by ComEd at $42 per share, plus accrued and
unpaid dividends, if any. The involuntary liquidation price of the $1.425
convertible preferred stock is $31.80 per share, plus accrued and unpaid
dividends, if any.
(10) ComEd Preference Stock Subject to Mandatory Redemption
Requirements. During 1999, 1998 and 1997, no shares of ComEd preference stock
subject to mandatory redemption requirements were issued. During 1999, 1998
and 1997, 1,020,345, 338,215 and 438,215 shares, respectively, of ComEd
preference stock subject to mandatory redemption requirements were reacquired
to meet sinking fund requirements or were part of the early redemption in
1999. There were 700,000 shares of Series $6.875 preference stock outstanding$494 $8 $208
Average interest rates, at December 31 --% 8.33% 7.60%
Along with Exelon and PECO, ComEd entered into a $2 billion unsecured
revolving credit facility on December 20, 2000 with a group of banks. ComEd has
a $200 million sublimit under the 364-day facility and expects to use the credit
facility principally to support its $200 million commercial paper program. There
was no outstanding debt under this credit facility or commercial paper at
December 31, 2000.
10. Long-Term Debt
Maturity At December 31,
Rates Date 2000 | 1999
----- ---- ---- | ----
|
ComEd Transitional Trust |
Notes Series 1998-A: 5.29%-5.74% 2001-2008 $2,720 | $3,070
|
First and refunding mortgage bonds (a) (b): |
Fixed rates 4.40%-9.875% 2002-2023 3,112 | 3,587
|
Notes payable 6.40%-9.20% 2002-2018 1,366 | 916
Pollution control bonds: |
Fixed rates 5.875% 2007 46 | 47
Floating rates 4.93% 2009-2014 92 | 92
|
Sinking fund debentures 2.875%-4.75% 2001-2011 27 | 31
--------- | --------
|
Total Long-Term Debt (c) 7,363 | 7,743
Unamortized debt discount and premium, net (133) | (49)
Due within one year (348) | (732)
--------- | --------
Long-Term Debt $6,882 | $6,962
========= | ========
(a) Utility plant of ComEd is subject to the liens of its mortgage indenture.
(b) Includes pollution control bonds secured by first mortgage bonds issued
under ComEd's mortgage indenture.
(c) Long-term debt maturities in the period 2001 through 2005 and thereafter are
as follows:
2001 $ 348
2002 845
2003 695
2004 578
2005 805
Thereafter 4,092
-------
Total $7,363
======
95
In 2000 and 1999, at an aggregate stated valueComEd incurred extraordinary charges aggregating $6
million ($4 million, net of $69 million. This series
is non-callabletax), and is required to be redeemed on May 1, 2000. The sinking
fund price is $100$46 million ($28 million, net of tax),
respectively, consisting of prepayment premiums and the involuntary liquidation pricewrite-offs of
unamortized deferred financing costs associated with the early retirement of
debt.
11. Income Taxes
Income tax expense (benefit) is $99.25 per share,
plus accrued and unpaid dividends, if any. The $69 million is included in
current liabilities.
(11) ComEd-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely ComEd's Subordinated Debt Securities. In
September 1995, ComEd Financing I, a wholly-owned subsidiary trust of ComEd,
issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable preferred
securities. The sole asset of ComEd Financing I is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. In January 1997, ComEd Financing II, a wholly-owned subsidiary trust
of ComEd, issued 150,000 of its 8.50% ComEd-obligated mandatorily redeemable
capital securities. The sole asset of ComEd Financing II is $154.6 million
principal amount of ComEd's 8.50% subordinated deferrable interest debentures
due January 15, 2027. There is a full and unconditional guarantee by ComEdcomprised of the Trusts' obligations underfollowing components:
For the period For the
Oct. 20 - | Jan. 1 - Years Ended
Dec. 31 | Oct. 19 December 31,
2000 | 2000 1999 1998
------- | ------- ------- -------
|
Included in operations: |
Federal
Current $ 24 | $ (520) $ 1,466 $ 244
Deferred 57 | 729 (1,135) 80
Investment tax credit, net -- | (25) (78) (40)
State |
Current 7 | (112) 316 44
Deferred 15 | 157 (243) 23
--------- | --------- --------- ---------
$ 103 | $ 229 $ 326 $ 351
========= | ========= ========= =========
|
Included in extraordinary items: |
Federal |
Current $ -- | $ (2) $ (15) $ --
State |
Current -- | -- (3) --
--------- | --------- --------- ---------
$ -- | $ (2) $ (18) $ --
========= | ========= ========= =========
The total income tax provisions, excluding extraordinary items, differed from
amounts computed by applying the securities issued byFederal statutory tax rate to pre-tax income as
follows:
For the period For the
Oct. 20 - | Jan. 1 - Years Ended
Dec. 31 | Oct. 19 December 31,
2000 | 2000 1999 1998
------- | ------- ------- -------
|
Income Before Extraordinary Items $ 133 | $ 603 $ 651 $ 594
Income Taxes 103 | 229 326 351
------- | ------- ------- -------
Income Before Income Taxes and |
Extraordinary Items $ 236 | $ 832 $ 977 $ 945
======= | ======= ======= =======
Income taxes on above at Federal |
statutory rate of 35% $ 81 | $ 292 $ 342 $ 331
Increase (decrease) due to: |
Property basis differences (4) | (31) (21) 2
State income taxes, net of Federal |
income tax benefit 14 | 30 48 44
Amortization of investment tax credit -- | (19) (49) (26)
Unrealized loss (gain) on forward |
share repurchase agreement -- | (40) 15 --
Other, net 12 | (3) (9) --
------- | ------- ------- -------
Income Taxes $ 103 | $ 229 $ 326 $ 351
======= | ======= ======= =======
Effective income tax rate 43.6% | 27.5% 33.4% 37.1%
======= | ======= ======= =======
96
Provisions for deferred income taxes consist of the Trusts. However,tax effects of the following
temporary differences:
For the period For the
Oct. 20 - | Jan. 1 - Years Ended
Dec. 31 | Oct. 19 December 31,
2000 | 2000 1999 1998
------- | ------- ------- -------
|
Depreciation and amortization $ 48 | $ 397 $(1,226) $ 41
Deferred gain on like kind exchange -- | 466 -- --
Retirement and separation programs 8 | (5) (44) (27)
Uncollectible accounts (7) | 2 (8) (5)
Reacquired debt -- | (1) (3) (2)
Environmental clean-up costs (8) | 1 (27) --
Obsolete inventory 1 | (15) (1) 12
Satisfaction of coal contracts -- | 68 (68) --
Other nuclear operating costs -- | -- 33 48
Other 30 | (27) (34) 36
------- | ------- ------- -------
Total $ 72 | $ 886 $(1,378) $ 103
======= | ======= ======= =======
The tax effect of temporary differences giving rise to ComEd's obligations are subordinate and junior in rightnet deferred tax
liability as of payment to certain
other indebtedness of ComEd. ComEd has the right to defer payments of interest
on the subordinated deferrable interest notes by extending the interest
payment period, at any time, for up to 20 consecutive quarters. Similarly,
ComEd has the right to defer payments of interest on the subordinated
deferrable interest debentures by extending the interest payment period, at
any time, for up to ten consecutive semi-annual periods. If interest payments
on the subordinated deferrable interest notes or debentures are so deferred,
distributions on the preferred securities will also be deferred. During any
deferral, distributions will continue to accrue with interest thereon. In
addition, during any such deferral, ComEd may not declare or pay any dividend
or other distribution on, or redeem or purchase, any of its capital stock.
The subordinated deferrable interest notes are redeemable by ComEd, in whole
or in part, from time to time, on or after September 30,December 31, 2000 and with
respect to the subordinated deferrable interest debentures, on or after
January 15, 2007, or at any time in the event of certain income tax
circumstances. If the subordinated deferrable interest notes or debentures are
redeemed, the Trusts must redeem preferred securities having an aggregate
liquidation amount equal to the aggregate
F-46
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
principal amount of the subordinated deferrable interest notes or debentures
so redeemed. In the event of the dissolution, winding up or termination of the
Trusts, the holders of the preferred securities will be entitled to receive,
for each preferred security, a liquidation amount of $25 for the securities of
ComEd Financing I and $1,000 for the securities of ComEd Financing II, plus
accrued and unpaid distributions thereon, including interest thereon, to the
date of payment, unless in connection with the dissolution, the subordinated
deferrable interest notes or debentures are distributed to the holders of the
preferred securities.
(12) Long-Term Debt. ComEd initiated the issuance of $3.4 billion of
transitional trust notes through its SPEs, ComEd Funding and ComEd Funding
Trust, in the fourth quarter of 1998. The current amount outstanding1999 is as follows:
Series Principal Amount
------------------------ ----------------------
(Thousands of Dollars)For the Period
-----------------------
2000 | 1999
------- | -------
5.38% due March 25, 2000...........................|
Nature of temporary difference: |
Plant basis difference $ 94,967
5.29% due June 25, 2001............................ 425,033
5.34% due March 25, 2002........................... 258,861
5.39% due June 25, 2003............................ 421,139
5.44% due March 25, 2005........................... 598,511
5.63% due June 25, 2007............................ 761,489
5.74% due December 25, 2008........................ 510,000
----------
$3,070,000
==========1,638 | $ 3,078
Deferred investment tax credit 59 | 485
Deferred debt refinancing costs 14 | 15
Deferred gain on like kind exchange 466 | --
Deferred pension and postretirement obligations (250) | (376)
Other, net (120) | (316)
------- | -------
Deferred income taxes (net) on the balance sheet $ 1,807 | $ 2,886
======= | =======
For accounting purposes, the liabilities of ComEd Funding TrustThe Internal Revenue Service is currently auditing ComEd's Federal tax
returns for the
transitional trust notes1996 through 1999. The current audits are reflected as long-term debt on the Consolidated
Balance Sheets of Unicom and ComEd.
The proceeds, net of transaction costs, from the transitional trust notes
have been used, as required, to redeem debt and equity. During 1999, ComEd
redeemed or reacquired $1,101 million of long-term debt.
Sinking fund requirements and scheduled maturities remaining through 2004
for ComEd's first mortgage bonds, transitional trust notes, sinking fund
debentures and other long-term debt outstanding at December 31, 1999, after
deducting deposits made for the retirement of sinking fund debentures, are
summarized as follows: 2000--$732 million; 2001--$345 million; 2002--$645
million; 2003--$445 million; and 2004--$577 million.
At December 31, 1999, ComEd's outstanding first mortgage bonds maturing
through 2004 were as follows:
Series Principal Amount
-------------------------------- ----------------------
(Thousands of Dollars)
9 3/8% due February 15, 2000....................... $ 42,245
6 1/2% due April 15, 2000.......................... 230,000
6 3/8% due July 15, 2000........................... 100,000
7 3/8% due September 15, 2002...................... 200,000
6 5/8% due July 15, 2003........................... 100,000
5 3/10% due January 15, 2004....................... 26,000
--------
$698,245
========
F-47
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Other long-term debt outstanding at December 31, 1999 is summarized as
follows:
Principal
Debt Security Amount Interest Rate
- ---------------------------------------- ---------- ------------------------------------------
(Thousands
of
Dollars)
Unicom--
Loans Payable:
Loan due January 1, 2003 $ 5,519 Interest rate of 8.31%
Loan due January 1, 2004 6,371 Interest rate of 8.44%
Loan due January 15, 2009 6,025 Interest rate of 8.30%
Loan due January 15, 2009 7,567 Interest rate of 8.55%
Loan due January 15, 2010 6,803 Interest rate of 8.88%
Loan due July 15, 2010 9,225 Interest rate of 7.98%
----------
$ 41,510
----------
ComEd--
Notes:
Medium Term Notes, Series 3N due vari-
ous dates through October 15, 2004 $ 156,000 Interest rates ranging from 9.17% to 9.20%
Notes due January 15, 2004 150,000 Interest rate of 7.375%
Notes due October 15, 2005 235,000 Interest rate of 6.40%
Notes due January 15, 2007 150,000 Interest rate of 7.625%
Notes due July 15, 2018 225,000 Interest rate of 6.95%
----------
$ 916,000
----------
Purchase Contract Obligation
due April 30, 2005 $ 301 Interest rate of 3.00%
----------
Total ComEd $ 916,301
----------
Unicom Enterprises--
Notes:
Unicom Thermal Guaranteed Senior Note
due May 30, 2012 $ 120,000 Interest rate of 7.38%
Northwind Midway Guaranteed Senior Note
due June 30, 2023 11,523 Interest rate of 7.68%
Unicom Mechanical Services Note
due January 1, 2001 13 Interest rate of 8.50%
----------
Total Unicom Enterprises $ 131,536
----------
Total Unicom $1,089,347
==========
Long-term debt maturing within one year has been included in current
liabilities.
ComEd's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by ComEd.
In July 1998, Unicom Thermal issued a $120 million 7.38% unsecured
guaranteed senior Note due May 2012, the proceeds of which were used to
refinance existing debt. The Note is guaranteed by Unicom and includes certain
covenants with respect to Unicom and Unicom Thermal's operations. Such
covenants include, among other things, (i) a requirement that Unicom and its
consolidated subsidiaries maintain a tangible net worth at least $10 million
greater than that of ComEd and its consolidated subsidiaries, (ii) a
requirement that Unicom's consolidated debt to consolidated capitalization not
exceed 0.65 to 1, (iii) restrictions on the indebtedness for borrowed money
that Unicom Thermal may incur, and (iv) a requirement that Unicom own,
directly or indirectly, 51% of the outstanding stock of Unicom Thermal and at
least 80% of the outstanding stock of ComEd.
F-48
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
In June 1999, Northwind Midway issued $12 million of 7.68% guaranteed senior
Notes due June 2023, the proceeds of which will be used primarily to finance
certain project construction costs. The Notes are guaranteed by Unicom and
include certain covenants with respect to Unicom and Northwind Midway's
operations. Such covenants include, among other things, a requirement that
Unicom and its consolidated subsidiaries own no less than 65% of the voting
membership interest of Northwind Midway.
(13) Lines of Credit. ComEd had total unused bank lines of credit of $800
million at December 31, 1999. Of that amount, $500 million expires on December
15, 2000 and $300 million expires on December 17, 2002. The interest rate is
set at the time of a borrowing and is based on several floating rate bank
indices plus a spread which is dependent upon the credit rating of ComEd's
outstanding first mortgage bonds or on a prime interest rate. ComEd is
obligated to pay commitment and facility fees with respect to the line of
credit.
Unicom Enterprises has an unused $400 million credit facility which will
expire December 15, 2000. The credit facility can be used by Unicom
Enterprises to finance investments in unregulated businesses and projects,
including UT Holdings and Unicom Energy Services, and for general corporate
purposes. The credit facility is guaranteed by Unicom and includes certain
covenants with respect to Unicom and Unicom Enterprises' operations. Such
covenants include, among other things, (i) a requirement that Unicom and its
consolidated subsidiaries maintain a tangible net worth at least $3.5 million
over that of ComEd and its consolidated subsidiaries, (ii) a requirement that
Unicom's consolidated debt to consolidated capitalization not exceed 0.65 to
1, (iii) restrictions on the indebtedness for borrowed money that Unicom
(excluding ComEd) and Unicom Enterprises may incur, and (iv) a requirement
that Unicom own 100% of the outstanding stock of Unicom Enterprises and at
least 80% of the outstanding stock of ComEd; and provide that Unicom may not
declare or pay dividends during the continuance of an event of default.
Interest rates for borrowings under the credit facility are set at the time of
a borrowing and are based on either a prime interest rate or a floating rate
bank index plus a spread which varies with the credit rating of ComEd's
outstanding first mortgage bonds. Unicom Enterprises is obligated to pay
commitment fees with respect to the unused portion of such lines of credit.
(14) Disposal of Spent Nuclear Fuel. Under the Nuclear Waste Policy Act of
1982, the DOE is responsible for the selection and development of repositories
for, and the disposal of, spent nuclear fuel and high-level radioactive waste.
ComEd, as required by that Act, has entered into a contract with the DOE to
provide for the disposal of spent nuclear fuel and high-level radioactive
waste from ComEd's nuclear generating stations. The contract with the DOE
requires ComEd to pay the DOE a one-time fee applicable to nuclear generation
through April 6, 1983 of $277 million, with interest to date of payment, and a
fee payable quarterly equal to one mill per kilowatthour of nuclear-generated
and sold electricity after April 6, 1983. Pursuant to the contract, ComEd has
elected to pay the one-time fee, with interest, just prior to the first
delivery of spent nuclear fuel to the DOE. The liability for the one-time fee
and the related interest is reflected on the Consolidated Balance Sheets. The
contract also provided for acceptance by the DOE of such materials to begin in
January 1998; however, that date was not met by the DOE and is expected to be
delayed significantly. The DOE's current estimate for opening a facility to
accept such waste is 2010. This extended delay in spent nuclear fuel
acceptance by the DOE has led to ComEd's consideration of additional dry
storage alternatives. On July 30, 1998, ComEd filed a complaint against the
United States in the United States Court of Federal Claims seeking to recover
damages caused by the DOE's failure to honor its contractual obligation to
begin disposing of spent nuclear fuel in January 1998. On November 5, 1999,
ComEd's case was stayed
F-49
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
pending the decision of the United States Court of Appeals for the Federal
Circuit in several similar cases brought by other utilities.
(15) Fair Value of Financial Instruments. The following methods and
assumptions were used to estimate the fair value of financial instruments
either held, or issued and outstanding. The disclosure of such information
does not purport to be a market valuation of Unicom and subsidiary companies
as a whole. Thehave an
adverse impact of any realized or unrealized gains or losses related
to such financial instruments on the financial positioncondition or results of operations of Unicom and subsidiary companies is primarily dependent on the
treatment authorized under futureComEd.
12. Retirement Benefits
ComEd ratemaking proceedings.
Investments. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear decommissioning funds, as determined by
the trustee and based on published market data, as of December 31, 1999 and
1998 was as follows:
December 31, 1999 December 31, 1998
-------------------------------- --------------------------------
Unrealized
Gains/ Unrealized
Cost Basis (Losses) Fair Value Cost Basis Gains Fair Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
Short-term investments.. $ 41,362 $ 95 $ 41,457 $ 40,907 $ 42 $ 40,949
U.S. Government and
Agency issues.......... 245,399 (1,993) 243,406 197,240 20,213 217,453
Municipal bonds......... 383,816 (940) 382,876 416,121 24,124 440,245
Corporate bonds......... 196,942 (5,699) 191,243 241,111 8,790 249,901
Common stock............ 832,802 732,893 1,565,695 740,956 565,630 1,306,586
Other................... 125,072 (3,209) 121,863 11,345 838 12,183
---------- -------- ---------- ---------- -------- ----------
$1,825,393 $721,147 $2,546,540 $1,647,680 $619,637 $2,267,317
========== ======== ========== ========== ======== ==========
At December 31, 1999, the debt securities held by the nuclear
decommissioning funds had the following maturities:
Cost Basis Fair Value
---------- ----------
(Thousands of
Dollars)
Within 1 year....................................... $ 47,853 $ 48,421
1 through 5 years................................... 263,588 263,117
5 through 10 years.................................. 227,927 225,860
Over 10 years....................................... 409,823 400,358
The net earnings of the nuclear decommissioning funds, which are recorded in
the accumulated provision for depreciation, for the years 1999, 1998 and 1997
were as follows:
1999 1998 1997
---------- ---------- ----------
(Thousands of Dollars)
Gross proceeds from sales of securities....... $1,765,000 $1,795,484 $2,163,522
Less cost based on specific identification.... 1,718,151 1,728,092 2,088,300
---------- ---------- ----------
Realized gains on sales of securities......... $ 46,849 $ 67,392 $ 75,222
Other realized fund earnings, net of expenses. 62,927 40,374 39,123
---------- ---------- ----------
Total realized net earnings of the funds...... $ 109,776 $ 107,766 $ 114,345
Unrealized gains.............................. 101,510 190,503 198,741
---------- ---------- ----------
Total net earnings of the funds.............. $ 211,286 $ 298,269 $ 313,086
========== ========== ==========
F-50
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Securities held by certain trusts, which were established to provide for
supplemental retirement benefits and executive medical claims, have been
classified and accounted for as "available for sale." The estimated fair value
of these securities, as determined by the trustee and based on published
market data, as of December 31, 1999 was as follows:
Cost Unrealized Fair
Basis Gain Value
------- ---------- -------
(Thousands of Dollars)
Short-term investments.............................. $ 162 $ -- $ 162
Registered investment companies..................... 21,641 12,471 34,112
------- ------- -------
$21,803 $12,471 $34,274
======= ======= =======
Current Assets. Cash, temporary cash investments, cash held for redemption
of securities and other cash investments, which include U.S. Government
obligations and other short-term marketable securities, and special deposits,
are stated at cost, which approximates their fair value because of the short
maturity of these instruments. The securities included in these categories
have been classified as "available for sale" securities.
Capitalization. The estimated fair values of ComEd preferred and preference
stocks, ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely ComEd's subordinated debt securities,
transitional trust notes and long-term debt were obtained from an independent
consultant. The estimated fair values, which include the current portions of
redeemable preference stock and long-term debt but exclude accrued interest
and dividends, as of December 31, 1999 and 1998 were as follows:
December 31, 1999 December 31, 1998
--------------------------------- --------------------------------
Unrealized
Carrying Losses/ Carrying Unrealized Fair
Value (Gains) Fair Value Value Losses Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
ComEd preferred and
preference stocks...... $ 71,265 $ 58 $ 71,323 $ 678,156 $ 11,500 $ 689,656
ComEd-obligated
mandatorily redeemable
preferred securities of
subsidiary trusts
holding solely ComEd's
subordinated debt
securities............. $ 350,000 $ (10,595) $ 339,405 $ 350,000 $ 20,678 $ 370,678
Transitional trust
notes.................. $3,057,112 $(163,600) $2,893,512 $3,382,821 $ 67,168 $3,449,989
Long-term debt.......... $4,757,062 $ (23,987) $4,733,075 $5,911,757 $451,240 $6,362,997
Long-term notes payable, which are not included in the above table, amounted
to $53 million and $100 million as of December 31, 1999 and 1998,
respectively. Such notes, for which interest is paid at fixed and prevailing
rates, are included in the consolidated financial statements at cost, which
approximates their fair value.
Current Liabilities. The carrying value of notes payable, which consists of
commercial paper and bank loans maturing within one year, approximates the
fair value because of the short maturity of these instruments. See
"Capitalization" above for a discussion of the fair value of the current
portion of long-term debt and redeemable preference stock.
Other Noncurrent Liabilities. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
December 31, 1999 and 1998; therefore, the carrying value is equal to the fair
value.
F-51
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(16) Pension and Postretirement Benefits. As of December 31, 1999, ComEd had
a qualified non-contributory defined benefit pension plan which covers allplans and postretirement benefit
plans applicable to its regular employees of ComEd and certain of Unicom's subsidiaries.employees. Benefits under this planthese plans reflect
each employee's compensation, years of service and age at retirement. Funding is
based upon actuarially determined contributions that take into account the
amount deductible for income tax purposes and the minimum contribution required
under the Employee Retirement Income Security Act of 1974, as amended. The
following provides a reconciliation of benefit obligations, plan assets and
funded status of the plans.
97
Pension Benefits Other Postretirement Benefits
---------------- -----------------------------
2000 1999 2000 1999
------- ------- ------- -------
Change in Benefit Obligation:
Net benefit obligation at beginning of year $ 4,119 $ 4,326 $ 1,169 $ 1,236
Service cost 70 120 33 41
Interest cost 310 285 88 82
Plan participants' contributions -- -- -- 4
Actuarial (gain)loss 91 (433) 76 (170)
Special termination benefits 125 62 42 27
Gross benefits paid (255) (241) (54) (51)
------- ------- ------- -------
Net benefit obligation at end of year $ 4,460 $ 4,119 $ 1,354 $ 1,169
======= ======= ======= =======
Change in Plan Assets:
Fair value of plan assets at beginning of year $ 4,266 $ 4,015 $ 949 $ 865
Actual return on plan assets (24) 489 (2) 107
Employer contributions 5 3 32 24
Plan participants' contributions -- -- 4 4
Gross benefits paid (255) (241) (58) (51)
------- ------- ------- -------
Fair value of plan assets at end of year $ 3,992 $ 4,266 $ 925 $ 949
======= ======= ======= =======
Funded status at end of year $ (468) $ 147 $ (429) $ (220)
Miscellaneous adjustment -- -- 6 --
Unrecognized net actuarial (gain)loss 183 (494) 108 (539)
Unrecognized prior service cost -- (51) -- 41
Unrecognized net transition obligation (asset) -- (79) -- 276
------- ------- ------- -------
Accrued benefit recognized at end of year $ (285) $ (477) $ (315) $ (442)
======= ======= ======= =======
Pension Benefits Other Postretirement Benefits
-------------------- ----------------------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Weighted-average assumptions as of December 31,
Discount rate 7.60% 6.75% 7.00% 7.60% 6.75% 7.00%
Expected return on plan assets 9.50% 9.25% 9.50% 9.220% 8.97% 9.20%
Rate of compensation increase 4.00% 4.00% 4.00% N/A N/A N/A
Health care cost trend on covered charges N/A N/A N/A 7.00% 8.00% 8.50%
decreasing decreasing decreasing
to ultimate to ultimate to ultimate
trend of 5.0% trend of 5.0% trend of 5.0%
in 2005 in 2005 in 2002
Pension Benefits Other Postretirement Benefits
-------------------- ----------------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Components of net periodic benefit
cost (benefit):
Service cost $ 70 $ 120 $ 115 $ 33 $ 41 $ 38
Interest cost 310 285 273 88 82 78
Expected return on assets (394) (362) (342) (85) (76) (69)
Amortization of:
Transition obligation (asset) (9) (13) (12) 16 22 22
Prior service cost (1) (4) (4) 3 4 4
Actuarial (gain)loss (5) 3 2 (17) (14) (14)
Curtailment charge -- 16 -- -- 35 --
Settlement charge -- -- -- -- 1 6
----- ----- ----- ----- ----- -----
Net periodic benefit cost (benefit) $ (29) $ 45 $ 32 $ 38 $ 95 $ 65
===== ===== ===== ===== ===== =====
Special termination benefit charge $ 4 $-- $ -- $ 5 $ -- $ --
===== ===== ===== ===== ===== =====
Sensitivity of retiree welfare results:
Effect of a one percentage point increase in assumed health care cost trend on
total service and interest cost components $ 23
on postretirement benefit obligation $ 223
Effect of a one percentage point decrease in assumed health care cost trend on
total service and interest cost components $ (18)
on postretirement benefit obligation $ (177)
Prior service cost is amortized on a straight-line basis over the
average remaining service period of employees expected to receive benefits under
the plans.
98
Pension and postretirement benefits expense for the periods January 1,
2000 to October 19, 2000, and October 20, 2000 to December 31, 2000 was $5
million and $4 million, respectively.
During 2000, costs were recognized for special termination benefits in
connection with the enhanced retirement and severance benefits provided to
employees expected to be terminated as a result of the Merger. Special
termination benefits of $125 million represent ComEd's accelerated liability
increase, including $25 million for plan enhancements, under the MSP. During
1999, $62 million of costs were recognized for special termination benefits
related to the reduction in the number of employees resulting from the sale of
the fossil stations.
ComEd provides certain health care and 1998 pension liabilities
and related data were determined usinglife insurance benefits for
retired employees. Employees become eligible for these benefits if they retire
no earlier than age 55 with ten years of service. Certain benefits for active
employees are provided by several insurance companies whose premiums are based
upon the January 1, 1999 actuarial
valuation.benefits paid during the year.
Additionally, ComEd maintains a nonqualified supplemental retirement
plan whichthat covers any excess pension benefits that would be payable to management
employees under the qualified plan but which are limited by the Internal Revenue
Code. In 1998, Indiana Company's qualified defined benefit
pension plan was merged into ComEd's pension plan as a result of the sale of
Indiana Company's State Line Station and the transfer of its remaining
employees to ComEd.
ComEd and certain of Unicom's subsidiaries provide certain postretirement
medical, dental and vision care, and life insurance for retirees and their
dependents and for the surviving dependents of eligible employees and
retirees. Generally, the employees become eligible for postretirement benefits
if they retire no earlier than age 55 with ten years of service. The liability
for postretirement benefits is funded through trust funds based upon
actuarially determined contributions that take into account the amount
deductible for income tax purposes. The health care plans are contributory,
funded jointly by the companies and the participating retirees. The December
31, 1999 and 1998 postretirement benefit liabilities and related data were
determined using the January 1, 1999 actuarial valuations.
Reconciliations of the beginning and ending balances of the projected
pension benefit obligation and the accumulated postretirement benefit
obligation, and the funded status of these plans for the years 1999 and 1998
were as follows:
Twelve Months Ended Twelve Months Ended
December 31, 1999 December 31, 1998
-------------------------- --------------------------
Other Other
Pension Postretirement Pension Postretirement
Benefits Benefits Benefits Benefits
---------- -------------- ---------- --------------
(Thousands of Dollars)
Change in benefit
obligation
- -----------------
Benefit obligation at
beginning of period.... $4,326,000 $1,236,000 $4,010,000 $1,139,000
Service cost............ 120,000 41,000 115,000 38,000
Interest cost........... 285,000 82,000 273,000 78,000
Plan participants' con-
tributions............. -- 4,000 -- 3,000
Actuarial loss/(gain)... (458,000) (188,000) 165,000 25,000
Benefits paid........... (241,000) (51,000) (237,000) (47,000)
Special termination ben-
efits.................. 62,000 27,000 -- --
---------- ---------- ---------- ----------
Benefit obligation at
end of period......... $4,094,000 $1,151,000 $4,326,000 $1,236,000
---------- ---------- ---------- ----------
Change in plan assets
- ---------------------
Fair value of plan as-
sets at beginning of
period................. $4,015,000 $ 865,000 $3,706,000 $ 767,000
Actual return on plan
assets................. 492,000 105,000 535,000 122,000
Employer contribution... 3,000 24,000 11,000 20,000
Plan participants' con-
tributions............. -- 4,000 -- 3,000
Benefits paid........... (241,000) (51,000) (237,000) (47,000)
---------- ---------- ---------- ----------
Fair value of plan as-
sets at end of period. $4,269,000 $ 947,000 $4,015,000 $ 865,000
---------- ---------- ---------- ----------
Plan assets
greater/(less) than
benefit obligation..... $ 175,000 $ (204,000) $ (311,000) $ (371,000)
Unrecognized net actuar-
ial loss/(gain)........ (523,000) (555,000) 36,000 (371,000)
Unrecognized prior serv-
ice cost/(asset)....... (51,000) 41,000 (60,000) 48,000
Unrecognized transition
obligation/(asset)..... (79,000) 276,000 (101,000) 323,000
---------- ---------- ---------- ----------
Accrued liability for
benefits.............. $ (478,000) $ (442,000) $ (436,000) $ (371,000)
========== ========== ========== ==========
F-52
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The assumed discount rate used to determine the benefit obligation as of
December 31, 1999 and 1998 was 7.75% and 6.75%, respectively. The fair value of plan assets excludes $25 million and $21$24 million held in grantor trust
as of December 31, 1999 and 1998, respectively,2000 for the payment of benefits under the supplemental plan
and $9 million and $7 million held in a grantor trust as of December 31, 1999 and 1998, respectively,2000 for the payment
of postretirement medical benefits.
ComEd sponsors savings plans which allows employees to contribute a
portion of their base pay in accordance with specified guidelines. ComEd matches
a percentage of the employee contribution up to certain limits. The componentscost of
pensionComEd's matching contribution to the savings plans totaled $31 million, $32
million, and other postretirement benefit costs, portions$32 million in 2000, 1999, and 1998, respectively.
99
13. Preferred Securities
Preferred and Preference Stock
At December 31, 2000 and 1999, there were 51,773 and 56,291 authorized shares of
which were recorded as components$1.425 convertible preferred stock, respectively, 6,810,451 and 7,510,451
authorized shares of construction costs, for the years,
1999, 1998preference stock, respectively, and 1997 were as follows:850,000 and 850,000
authorized shares of prior preferred stock, respectively.
At December 31,
----------------------------------------
Current Shares Outstanding Amount
Redemption ------------------ -------
Price 2000 1999 1998 1997
--------2000 1999
--------- ---------
(Thousands of Dollars)---- ---- ---- ----
Pension Benefit Costs
- ---------------------
Service cost.................................. $120,000
Without mandatory redemption
$1.425 convertible preferred stock,
cumulative, without par value $42.00 -- 56,291 $-- $ 115,0002
Preference stock, non-cumulative,
without par value 1,120 1,120 7 7
----- ------- --- ---
1,120 57,411 $ 100,000
Interest cost on projected benefit obligation. 285,000 273,000 261,000
Expected return on plan assets................ (362,000) (342,000) (310,000)
Amortization of transition asset.............. (13,000) (12,000) (13,000)
Amortization of prior service asset........... (4,000) (4,000) (4,000)
Recognized loss............................... 3,000 2,000 2,000
Curtailment (gain)/loss....................... 16,0007 $ 9
===== ====== === ===
With mandatory redemption
Series $6.875 preference stock, cumulative,
without par value -- (5,000)
-------- --------- ---------
Net periodic benefit cost....................700,000 -- $69
----- ------- --- ---
Total preferred and preference stock 1,120 757,411 $ 45,000 $ 32,000 $ 31,000
======== ========= =========
Other Postretirement Benefit Costs
- ----------------------------------
Service cost.................................. $ 41,000 $ 38,000 $ 34,000
Interest cost on accumulated benefit
obligation................................... 82,000 78,000 76,000
Expected return on plan assets................ (76,000) (69,000) (61,000)
Amortization of transition obligation......... 22,000 22,000 22,000
Amortization of prior service cost............ 4,000 4,000 4,000
Recognized gain............................... (14,000) (14,000) (13,000)
Severance plan cost........................... 1,000 6,000 8,000
Curtailment loss.............................. 35,000 -- --
-------- --------- ---------
Net periodic benefit cost.................... $ 95,000 $ 65,000 $ 70,000
======== ========= =========7 $78
===== ======= === ===
In accounting forCompany-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts Holding Solely the pension costsCompany's Subordinated Debt Securities
At December 31, 2000 and other postretirement benefit costs
under the plans,1999, subsidiary trusts of ComEd had outstanding the
following weighted average actuarial assumptions were
used for the periods during 1999, 1998 and 1997:securities:
Other
Pension Benefits Postretirement Benefits
----------------- -----------------------At December 31,
--------------------------------------------
Mandatory Trust Receipts Outstanding Amount
Redemption Distribution Liquidation -------------------------- ------
Series Date Rate Value 2000 1999 1998 19972000 1999
1998 1997- ------ ---- ---- ----- ----- ----- ------- ------- ----------- ---- ---- ----
Annual discount rate................. 6.75% 7.00% 7.50% 6.75% 7.00% 7.50%
Annual long-term rate of return on
plan assets......................... 9.25% 9.50% 9.75% 8.97% 9.20% 9.40%
Annual rate of increase in future
compensation levels................. 4.00% 4.00% 4.00%
ComEd Financing I 2035 8.48% $ 25 8,000,000 8,000,000 $ 200 $200
ComEd Financing II 2027 8.50% 1,000 150,000 150,000 150 150
Unamortized Discount -- -- (22) --
--------- --------- ----- ----
Total 8,150,000 8,150,000 $ 328 $350
========= ========= ===== ====
ComEd Financing I and ComEd Financing II are wholly owned subsidiary
trusts of ComEd. The pension curtailment gainsole assets of each ComEd trust are subordinated deferrable
interest debt securities issued by ComEd bearing interest rates equivalent to
the distribution rate of the related trust security.
The interest expense on the deferrable interest debt securities is
included in Other Income and Deductions in ComEd's Consolidated Statements of
Income and is deductible for tax purposes.
100
14. Common Stock
At December 1997 represents31, 2000 and 1999, common stock with a $12.50 par value
consisted of 250,000,000 and 250,000,000 shares authorized and 163,805,000 and
213,974,000 shares outstanding, respectively.
At December 31, 2000 and 1999, 74,988 and 75,692, respectively, of
ComEd common stock purchase warrants were outstanding. The warrants entitle the
recognitionholders to convert such warrants into common stock of prior service costs,ComEd at a conversion rate
of one share of common stock for three warrants. At December 31, 2000, 24,996
shares of common stock were reserved for the transition asset andconversion of warrants.
Forward Purchase Agreements
In the decreasefourth quarter of 1998, ComEd entered into a forward purchase
arrangement with Unicom for the repurchase of $200 million of ComEd common
stock. This contract, which was accounted for as an equity instrument as of
December 31, 1999, was settled on a net cash basis in February 1999, resulting
in a $16 million reduction to common stock equity on ComEd's Consolidated
Balance Sheets.
In January 2000, ComEd physically settled the projected
benefit obligationforward share repurchase
arrangements it had with Unicom for the repurchase of 26.3 million ComEd common
shares. Prior to settlement, the repurchase arrangements were recorded as a
receivable on ComEd's Consolidated Balance Sheets based on the aggregate market
value of the shares under the arrangements. In 1999, net unrealized losses of
$44 million (after-tax) were recorded related to the reduction in the number of employees due to
Indiana Company's sale of State Line Station.arrangements. The
pension and other
postretirement benefit curtailment losses in December 1999 represent the
recognition of prior service costs and transition obligations, and an increase
in the benefit obligations resulting from special termination benefits,
related to the reduction in the number of employees due to ComEd's salesettlement of the fossil stations.
F-53
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The health care cost trend rates used to measure the expected cost of the
postretirement medical benefits are assumed to be 8.0% for pre-Medicare
recipients and 6.0% for Medicare recipients for 1999. Those rates are assumed
to decreasearrangements in 0.5% annual increments to 5% for the years 2005 and 2001,
respectively, and to remain level thereafter. The health care cost trend
rates, used to measure the expected cost of postretirement dental and vision
benefits, are a level 3.5% and 2.0% per year, respectively. Assumed health
care cost trend rates have a significant effect on the amounts reported for
the health care plans. A one percentage point change in the assumed health
care cost trend rates would have the following effects:
1 Percentage 1 Percentage
Point Increase Point Decrease
-------------- --------------
(Thousands of Dollars)
Effect on total 1999 service and interest cost
components...................................... $ 26,000 $ (20,000)
Effect on postretirement benefit obligation as of
December 31, 1999............................... 190,000 (151,000)
In addition, an employee savings and investment plan is available to
eligible employees of ComEd and certain of its and Unicom's subsidiaries.
Under the plan, each participating employee may contribute up to 20% of such
employee's base pay and the participating companies match the first 6% of such
contribution equal to 100% of the first 2% of contributed base salary, 70% of
the next 3% of contributed base salary and 25% of the next 1% of contributed
base salary. The participating companies' contributions were $32 million, $32
million and $33 million for the years 1999, 1998 and 1997, respectively.
(17) Separation Plan Costs. O&M expenses included $10 million, $48 million
and $39 million for the years 1999, 1998 and 1997, respectively, for costs
related to voluntary separation offers to certain employees of ComEd and
Indiana Company, as well as certain other employee-related costs. Such costsJanuary 2000 resulted in chargesa gain of $6$113
million (after-tax), or $0.03 perwhich was recorded in the first quarter of 2000. The
settlement of the arrangements resulted in a reduction in ComEd's outstanding
common share
(diluted), $29shares and common stock equity, effective January 2000.
Stock Repurchases
During the first quarter of 2000, ComEd repurchased four million (after-tax), or $0.13 perof its
common share (dilutive) and
$24shares from Unicom for $153 million (after-tax), or $0.11 perusing proceeds from the 1998 issuance
of transitional trust notes.
In the fourth quarter of 2000, ComEd repurchased 19.9 million of its
common share (diluted),shares from Unicom in exchange for an $850 million note receivable ComEd
held from Unicom Investment.
101
15. Financial Instruments
Fair values of financial instruments, including liabilities, are estimated based
on quoted market prices for the years
1999, 1998same or similar issues. The carrying amounts and
1997, respectively. See Note 5 regarding employee separation
costs related to the fossil plant sale.
(18) Income Taxes. The componentsfair values of the net deferred income tax liability
atComEd's financial instruments as of December 31, 19992000 and 19981999
were as follows:
December 31
----------------------2000 | 1999
1998
---------- ----------
(Thousands of
Dollars)----------------------- | ------------------------
Carrying | Carrying
Amount Fair Value | Amount Fair Value
Deferred income tax liabilities:
Accelerated cost recovery|
Non-derivatives: |
Assets |
Cash, cash equivalents and liberalized deprecia-
tion, net of removal costs........................... $2,815,972 $4,028,351
Overheads capitalized................................. 159,836 140,922
Repair allowance...................................... 221,502 233,861
Regulatory assets recoverable through future rates.... 688,946 680,356
Deferred income tax assets:
Postretirement benefits............................... (376,538) (331,651)
Unamortized investment tax credits.................... (161,756) (191,135)
Regulatory liabilities to be settled through future
rates................................................ (596,157) (595,005)
Nuclear plant closure................................. (5,456) (38,354)
Other--net............................................ (321,522) (146,224)
---------- ----------
Net deferred income tax liability...................... $2,424,827 $3,781,121
========== ==========|
restricted cash $201 $201 | $1,540 $1,540
Trust accounts for decommissioning |
nuclear plants $2,669 $2,669 | $2,547 $2,547
Marketable securities $33 $33 | $34 $34
Liabilities |
Long-term debt (including amounts |
due within one year) $7,230 $7,455 | $7,694 $7,525
Company-Obligated Mandatorily |
Redeemable Preferred Securities $328 $347 | $350 $339
Derivatives: |
Energy Swap Contract $34 $34 | $-- $--
F-54
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The $1,356 million decrease in the net deferred income tax liability from
December 31, 1998Financial instruments which potentially subject ComEd to December 31, 1999 is comprisedconcentrations
of a $1,377 million credit to net deferred income tax expense pertaining primarily to the fossil plant
sale, a $7 million increase in regulatory assets netrisk consist principally of regulatory liabilities
pertaining to income taxes for the period,cash equivalents and $14 million related to other
items. The amount of accelerated cost recovery and liberalized depreciation
included in deferred income tax liabilities for both periods includes amounts
related to the regulatory asset for impaired production plant. The amount of
regulatory assets included in deferred income tax liabilities primarily
relates to the equity component of AFUDC which is recorded on an after-tax
basis, the borrowed funds component of AFUDC which was previously recorded net
of tax and other temporary differences for which the related tax effects were
not previously recorded. The amount of other regulatory liabilities included
in deferred income tax assets primarily relates to deferred income taxes
provided at ratescustomer accounts
receivable. ComEd places its cash equivalents with high-credit quality financial
institutions. Generally, such investments are in excess of the Federal Deposit
Insurance Corporation limit. Concentrations of credit risk with respect to
customer accounts receivable are limited due to ComEd's large number of
customers and their dispersion across many industries.
16. Commitments and Contingencies
Capital Commitments
ComEd estimates that it will spend approximately $900 million for
capital expenditures in 2001.
Nuclear Insurance
The Price-Anderson Act limits the liability of nuclear reactor owners
for claims that could arise from a single incident. The current statutory rate.
The components of net income tax expense charged/(credited)limit is $9.5
billion and is subject to continuing
operationschange to account for the years 1999, 1998effects of inflation and
1997 were as follows:
1999 1998 1997
---------- -------- ---------
(Thousands of Dollars)
Operating income:
Current income taxes........................ $1,762,281 $304,889 $ 255,057
Deferred income taxes....................... (1,403,083) 50,134 62,501
Investment tax credits deferred--net........ (25,828) (27,730) (31,015)
Other (income) and deductions:
Current income taxes........................ 457 (51,816) 1,116
Deferred income taxes....................... 25,739 59,458 (385,994)
Investment tax credits...................... (51,740) (12,107) (22,526)
---------- -------- ---------
Net income taxes charged/(credited) to con-
tinuing operations.......................... $ 307,826 $322,828 $(120,861)
========== ======== =========
Provisions for currentchanges in the number of licensed reactors. ComEd carried the maximum available
commercial insurance of $200 million and deferred federalthe remaining $9.3 billion is provided
through mandatory participation in a financial protection pool. Under the
Price-Anderson Act, all nuclear reactor licensees can be assessed up to $89
million per reactor per incident, payable at no more than $10 million per
reactor per incident per year. This assessment is subject to inflation and state
income taxes and
amortization of investment tax credits resulted inpremium taxes. In addition, the following effective
income tax rates for the years 1999, 1998 and 1997:
1999 1998 1997
-------- -------- ---------
(Thousands of Dollars)
Net income/(loss) before extraordinary items.... $597,245 $510,184 $(239,215)
Net income taxes charged/(credited) to continu-
ing operations................................. 307,826 322,828 (120,861)
Provision for dividends on ComEd preferred and
preference stocks.............................. 23,756 56,884 60,486
-------- -------- ---------
Pre-tax income/(loss) before extraordinary items
and provision for dividends.................... $928,827 $889,896 $(299,590)
-------- -------- ---------
Effective income tax rate....................... 33.1% 36.3% 40.3%
======== ======== =========
The principal differences between net income taxes charged/(credited) to
continuing operations and the amounts computed at the federal statutory rate
of 35% for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997
-------- -------- ---------
(Thousands of Dollars)
Federal income taxes computed at statutory rate. $325,089 $311,464 $(104,857)
Equity component of AFUDC which was excluded
from taxable income............................ (436) (390) (8,320)
Amortization of investment tax credits, net of
deferred income taxes.......................... (48,216) (25,503) (53,541)
State income taxes, net of federal income taxes. 45,882 40,899 (682)
Unrealized loss/(gain) on forward share
repurchase contract............................ 15,390 -- --
Earnings on nontax-qualified decommissioning
fund........................................... (8,915) -- --
Differences between book and tax accounting,
primarily property-related deductions.......... (20,968) (3,642) 46,539
-------- -------- ---------
Net income taxes charged/(credited) to
continuing operations.......................... $307,826 $322,828 $(120,861)
======== ======== =========
F-55
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(19) Taxes, Except Income Taxes. Provisions for taxes, except income taxes,
for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
Illinois public utility revenue...................... $ 981 $114,981 $228,350
Illinois invested capital............................ -- -- 99,503
Illinois electricity distribution tax................ 114,241 110,026 --
Municipal utility gross receipts..................... 99,701 152,501 168,094
Real estate.......................................... 115,208 125,521 151,508
Municipal compensation............................... 73,349 89,210 78,286
Energy assistance and renewable energy charge........ 34,423 32,736 --
Other--net........................................... 70,550 74,859 75,145
-------- -------- --------
$508,453 $699,834 $800,886
======== ======== ========
Effective January 1, 1998, the Illinois invested capital tax was repealed
and the Illinois electricity distribution tax was enacted as a replacement.
The new tax is basedU.S. Congress could impose revenue-raising
measures on the kilowatthours deliverednuclear industry to ultimate consumers.
The 1997 Act changedpay claims.
ComEd carried property damage, decontamination and premature
decommissioning insurance for each station loss resulting from damage to its
nuclear plants. In the natureevent of several statean accident, insurance proceeds must first be
used for reactor stabilization and municipal taxes that
are collected through customer billings. Before August 1998,site decontamination. If the utility taxes
weredecision is made
to decommission the facility, a portion of the insurance proceeds will be
allocated to a fund, which ComEd was required by the Nuclear Regulatory
Commission (NRC) to maintain, to provide for decommissioning the facility. Under
the terms of the various insurance agreements, ComEd could have been assessed againstup
to $49 million for losses incurred at any plant insured by the utility. Effective August 1998, the utility taxes
are assessed on the electric consumer rather than the utility. Accordingly,insurance
companies. ComEd records the collections as liabilities and no longer records the taxes
collected through billings as revenues and tax expense. The reduction in
operating revenues and taxes, except income taxes, duewas self-insured to the change in
presentation for such taxes was approximately $174 million in 1999, compared
to 1998, and $110 million in 1998, compared to 1997. This change in
presentation for such taxes did notextent that any losses might have
an102
exceeded the amount of insurance maintained. Such losses could have had a
material adverse effect on ComEd's financial condition and results of
operations.
See Note 22 for additional information regarding Illinois invested capital
taxes.
(20) Lease Obligations of Subsidiary Companies. Under its nuclear fuel lease
arrangement, ComEd may sell and lease back nuclear fuel from a lessor who may
borrow an aggregate of $267 million, consisting of intermediate term notes, to
finance the transactions. A commercial paper/bank borrowing portion expired on
November 23, 1999. With respect to the intermediate term notes, $75 million
expires on November 23, 2000, $40 million expires on November 23, 2001, $77
million expires on November 23, 2002 and $75 million expires on November 23,
2003. At December 31, 1999, ComEd's obligation to the lessor for leased
nuclear fuel amounted to approximately $270 million. ComEd has agreed to make
lease payments which cover the amortization of the nuclear fuel used in
ComEd's reactors plus the lessor's related financing costs. ComEd has an
obligation for spent nuclear fuel disposal costs of leased nuclear fuel.
As of December 31, 1999, future minimum rental payments, net of executory
costs, for capital leases are estimated to aggregate to $298 million,
including $121 million in 2000, $96 million in 2001, $48 million in 2002 and
$33 million in 2003. The estimated interest component of such rental payments
aggregates $27 million. The estimated portions of obligations due within one
year under capital leases of $108 million and $195 million at December 31,
1999 and 1998, respectively, were included in current liabilities on the
Consolidated Balance Sheets.
Future minimum rental payments at December 31, 1999 for operating leases are
estimated to aggregate to $305 million, including $33 million in 2000, $27
million in 2001, $27 million in 2002, $24 million in 2003, $23 million in 2004
and $171 million in 2005-2043.
(21) Joint Plant Ownership. ComEd has a 75% undivided ownership interest in
the Quad Cities nuclear generating station. Further, ComEd is responsible for
75% of all costs which are
F-56
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
charged to appropriate investment and O&M accounts, and provides its own
financing. ComEd's net plant investment, including construction work in
progress, in Quad Cities Station on the Consolidated Balance Sheets was $22
million at December 31, 1999, after reflecting the accounting impairment
recorded in the second quarter of 1998. See Note 1, under "Regulatory Assets
and Liabilities," for additional information.
(22) Commitments and Contingent Liabilities. Purchase commitments,
principally related to construction, nuclear fuel, and coal in support of
certain power purchase agreements approximated $799 million at December 31,
1999, comprised of $670 million for ComEd, $27 million for UT Holdings, $24
million for Unicom Energy Services and $78 million for Unicom Power Holdings.
In addition, ComEd has substantial commitments for expected capacity payments
and fixed charges related to power purchase agreements. Upon completion of the
fossil plant sale with EME, ComEd entered into arrangements to assign or
settle a substantial portion of its coal purchase commitments and entered into
purchase power agreements with EME. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," subcaption "Liquidity and
Capital Resources--UTILITY OPERATIONS--Construction Program," for additional
information regarding ComEd's purchase commitments.
ComEd is a member of NEIL whichan industry insurance company that provides insurance coverage against property
damage and associated
replacement power costs occurring at members' nuclear
generating facilities. All companies insured with NEIL are subject to
retrospective premium adjustments if losses exceed accumulated reserve funds.
Capital has been accumulated in the reserve funds such that ComEd would not be
liable for any single incident. However, ComEd could be subject to assessments
in any policy year for each of three types of coverage provided. The maximum
assessments are approximately $53 million for primary property damage, $73
million for excess property damage and $22 million for replacement power.
The NRC's indemnity for public liability coverage under the Price-Anderson
Act is supported by a mandatory industry-wide program under which owners of
nuclear generating facilities could be assessedcost insurance in the event of a major accidental outage at a
nuclear incidents. Based on the number of nuclear reactors with operating licenses,
ComEd would currently bestation. The premium for this coverage is subject to aassessment for
adverse loss experience. ComEd's maximum share of any assessment of $1,145was $10 million
in
the event of an incident, limited to a maximum of $130 million in any calendarper year.
In addition, ComEd participatesparticipated in the American Nuclear Insurers Master
Worker Program, which provides coverage for worker tort claims filed for bodily
injury caused by the nuclear energy hazard.accident. This program was modified,
effective January 1, 1998, to provide coverage to all workers whose "nuclear-
related employment" began on or after the commencement date of reactor
operations. ComEd will not be liable for a retrospective assessment under this
new policy. However, ComEd is still subject to a maximum retroactive
assessment of up to $36 million in the event losses incurred under the small number of
policies in the old program exceed accumulated reserves.reserves, a maximum retroactive
assessment of up to $38 million could apply. See Note 19 - Subsequent Events for
information regarding a restructuring that Exelon effected in January 2001.
Nuclear Decommissioning and Spent Fuel Storage
ComEd's current estimate of its nuclear facilities' decommissioning
cost is $5.2 billion. Decommissioning costs are recoverable through regulated
rates. Under rates in effect through December 31, 2000, ComEd expensed
approximately $84 million in 2000 collected from customers which was accounted
for as a component of depreciation expense and accumulated depreciation for
operating units and regulatory assets for retired units. At December 31, 2000
and 1999, $2.1 billion was included in accumulated depreciation. In order to
fund future decommissioning costs, at December 31, 2000 and 1999, ComEd held
$2.7 billion and $2.5 billion, respectively, in trust accounts which are
included in ComEd's Consolidated Balance Sheets and include both net unrealized
and realized gains. Net unrealized gains of $499 million and $581 million,
respectively, were recognized in accumulated depreciation in ComEd's
Consolidated Balance Sheets at December 31, 2000 and 1999, respectively. Net
realized gains of $608 million and $502 million were also recognized in
accumulated depreciation in ComEd's Consolidated Balance Sheets at December 31,
2000 and 1999, respectively. ComEd believes that the amounts being recovered
from customers through regulated rates and earnings on nuclear decommissioning
trust funds will be sufficient to fully fund the unrecorded portion of its
decommissioning obligation.
In connection with the transfer of ComEd's nuclear generating stations
to Exelon Generation Company, LLC (Generation), ComEd asked the ICC to approve
the continued recovery of decommissioning costs after the transfer. On December
20, 2000, the ICC issued an order finding that the ICC has the legal authority
to permit ComEd to continue to recover decommissioning costs from customers for
the six-year term of the power purchase agreements between ComEd and Generation.
Under the ICC order, ComEd is permitted to recover $73 million per year from
customers for decommissioning for the years 2001 through 2004. In 2005 and 2006,
ComEd can recover up to $73 million annually, depending upon the portion of the
output of the former ComEd nuclear stations that ComEd purchases from
Generation. Subsequent to 2006, there will be no further recoveries of
decommissioning costs from customers. The ICC order also provides that any
surplus funds after the nuclear stations are decommissioned must be refunded to
customers. The amount of recovery in the ICC order is less than the $84 million
annual amount ComEd recovered in 2000. The ICC order is currently pending appeal
in the Illinois Appellate Court.
Under the Nuclear Waste Policy Act of 1982 (NWPA), the U.S. Department
of Energy (DOE) is responsible for the selection and development of repositories
for, and the disposal of, spent nuclear fuel and high-level radioactive waste
(SNF). ComEd, as required by the NWPA, signed a contract with the DOE (the
Standard Contract) to provide for the disposal of SNF from its nuclear
generating stations. In accordance with NWPA and the Standard Contract, ComEd
pays the DOE one mill ($.001) per kilowatthour of net nuclear generation for the
cost of nuclear fuel long-term storage and disposal. This fee may be adjusted
prospectively in order to ensure full cost recovery. The NWPA and the Standard
Contract required DOE to begin taking possession of SNF generated by nuclear
generating units by no later than January, 1998. The DOE, however, failed to
meet that deadline and its performance is expected to be delayed significantly.
103
The DOE's current estimate for opening such a facility is 2010. This extended
delay in spent nuclear fuel acceptance by the DOE has led to ComEd's
consideration of additional dry storage alternatives.
On July 30, 1998, ComEd filed a complaint against the United States
Government (Government) in the United States Court of Federal Claims seeking to
recover damages caused by the DOE's failure to honor its contractual obligation
to begin disposing of SNF in January 1998. ComEd subsequently moved for partial
summary judgment on liability on its breach of contract claim. In August, 2000,
the United States Court of Appeals decided two other similar cases against the
Government, rejecting the Government's jurisdictional defense and granting
partial summary judgment on liability for the plaintiff utilities in one of
those cases. The Court later denied the Government's request for rehearing.
Following that ruling, ComEd and seven other utility plaintiffs filed motions in
their respective cases in the Court of Federal Claims to set a coordinated
discovery schedule on damages. On January 8, 2001, the Government filed a motion
to reassign all of the SNF cases to one Court of Federal Claims judge for
purposes of consolidating the cases to address certain damage issues. Those
motions are all pending before the Court. ComEd has also requested that the
Court grant its pending summary judgment motion on liability, particularly in
light of the Court of Appeal's decision in August 2000.
The Standard Contract with the DOE also requires ComEd to pay the DOE a
one-time fee applicable to nuclear generation through April 6, 1983. Pursuant to
the Contract, ComEd has elected to pay the one-time fee of $277 million, with
interest to the date of payment, just prior to the first delivery of SNF to the
DOE. As of December 31, 2000, the liability for the one-time fee with related
interest was $810 million.
Energy Commitments
ComEd's wholesale operations include the physical delivery and
marketing of power obtained through its generation capacity, and long,
intermediate and short-term contracts. ComEd maintains a net positive supply of
energy and capacity, through ownership of generation assets and power purchase
agreements. These agreements are firm commitments related to power generation of
specific generation plants and/or are dispatchable in nature. ComEd enters into
power purchase agreements with the objective of obtaining low-cost energy supply
sources to meet its physical delivery obligations to its customers. ComEd has
also purchased firm transmission rights to ensure that it has reliable
transmission capacity to physically move its power supplies to meet customer
delivery needs. The intent and business objective for the use of its capital
assets and contracts is to provide ComEd with physical power supply to enable it
to deliver energy to meet customer needs. Except for hedging purposes, ComEd
does not use financial contracts in its wholesale marketing activities.
ComEd has entered into bilateral long-term contractual obligations for
sales of energy to load-serving entities, including electric utilities,
municipalities, and electric cooperatives. ComEd also enters into contractual
obligations to deliver energy to wholesale market participants who primarily
focus on the resale of energy products for delivery. ComEd provides delivery of
its energy to these customers through access to its transmission assets or
rights for firm transmission.
104
At December 31, 2000, ComEd had long-term commitments, in millions of megawatt
hours (MWh) and dollars, relating to the purchase and sale of energy and
capacity purchases and transmission rights from unaffiliated utilities and
others as expressed in the following tables:
Power Only
------------------------------------------
Purchases Sales
MWh Dollars MWh Dollars
2001 1 $ 27 9 $135
2002 2 36 8 114
2003 2 41 6 99
2004 --- --- 4 80
2005 --- --- 2 39
Thereafter --- --- 1 15
---- ----
Total $104 $482
==== ====
Capacity Transmission
Purchases Purchases
in Dollars in Dollars
2001 $ 689 $ 20
2002 575 --
2003 452 --
2004 453 --
2005 117 --
Thereafter 800 --
------- -----
Total $ 3,086 $ 20
======= =====
Environmental Issues
ComEd's operations have in the past and may in the future require
substantial capital expenditures in order to comply with environmental laws.
Additionally, under Federal and state environmental laws, ComEd is generally
liable for the costs of remediating environmental contamination of property now
or formerly owned by ComEd and of property contaminated by hazardous substances
generated by ComEd. ComEd owns a number of real estate parcels, including
parcels on which its operations or the operations of others may have resulted in
contamination by substances which are considered hazardous under environmental
laws. ComEd has identified 44 sites where former manufactured gas plant (MGP)
activities have or may have resulted in actual site contamination. ComEd is
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.
As of December 31, 2000 and 1999, ComEd had accrued $117 million and
$100 million, respectively, (reflecting discount rates of 5.5% and 6.5%,
respectively) for environmental investigation and remediation costs. These
reserves included $110 million and $93 million, respectively, for MGP
investigation and remediation. Such estimates, reflecting the effects of a 3%
inflation rate before the effects of discounting were $170 million and $182
million at December 31, 2000 and 1999, respectively. ComEd cannot reasonably
estimate whether it will incur other significant liabilities for additional
investigation and remediation costs at these or additional sites identified by
ComEd, environmental agencies or others, or whether such costs will be
recoverable from third parties.
105
Leases
Minimum future operating lease payments as of December 31, 2000 were:
2001 $ 29
2002 34
2003 32
2004 30
2005 26
Remaining years 77
----
Total minimum future lease payments $228
====
Rental expense under operating leases totaled $30 million, $45 million,
and $60 million in 2000, 1999 and 1998, respectively.
Litigation
FERC Municipal Request for Refund. Three of ComEd's wholesale municipal
customers filed a complaint and request for refund with the FERC alleging that ComEd
failed to properly adjust their rates, as provided for under the terms of their
electric service contracts, and to track certain refunds made to ComEd's retail
customers in the years 1992 through 1994. In the third quarter of 1998, the FERC
granted the complaint and directed that refunds be made, with interest. ComEd
filed and was granted a request for rehearing for purposesrehearing. On January 11, 2001, FERC issued its Order on
Rehearing Requesting Submission of reconsideration with the FERC. If the
orderAdditional Information. Responsive pleadings
have been filed by all parties and final FERC action is upheld, ComEd must make refunds within 15 days of the resolution for
rehearing.still pending. ComEd's
management believes an adequate reserve has been established in connection with
thisthe case.
F-57
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that Cotter has permitted radioactive and other
hazardous material to be released from its mill into areas owned or occupied
by the plaintiffs resulting in property damage and potential adverse health
effects. With respect to Cotter, in 1994 a federal jury returned nominal
dollar verdicts against Cotter on eight plaintiffs' claims in the 1989 cases,
which verdicts were upheld on appeal. The remaining claims in the 1989 actions
have been settled and dismissed. On July 15, 1998, a jury verdict was rendered
in Dodge v. Cotter (United States District Court for the District of Colorado,
Civil Action No. 91-Z-1861), a case relating to 14 of the plaintiffs in the
1991 cases. The verdict against Cotter and in favor of the plaintiff, after an
amended judgement was issued March 11, 1999, totaled approximately $6 million,
including compensatory and punitive damages, interest, and medical monitoring.
On February 11, 2000, the Tenth Circuit Court of Appeals agreed with Cotter,
found that the trial judge had erred in critical rulings and reversed the jury
verdict, remanding the case for new trial. A case involving the next group of
plaintiffs is set for trial in federal district court in Denver on October 2,
2000. Although ComEd sold its investment in Cotter in February 2000, ComEd
will continue to be liable for any court verdicts in favor of the plaintiffs.
The other 1991 cases will necessarily involve the resolution of numerous
contested issues of law and fact. It is Unicom and ComEd's assessment that
these actions will not have a material impact on their financial position or
results of operations.Service Interruptions. In August 1999, three class action lawsuits were
filed, againstand subsequently consolidated, in the Circuit Court of Cook County,
Illinois, seeking damages for personal injuries, property damage and economic
losses from ComEd related to a series of service interruptions duringthat occurred in
the summer of 1999. The combined effect of these eventsinterruptions resulted in over
100,000168,000 customers losing service. On
August 12, 1999, service was interrupted to ComEd customers on the near north
and near west side of the City's central business district. While major
commercial customers were affected, all service was restored on the same date.
The class action complaints have been consolidated and seek to recover damages
for personal injuries and property damage, as well as economic loss for these
events. Further, ComEd initiated expedited claim settlements for those with
primarily food spoilage claims.more than 4 hours. Conditional class
certification has been approved by the Court for the sole purpose of exploring
settlement talks. The
lawsuits are pendingA hearing on a motion filed by ComEd to dismiss the complaints
is expected in the Circuit Courtsecond quarter of Cook County. ComEd has filed a
motion challenging2001. A portion of any settlement or
verdict may be covered by insurance and discussions with the legal sufficiency of the consolidated complaints. The
plaintiff's response is due April 14, 2000 and any reply by ComEd is due May
12, 2000. The motion to dismiss is currently scheduled to be argued on May 23,
2000.carrier are
ongoing. ComEd's management believes adequate reserves have been established in
connection with these cases.
Following the above-referenced series of service interruptions,Reliability Investigation. In 1999, the ICC opened a three-phasean investigation
ofregarding the design and reliability of ComEd's transmission and distribution
system. Atsystem, which was expanded during 2000 to include a circuit breaker fire that
occurred in October 2000 at a ComEd substation. The ICC has issued several
reports in that investigation covering the conclusion of each phase of the
investigation, the ICC will issue a report that will include specific
recommendations for ComEd and a timetable for executing the recommendations.
Hearings on Phase I of the investigation were held the week of January 3,
2000, which focused on thesummer 1999 outages of July and August 1999. Reports on Phase
II and Phase III, focusing onas well as the
transmission and distribution system
generally,system. These reports include recommendations and
an implementation timetable. The recommendations are not legally binding on
ComEd, however, the ICC may enforce them through litigation. Two more reports
are anticipated in the second quarter of 2000. The final phase ofearly 2001, and the investigation is expected to conclude in early 2001.by
mid-2001. Since summer 1999, ComEd has devoted significant resources to
improving the reliability of its transmission and distribution system. ComEd's
management believes that the likelihood of a successful material claim resulting
from the investigation is involved in administrativeremote.
Retail Rate Law. In 1996, several developers of non-utility generating
facilities filed litigation against various Illinois officials claiming that the
enforcement against those facilities of an amendment to Illinois law removing
the entitlement of those facilities to state-subsidized payments for electricity
sold to ComEd after March 15, 1996 violated their rights under the Federal and
legal proceedings concerning air
quality, water qualitystate constitutions, and other matters. The outcome of these proceedings may
require increases in future construction expenditures and operating expenses
and changes in operating procedures.against ComEd and its subsidiaries are or are
likely to become parties to proceedings initiatedfor a declaratory order that their rights
under their contracts with ComEd were not affected by the U.S. EPA, state
agencies and/or other responsible parties under CERCLA with respectamendment. On August
4, 1999, the Illinois Appellate Court held that the developers' claims against
the State were premature, and the Illinois Supreme Court denied leave to a
numberappeal
that ruling. Developers of sites, including MGP sites, or may voluntarily undertake to
investigateboth facilities have since filed amended complaints
106
repeating their allegations that ComEd breached the contracts in question, and
remediate sitesrequesting damages for which they may be liable under CERCLA.
F-58
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
ComEd generally did not operate MGPs as a corporate entity but did, however,
acquire MGP sites as partsuch breach, in the amount of the absorption of smaller utilities.
Approximately half of these sites were transferred to then Northern Illinois
Gas Company (Nicor Gas) as part of a general conveyance in 1954. ComEd also
acquired former MGP sites as vacant real estate on which ComEd facilities have
been constructed. To date, ComEd has identified 44 former MGP sites for which
it may be liable for remediation. Indifference between the
fourth quarter of 1999, ComEd re-
evaluated its environmental remediation strategies. As a result of this re-
evaluation, ComEd's current best estimate of its cost of former MGP site
investigation and remediation is $93 million in current-year (2000) dollars
(reflecting a discountstate-subsidized rate of 6.5%). Such estimate, reflecting an estimated
inflation rate of 3% and before the effects of discounting, is $182 million.
It is expected that the costs associated with investigation and remediation of
former MGP sites will be substantially incurred through 2012, however
monitoring and certain other costs are expected to be incurred through 2042.
ComEd's current estimate of its costs of former MGP site investigation and
remediation of $93 million has been included in other noncurrent liabilities
on the Consolidated Balance Sheets as of December 31, 1999. The increase in
ComEd's estimated costs of former MGP sites of $68 million in 1999 over 1998
was included in operation and maintenance expenses on Unicom and ComEd's
Statements of Consolidated Operations. In addition, as of December 31, 1999
and 1998, a reserve of $8 million has been included in other noncurrent
liabilities on the Consolidated Balance Sheets, representing ComEd's estimate
of the liability associated with cleanup costs of sites other than former MGP
sites. These cost estimates are based on currently available information
regarding the responsible parties likely to share in the costs of responding
to site contamination, the extent of contamination at sites for which the
investigation has not yet been completed and the cleanup levelsamount ComEd was willing to which sites
are expected to have to be remediated. While ComEd may have rights of
reimbursement under insurance policies, amounts that may be recoverable from
other entities are not considered in establishing the estimated liabilitypay for the
environment remediation costs.
The IDR has issued Notices of Tax Liabilityelectricity. ComEd intends to ComEd alleging deficiencies
in Illinois invested capital tax payments for the years 1988 through 1997. The
alleged deficiencies, including interest and penalties, totaled approximately
$52 million as of December 31, 1999. ComEd has protested the notices, and the
matter is currently pending before the IDR's Office of Administrative
Hearings. Interest will continue to accumulate on the alleged tax
deficiencies.
Onvigorously contest this matter.
Chicago Franchise. In March 22, 1999, ComEd reached a settlement agreement
with the City of Chicago to end the arbitration proceeding between ComEd and
the CityChicago regarding the January 1, 1992 franchise agreement and a supplemental agreement between them. Under the
terms of the settlement agreement, the pending arbitration is to be dismissed
with prejudice and the City is to release ComEd from all claims the City may
have under the supplemental agreement. The settlement agreement was approved
by the City Council on May 12, 1999. As part of the
settlement agreement, ComEd and the City haveChicago agreed to a revised combination of
ongoing work under the franchise agreement and new initiatives that will result
in defined transmission and distribution expenditures by ComEd to improve
electric serviceservices in the City.Chicago. The settlement agreement providesprovided that ComEd will be
subject to liquidatedliquidation damages if the projects arewere not completed by various
dates, unless it iswas prevented from doing so by events beyond its reasonable
control. ComEd's current construction
budget considers these projects. In addition, ComEd and the CityChicago established an Energy Reliability and
Capacity Account, into which ComEd deposited $25 million following the effectiveness of the settlement agreementduring 1999 and ComEd2000
and has conditionally agreed to deposit up to $25 million at the end of each of the years 2000, 2001
and 2002, to help ensure an adequate and reliable electric supply for Chicago.
Other Tax Issues. The Illinois Department of Revenue has issued notice
of tax liability to ComEd alleging deficiencies in Illinois invested capital tax
payments for the City.
F-59
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continuedyears 1988-1997. The 1997 Act also committedalleged deficiencies, including interest
and penalties, totaled approximately $54 million as of December 31, 2000. ComEd
has protested the notices, and the matter is currently pending. Interest will
continue to spend at least $2 billion from 1999
through 2004accumulate on transmission and distribution facilities outside of the City.
(23) Segment Reporting. Unicom's reportable operating segments as determined
under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" include its regulated electric utility and its unregulated
business operations. Unicom's reportable segments are managed separately
because of their different regulatory and operating environments. Unicom
evaluates their performance based on net income.alleged tax deficiencies.
General. ComEd is an electric utilityinvolved in various other litigation matters. The
ultimate outcome of such matters, while uncertain, is not expected to have a
material adverse effect on ComEd's financial condition or results of operations.
17. Related-Party Transactions
ComEd has a $400 million intercompany receivable from PECO, which is
engagedreflected in the generation, purchase,
transmission, distributioncurrent assets in ComEd's Consolidated Balance Sheets at December
31, 2000. ComEd also has notes receivable with affiliates of $1.3 billion and
sale of electric energy in Northern Illinois.
ComEd's rates$2.5 billion respectively, at December 31, 2000 and services are subject1999 primarily relating to
federal and state regulations.
Unicom's unregulated business operations, including energy services and
development of new business ventures, are not subject to utility regulation by
federal or state agencies. Prior to 1999, unregulated business operations were
predominately in a developmental stage and did not meet the revenue, asset or
net income criteria for a reportable segment under SFAS 131. However, as a
result of the December 1999 fossil plant sale, as describedand included in Note 5,deferred debits and other assets in
ComEd's Consolidated Balance Sheets. Interest income earned on this note
receivable was $176 million and $9 million for the assets of unregulated businesses exceeded 10% of Unicom's total assets and, as
such, constitute a reportable segment. The assets of the unregulated
businesses include $2.2 billion atyears ended December 31, 1999 representing special
deposits2000
and unused cash proceeds resulting1999. Both receivables are under terms comparable to those that would be
available from the fossil plant sale.unaffiliated parties.
18. Quarterly Data (Unaudited)
The assetsdata shown below include all adjustments which ComEd considers necessary for
a fair presentation of the unregulated businesses also include receivables of $813 million
recorded in connection with forward share repurchase arrangements as discussed
in Note 7.
F-60
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Concluded
The accounting policies of the segments are the same as those described in
Note 1. Unicom's financial data for business segments are as follows:such amounts:
Electric Unregulated Reconciliation
Utility Businesses & Elimination Total
----------- ----------- -------------- -----------Operating Operating Income Before Net
Revenue Income Extraordinary Items Income
2000 1999 (Thousands of Dollars)2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
Operating Revenue......... $ 6,766,892 $ 107,729 $ (26,674) $ 6,847,947
Intersegment Revenue...... $ 9,434 $ 17,240 $ (26,674) $ --
Depreciation, Amortization
and Decommissioning...... $ 836,145 $ 7,103 $ -- $ 843,248
Interest and Dividend
Income................... $ 60,231 $ 8,957 $ (10,646) $ 58,542
Interest Expense--Net..... $ 545,352 $ 28,858 $ (10,646) $ 563,564
Income Tax
Expense/(Benefit)........ $ 352,222 $ (20,107) $ -- $ 332,115
Net Income/(Loss)......... $ 622,729 $ (29,307) $ (23,756) $ 569,666
Total Assets.............. $23,160,265 $3,720,376 $(3,474,608) $23,406,033
Capital Expenditures...... $ 1,083,398 $ 120,666 $ -- $ 1,204,064
1998
Operating Revenue.........Quarter ended
March 31 $1,661 $1,539 $ 7,088,542266 $ 20,967309 $ (6,099)195 $ 7,103,410
Intersegment Revenue......97 $ 6,099192 $ --69
June 30 $1,816 $1,696 $ (6,099)351 $ --
Depreciation, Amortization
and Decommissioning......278 $ 937,604148 $ 5,684119 $ --146 $ 943,288
Interest and Dividend
Income...................119
September 30 $2,092 $2,071 $ 15,450365 $ 4,755613 $ (1,573)196 $ 18,632
Interest Expense--Net.....287 $ 450,162197 $ 15,293287
December 31 $1,443 $1,487 $ (1,573)404 $ 463,882
Income Tax
Expense/(Benefit)........349 $ 378,423197 $ (28,374)148 $ --197 $ 350,049
Net Income/(Loss)......... $ 594,206 $ (27,138) $ (56,884) $ 510,184
Total Assets.............. $25,450,577 $ 389,792 $ (149,896) $25,690,473
Capital Expenditures...... $ 945,342 $ 21,152 $ -- $ 966,494
1997
Operating Revenue......... $ 7,073,088 $ 14,331 $ (4,397) $ 7,083,022
Intersegment Revenue...... $ 4,397 $ -- $ (4,397) $ --
Depreciation, Amortization
and Decommissioning...... $ 1,001,149 $ 3,940 $ -- $ 1,005,089
Interest and Dividend
Income................... $ 4,911 $ 3,590 $ (1,002) $ 7,399
Interest Expense--Net..... $ 487,664 $ 10,505 $ (1,002) $ 497,167
Income Tax
Expense/(Benefit)........ $ 327,061 $ (20,513) $ -- $ 306,548
Net Income/(Loss)......... $ (773,773) $ (18,591) $ (60,486) $ (852,850)
Total Assets.............. $22,458,403 $ 352,161 $ (110,814) $22,699,750
Capital Expenditures...... $ 969,626 $ 73,685 $ -- $ 1,043,311148
(24)19. Subsequent Event.Event
During January 2001, Exelon undertook a corporate restructuring to
separate its generation and other competitive businesses from its regulated
energy delivery business. As part of the restructuring, the generation related
assets and liabilities of ComEd were transferred to a separate subsidiary of
Exelon, Generation, in return for ComEd common stock. As a result, beginning
January 2001, the operations of ComEd consist of its retail electricity
distribution and transmission business in Northern Illinois.
In January 2000, Unicom physically settledconnection with the forward
share repurchase arrangements it hadtransfer, ComEd entered into a power purchase
agreement (PPA) with financial institutionsGeneration. Under the terms of the PPA, ComEd will obtain
all of its power supply from Generation through 2004. In 2005 and 2006, ComEd
will obtain all of its power supply from Generation, up to the capacity of
ComEd's transferred nuclear generating plants. ComEd will obtain any additional
supply required from market sources in 2005 and 2006, and subsequent to 2006,
107
will obtain all of its supply from market sources, which could include
Generation. Also, under the terms of the transfer, ComEd assigned its rights and
obligations under various PPAs and fuel supply agreements to Generation.
Generation will supply power to ComEd from the transferred nuclear generating
plants, assigned PPAs, and other market sources. The PPA sets forth energy
prices for the repurchasefull term of 26.3 millionthe agreement.
As a result of the corporate restructuring, certain risks and
commitments that have been disclosed in Note 16 - Commitments and Contingencies,
and the future financial condition and results of operations will change
significantly. On a prospective basis, ComEd will not be subject to the risks
associated with nuclear insurance, decommissioning, spent fuel disposal and
energy commitments, other than its PPA with Generation. Total net assets of
approximately $1.6 billion, subject to final determination, were transferred to
Generation as of January 1, 2001 pursuant to the corporate restructuring.
108
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Exelon and PECO
None.
ComEd
On November 28, 2000, the Board of Directors of Exelon selected
PricewaterhouseCoopers LLP (PwC) as the independent accountant of Exelon and its
subsidiaries, including ComEd. PwC was the independent accountant of PECO and
its subsidiaries prior to the Unicom common shares. Priormerger, and Arthur Andersen LLP (Arthur
Andersen) was the certifying accountant for Unicom and ComEd. Arthur Andersen
was dismissed by ComEd on November 28, 2000. The Exelon Audit Committee
participated in and approved the decision to settlement,engage PwC.
The reports of Arthur Andersen on the repurchase arrangementsfinancial statements of ComEd for
the past two years ended December 31, 1999, and the interim periods ended
September 30, 2000, contained no adverse opinion or disclaimer of opinion and
were recordednot qualified or modified as to uncertainty, audit scope or accounting
principle. In connection with its audits for the two most recent fiscal years
and through November 27, 2000, there were no disagreements with Arthur Andersen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Arthur Andersen would have caused them to make reference
thereto in their report on the financial statements for such years.
During the two most recent fiscal years and through November 28, 2000,
ComEd consulted with PwC regarding the application of accounting principles to
two related transactions that were completed in 2000. In June 2000, prior to the
initiation of the auditor selection process that led to the accountant changes
described above, ComEd received written advice from PwC, who was also the
financial advisor regarding two like-kind exchange transactions involving one of
ComEd's affiliates, Unicom Investment Inc. PwC was asked to report to ComEd
pursuant to AICPA Statement of Auditing Standards No. 50 on the appropriate
application of United States generally accepted accounting principles to the
proposed like-kind exchange transactions. Concurrently, ComEd requested that
Arthur Andersen review the proposed accounting for the proposed transactions,
and Arthur Andersen concurred with the accounting conclusions proposed by PwC.
PwC's reports providing accounting conclusions were presented in two separate
letters dated June 9, 2000 and June 22, 2000, which were filed as Exhibits 99-1
and 99-2, respectively, to a receivableCurrent Report on Unicom'sForm 8-K dated November 28, 2000
that ComEd filed, which exhibits are incorporated herein by this reference.
ComEd requested that Arthur Andersen furnish it with a letter addressed
to the SEC stating whether or not it agreed with substantially similar
statements as the foregoing contained in the Current Report on Form 8-K dated
November 28, 2000. A copy of that letter, dated November 29, 2000 was filed as
Exhibit 16 to that Form 8-K. PwC was also provided an opportunity to comment on
the contents of the disclosures made in the Form 8-K, and no comments were made.
109
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Exelon
The information required by Item 10 relating to directors and nominees
for election as directors at Exelon's Annual Meeting of shareholders is
incorporated herein by reference to the information under the heading "BOARD OF
DIRECTORS" on pages 7-10 and "OTHER INFORMATION - Section 16(a) Beneficial
Ownership Reporting Compliance" on page 32 in Exelon's definitive Proxy
Statement (2001 Exelon Proxy Statement) filed with the SEC on March 23, 2001,
pursuant to Regulation 14A under the Securities Exchange Act of 1934. The
information required by Item 10 relating to executive officers is set forth
above in ITEM 1. Business - Executive Officers of Exelon, ComEd and PECO.
PECO
The information required by Item 10 relating to directors and nominees
for election as directors at PECO's annual meeting of shareholders is
incorporated herein by reference to information under the subheadings "Nominees"
and "Security Ownership of Certain Beneficial Owners and Management" under the
heading "Item A: Election of Directors" in PECO's definitive Information
Statement (2001 PECO Information Statement) to be filed with the SEC prior to
April 30, 2001, pursuant to Regulation 14C under the Securities Exchange Act of
1934. The information required by Item 10 relating to executive officers is set
forth above in ITEM 1. Business - Executive Officers of Exelon, ComEd and PECO.
ComEd
The information required by Item 10 relating to directors and nominees
for election as directors at ComEd's annual meeting of shareholders is
incorporated herein by reference to information under the subheadings "Nominees"
and "Security Ownership of Certain Beneficial Owners and Management" under the
heading "Item A: Election of Directors" in ComEd's definitive Information
Statement (2001 ComEd Information Statement) to be filed with the SEC prior to
April 30, 2001, pursuant to Regulation 14C under the Securities Exchange Act of
1934. The information required by Item 10 relating to executive officers is set
forth above in ITEM 1. Business - Executive Officers of Exelon, ComEd and PECO.
ITEM 11. EXECUTIVE COMPENSATION
Exelon
The information required by Item 11 is incorporated herein by reference
to the information labeled "Board Compensation" and pages 20-30 in the 2001
Exelon Proxy Statement.
PECO
The information required by Item 11 is incorporated herein by reference
to the paragraph labeled "Compensation of Directors" under the subheading
"Additional Information Concerning Board of Directors" under the heading "Item
A: Election of Directors" and the paragraphs under the heading "Executive
Compensation" (other than the paragraphs under the subheading "Compensation
Committee Report on Executive Compensation") in 2001 PECO Information Statement.
ComEd
The information required by Item 11 is incorporated herein by reference
to the paragraph labeled "Compensation of Directors" under the subheading
"Additional Information Concerning Board of Directors" under the heading "Item
A: Election of Directors" and the paragraphs under the heading "Executive
Compensation" (other than the paragraphs under the subheading "Compensation
Committee Report on Executive Compensation") in the 2001 ComEd Information
Statement.
110
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Exelon
The information required by Item 12 is incorporated herein by reference
to the stock ownership information under the heading "BENEFICIAL OWNERSHIP" on
page 6 in the 2001 Exelon Proxy Statement.
PECO
The information required by Item 12 is incorporated herein by reference
to the stock ownership information under the subheading "Security Ownership of
Certain Beneficial Owners and Management" under the heading "Item A: Election of
Directors" in the 2001 PECO Information Statement.
ComEd
The information required by Item 12 is incorporated herein by reference
to the stock ownership information under the subheading "Security Ownership of
Certain Beneficial Owners and Management" under the heading "Item A: Election of
Directors" in the 2001 ComEd Information Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Exelon
The information required by Item 13 is incorporated herein by reference
to the information labeled "OTHER INFORMATION - Transactions with Management" in
the 2001 Exelon Proxy Statement.
PECO and ComEd
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
111
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors and Shareholders
of Exelon Corporation:
Our audits of the consolidated financial statements referred to in our report
dated January 30, 2001, except for Note 21 PETT Refinancing for which the date
is March 1, 2001, appearing in the 2000 Annual Report to Shareholders of Exelon
Corporation (which report and consolidated financial statements are incorporated
by reference in this Annual Report on Form 10-K) also included an audit of the
financial statement schedule listed in Item 14(a)(1)(ii) of this Form 10-K. In
our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
January 30, 2001
112
(a) Financial Statements and Financial Statement Schedules
(1) Exelon
(i) Financial Statements
Consolidated Statements of Income for the years 2000, 1999 and
1998
Consolidated Statements of Cash Flows for the years 2000, 1999
and 1998
Consolidated Balance Sheets based onas of December 31, 2000 and 1999
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income for the aggregate market value of the shares under the
arrangements. Inyears 2000, 1999 net unrealized losses of $44 million (after-tax), or
$0.20 per common share were recorded relatedand 1998
Notes to the arrangements. The
settlement of the arrangements in January 2000 resulted in a gain of $113
million (after-tax), which will be recorded in the first quarter of 2000. The
settlement of the arrangements will also result in a reduction in Unicom's
outstanding common shares and common stock equity, effective January 2000.
F-61
SCHEDULE II
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------Consolidated Financial Statements
(ii) Financial Statement Schedule
EXELON CORPORATION AND SUBSIDIARY COMPANIES
Schedule II - Valuation and Qualifying Accounts
(in millions)
Column A Column B Column C Column D Column E
- ---------------------------- --------- ----------------- ------------------ -------- -------- -------- --------
Additions
---------------------------------------
Charged
Balance Charged at to CostsCost Charged Balance
Beginning and to Other Balance at End
Description of Year Expenses Accounts Deductions End of Year
- ---------------------------- -------------------- ------- -------- -------- ---------- -------------------
For the Year Ended DecemberFOR THE YEAR ENDED DECEMBER 31, 1997
- ----------------------------2000
Allowance for Uncollectible Accounts $ 112 $ 87 $ 59(a) $ 58(b) $200
===== ===== ===== ==== ====
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts.................. $ 12,893 $ 53,756 $ -- $ (49,105) $ 17,544
======== ======== ====== ========= ========
Estimated obsolete materi-
als....................... $ 12,302 $ 62,000 $ -- $ (32,559) $ 41,743
======== ======== ====== ========= ========
Other Reserves:
Estimated closing costs for
Zion Station (c).......... $ -- $194,000 $ -- $ -- $194,000
======== ======== ====== ========= ========
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $ 32,522 $ 2,410 $ -- $ (2,910)(a) $ 32,022
======== ======== ====== ========= ========
Accumulated provision for
injuries and damages...... $ 53,972 $ 8,565 $4,939 $ (18,213)(b) $ 49,263
======== ======== ====== ========= ========
For the Year Ended December
31, 1998
- ----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts.................. $ 17,544 $ 62,059 $ -- $ (30,958) $ 48,645
======== ======== ====== ========= ========
Estimated obsolete materi-
als....................... $ 41,743 $ 23,945 $ -- $ (41,928) $ 23,760
======== ======== ====== ========= ========
Other Reserves:
Estimated closing costs for
Zion Station (c).......... $194,000 $ -- $ -- $(114,970) $ 79,030
======== ======== ====== ========= ========
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $ 32,022 $ 6,950 $ -- $ (6,950)(a) $ 32,022
======== ======== ====== ========= ========
Accumulated provision for
injuries and damages...... $ 49,263 $ 10,114 $8,875 $ (20,796)(b) $ 47,456
======== ======== ====== ========= ========
For the Year Ended December
31, 1999
- ----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts.................. $ 48,645 $ 90,254 $ -- $ (88,085) $ 50,814
======== ======== ====== ========= ========
Estimated obsolete materi-
als....................... $ 23,760 $ 19,263 $ -- $ (15,968) $ 27,055
======== ======== ====== ========= ========
Other Reserves:
Estimated closing costs for
Zion Station (c).......... $ 79,030for:
Merger-Related Costs $ -- $ -- $ (79,030)149(c) $ --
======== ======== ====== ========= ========
Estimated liabilities asso-
ciated with remediation
costs5 $144
===== ===== ===== ==== ====
Injuries and former manufac-
tured gas plant sites.....Damages $ 32,02223 $ 73,7299 $ 48(d) $ 11(e) $ 69
===== ===== ===== ==== ====
Environmental Investigation and
Remediation $ 57 $ 26 $ 98(c) $ 10(f) $171
===== ===== ===== ==== ====
Obsolete Materials $ -- $ (5,651)48 $ 55(c) $ 3 $100
===== ===== ===== ==== ====
FOR THE YEAR ENDED DECEMBER 31, 1999
Allowance for Uncollectible Accounts $ 122 $ 59 $ -- $ 69(b) $112
===== ===== ===== ==== ====
Reserve for:
Injuries and Damages $ 27 $ 7 $ -- $ 11(e) $ 23
===== ===== ===== ==== ====
Environmental Investigation and
Remediation $ 60 $ -- $ -- $ 3(f) $ 57
===== ===== ===== ==== ====
FOR THE YEAR ENDED DECEMBER 31, 1998
Allowance for Uncollectible Accounts $ 134 $ 72 $ -- $ 84(b) $122
===== ===== ===== ==== ====
Reserve for:
Injuries and Damages $ 33 $ 5 $ -- $ 11(e) $ 27
===== ===== ===== ==== ====
Environmental Investigation and
Remediation $ 63 $ -- $ -- $ 3(f) $ 60
===== ===== ===== ==== ====
(a) $100,100
======== ========Includes October 20, 2000 opening balance of former Unicom Corporation of
$48 million.
(b) Write-off of individual accounts receivable.
(c) Reflects October 20, 2000 opening balance of former Unicom Corporation.
(d) Includes October 20, 2000 opening balance of former Unicom Corporation of
$47 million.
(e) Payments of claims and related costs.
(f) Expenditures for site investigation and remediation.
113
(2) PECO
(i) Financial Statements
Consolidated Statements of Income for the years 2000, 1999 and
1998
Consolidated Statements of Cash Flows for the years 2000, 1999
and 1998
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income for the years 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(ii) Financial Statement Schedule
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
Schedule II - Valuation and Qualifying Accounts
(in millions)
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
----------------------
Charged
Balance at to Cost Charged
Beginning and to Other Balance at
Description of Year Expenses Accounts Deductions End of Year
- ----------- ------- -------- -------- ---------- -----------
FOR THE YEAR ENDED DECEMBER 31, 2000
Allowance for Uncollectible Accounts $112 $ 68 $ -- $ 49(a) $131
==== ====== ========= ========
Accumulated provision====== ==== ====
Reserve for:
Injuries and Damages $ 23 $ 7 $ -- $ 9(b) $ 21
==== ====== ====== ==== ====
Environmental Investigation and
Remediation $ 57 $ -- $ -- $ 3(c) $ 54
==== ====== ====== ==== ====
FOR THE YEAR ENDED DECEMBER 31, 1999
Allowance for injuriesUncollectible Accounts $122 $ 59 $ -- $ 69(a) $112
==== ====== ====== ==== ====
Reserve for:
Injuries and damages......Damages $ 47,45627 $ 27,868 $6,4777 $ (27,204)(b)-- $ 54,597
======== ========11(b) $ 23
==== ====== ========= ========
Notes:
(a) Expenditures for site investigation and remediation costs.====== ==== ====
Environmental Investigation and
Remediation $ 60 $ -- $ -- $ 3(c) $ 57
==== ====== ====== ==== ====
FOR THE YEAR ENDED DECEMBER 31, 1998
Allowance for Uncollectible Accounts $134 $ 72 $ -- $ 84(a) $122
==== ====== ====== ==== ====
Reserve for:
Injuries and Damages $ 33 $ 5 $ -- $ 11(b) $ 27
==== ====== ====== ==== ====
Environmental Investigation and
Remediation $ 63 $ -- $ -- $ 3(c) $ 60
==== ====== ====== ==== ====
(a) Write-off of individual accounts receivable.
(b) Payments of claims and related costs.
(c) Expenditures for site investigation and remediation.
114
(3) ComEd
(i) Financial Statements
Consolidated Statements of Income for the years 2000, 1999 and
1998
Consolidated Statements of Cash Flows for the years 2000, 1999
and 1998
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income for the years 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(ii) Financial Statement Schedule
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
Schedule II - Valuation and Qualifying Accounts
(in millions)
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
----------------------
Charged
Balance at to Cost Charged
Beginning and to Other Balance at
Description of Year Expenses Accounts Deductions End of Year
- ----------- ------- -------- -------- ---------- -----------
FOR THE YEAR ENDED DECEMBER 31, 2000
Allowance for Uncollectible Accounts $ 49 $ 46 $ 11 $ 46 $ 60
===== ===== ===== ==== ====
Reserve for:
Merger-Related Costs $ -- $ -- $ 149 $ 5 $144
===== ===== ===== ==== ====
Injuries and Damages $ 55 $ 10 $ 5 $ 22(a) $ 48
===== ===== ===== ==== ====
Environmental Investigation and
Remediation $ 100 $ 26 $ -- $ 9(b) $117
===== ===== ===== ==== ====
Obsolete Materials $ 27 $ 57 $ 19 $ 5 $ 98
===== ===== ===== ==== ====
FOR THE YEAR ENDED DECEMBER 31, 1999
Allowance for Uncollectible Accounts $ 48 $ 89 $ -- $ 88 $ 49
===== ===== ===== ==== ====
Reserve for:
Injuries and Damages $ 47 $ 28 $ 7 $ 27(a) $ 55
===== ===== ===== ==== ====
Environmental Investigation and
Remediation $ 32 $ 74 $ -- $ 6(b) $100
===== ===== ===== ==== ====
Obsolete Materials $ 24 $ 19 $ -- $ 16 $ 27
===== ===== ===== ==== ====
Closing Costs for Zion Station (c) $ 79 $ -- $ -- $ 79 $ --
===== ===== ===== ==== ====
FOR THE YEAR ENDED DECEMBER 31, 1998
Allowance for Uncollectible Accounts $ 18 $ 61 $ -- $ 31 $ 48
===== ===== ===== ==== ====
Reserve for:
Injuries and Damages $ 49 $ 10 $ 9 $ 21(a) $ 47
===== ===== ===== ==== ====
Environmental Investigation and
Remediation $ 32 $ 7 $ -- $ 7(b) $ 32
===== ===== ===== ==== ====
Obsolete Materials $ 42 $ 24 $ -- $ 42 $ 24
===== ===== ===== ==== ====
Closing Costs for Zion Station (c) $ 194 $ -- $ -- $115 $ 79
===== ===== ===== ==== ====
(a) Payments of claims and related costs.
(b) Expenditures for site investigation and remediation.
(c) Estimated closing costs related to the permanent cessation of nuclear
generation operations and retirement of facilities at ComEd's Zion Station.
The individual financial statements and schedules of Exelon's
and ComEd's nonconsolidated wholly owned subsidiaries have been omitted
from their respective Annual Reports on Form 10-K because the
investments are not material in relation to their respective financial
positions or results of operations. As of December 31, 2000, the assets
of the nonconsolidated subsidiaries, in the aggregate, were less than
1% of Exelon's and ComEd's consolidated assets. The 2000 revenues of
the nonconsolidated subsidiaries, in the aggregate, were less than 1%
of Exelon's and ComEd's consolidated annual revenues.
115
(b) Reports on Form 8-K
(1) Exelon
Exelon filed Current Reports on Form 8-K during the fourth
quarter of 2000 regarding the following items:
Date of Earliest
Event Reported Description of Item Reported
----------------------------------------------------------------------
October 20, 2000 "ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS"
regarding the completion of the merger among PECO
and Unicom into Exelon.
October 20, 2000 "ITEM 7. FINANCIAL STATEMENT, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS" includes financial
statements of businesses acquired.
October 30, 2000 "ITEM 5. OTHER EVENTS" regarding a presentation at
the Edison Electric Institute Fall Financial
Conference to explain the merger of PECO and
Unicom to form Exelon.
November 15, 2000 "ITEM 5. OTHER EVENTS" regarding a presentation at
Exelon's Investor Conference to explain the merger
of PECO and Unicom to form Exelon and Exelon's
strategy and earnings targets.
November 28, 2000 "ITEM 4. CHANGE IN REGISTRANT'S CERTIFYING
ACCOUNTANT" regarding the selection of PwC as the
independent accountant of Exelon and its
subsidiaries, effective immediately. The exhibits
under "ITEM 7. FINANCIAL STATEMENT AND EXHIBIT"
include Arthur Andersen's letter to the permanent cessationSEC of
changing accountants and PwC's Statement of
Auditing Standard No. 50 dated June 9 and June 22,
2000.
December 11, 2000 "ITEM 5. OTHER EVENTS" regarding the announcement
by Exelon Enterprises, a division of Exelon
Corporation, and Exelon Infrastructure Services,
Inc. (EIS), a business unit of Exelon Enterprises,
that EIS acquired three utility and industrial
infrastructure services companies and signed a
definitive agreement to purchase a fourth company.
The exhibits under "ITEM 7. FINANCIAL STATEMENT
AND EXHIBITS" includes the press release dated
December 11, 2000.
December 19, 2000 "ITEM 5. OTHER EVENTS" regarding Exelon's
acquisition of 49.9% of the stock of Sithe.
December 20, 2000 "ITEM 5. OTHER EVENTS" regarding ICC issuing an
order to permit ComEd to continue the recovery of
decommissioning costs from customers for a
six-year period.
116
(2) PECO
PECO filed Current Reports on Form 8-K during the fourth
quarter of 2000 regarding the following items:
Date of Earliest
Event Reported Description of Item Reported
----------------------------------------------------------------------
October 19, 2000 "ITEM 5. OTHER EVENTS" regarding the approval by
the SEC of the merger between PECO and Unicom into
Exelon.
October 20, 2000 "ITEM 5. OTHER EVENTS" regarding the completion of
the merger between PECO and Unicom into Exelon.
October 24, 2000 "ITEM 5. OTHER EVENTS" regarding PECO's earnings
release for the third quarter of 2000.
(3) ComEd
ComEd filed Current Reports on Form 8-K during the fourth
quarter of 2000 regarding the following items:
Date of Earliest
Event Reported Description of Item Reported
----------------------------------------------------------------------
October 19, 2000 "ITEM 5. OTHER EVENTS" regarding the approval by
the SEC of the merger between PECO and Unicom into
Exelon.
October 20, 2000 "ITEM 5. OTHER EVENTS" regarding the completion of
the merger between PECO and Unicom into Exelon.
November 28, 2000 "ITEM 4. CHANGE IN REGISTRANT'S CERTIFYING
ACCOUNTANT" regarding the selection of PwC as the
independent accountant of Exelon and its
subsidiaries, effective immediately. The exhibits
under "ITEM 7. FINANCIAL STATEMENT AND EXHIBIT"
include Arthur Andersen's letter to the SEC of
changing accountants and PwC's Statement of
Auditing Standard No. 50 dated June 9 and June 22,
2000.
December 20, 2000 "ITEM 5. OTHER EVENTS" regarding ComEd's proposal
to transfer its nuclear generation operationsgenerating stations to a
new subsidiary of Exelon and retirementthe continual
recovery of facilities at ComEd's Zion Station.decommissioning costs after the
proposed transfer.
117
(c) Exhibits
Certain of the following exhibits are incorporated herein by reference
under Rule 12b-32 of the Securities and Exchange Act of 1934, as amended.
Certain other instruments which would otherwise be required to be listed below
have not been so listed because such instruments do not authorize securities in
an amount which exceeds 10% of the total assets of the applicable registrant and
its subsidiaries on a consolidated basis and each of the registrants agree to
furnish a copy of any such instrument to the Commission upon request.
Exhibit No. Description
- --------------------------------------------------------------------------------
2-1 Amended and Restated Agreement and Plan of Merger dated as of
October 20, 2000, among PECO Energy Company, Exelon Corporation
and Unicom Corporation (File No. 1-01401, PECO Energy Company Form
10-Q for the quarter ended September 30, 2000, Exhibit 2-1).
3-1 Articles of Incorporation of Exelon Corporation (Registration
Statement No. 333-37082, Form S-4, Exhibit 3-1).
3-2 Bylaws of Exelon Corporation (Registration Statement No.
333-37082, Form S-4, Exhibit 3-2).
3-3 Amended and Restated Articles of Incorporation of PECO Energy
Company.
3-4 Bylaws of PECO Energy Company, adopted February 26, 1990 and
amended January 26, 1998 (File No. 1-01401, 1997 Form 10-K,
Exhibit 3-2).
3-5 Restated Articles of Incorporation of Commonwealth Edison Company
effective February 20, 1985, including Statements of Resolution
Establishing Series, relating to the establishment of three new
series of Commonwealth Edison Company preference stock known as
the "$9.00 Cumulative Preference Stock," the "$6.875 Cumulative
Preference Stock" and the "$2.425 Cumulative Preference Stock"
(File No. 1-1839, 1994 Form 10-K, Exhibit 3-2).
3-6 Bylaws of Commonwealth Edison Company, effective September 2,
1998, as amended through October 20, 2000.
4-1 364-day Credit Agreement, dated as of December 19, 2000, among
Exelon Corporation, Commonwealth Edison Company and PECO Energy
Company as Borrowers, certain banks named therein as Lenders, Bank
One, N.A., as Administrative Agent, Credit Suisse First Boston and
First Union National Bank, as Documentation Agents, Citibank,
N.A., as Syndication Agent and Banc One Capital Markets, Inc., as
Lead Arranger and Sole Book Runner.
4-2 Term Loan Agreement, dated as of October 13, 2000, among Exelon
Corporation, as borrower, and certain banks named therein, Bank
One, N.A., as Administrative Agent, Credit Suisse First Boston, as
Documentation Agent, and Citibank, N.A., as Syndication Agent
(File No. 1-16169, Report on Form 8-K dated October 20, 2000,
Exhibit 99.2).
4-3 First and Refunding Mortgage dated May 1, 1923 between The
Counties Gas and Electric Company (predecessor to PECO Energy
Company) and Fidelity Trust Company, Trustee (First Union National
Bank, successor), (Registration No. 2-2281, Exhibit B-1).
118
4-3-1 Supplemental Indentures to PECO Energy Company's First and
Refunding Mortgage:
Dated as of File Reference Exhibit No.
--------------------- ------------------------------ -----------
May 1, 1927 2-2881 B-1(c)
March 1, 1937 2-2881 B-1(g)
December 1, 1941 2-4863 B-1(h)
November 1, 1944 2-5472 B-1(i)
December 1, 1946 2-6821 7-1(j)
September 1, 1957 2-13562 2(b)-17
May 1, 1958 2-14020 2(b)-18
March 1, 1968 2-34051 2(b)-24
March 1, 1981 2-72802 4-46
March 1, 1981 2-72802 4-47
December 1, 1984 1-01401, 1984 Form 10-K 4-2(b)
April 1, 1991 1-01401, 1991 Form 10-K 4(e)-76
December 1, 1991 1-01401, 1991 Form 10-K 4(e)-77
April 1, 1992 1-01401, March 31, 1992 4(e)-79
Form 10-Q
June 1, 1992 1-01401, June 30, 1992 4(e)-81
Form 10-Q
July 15, 1992 1-01401, June 30, 1992 4(e)-83
Form 10-Q
September 1, 1992 1-01401, 1992 Form 10-K 4(e)-85
March 1, 1993 1-01401, 1992 Form 10-K 4(e)-86
May 1, 1993 1-01401, March 31, 1993 4(e)-88
Form 10-Q
May 1, 1993 1-01401, March 31, 1993 4(e)-89
Form 10-Q
August 15, 1993 1-01401, Form 8-A dated 4(e)-92
August 19, 1993
November 1, 1993 1-01401, Form 8-A dated 4(e)-95
October 27, 1993
May 1, 1995 1-01401, Form 8-K dated 4(e)-96
May 24, 1995
4-4 Exelon Dividend Reinvestment and Stock Purchase Plan.
4-5 Mortgage of Commonwealth Edison Company to Illinois Merchants
Trust Company, Trustee (Harris Trust and Savings Bank, as current
successor Trustee), dated July 1, 1923, Supplemental Indenture
thereto dated August 1, 1944, and amendments and supplements
thereto dated, respectively, August 1, 1946, April 1, 1953, March
31, 1967, April 1,1967, July 1, 1968, October 1, 1968, February
28, 1969, May 29, 1970, June 1, 1971, May 31, 1972, June 15, 1973,
May 31, 1974, June 13, 1975, May 28, 1976, and June 3, 1977. (File
No. 2-60201, Form S-7, Exhibit 2-1).
4-5-1 Supplemental Indentures to aforementioned Commonwealth Edison
Mortgage.
Dated as of File Reference Exhibit No.
--------------------- ----------------------------- -------------
May 17, 1978 2-99665, Form S-3 4-3
August 31, 1978 2-99665, Form S-3 4-3
June 18, 1979 2-99665, Form S-3 4-3
June 20, 1980 2-99665, Form S-3 4-3
April 16, 1981 2-99665, Form S-3 4-3
April 30, 1982 2-99665, Form S-3 4-3
April 15, 1983 2-99665, Form S-3 4-3
April 13, 1984 2-99665, Form S-3 4-3
April 15, 1985 2-99665, Form S-3 4-3
April 15, 1986 33-6879, Form S-3 4-9
June 15, 1990 33-38232, Form S-3 4-12
June 1, 1991 33-40018, Form S-3 4-12
October 1, 1991 33-40018, Form S-3 4-13
October 15, 1991 33-40018, Form S-3 4-14
February 1, 1992 1-1839, 1991 Form 10-K 4-18
May 15, 1992 33-48542, Form S-3 4-14
July 15, 1992 33-53766, Form S-3 4-13
September 15, 1992 33-53766, Form S-3 4-14
February 1, 1993 1-1839, 1992 Form 10-K 4-14
April 1, 1993 33-64028, Form S-3 4-12
April 15, 1993 33-64028, Form S-3 4-13
June 15, 1993 1-1839, Form 8-K dated May 4-1
21, 1993
119
July 1, 1993 1-1839, Form 8-K dated May 4-2
21, 1993
July 15, 1993 1-1839, Form 10-Q for 4-1
quarter ended June 30, 1993.
January 15, 1994 1-1839, 1993 Form 10-K 4-15
December 1, 1994 1-1839, 1994 Form 10-K 4-16
June 1, 1996 1-1839, 1996 Form 10-K 4-16
4-5-2 Instrument of Resignation, Appointment and Acceptance dated
January 31, 1996, under the provisions of the Mortgage dated July
1, 1923, and Indentures Supplemental thereto (File No. 1-1839,
1995 Form 10-K, Exhibit 4-28).
4-5-3 Instrument dated as of January 31, 1996, for trustee under the
Mortgage dated July 1, 1923 and Indentures Supplemental thereto
(File No. 1-1839, 1995 Form 10-K, Exhibit 4-29).
4-6 Indentures of Commonwealth Edison Company to The First National
Bank of Chicago, Trustee (Amalgamated Bank of Chicago, as current
successor Trustee), dated April 1, 1949, October 1, 1949, October
1, 1950, October 1, 1954, January 1, 1958, January 1, 1959 and
December 1, 1961 (File No. 1-1839, 1982 Form 10-K, Exhibit 4-20).
4-7 Indenture dated as of September 1, 1987 between Commonwealth
Edison Company and Citibank, N.A., Trustee relating to Notes (File
No. 1-1839, Form S-3, Exhibit 4-13).
4-7-1 Supplemental Indenture to Indenture dated September 1, 1987 dated
July 14, 1989 (File No. 33-32929, Form S-3, Exhibit 4-16).
4-7-2 Supplemental Indenture to Indenture dated September 1, 1987, dated
January 1, 1997 (File No. 1-1839, 1999 Form 10K, Exhibit 4-21).
4-7-3 Supplemental Indenture to Indenture dated September 20, 1987,
dated September 1, 2000.
10-1 Stock Purchase Agreement among Exelon (Fossil) Holdings, Inc., as
Buyer and The Stockholders of Sithe Energies, Inc., as Sellers,
and Sithe Energies, Inc. (File No. 0-16844, PECO Energy Company
Form 10-Q for the quarter ended September 30, 2000, Exhibit 10-1).
10-2 Amended and Restated Employment Agreement among Unicom
Corporation, Commonwealth Edison Company and John W. Rowe (File
No. 1-16169, Exelon Corporation Form 10-Q for the quarter ended
September 30, 2000, Exhibit 10-2).
120
10-3 PECO Energy Company Deferred Compensation and Supplemental Pension
Benefit Plan* (Registration Statement No. 333-49780, Form S-8,
Exhibit 4-2).
10-4 PECO Energy Company Management Group Deferred Compensation and
Supplemental Pension Benefit Plan* (Registration Statement No.
333-49780, Form S-8, Exhibit 4-3).
10-5 PECO Energy Company Unfunded Deferred Compensation Plan for
Directors* (Registration Statement No. 333-49780, Form S-8,
Exhibit 4-4).
10-6 Exelon Corporation Long-Term Incentive Plan (Registration
Statement No. 333-37082, Post-Effective Amendment No. 1 to Form
S-4, Exhibit 4-2). *
10-6-1 First Amendment to Exelon Corporation Long Term Incentive Plan.*
10-7 PECO Energy Company Management Incentive Compensation Plan* (File
No. 1-01401, 1997 Proxy Statement, Appendix A).
10-8 PECO Energy Company 1998 Stock Option Plan* (Registration
Statement No. 333-37082, Post-Effective Amendment No. 1 to Form
S-4, Exhibit 4-3).
10-9 PECO Energy Company Employee Savings Plan (Registration Statement
No. 333-37082, Post-Effective Amendment No. 1 to Form S-4, Exhibit
4-4)
10-10 Second Amended and Restated Trust Agreement for PECO Energy
Transition Trust (File No. 333-58055, PECO Energy Transition Trust
Report on Form 8-K dated May 2, 2000, Exhibit 4.1).
10-11 Intangible Transition Property Sale Agreement dated as of March
25,1999, as amended and restated as of May 2, 2000, between PECO
Energy Transition Trust and PECO Energy Company. (File No.
333-58055, PECO Energy Transition Trust Report on Form 8-K dated
May 2, 2000, Exhibit 10.1).
10-11-1 Amendment No. 1 to Intangible Transition Property Sale Agreement
dated as of March 25, 1999, as amended and restated as of May 2,
2000 (File No. 1-01401, PECO Energy Company and PECO Energy
Transition Trust Report on Form 8-K dated March 1, 2001).
10-12 Master Servicing Agreement dated as of March 25, 1999, as amended
and restated as of May 2, 2000, between PECO Energy Transition
Trust and PECO Energy Company. (File No. 333-58055, PECO Energy
Transition Trust Current Report on Form 8-K dated May 2, 2000,
Exhibit 10.2).
10-12-1 Amendment No. 1 to Master Servicing Agreement dated as of March
25, 1999, as amended and restated as of May 2, 2000 (File No.
1-01401, PECO Energy Company and PECO Energy Transition Trust
Report on Form 8-K dated March 1, 2001).
10-13 Joint Petition for Full Settlement of PECO Energy Company's
Restructuring Plan and Related Appeals and Application for a
Qualified Rate Order and Application for Transfer of Generation
Assets dated April 29, 1998. (Registration Statement No.
333-58055, Exhibit 10.3).
121
10-14 Joint Petition for Full Settlement of PECO Energy Company's
Application for Issuance of Qualified Rate Order Under Section
2812 of the Public Utility Code dated March 8, 2000 (Amendment No.
1 to Registration Statement No. 333-31646, Exhibit 10.4).
10-15 Unicom Corporation Amended and Restated Long-Term Incentive Plan*
(File No. 1-11375, Unicom Proxy Statement dated April 7, 1999,
Exhibit A).
10-15-1 First Amendment to Unicom Corporation Amended and Restated Long
Term Incentive Plan* (Registration Statement No. 333-49780, Form
S-8, Exhibit 4-8).
10-15-2 Second Amendment to Unicom Corporation Amended and Restated Long
Term Incentive Plan* (Registration Statement No. 333-49780, Form
S-8, Exhibit 4-9).
10-16 Unicom Corporation General Provisions Regarding 1996 Stock Option
Awards Granted under the Unicom Corporation and Long-Term
Incentive Plan* (File Nos. 1-11375 and 1-1839, 1996 Form 10-K,
Exhibit 10-9).
10-17 Unicom Corporation General Provisions Regarding 1996B Stock Option
Awards Granted under the Unicom Corporation Long-Term Incentive
Plan* (File Nos. 1-11375 and 1-1839, 1996 Form 10-K, Exhibit
10-8).
10-18 Unicom Corporation General Provisions Regarding Stock Option
Awards Granted under the Unicom Corporation Long-Term Incentive
Plan* (Effective July 10, 1997).
10-19 Unicom Corporation Deferred Compensation Unit Plan, as amended*
(File Nos. 1-11375 and 1-1839, 1995 Form 10-K, Exhibit 10-12).
10-20 Commonwealth Edison Deferred Compensation Plan* (included in
Article Five of Exhibit 3-5 above).
10-21 Unicom Corporation Retirement Plan for Directors, as amended*
(Registration Statement No. 333-49780, Form S-8, Exhibit 4-12).
10-22 Commonwealth Edison Company Retirement Plan for Directors, as
amended* (Registration Statement No. 333-49780, Form S-8, Exhibit
4-13).
10-23 Unicom Corporation 1996 Directors' Fee Plan* (File No. 1-11375,
Unicom Proxy Statement dated April 8, 1996, Appendix A).
10-23-1 Second Amendment to Unicom Corporation 1996 Directors Fee Plan*
(Registration Statement No. 333-49780, Form S-8, Exhibit 4-11).
10-24 Employment Agreement dated November 1, 1997 between Commonwealth
Edison Company and Oliver D. Kingsley, Jr. (File Nos. 1-11375 and
1-1839, 1998 Form 10-K, Exhibit 10-22).
10-25 Change in Control Agreement between Unicom Corporation,
Commonwealth Edison Company and certain senior executives (File
Nos. 1-11375 and 1-1839, 1998 Form 10-K, Exhibit 10-24).
10-25-1 Forms of Change in Control Agreement Between PECO Energy Company
and Certain Employees.
10-26 Commonwealth Edison Company Executive Group Life Insurance Plan*
(File No. 1-1839, 1980 Form 10-K, Exhibit 10-3).
10-26-1 Amendment to the Commonwealth Edison Company Executive Group Life
Insurance Plan* (File No. 1-1839, 1981 Form 10K, Exhibit 10-4).
122
10-26-2 Amendment to the Commonwealth Edison Company Executive Group Life
Insurance Plan dated December 12, 1986* (File No. 1-1839, 1986
Form 10-K, Exhibit 10-6).
10-26-3 Amendment to the Commonwealth Edison Company Executive Group Life
Insurance Plan to implement program of "split dollar life
insurance" dated December 13, 1990* (File No. 1-1839, 1990 Form
10-K, Exhibit 10-10).
10-26-4 Amendment to Commonwealth Edison Company Executive Group Life
Insurance Plan to stabilize the death benefit applicable to
participants dated July 22, 1992* (File No. 1-1839, 1992 Form
10-K, Exhibit 10-13).
10-27 Commonwealth Edison Company Supplemental Management Retirement
Plan* (File No. 1-1839, 1998 Form 10-K, Exhibit 10-29).
10-27-1 First Amendment to the Commonwealth Edison Company Supplemental
Management Retirement Plan.*
10-28 Commonwealth Edison Company Excess Benefit Savings Plan* (File No.
1-1839, Form 10-Q for the quarter ended September 30, 1998,
Exhibit 10-1).
10-28-1 Amendment No. 1 to Commonwealth Edison Company Excess Benefit
Savings Plan dated May 24, 1995* (File No. 1-1839, 1995 Form 10-K,
Exhibit 10-30).
10-28-2 Amendment No. 2 to Commonwealth Edison Company Excess Benefit
Savings Plan effective as of September 1, 1997* (File No. 1-1839,
1997 Form 10-K, Exhibit 10-34).
10-29 Commonwealth Edison Company Savings and Investment Plan*
(Registration Statement No. 333-10613, Form S-8, Exhibit 4-4).
10-29-1 Amendment Nos. 1 through 6 to Commonwealth Edison Employee Savings
and Investment Plan* (Registration Statement No. 333-49780, Form
S-8, Exhibit 4-15).
10-30 Unicom Corporation Stock Bonus Deferral Plan* (File Nos. 1-11375
and 1-1839, Form 10-Q for the quarter ended September 30, 1998,
Exhibit 10-3).
10-30-1 First Amendment to the Unicom Corporation Stock Bonus Deferral
Plan.*
10-30-2 Second Amendment to the Unicom Corporation Stock Bonus Deferral
Plan.*
10-31 Form of Stock Award Agreement under the Unicom Corporation
Long-Term Incentive Plan* (File Nos. 1-11375 and 1-1839, 1997 Form
10-K, Exhibit 10-37).
10-32 Amended and Restated Key Management Severance Plan for Unicom
Corporation and Commonwealth Edison Company dated March 8, 1999*
(File No. 1-1839, 1999 Form 10-K, Exhibit 10-38).
10-32-1 First Amendment to the Amended and Restated Key Management
Severance Plan.*
16 Arthur Andersen Letter to Securities and Exchange Commission
regarding the change in certifying accountant (File No. 1-01839,
Exelon Corporation Report on Form 8-K dated November 28, 2000,
Exhibit 16).
123
18-1 Letter from PricewaterhouseCoopers LLP addressed to Exelon
Corporation concerning a change in accounting principles.
18-2 Letter from PricewaterhouseCoopers LLP addressed to PECO Energy
Company concerning a change in accounting principles.
21 Subsidiaries
21-1 Exelon Corporation
21-2 PECO Energy Company
21-3 Commonwealth Edison Company
23 Consent of Independent Accountants
23-1 Exelon Corporation
23-2 PECO Energy Company
23-3-1 Commonwealth Edison Company
23-3-2 Commonwealth Edison Company
99 Exelon Corporation's Current Report on Form 8-K dated March 16,
2001, File No. 1-16169.
_________________
* Compensatory plan or arrangements in which directors or officers of the
applicable registrant participate and which are not available to all employees.
124
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Chicago
and State of Illinois on the 30 day of March, 2001.
EXELON CORPORATION
By: /s/ Corbin A. McNeill, Jr.
--------------------------------------------
Name: Corbin A. McNeill, Jr.
Title: Chairman and Co-Chief Executive Officer
By: /s/ John W. Rowe
--------------------------------------------
Name: John W. Rowe
Title: President and Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated on the 30 day of March, 2001.
Signature Title
/s/ Corbin A. McNeill, Jr. Chairman and Co-Chief Executive Officer and Director
- --------------------------------------------------------------------------------
F-62----------------------- (Co-Chief Executive Officer)
Corbin A. McNeill, Jr.
/s/ John W. Rowe President and Co-Chief Executive Officer and Director
- ----------------------- (Co-Chief Executive Officer)
John W. Rowe
This annual report has also been signed below by Corbin A. McNeill, Jr. and John
W. Rowe, Attorneys-in-Fact, on behalf of the following Directors on the date
indicated:
EDWARD A. BRENNAN RICHARD H. GLANTON
CARLOS H. CANTU ROSEMARIE B. GRECO
DANIEL L. COOPER EDGAR D. JANNOTTA
M. WALTER D'ALESSIO JOHN M. PALMS, PH.D.
BRUCE DEMARS JOHN W. ROGERS, JR.
G. FRED DIBONA, JR. RONALD RUBIN
SUE L. GIN RICHARD L. THOMAS
By: /s/ Corbin A. McNeill, Jr. March 30, 2001
--------------------------
Name: Corbin A. McNeill, Jr.
Title: Chairman and Co-Chief Executive Officer
By: /s/ John W. Rowe March 30, 2001
-----------------------
Name: John W. Rowe
Title: President and Co-Chief Executive Officer
125
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the city of
Philadelphia and Commonwealth of Pennsylvania on the 30th day of March, 2001.
PECO ENERGY COMPANY
By: /s/ Corbin A. McNeill, Jr.
--------------------------
Name: Corbin A. McNeill, Jr.
Title: President, Co-Chief Executive Officer
and Chairman
By: /s/ John W. Rowe
-----------------------
Name: John W. Rowe
Title: Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 30th day of March, 2001.
Signature Title
/s/ Corbin A. McNeill, Jr President, Co-Chief Executive Officer
- ----------------------- and Chairman
Corbin A. McNeill, Jr.
/s/ John W. Rowe Co-Chief Executive Officer
- -----------------------
John W. Rowe
/s/ Pamela B. Strobel Director
- ---------------------------
Pamela B. Strobel
/s/ Ruth Ann M. Gillis Director
- ---------------------------
Ruth Ann M. Gillis
/s/ Kenneth G. Lawrence Director
- ---------------------------
Kenneth G. Lawrence
126
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the city of Chicago
and State of Illinois on the 30th day of March, 2001.
COMMONWEALTH EDISON COMPANY
By: /s/ John W. Rowe
-----------------------
Name: John W. Rowe
Title: President, Co-Chief Executive Officer
and Chairman
By: /s/ Corbin A. McNeill, Jr.
--------------------------
Name: Corbin A. McNeill, Jr.
Title: Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 30th day of March, 2001.
Signature Title
/s/ John W. Rowe President, Co-Chief Executive Officer
- ----------------------- and Chairman
John W. Rowe
/s/ Corbin A. McNeill, Jr Co-Chief Executive Officer
- -----------------------
Corbin A. McNeill, Jr.
/s/ Pamela B. Strobel Director
- ---------------------------
Pamela B. Strobel
/s/ Ruth Ann M. Gillis Director
- ---------------------------
Ruth Ann M. Gillis
/s/ Kenneth G. Lawrence Director
- ---------------------------
Kenneth G. Lawrence
127