| Combined Notes to Consolidated Financial Statements | |
| 6 Months Ended
Jun. 30, 2009
USD / shares
|
| Notes to Financial Statements [Abstract] | |
| 1. Basis of Presentation (Exelon, Generation, ComEd and PECO) |
1.Basis of Presentation (Exelon, Generation, ComEd and PECO)
Exelon Corporation (Exelon) is a utility services holding company engaged, through its subsidiaries, in the generation and energy delivery businesses. The generation business consists of the electric generating facilities, the wholesale energy marketing operations and competitive retail supply operations of Exelon Generation Company, LLC (Generation). The energy delivery businesses include the purchase and regulated retail sale of electricity and the provision of distribution and transmission services by Commonwealth Edison Company (ComEd) in northern Illinois, including the City of Chicago, and by PECO Energy Company (PECO) in southeastern Pennsylvania, including the City of Philadelphia, and the purchase and regulated retail sale of natural gas and the provision of distribution services by PECO in the Pennsylvania counties surrounding the City of Philadelphia.
Exelons corporate operations, some of which are performed through its business services subsidiary, Exelon Business Services Company, LLC (BSC), provide Exelons subsidiaries with a variety of support services at cost, including legal, human resources, financial, information technology and supply management services. The costs of BSC, including support services, are directly charged or allocated to the applicable subsidiaries using a cost-causative allocation method. Corporate governance-type costs that cannot be directly assigned are allocated based on a Modified Massachusetts formula, which is a method that utilizes a combination of gross revenues, total assets, and direct labor costs for the allocation base. The results of Exelons corporate operations are presented as Other within the consolidated financial statements and include intercompany eliminations unless otherwise disclosed.
Exelon owns 100% of all of its significant consolidated subsidiaries, either directly or indirectly, except for ComEd, of which Exelon owns more than 99%, and PECO, of which Exelon owns 100% of the common stock but none of PECOs preferred securities. Exelon has reflected the third-party interests in ComEd, which totaled less than $1 million at June30, 2009, as equity, and PECOs preferred stock as preferred securities of subsidiary in the consolidated financial statements.
Generation owns 100% of all of its significant consolidated subsidiaries, either directly or indirectly, except for Exelon SHC, LLC, of which Generation owns 99% and the remaining 1% is indirectly owned by Exelon, which is eliminated in Exelons consolidated financial statements. AmerGen Energy Company, LLC (AmerGen), a wholly owned subsidiary of Generation through January8, 2009, owned and operated the Clinton Nuclear Power Station (Clinton), Three Mile Island (TMI) Unit No.1 and the Oyster Creek Generating Station (Oyster Creek). Effective January8, 2009, AmerGen was dissolved and the operating licenses for Clinton, TMI and Oyster Creek were transferred to Generation, which continues to operate those plants.
Each of Generations, ComEds and PECOs consolidated financial statements includes the accounts of their subsidiaries. All intercompany transactions have been |
| 2. New Accounting Pronouncements (Exelon, Generation, ComEd and PECO) |
2.New Accounting Pronouncements (Exelon, Generation, ComEd and PECO)
SFAS No.160
In December 2007, the FASB issued SFAS No.160, Noncontrolling Interests in Consolidated Financial Statements (SFAS No.160). SFAS No.160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No.160 requires that changes in a parents ownership interest in a subsidiary be reported as an equity transaction in the consolidated financial statements when it does not result in a change in control of the subsidiary. When a change in a parents ownership interest results in deconsolidation, a gain or loss should be recognized in the consolidated financial statements. SFAS No.160 was applied prospectively as of January1, 2009, except for the presentation and disclosure requirements, which were applied retrospectively for all periods presented.
The adoption had no impact on Exelons consolidated financial statements. Generation reclassified its noncontrolling interest of consolidated subsidiary from mezzanine equity to equity in its Consolidated Balance Sheets and Statement of Changes in Equity for all periods presented. The noncontrolling interest is eliminated in Exelons Consolidated financial statements as it is owned by Exelon.
PECO reclassified preferred securities from shareholders equity to mezzanine equity within its Consolidated Balance Sheets for all periods presented. The dividends on PECOs preferred securities are reflected in interest expense and have not been reflected separately on Exelons Statement of Operations and Comprehensive Income, as the amounts are not considered significant.
SFAS No.141-R and FSP FAS 141(R)-1
In December 2007, the FASB issued SFAS No.141-R, Business Combinations (SFAS No.141-R) which revised SFAS No.141, Business Combinations. This pronouncement becameeffective for the Registrants as of January1, 2009. Under SFAS No.141-R, transaction costs are required to be expensed as incurred. Additionally, adjustments to the acquired entitys deferred tax assets and uncertain tax position balances occurring outside the measurement period are recorded as a component ofincome tax expense, rather than goodwill. As a result of applying the provisions of SFAS No.141-R, Exelon and ComEd recorded Illinois Replacement Investment Tax Credits (ITC) and interest benefits relating to uncertain tax positions from the period prior to the merger between PECO and Unicom Corporation of $25 million (after taxes) in the first quarter of 2009 as a benefit in the statement of financial position. See Note 11 Income Taxes for further information.
In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (FSP FAS 141(R)-1). This pronouncement amends SFAS No.141-R to clarify the initial and subsequent recognition, subsequent accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP SFAS No.141(R)-1 requires that assets acquired and liabilities assumed in a business |
| 3. Regulatory Issues (Exelon, Generation, ComEd and PECO) |
3.Regulatory Issues (Exelon, Generation, ComEd and PECO)
Illinois Settlement Agreement (Exelon, Generation and ComEd).In July 2007, following extensive discussions with legislative leaders in Illinois, ComEd, Generation, and other utilities and generators in Illinois reached an agreement (Illinois Settlement) with various parties concluding discussions of measures to address concerns about higher electric bills in Illinois without rate freeze, generation tax or other legislation that Exelon believes would be harmful to consumers of electricity, electric utilities, generators of electricity and the State of Illinois. Legislation reflecting the Illinois Settlement (Illinois Settlement Legislation) was signed into law in August2007. The Illinois Settlement and the Illinois Settlement Legislation provide for the following, among other things:
Rate Relief Programs
Various Illinois electric utilities, their affiliates, and generators of electricity in Illinois agreed to contribute approximately $1 billion over a period of four years (2007-2010) to programs to provide rate relief to Illinois electricity customers and funding for the Illinois Power Agency (IPA) created by the Illinois Settlement Legislation. ComEd and Generation committed to contributing $811 million to rate relief programs over the four year period and partial funding for the IPA. ComEd committed to issue $64 million in rate relief credits to customers or to fund various programs to assist customers. Generation committed to contribute an aggregate of $747 million, consisting of $435 million to pay ComEd for rate relief programs for ComEd customers, $307.5 million for rate relief programs for customers of other Illinois utilities and $4.5 million for partially funding operations of the IPA. The contributions are recognized in the financial statements of Generation and ComEd as rate relief credits are applied to customer bills by ComEd and other Illinois utilities, or as operating expenses associated with the programs are incurred.
During the three and six months ended June30, 2009, Generation and ComEd recognized net costs from their contributions pursuant to the Illinois Settlement in their Consolidated Statements of Operations as follows:
Three Months Ended June30, 2009 Generation ComEd Total credits issued toComEdcustomers
Credits to ComEd customers(a) $ 17 $ 2 $ 19
Credits to other Illinois utilities customers(a) 13 n/a n/a
Total incurred costs $ 30 $ 2 $ 19
(a)
Recorded as a reduction in operating revenues.
Six Months Ended June30, 2009 Generation ComEd Total credits issued toComEdcustomers
Credits to ComEd customers(a) $ 37 $ 2 $ 39
Credits to other Illinois utilities customers(a) 26 n/a n/a
Other rate relief programs(b) 1 n/a
Total incurred costs $ 63 $ 3 $ 39
(a)
Recorded as a reduction in operating revenues.
(b)
Recorded as a charge to operating and maintenance expense.
During the three and |
| 4. Property Plant and Equipment (Exelon and Generation) |
4.Property Plant and Equipment (Exelon and Generation)
Long-Lived Asset Impairments (Exelon and Generation)
Generation evaluated its Texas plants, comprised of the Handley, Mountain Creek and LaPorte generating stations, for potential impairment as of December31, 2008, pursuant to SFAS No.144, and concluded that there was no impairment. Generations impairment test as of December31, 2008 indicated that the plants estimated undiscounted future cash flows exceeded the carrying values of the plants and, therefore, an impairment did not exist. Due to the continued decline in forward energy prices in the first quarter of 2009, Generation again evaluated its Texas plants for recoverability as of March31, 2009.
As the estimated undiscounted future cash flows and fair value of the Handley and Mountain Creek stations were less than the stations carrying values, the stations were determined to be impaired at March31, 2009. LaPorte station was determined not to be impaired. Accordingly,the Handley and Mountain Creek stations were written down to fair value, and an impairment charge of $223 million was recorded in operating and maintenance expense in Exelons and Generations Consolidated Statements of Operations in the first quarter of 2009. The fair value of the stations was determined based uponthe provisions of SFAS No.157 and considered the income (discounted cash flow), market (available comparables) and cost (replacement cost) valuation approaches in determining fair value. The actual proceeds that may be obtained from selling the plants would be dependent on the market conditions that exist at the time of any sale, terms and conditions of the sale agreement, and the actual combination of assets and liabilities transferred. These factors would impact the recognition of any potential gain or loss on sale.
During the second quarter of 2009, Generation assessed whether there had been any triggering events requiring an impairment assessment for any of its generating stations. Based on this analysis, it was determined that Generation did not have any triggering events requiring impairment assessments for any of its generating stations during the three months ended June30, 2009.
See Note 6 Fair Value of Assets and Liabilities for additional disclosures. |
| 5. Intangible Assets (Exelon, Generation, ComEd and PECO) |
5.Intangible Assets (Exelon, Generation, ComEd and PECO)
Goodwill (Exelon and ComEd).As of June30, 2009 and December31, 2008, Exelon and ComEd had goodwill of approximately $2.6billion. Under the provisions of SFAS No.142, Goodwill and Other Intangible Assets, goodwill is tested for impairment at least annually or more frequently if events or circumstances indicate that it is more likely than not that goodwill might be impaired, such as a significant negative regulatory outcome or change in business conditions. Exelon and ComEd perform their annual goodwill impairment assessment in the fourth quarter of each year.
Because of the continued uncertainty in the financial markets and overall economic conditions, during the first and second quarters of 2009, ComEd reviewed the significant assumptions included in its goodwill impairment analysis to determine if it was more likely than not that ComEds fair value was less than its carrying value. The analyses focused on managements current expectations of future cash flows, as well as current market conditions that impact various economic indicators that are utilized in assessing ComEds fair value. Based on these analyses, it was determined that ComEd did not have any triggering events requiring ComEd to perform a goodwill assessment during the six months ended June30, 2009.
City of Chicago Settlements (Exelon and ComEd).Exelons and ComEds other intangible assets, included in deferred debits and other assets on the Consolidated Balance Sheets, include the following payments associated with the City of Chicago settlements as of June30, 2009 and December31, 2008:
June30, 2009 Gross Accumulated Amortization Net Estimated amortization expense
Remainder of 2009 2010 2011 2012 2013
Chicago settlement 1999 agreement(a) $ 100 $ (60 ) $ 40 $ 1 $ 3 $ 3 $ 3 $ 3
Chicago settlement 2003 agreement(b) 62 (22 ) 40 3 4 4 4 4
Total intangible assets $ 162 $ (82 ) $ 80 $ 4 $ 7 $ 7 $ 7 $ 7
December31, 2008 Gross Accumulated Amortization Net Estimated amortization expense
2009 2010 2011 2012 2013
Chicago settlement 1999 agreement(a) $ 100 $ (58 ) $ 42 $ 3 $ 3 $ 3 $ 3 $ 3
Chicago settlement 2003 agreement(b) 62 (21 ) 41 4 4 4 4 4
Total intangible assets $ 162 $ (79 ) $ 83 $ 7 $ 7 $ 7 $ 7 $ 7
(a)
In March1999, ComEd entered into a settlement agreement with the City of Chicago associated with ComEds franchise agreement. Under the terms of the settlement, ComEd agreed to make payments of $25 million to the City of Chicago each year from 1999 to 2002. The intangible asset recognized as a result of these payments is being amortized ratably over the remaining term of the franchise agreement, which ends in 2020.
(b) |
| 6. Fair Value of Assets and Liabilities (Exelon, Generation, ComEd and PECO) |
6.Fair Value of Assets and Liabilities (Exelon, Generation, ComEd and PECO)
Fair Value of Financial Liabilities Recorded at the Carrying Amount
Exelon
The carrying amounts and fair values of Exelons long-term debt, spent nuclear fuel obligation, and preferred securities of subsidiary as of June30, 2009 and December31, 2008 were as follows:
June30, 2009 December31, 2008
Carrying Amount FairValue Carrying Amount FairValue
Long-term debt (including amounts due within one year) $ 11,653 $ 11,748 $ 11,426 $ 10,803
Long-term debt to PETT (including amounts due within one year) 794 832 1,124 1,193
Long-term debt to other financing trusts 390 253 390 200
Spent nuclear fuel obligation 1,016 758 1,015 544
Preferred securities of subsidiary 87 61 87 63
Generation
The carrying amounts and fair values of Generations long-term debt and spent nuclear fuel obligation as of June30, 2009 and December31, 2008 were as follows:
June30, 2009 December31, 2008
Carrying Amount FairValue Carrying Amount FairValue
Long-term debt (including amounts due within one year) $ 2,513 $ 2,574 $ 2,514 $ 2,402
Spent nuclear fuel obligation 1,016 758 1,015 544
ComEd
The carrying amounts and fair values of ComEds long-term debt as of June30, 2009 and December31, 2008 were as follows:
June30, 2009 December31, 2008
Carrying Amount FairValue Carrying Amount FairValue
Long-term debt (including amounts due within one year) $ 4,709 $ 4,812 $ 4,726 $ 4,510
Long-term debt to financing trust 206 131 206 100
PECO
The carrying amounts and fair values of PECOs long-term debt and preferred securities as of June30, 2009 and December31, 2008 were as follows:
June30, 2009 December31, 2008
Carrying Amount FairValue Carrying Amount FairValue
Long-term debt (including amounts due within one year) $ 2,221 $ 2,290 $ 1,971 $ 1,954
Long-term debt to PETT (including amounts due within one year) 794 832 1,124 1,193
Long-term debt to other financing trusts 184 121 184 100
Preferred securities 87 61 87 63
Recurring Fair Value Measurements
To increase consistency and comparability in fair value measurements, SFAS No.157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities that the Registrants have the ability to access as of the reporting date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded equity securities, exchange-based derivatives, mutual funds and money market funds.
Level 2 inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through |
| 7. Debt and Credit Agreements (Exelon, Generation, ComEd and PECO) |
7.Debt and Credit Agreements (Exelon, Generation, ComEd and PECO)
Short-Term Borrowings
Exelon meets its short-term liquidity requirements primarily through the issuance of commercial paper, Generation and PECO meet their short-term liquidity requirements primarily through the issuance of commercial paper and borrowings from the intercompany money pool and ComEd meets its short-term liquidity requirements primarily through borrowings under its credit facility.
As of June30, 2009, Exelon Corporate, Generation, ComEd and PECO had access to unsecured revolving credit facilities with aggregate bank commitments of $957 million, $4.8 billion, $952 million and $574 million, respectively. See Note10 of Exelons 2008 Annual Report on Form10-K for further information regarding the credit facilities. Generation also has additional letter of credit facilities used solely to enhance tax-exempt variable rate debt as discussed further below.
Exelon, Generation, ComEd and PECO had the following amounts of commercial paper and credit facility borrowings outstanding at June30, 2009 and December31, 2008:
Commercial paper borrowings June30, 2009 December31, 2008
Exelon Corporate $ $ 56
Generation $ $
PECO $ $ 95
Credit facility borrowings
ComEd $ 45 $ 60
Issuance of Long-Term Debt
During the six months ended June30, 2009, the following long-term debt was issued:
Company
Type InterestRate Maturity Amount(a)
Generation PollutionControlNotes 5.00 % December1,2042 $ 46
ComEd FirstMortgageBonds(b) Variable March 1, 2020 50
ComEd FirstMortgageBonds(b) Variable March 1, 2017 91
ComEd FirstMortgageBonds(b) Variable May 1, 2021 50
PECO FirstMortgageBonds 5.00 % October1,2014 250
(a)
Excludes unamortized bond discounts.
(b)
Variable-rate tax-exempt bonds secured by First Mortgage Bonds, which were remarketed in May 2009 following an earlier repurchase.
Retirement of Long-Term Debt
During the six months ended June30, 2009, the following long-term debt was retired:
Company
Type InterestRate Maturity Amount
Generation Pollution Control Notes Variable December 1, 2042 $ 46
Generation KennettSquareCapitalLease 7.83 % September20,2020 1
ComEd First Mortgage Bonds(a) Variable March 1, 2020 50
ComEd First Mortgage Bonds(a) Variable March 1, 2017 91
ComEd First Mortgage Bonds(a) Variable May 1, 2021 50
ComEd First Mortgage Bonds 5.70 % January 15, 2009 16
ComEd Sinking fund debentures 4.625-4.75 % Various 1
PECO PETT Transition Bonds 7.65 % September 1, 2009 319
PECO PETT Transition Bonds 6.52 % March 1, 2010 11
(a)
Variable-rate tax-exempt bonds secured by First Mortgage Bonds, which were repurchased in May 2009 and subsequently remarketed.
As noted above, Generation repurchased $46 million in unenhanced tax-exempt variable-rate debt on Feb |
| 8. Derivative Financial Instruments (Exelon, Generation, ComEd and PECO) |
8.Derivative Financial Instruments (Exelon, Generation, ComEd and PECO)
The Registrants are exposed to certain risks related to ongoing business operations. The primary risks managed by using derivative instruments are commodity price risk and interest rate risk. To the extent the amount of energy Exelon generates differs from the amount of energy it has contracted to sell, the Registrants are exposed to market fluctuations in the prices of electricity, coal, natural gas, and other commodities. The Registrants employ established policies and procedures to manage their risks associated with market fluctuations by entering into physical contracts as well as financial derivative contracts, including swaps, futures, forwards, options and short-term and long-term commitments to purchase and sell energy and energy-related products. The Registrants believe these instruments, which are classified as either economic hedges or non-derivatives, mitigate exposure to fluctuations in commodity prices. Exposure to interest rate risk exists as a result of the issuance of variable and fixed-rate debt, commercial paper and lines of credit.
The Registrants account for derivative instruments in accordance with SFAS No.133, which requires that derivative instruments be recognized as either assets or liabilities at fair value. Under the provisions of SFAS No.133, economic hedges are recognized on the balance sheet at their fair value unless they qualify for the normal purchases and normal sales exception. The Registrants have applied the normal purchases and normal sales scope exception, as provided in SFAS No.133, to certain derivative contracts for the forward sale of generation, power procurement agreements, and natural gas supply agreements. Under the provisions of SFAS No.133, for economic hedges that qualify and are designated as cash flow hedges, the portion of the derivative gain or loss that is effective in offsetting the change in value of the underlying exposure is deferred in accumulated other comprehensive income (OCI) and later reclassified into earnings when the underlying transaction occurs. For economic hedges that do not qualify or are not designated as cash flow hedges, changes in the fair value of the derivative are recognized in earnings each period and are classified as other derivatives in the following tables. Non-derivative contracts for access to additional generation and for sales to load-serving entities are accounted for primarily under the accrual method of accounting, which is further discussed in Note18 of the Combined Notes to Consolidated Financial Statements within Exelons 2008 Annual Report on Form 10-K. Additionally, Generation is exposed to certain market risks through its proprietary trading activities. The proprietary activities are a complement to Generations energy marketing portfolio but represent a small portion of Generations overall energy marketing activities.
Commodity Price Risk (Exelon, Generation, ComEd and PECO)
Economic Hedging.The Registrants are exposed to commodity price risk primarily relating to changes in the market price of electricity, natural gas, coal and emission allowances associated with |
| 9. Retirement Benefits (Exelon, Generation, ComEd and PECO) |
9.Retirement Benefits (Exelon, Generation, ComEd and PECO)
Exelon sponsors defined benefit pension plans and postretirement benefit plans for essentially all Generation, ComEd, PECO and Exelon Corporate employees. Prior to January8, 2009, employees of Generations wholly owned subsidiary, AmerGen, participated in the separate AmerGen-sponsored defined benefit pension plan and postretirement benefit plan. Effective January8, 2009, the AmerGen legal entity was dissolved and Exelon became the sponsor of all AmerGen pension and postretirement benefit plans. The unrecognized costs of the AmerGen plans in accumulated OCI of $20 million (after-tax) were reduced to zero and the corresponding amounts were recorded to the net liability position of the plans at Generation. The change in sponsorship did not have an impact on Exelons Consolidated Financial Statements.
Defined Benefit Pension and Other Postretirement Benefits
During the first quarter of 2009, Exelon received an updated valuation of its pension and other postretirement benefit obligations to reflect actual census data as of January1, 2009. This valuation resulted in an increase to the pension obligations of $57 million and a decrease to other postretirement obligations of $144 million. Additionally, OCI decreased by approximately $28 million (after-tax). The impact to the Consolidated Statement of Operations and Comprehensive Income was not material.
The following tables present the components of Exelons net periodic benefit costs for the three and six months ended June30, 2009 and 2008. The 2009 pension benefit cost is calculated using an expected long-term rate of return on plan assets of 8.50%. The 2009 other postretirement benefit cost is calculated using an expected long-term rate of return on plan assets of 8.10%. A portion of the net periodic benefit cost is capitalized within the Consolidated Balance Sheets.
Pension Benefits ThreeMonthsEnded June30, Other Postretirement Benefits ThreeMonthsEnded June30,
2009 2008 2009 2008
Service cost $ 45 $ 41 $ 28 $ 27
Interest cost 162 159 50 52
Expected return on assets (194 ) (209 ) (23 ) (30 )
Amortization of:
Transition obligation 3 2
Prior service cost (benefit) 3 3 (14 ) (14 )
Actuarial loss 49 32 22 13
Net periodic benefit cost $ 65 $ 26 $ 66 $ 50
Pension Benefits SixMonthsEnded June30, Other Postretirement Benefits SixMonthsEnded June30,
2009 2008 2009 2008
Service cost $ 89 $ 82 $ 56 $ 54
Interest cost 325 318 102 104
Expected return on assets (388 ) (418 ) (47 ) (60 )
Amortization of:
Transition obligation 5 4
Prior service cost (benefit) 7 6 (28 ) (28 )
Actuarial loss 98 64 44 26
Settlements |
| 10. Severance Accounting (Exelon, Generation, ComEd and PECO) |
10.Severance Accounting (Exelon, Generation, ComEd and PECO)
Exelon provides severance and health and welfare benefits to terminated employees pursuant to pre-existing severance plans primarily based upon each individual employees years of service and compensation level. Exelon accounts for its ongoing severance plans in accordance with SFAS No.112, Employers Accounting for Postemployment Benefits, an amendment of FASB Statements No.5 and 43 and SFAS No.88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits and accrues amounts associated with severance benefits that are considered probable and that can be reasonably estimated.
On June18, 2009, Exelon announced a restructured senior executive team and major spending cuts, including the elimination of approximately 500 positions. Exelon expects that approximately 400 corporate support positions, mostly located at corporate headquarters, and 100 management level positions at ComEd will be eliminated. Exelon and ComEd expect to complete most job reductions by August31, 2009. These actions are in response to the continuing economic challenges confronting all parts of Exelons business and industry especially in light of the commodity-driven nature of Generations markets, necessitating continued focus on cost management through enhanced efficiency and productivity.
Exelon recorded a pre-tax charge for salary continuance and health and welfare severance benefits of $40 million in June 2009 as a result of the planned job reductions. The final amount of the charge will ultimately depend on the specific employees severed.
The following tables present total severance benefits costs, recorded as operating and maintenance expense in relation to the announced job reductions, for the three and six months ended June30, 2009:
Severance Benefits Generation ComEd PECO Other Exelon
Expense recorded for the three and six months ended June30, 2009(a)(b) $ 15 $ 18 $ 5 $ 2 $ 40
(a)
The amounts above include $8 million, $5 million and $3 million at Generation, ComEd and PECO, respectively, for amounts billed through intercompany allocations.
(b)
The severance benefits costs include $1 million of stock compensation expense collectively at Generation and ComEd for which the obligation is recorded in equity.
The following table presents the activity of severance obligations for the announced job reductions from January1, 2009 through June30, 2009, excluding obligations recorded in equity:
Severance Benefits Obligations Generation ComEd PECO Other Exelon
Balance at January1, 2009 $ $ $ $ $
Severance charges recorded 7 12 2 18 39
Cash payments
Balance at June30, 2009 $ 7 $ 12 $ 2 $ 18 $ 39
|
| 11. Income Taxes (Exelon, Generation, ComEd and PECO) |
11.Income Taxes (Exelon, Generation, ComEd and PECO)
Exelons effective income tax rate from continuing operations for the three and six months ended June30, 2009 was 39.5% and 35.1%, as compared to 35.9% and 33.7% for the three and six months ended June30, 2008. The increase in the effective tax rate for the three and six months ended June30, 2009 was primarily attributable to gains generated in Generations nuclear decommissioning trust funds that are taxed at a higher statutory rate than Generations remaining income from operations. The increase for the six months ended June30, 2009 was partially offset by a reduction in state income tax expenses related to a change in deferred state income taxes (see Long-Term State Tax Apportionment below), and an Illinois Supreme Court decision granting ITC to Exelon and treating electricity as tangible personal property. The increase for the three months ended June30, 2009 was partially offset by a reduction in state income tax expenses related to a change in deferred state income taxes.
Generations effective income tax rate from continuing operations for the three and six months ended June30, 2009 was 41.0% and 35.7%, as compared to 37.0% and 34.9% for the three and six months ended June30, 2008. Generations effective tax rate for the three and six months ended June30, 2009 increased as a result of gains generated in the nuclear decommissioning trust funds that are taxed at a higher statutory rate than Generations remaining income from operations. The increase for the six months ended June30, 2009 was partially offset by a reduction in state income tax expenses related to a change in deferred state income taxes, and an Illinois Supreme Court decision granting ITC to Exelon and treating electricity as tangible personal property. The increase for the three months ended June30, 2009 was partially offset by a reduction in state income tax expenses related to a change in deferred state income taxes.
ComEds effective income tax rate for the three and six months ended June30, 2009 was 38.6% and 32.9%, as compared to 37.5% and 38.2% for the three and six months ended June30, 2008. For the three months ended June30, 2009, the increase in the effective tax rate was primarily a result of increased income while permanent differences remained relatively constant. For the six months ended June30, 2009, the decrease in effective tax rate was a result of a reduction in state income tax expense primarily driven by an Illinois Supreme Court decision granting ITC to Exelon.
PECOs effective income tax rate for the three and six months ended June30, 2009 was 30.4% and 29.3%, as compared to 30.1% and 30.8% for the three and six months ended June30, 2008, respectively. The decrease in the effective tax rate for the six months ended June30, 2009 was primarily caused by a decrease in state income tax expense due to higher deductible interest expense partially offset by the tax benefit recorded in 2008 related to a tax settlement with the IRS.
Accounting for Uncertainty in Income Taxes
Exelon, Generation, ComEd and PECO have $1.35 billion, $539 million, $440 million and $339 million, respectively, of unrecognize |
| 12. Asset Retirement Obligations and Spent Nuclear Fuel Storage (Exelon and Generation) |
12.Asset Retirement Obligations and Spent Nuclear Fuel Storage (Exelon and Generation)
Nuclear Decommissioning Asset Retirement Obligations (ARO)
Generation has a legal obligation to decommission its nuclear power plants following the expiration of their operating licenses. Generation will pay for its respective obligations using trust funds that have been established for this purpose. To estimate its decommissioning obligation related to its nuclear generating stations, Generation uses a probability-weighted, discounted cash flow model which, on a unit-by-unit basis, considers multiple outcome scenarios based upon significant estimates and assumptions, including decommissioning cost studies, cost escalation studies, probabilistic cash flow models and discount rates.
The following table provides a roll forward of the nuclear decommissioning ARO reflected on Exelons and Generations Consolidated Balance Sheets, from December31, 2008 to June30, 2009:
ExelonandGeneration
Nuclear decommissioning AROs at December31, 2008(a) $ 3,485
Accretion expense 104
Increase due to changes in estimated cash flows 4
Payments to decommission retired plants (8 )
Nuclear decommissioning AROs at June30, 2009(a) $ 3,585
(a)
Includes $13 million as the current portion of the ARO at June30, 2009 and December31, 2008, which is included in other current liabilities on Exelons and Generations Consolidated Balance Sheets.
Accounting Implications of the Regulatory Agreements with ComEd and PECO.Based on the regulatory agreement with the ICC that dictates Generations obligations related to the shortfall or excess of trust funds necessary for decommissioning the former ComEd units on a unit-by-unit basis, as long as funds held in the nuclear decommissioning trust funds exceed the total estimated decommissioning obligation, decommissioning-related activities recognized in the Consolidated Statement of Operations, including realized and unrealized income and losses on the trust funds and accretion of the decommissioning obligation, are generally offset within Exelons and Generations Consolidated Statements of Operations.The offset of decommissioning-related activities within the Consolidated Statement of Operations results in an equal adjustment to the noncurrent payables to affiliates at Generation and an adjustment to the regulatory liabilities at Exelon. Likewise, ComEd has recorded an equal noncurrent affiliate receivable from Generation and corresponding regulatory liability. Should the value of the trust fund for any former ComEd unit fall below the amount of the estimated decommissioning obligation for that unit, the accounting to offset decommissioning-related activities in the Consolidated Statement of Operations for that unit would be discontinued, the decommissioning-related activities would be recognized in the Consolidated Statements of Operations and the adverse impact to Exelons and Generations results of operations and financial position could be material.At June30, 2009, the trust funds of each of the former ComEd units exceeded the related decommissioning obliga |
| 13. Earnings Per Share and Equity (Exelon) |
13.Earnings Per Share and Equity (Exelon)
Earnings per Share
Diluted earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding, including shares to be issued upon exercise of stock options, performance share awards and restricted stock outstanding under Exelons long-term incentive plans considered to be common stock equivalents. The following table sets forth the components of basic and diluted earnings per share and shows the effect of these stock options, performance share awards and restricted stock on the weighted average number of shares outstanding used in calculating diluted earnings per share:
ThreeMonthsEnded June 30, SixMonthsEnded June 30,
2009 2008 2009 2008
Income from continuing operations $ 658 $ 749 $ 1,369 $ 1,330
Loss from discontinued operations (1 ) (1 ) (1 )
Net income $ 657 $ 748 $ 1,369 $ 1,329
Average common shares outstanding basic 659 657 659 658
Assumed exercise of stock options, performance share awards and restricted stock 2 5 2 5
Average common shares outstanding diluted 661 662 661 $ 663
The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 6million and 5million for the three and six months ended June30, 2009, respectively, and 1million and zero for the three and six months ended June30, 2008, respectively.
Share Repurchases
As part of its value return policy, Exelon uses share repurchases from time to time to return cash or balance sheet capacity to Exelon shareholders after funding maintenance capital and other commitments and in the absence of higher value-added growth opportunities. In 2008, Exelon management decided to defer indefinitely any share repurchases. This decision was made in light of a variety of factors, including: developments affecting the world economy and commodity markets, including those for electricity and gas; the continued uncertainty in capital and credit markets and other potential impact of those events on Exelons future cash needs; projected cash needs to support investment in the business, including maintenance capital and nuclear uprates; and value-added growth opportunities, including possible acquisitions such as the then-proposed acquisition of NRG Energy, Inc.
Under share repurchase programs, 34.8million shares of common stock are held as treasury stock with a cost of $2.3 billion as of June30, 2009. During the six months ended June30, 2009 and 2008, Exelon repurchased 0 and 6.6million shares of common stock, respectively, for $0 and $500 million, including the impact of the settlement of forward contracts, respectively. |
| 14. Commitments and Contingencies (Exelon, Generation, ComEd and PECO) |
14.Commitments and Contingencies (Exelon, Generation, ComEd and PECO)
For information regarding capital commitments at December31, 2008, see Note 18 of the Combined Notes to Consolidated Financial Statements within Exelons 2008 Annual Report on Form10-K. All significant contingencies are disclosed below.
Energy Commitments
Generations, ComEds and PECOs short and long-term commitments relating to the sale to and purchase from unaffiliated utilities and others of energy, capacity and transmission rights as of June30, 2009 did not change significantly from December31, 2008, except for the following:
Generations total commitments for future sales of energy to unaffiliated third-party utilities and others increased by approximately $535million during the six months ended June30, 2009, reflecting increases of approximately $503 million, $594million, $277 million, $26 million and $5 million related to 2010, 2011, 2012, 2013 and 2014 and beyond sales commitments, respectively, offset by the fulfillment of approximately $870 million of 2009 commitments during the six months ended June30, 2009. The increases were primarily due to increased overall hedging activity in the normal course of business. See Note 8 Derivative Financial Instruments for additional information regarding Generations hedging program.
In May 2009, ComEd entered into procurement contracts to enable ComEd to meet a portion of its customers electricity requirements for the period from June 2009 to May 2011. These contracts resulted in an increase in ComEds energy commitments of $252 million for the remainder of 2009, $269 million for 2010 and $31 million for 2011. See Note 3 Regulatory Issues for further information.
Fuel and Natural Gas Purchase Obligations
Generations and PECOs fuel purchase obligations as of June30, 2009 did not change significantly from December31, 2008, except for the following:
Generations total fuel purchase obligations for nuclear and fossil generation increased by approximately $3,505 million during the six months ended June30, 2009, reflecting increases of approximately $132 million, $324 million, $392 million, $477 million and $2,642 million for 2010, 2011, 2012, 2013 and 2014 and beyond, respectively, due to contracts entered into in the normal course of business, offset by the fulfillment of approximately $462million of 2009 commitments during the six months ended June30, 2009.
PECOs total natural gas obligations increased by approximately $50 million during the six months ended June30, 2009, reflecting increases of $20 million, $24 million and $6 million in 2009, 2010 and 2011, respectively, primarily related to increased natural gas purchase commitments made in accordance with PECOs PAPUC-approved procurement schedule.
Commercial and Construction Commitments
Exelons, Generations, ComEds and PECOs commercial and construction commitments as of June30, 2009, representing commitments potentially triggered by future events, did not change significantly from December31, 2008, except for the following:
Exelons letters of credit decreased $55 million and guaranteesdecreased by $20 |
| 15. Supplemental Financial Information (Exelon, Generation, ComEd and PECO) |
15.Supplemental Financial Information (Exelon, Generation, ComEd and PECO)
Supplemental Statement of Operations Information
The following tables provide additional information regarding the components of depreciation, amortization, and accretion, and other, net within the Consolidated Statements of Operations and Comprehensive Income of Exelon, Generation, ComEd and PECO for the three and six months ended June30, 2009 and 2008:
Three Months Ended June30, 2009 Exelon Generation ComEd PECO
Depreciation, amortization and accretion
Property, plant and equipment $ 237 $ 72 $ 112 $ 40
Regulatory assets(a) 202 12 190
Nuclear fuel(b) 139 139
Asset retirement obligation accretion(c) 53 53
Total depreciation, amortization and accretion $ 631 $ 264 $ 124 $ 230
(a)
For PECO, primarily reflects CTC amortization.
(b)
Included in fuel expense on the Registrants Consolidated Statements of Operations.
(c)
Included in operating and maintenance expense on the Registrants Consolidated Statements of Operations.
Six Months Ended June30, 2009 Exelon Generation ComEd PECO
Depreciation, amortization and accretion
Property, plant and equipment $ 475 $ 149 $ 221 $ 80
Regulatory assets(a) 400 25 375
Nuclear fuel(b) 272 272
Asset retirement obligation accretion(c) 106 105
Total depreciation, amortization and accretion $ 1,253 $ 526 $ 246 $ 455
(a)
For PECO, primarily reflects CTC amortization.
(b)
Included in fuel expense on the Registrants Consolidated Statements of Operations.
(c)
Included in operating and maintenance expense on the Registrants Consolidated Statements of Operations.
Three Months Ended June30, 2008 Exelon Generation ComEd PECO
Depreciation, amortization and accretion
Property, plant and equipment $ 227 $ 73 $ 105 $ 38
Regulatory assets(a) 175 8 167
Nuclear fuel(b) 83 83
Asset retirement obligation accretion(c) 59 59
Total depreciation, amortization and accretion $ 544 $ 215 $ 113 $ 205
(a)
For PECO, primarily reflects CTC amortization.
(b)
Included in fuel expense on the Registrants Consolidated Statements of Operations.
(c)
Included in operating and maintenance expense on the Registrants Consolidated Statements of Operations.
Six Months Ended June30, 2008 Exelon Generation ComEd PECO
Depreciation, amortization and accretion
Property, plant and equipment $ 449 $ 143 $ 207 $ 78
Regulatory assets(a) 350 17 333
Nuclear fuel(b) 178 178
Asset retir |
| 16. Segment Information (Exelon, Generation, ComEd and PECO) |
16.Segment Information (Exelon, Generation, ComEd and PECO)
Exelon has three reportable and operating segments: Generation, ComEd and PECO. Exelon evaluates the performance of its segments based on net income. Generation, ComEd and PECO each represent a single reportable segment; as such, no separate segment information is provided for these Registrants.
Three Months Ended June30, 2009 and 2008
Exelons segment information for the three months ended June30, 2009 and 2008 is as follows:
Generation ComEd PECO Other Intersegment Eliminations Consolidated
Total revenues(a):
2009 $ 2,378 $ 1,389 $ 1,204 $ 207 $ (1,037 ) $ 4,141
2008 2,756 1,425 1,277 176 (1,012 ) 4,622
Intersegmentrevenues(b):
2009 $ 833 $ $ 2 $ 207 $ (1,036 ) $ 6
2008 834 2 176 (1,012 )
Income(loss)fromcontinuingoperations before income taxes:
2009 $ 867 $ 189 $ 102 $ (70 ) $ $ 1,088
2008 1,036 56 83 (34 ) 27 1,168
Income taxes:
2009 $ 355 $ 73 $ 31 $ (36 ) $ 7 $ 430
2008 383 21 25 (21 ) 11 419
Income (loss) from continuing operations:
2009 $ 512 $ 116 $ 71 $ (34 ) $ (7 ) $ 658
2008 653 35 58 (13 ) 16 749
Income(loss)fromdiscontinuedoperations:
2009 $ $ $ $ (1 ) $ $ (1 )
2008 (1 ) (1 )
Net income (loss):
2009 $ 512 $ 116 $ 71 $ (35 ) $ (7 ) $ 657
2008 653 35 58 (14 ) 16 748
Total assets:
June 30, 2009 $ 22,125 $ 20,007 $ 9,107 $ 5,882 $ (8,142 ) $ 48,979
December 31, 2008 20,355 19,237 9,169 5,992 (6,936 ) 47,817
(a)
For the three months ended June30, 2009 and 2008, utility taxes of $42million and $55million, respectively, are included in revenues and expenses for ComEd. For the three months ended June30, 2009 and 2008, utility taxes of $61million and $65million, respectively, are included in revenues and expenses for PECO.
(b)
The intersegment profit associated with Generations sale of RECs to ComEd and AECs to PECO is not eliminated in consolidation due to the recognition of intersegment profit under the provisions of SFAS No.71, Accounting for the Effects of Certain Types of Regulation.See Note 3 Regulatory Issues for additional information on RECs and AECs.
Six Months Ended June30, 2009 and 2008
Exelons segment information for the six months ended June30, 2009 and 2008 is as follows:
Generation ComEd PECO Other Intersegment Eliminations Consolidated
Total revenues(a):
2009 $ 4,979 $ 2,942 $ 2,718 $ 391 $ (2,167 ) $ 8,863
2008 |
| 17. Related-Party Transactions (Exelon, Generation, ComEd and PECO) |
17.Related-Party Transactions (Exelon, Generation, ComEd and PECO)
Exelon
The financial statements of Exelon include related-party transactions as presented in the tables below:
ThreeMonthsEnded June 30, SixMonthsEnded June 30,
2009 2008 2009 2008
Operating revenues from affiliates
ComEd Transitional Funding Trust(a) $ $ 1 $ $ 2
PETT 1 1 2 3
ComEd(b) 4 4
PECO(b) 2 2
Total operating revenues from affiliates $ 7 $ 2 $ 8 $ 5
Fuel purchases from related parties
Keystone Fuels, LLC $ 13 $ 17 $ 30 $ 32
Conemaugh Fuels, LLC 16 13 35 26
Total fuel purchases from related parties $ 29 $ 30 $ 65 $ 58
Interest expense to affiliates, net
ComEd Transitional Funding Trust(a) $ $ 1 $ $ 5
ComEd Financing II(c) 2
ComEd Financing III 3 3 7 7
PETT 14 27 32 55
PECO Trust III 2 2 3 3
PECO Trust IV 1 1 3 3
Other 1 (1 )
Total interest expense to affiliates, net $ 21 $ 34 $ 44 $ 75
Equity in earnings (losses) of unconsolidated affiliates and investments
ComEd Funding LLC(a) $ $ (3 ) $ $ (5 )
PETT (6 ) (4 ) (12 ) (7 )
NuStart Energy Development, LLC (1 ) (1 ) (1 )
Other (1 )
Total equity in earnings (losses) of unconsolidated affiliates and investments $ (6 ) $ (8 ) $ (14 ) $ (13 )
(a)
In the fourth quarter of 2008, ComEd fully paid its long-term debt obligations to the ComEd Transitional Funding Trust and received its current receivable from the ComEd Transitional Funding Trust. ComEd Funding LLC liquidated its investment in the ComEd Transitional Funding Trust and ComEd liquidated its investment in ComEd Funding LLC.
(b)
The intersegment profit associated with Generations sale of RECs to ComEd and AECs to PECO is not eliminated in consolidation due to the recognition of intersegment profit under the provisions of SFAS No.71, Accounting for the Effects of Certain Types of Regulation.See Note 3 Regulatory Issues for additional information on RECs and AECs.
(c)
ComEd Financing II was liquidated and dissolved upon repayment of the debt in 2008.
As of June30, 2009 As of December31, 2008
Investments in affiliates
ComEd Financing III $ 6 $ 6
PETT 17 30
PECO Energy Capital Corporation 4 4
PECO Trust IV 5 5
Total investments in affiliates $ |
| 18. Subsequent Events (Exelon and PECO) |
18.Subsequent Events (Exelon and PECO)
On July17, 2009, the City of Philadelphia informed Pennsylvania lawmakers that, due to the State budget impasse, the City is forced to delay spending on anything other than employee compensation, debt service, and emergencies. This means that all payments to vendors and suppliers will be delayed until the passage of the State budget and passage of legislation authorizing an increase in the Citys sales tax and changes to its pension payments. As of July17, 2009, PECO had approximately $16 million in outstanding receivables due from the City of Philadelphia. As this is currently anticipated to solely be a delay in receiving payment from the City, PECO has not increased its allowance for doubtful accounts associated with this matter at this time. |
