UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
January 12, 2001
(Date of earliest
event reported)
COMMONWEALTH EDISON COMPANY
(Exact name of registrant as specified in its charter)
ILLINOIS 1-1839 36-0938600
(State or other (SEC (IRS Employer
jurisdiction of file number) Identification
incorporation) Number)
37th Floor, 10 South Dearborn Street
Post Office Box 767
Chicago, Illinois 60690-0767
(Address of principal executive offices)
Registrant's telephone number, including area code:
(312) 394-4321
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 12, 2001, Exelon Corporation (Exelon) restructured the operations of
Commonwealth Edison Company's (ComEd) generation and wholesale power marketing
businesses into a newly formed subsidiary of Exelon.
Under the new business structure, Exelon serves as the holding company for a
group of subsidiaries. The corporate restructuring separates ComEd's regulated
energy delivery business from its generation and wholesale power marketing
businesses. The operations of ComEd's regulated energy delivery business
continue to operate and be identified as ComEd. The restructuring created Exelon
Ventures Company, LLC, which is comprised of competitive businesses and assets,
including Exelon Generation Company, LLC (Exelon Generation) and Exelon
Enterprises, LLC. The restructuring also created an Exelon subsidiary, Exelon
Business Services Company, which provides a full range of support services such
as legal, human resources and financial services to Exelon business units.
The restructuring transaction involved a transfer of generating and wholesale
power marketing assets and liabilities, "Transferred Assets", at book value, to
Exelon Generation. The transfer did not produce any proceeds for ComEd. The
transfer was accomplished by making a capital contribution of the Transferred
Assets to Exelon Generation, in return for ComEd common stock. The merger of
Unicom Corporation (Unicom), ComEd's pre-merger parent company, and PECO Energy
Company (PECO) resulted in significant goodwill being recorded on ComEd's books,
thereby significantly increasing the equity component of ComEd's capital
structure. The transfer of the Transferred Assets resulted in a capital
structure reasonably comparable to that which ComEd had prior to the merger and
Transferred Assets transfer. The exact value of the transferred Transferred
Assets will be based on the actual net book value at December 31, 2000.
In connection with the transfer, ComEd will enter into a purchase power
agreement (PPA) with Exelon Generation. Under the terms of the PPA, ComEd will
obtain all of its power supply from Exelon Generation through 2004. In 2005 and
2006, ComEd will obtain all of its power supply from Exelon 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, will obtain all of its supply from market sources, which
could include Exelon Generation. Also under the terms of the transfer, ComEd
will assign its rights and obligations under various purchase power agreements
and fuel supply agreements to Exelon Generation. Exelon Generation will supply
power to ComEd from the transferred nuclear generating plants, assigned
purchased power agreements, and other market sources. The PPA sets forth a
schedule of energy prices for the full term of the agreement.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro Forma Unaudited Financial Information
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The purpose of the unaudited pro forma consolidated condensed financial
statements and description of the pro forma adjustments is to reflect the
transfer of ComEd's generation and wholesale power marketing businesses to
Exelon Generation. The unaudited pro forma consolidated condensed financial
statements include adjustments to ComEd's assets and liabilities to reflect fair
value, as required under purchase accounting, upon consummation of the merger of
Unicom and PECO completed on October 20, 2000. The historical consolidated
financial statements of ComEd have been adjusted to give effect to the
annualized continuing impacts of the transfer. The exact value of the
Transferred Assets will be based on the actual book value at December 31, 2000.
The pro forma adjustments are reflected in the unaudited consolidated condensed
pro forma balance sheet as if they occurred on September 30, 2000. The unaudited
pro forma consolidated condensed statements of income for the nine months ended
September 30, 2000 and for the year ended December 31, 1999 assume that these
transactions were completed on January 1, 1999.
In addition, the unaudited pro forma consolidated condensed financial statements
reflect pro forma adjustments to give effect to the annualized continuing
impacts of the sale of ComEd's fossil generating plants, completed on December
15, 1999, and the annualized effects of Unicom's issuance of securitization
notes and related use of proceeds. These pro forma adjustments were included in
Exelon's Current Report on Form 8-K/A dated October 20, 2000.
The following unaudited pro forma consolidated condensed financial statements
should be read in conjunction with ComEd's consolidated historical financial
statements and related notes which are included in ComEd's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000 and ComEd's Current Report on
Form 8-K dated March 30, 2000 incorporated by reference into its Annual Report
on Form 10-K for the year ended December 31, 1999.
The following unaudited pro forma consolidated condensed financial statements
are for illustrative purposes only. They are not necessarily indicative of the
financial position or operating results that would have occurred had these
transactions been completed on January 1, 1999 or September 30, 2000, as assumed
above; nor is the information necessarily indicative of future financial
position or operating results. Results of operations and financial position in
the first year after consummation could differ significantly from the unaudited
pro forma consolidated condensed financial statements, which are based on past
operations. Future operations will be affected by various factors including
operating performance, energy market developments and other matters.
The December 31, 1999 and September 30, 2000 historical financial statements of
ComEd were derived from audited financial statements but do not include all
disclosures required by Generally Accepted Accounting Principles.
COMMONWEALTH EDISON COMPANY
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(Millions)
ComEd ComEd Genco
Fossil Sale Securitization Merger Transfer
Pro Forma Pro Forma Pro Forma Pro Forma ComEd
As Filed Adjustments (1) Adjustments (2) Adjustments (3) Adjustments (4) Pro Forma
-------- --------------- --------------- --------------- --------------- ---------
Operating Revenues $ 6,767 $ -- $ -- $ -- $ (496) $ 6,271
------- ------- ------- ------- ------- -------
Operating Expenses
Fuel and Energy Interchange $ 1,549 $ 257 $ -- $ -- $ 959 $ 2,765
Operation and Maintenance 2,316 (271) -- 45 (1,119) 971
Depreciation and Amortization 836 26 113 (215) (164) 596
Goodwill Amortization -- -- -- 120 -- 120
Taxes Other Than Income Taxes 506 (16) -- -- (111) 379
------- ------- ------- ------- ------- -------
Total Operating Expenses $ 5,207 $ (4) $ 113 $ (50) $ (435) $ 4,831
------- ------- ------- ------- ------- -------
Operating Income $ 1,560 $ 4 $ (113) $ 50 $ (61) $ 1,440
------- ------- ------- ------- ------- -------
Other Income and (Deductions)
Interest Expense $ (524) $ -- $ 20 $ -- $ 13 $ (491)
Preferred and Preference Stock
Dividends (53) -- 10 -- -- (43)
Other, net (30) -- -- (22) 20 (32)
------- ------- ------- ------- ------- -------
Total Other Income and
Deductions $ (607) $ -- $ 30 $ (22) $ 33 $ (566)
------- ------- ------- ------- ------- -------
Income Before Income Taxes
and Extraordinary Item $ 953 $ 4 $ (83) $ 28 $ (28) $ 874
Income Tax Expense 326 4 (37) 75 (11) 357
------- ------- ------- ------- ------- -------
Income Before Extraordinary Item $ 627 $ -- $ (46) $ (47) $ (17) $ 517
======= ======= ======= ======= ======= =======
COMMONWEALTH EDISON COMPANY
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
(Millions)
Merger Transfer
Pro Forma Pro Forma ComEd
As Filed Adjustments (3) Adjustments (4) Pro Forma
-------- --------------- --------------- ---------
Operating Revenues $ 5,343 $ -- $ (715) $ 4,628
------- ------- ------- -------
Operating Expenses
Fuel and Energy Interchange $ 1,585 $ -- $ 398 $ 1,983
Operation and Maintenance 1,521 32 (776) 777
Depreciation and Amortization 822 (161) (125) 536
Goodwill Amortization -- 90 -- 90
Taxes Other Than Income Taxes 400 -- (88) 312
------- ------- ------- -------
Total Operating Expenses $ 4,328 $ (39) $ (591) $ 3,698
------- ------- ------- -------
Operating Income $ 1,015 $ 39 $ (124) $ 930
------- ------- ------- -------
Other Income and (Deductions)
Interest Expense $ (364) $ -- $ 30 $ (334)
Preferred and Preference Stock Dividends (25) -- -- (25)
Other, net 176 (17) (2) 157
------- ------- ------- -------
Total Other Income and Deductions $ (213) $ (17) $ 28 $ (202)
------- ------- ------- -------
Income Before Income Taxes
and Extraordinary Item $ 802 $ 22 $ (96) $ 728
Income Tax Expense 221 56 (38) 239
------- ------- ------- -------
Income Before Extraordinary Item $ 581 $ (34) $ (58) $ 489
======= ======= ======= =======
See accompanying Notes to Unaudited Pro Forma Condensed Financial Statements.
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
UNAUDITED PROFORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(In Millions)
Genco
Merger Transfer
Pro Forma Pro Forma ComEd
As Filed Adjustments (3) Adjustments Pro Forma
-------- --------------- ----------- ---------
ASSETS
Utility Plant (net) $ 12,436 $ (4,910) $ (631) (5) $ 6,895
-------- -------- -------- --------
Current Assets
Cash and Temporary Cash Investments $ 303 $ -- $ (70) (6) $ 233
Accounts Receivable, net 1,999 -- (196) (7) 1,803
Inventories, at average cost 253 65 (197) (8) 121
Other Current Assets 83 -- (7) (9) 76
-------- -------- -------- --------
$ 2,638 $ 65 $ (470) $ 2,233
-------- -------- -------- --------
Deferred Debits and Other Assets
Regulatory Assets $ 1,527 $ 120 $ -- $ 1,647
Goodwill -- 4,789 -- 4,789
Nuclear Decommissioning Funds 2,662 -- (2,662) (10) --
Investments and Other Property, net 107 -- (2) (11) 105
Other 2,507 (818) (11) (12) 1,678
-------- -------- -------- --------
$ 6,803 $ 4,091 $ (2,675) $ 8,219
-------- -------- -------- --------
TOTAL $ 21,877 $ (754) $ (3,776) $ 17,347
======== ======== ======== ========
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock Equity $ 4,512 $ 1,528 $ (1,835) (13) $ 4,205
Preferred and Preference Stock 7 -- -- 7
Company Obligated Mandatorily
Redeemable Preferred Securities 350 (21) -- 329
Long-Term Debt 7,060 (95) -- 6,965
-------- -------- -------- --------
$ 11,929 $ 1,412 $ (1,835) $ 11,506
-------- -------- -------- --------
Current Liabilities
Notes Payable $ 278 $ -- $ -- $ 278
Accounts Payable 800 150 (613) (14) 337
Accounts Payable to Genco - Current Liabilities -- -- 781 (15) 781
Other Current Liabilities 914 -- (168) (16) 746
-------- -------- -------- --------
$ 1,992 $ 150 $ -- $ 2,142
-------- -------- -------- --------
Deferred Credits and Other Liabilities
Deferred Income Taxes $ 3,388 $ (1,645) $ (269) (17) $ 1,474
Unamortized Investment Tax Credits 462 (401) -- 61
Nuclear Decomm Liab. For Retired Plants 1,288 -- (1,288) (18) --
Accounts Payable to Genco - Decomm Liab -- -- 823 (19) 823
Other 2,818 (270) (1,207) (20) 1,341
-------- -------- -------- --------
$ 7,956 $ (2,316) $ (1,941) $ 3,699
-------- -------- -------- --------
TOTAL $ 21,877 $ (754) $ (3,776) $ 17,347
======== ======== ======== ========
See accompanying Notes to Unaudited Pro Forma Condensed Financial Statements.
Commonwealth Edison Company and Subsidiary Companies
Notes to Unaudited Pro Forma Condensed Financial Statements
1. The ComEd fossil sale Pro Forma Adjustments for the Income Statement for
the Year Ended December 31, 1999 reflect the continuing impact of the sale
of ComEd's fossil generating plants which was completed in December 1999.
* Fuel and Energy Interchange: Reflects the elimination of fossil fuel
expense and the replacement impact of purchasing power under the power
purchase agreements entered into with the purchaser of the fossil assets at
the time of the fossil sale, as provided below (in millions):
Fossil Fuel Expense $ (616)
Energy Interchange Expense 873
----------
Total $ 257
==========
* Operation and Maintenance: Reflects the elimination of the fossil
generating plants operation and maintenance expenses.
* Depreciation and Amortization: Reflects the following (in millions):
Elimination of Fossil Plant Depreciation $ (73)
Additional Amortization of Regulatory Assets 99
----------
Total $ 26
==========
The ComEd pro forma adjustments reflecting the sale of ComEd's fossil
generating plants include increased regulatory asset amortization because
those adjustments on a prior-to-merger, pro forma basis would result in
ComEd's earnings exceeding the earnings cap provision of the Illinois
Public Utilities Act.
o Taxes Other Than Income Taxes: Reflects the elimination of real estate
and payroll taxes related to the ownership of the fossil plants.
The pro forma adjustments do not reflect the income effects of the
reinvestment of cash proceeds received from the fossil sale.
2. Reflects ComEd's purchase of approximately 26.3 million shares of ComEd
common stock that were subject to certain forward purchase contracts at
December 31, 1999. During 1999, ComEd entered into forward purchase
arrangements with Unicom for the repurchase of approximately 26.3 million
shares of ComEd common stock. The repurchase arrangements were settled in
January 2000 on a physical (i.e. shares) basis. Effective January 2000, the
share repurchases reduced outstanding shares and common stock equity. Prior
to the settlement, the repurchase arrangements were recorded as a
receivable on the Consolidated Balance Sheet of ComEd based on the
aggregate market value of the shares under the arrangements.
In addition, reflects adjustments to net interest expense and preferred and
preference stock dividends related to the use of securitization proceeds as
follows (in millions):
Pro forma adjustment to eliminate historical interest
expense associated with higher cost debt that was
repurchased $(20)
Pro forma adjustment to eliminate historical dividend
provisions associated with higher cost preferred and
preference stock that was repurchased $(10)
The ComEd Securitization pro forma adjustments include increased regulatory
asset amortization because those adjustments on a prior-to-merger, pro
forma basis would result in ComEd's earnings exceeding the earnings cap
provision of the Illinois Public Utilities Act.
3. Reflects the impacts of the PECO and Unicom merger (dollars in millions):
Utility Plant: Primarily reflects the fair value analyses of ComEd's
nuclear stations based on discounted cash flows and independent appraisals.
The $4.8 billion reduction to utility plant is estimated to reduce nuclear
depreciation expense by approximately $215 million annually. Also reflects
the reclassification of the Department of Energy's assessment for
decontamination and decommissioning of DOE enrichment facilities to
regulatory assets and a writedown of certain distribution plant.
Deferred Income Taxes: Represents the tax effect of purchase accounting
adjustments described above, except for goodwill.
Unamortized Investment Tax Credits: Represents the adjustment of ComEd's
nuclear plant investment tax credits to fair value. This adjustment is
estimated to reduce the amortization of the investment tax credits by
approximately $26 million annually.
Deferred Credits: Reflects elimination of unrecognized net actuarial gains,
unamortized prior service costs and transition obligations related to
pension benefits and post-retirement obligations totaling approximately
$459 million. The adjustments are estimated to increase pension benefits
and post-retirement benefit expense by approximately $26 million, annually.
The reduction of pension benefits and post-retirement obligations is offset
by the recognition of obligations for severance payments related to
employees of ComEd and for exiting the Midwest Independent System Operator,
an independent transmission Company in the development stage.
Long-Term Debt: Represents the adjustment of long-term debt including
transitional trust notes and Company Obligated Mandatorily Redeemable
Preferred Securities to fair value. The adjustment is estimated to increase
expense by approximately of $22 million in the first year, declining in
subsequent years.
Other: Represents miscellaneous fair value adjustments including
stock-based compensation costs for certain employees of ComEd not included
in the purchase price, material and supplies inventory and emission
allowances. These adjustments are estimated to increase operating expenses
by approximately $20 million in each of the first two years.
Goodwill: Represents the excess of purchase price over fair value of net
assets acquired.
Purchase Price.............................................. 5,973
Less: Book value of Unicom's net assets
as of October 20, 2000...................................... 3,663
------
Subtotal.................................................... 2,310
------
Increase (decrease) to goodwill for fair value adjustments to the following
assets acquired and liabilities assumed.
Nuclear Utility Plant $ 4,767
Deferred Income Taxes (1,645)
Unamortized Investment Tax Credits (401)
Deferred Credits (120)
Long-Term Debt (114)
Other (8)
-------
Net Fair Value adjustment ..................... 2,479
-------
Goodwill (amortized over 40 years)............. $4,789
=======
Also reflects the reduction of ComEd's common stock equity for the
reacquisition of $850 million of common stock in October 2000.
4. The Pro Forma Adjustments reflect the continuing impact of the transfer of
ComEd's nuclear generation and wholesale power marking businesses to Exelon
Generation and the purchase power agreement (PPA) between ComEd and Exelon
Generation for the year ended December 31, 1999 and the nine months ended
September, 2000.
The transfer agreement between ComEd and Exelon Generation includes the
assignment of ComEd's rights and obligations under various purchase power
agreements, including the agreement related to the sale of ComEd's fossil
stations.
Revenues:
Reflects off-system sales made by Exelon Generation after satisfying
ComEd's power supply requirements under the terms of the PPA and the
obligation of ComEd to collect decommissioning-related charges from its
customers payable to Exelon Generation which assumed responsibility for the
decommissioning of the transferred nuclear generating plants under the
terms of the transfer.
Fuel and Energy Interchange:
Reflects the elimination of fossil and nuclear fuel expense and purchased
power expense and the replacement impact of the PPA (in millions).
12 Months 9 Months
12/31/99 9/30/00
--------- --------
PPA Expense $2,765 $1,983
Fuel and Energy Interchange Expense (1,806) (1,585)
------- ------
Total $ 959 $ 398
======= ======
Operation and Maintenance:
Reflects the elimination of the nuclear generating plants and wholesale
power marketing operation and maintenance expenses.
Depreciation and Amortization:
Reflects the following (in millions).
12 Months 9 Months
12/31/99 9/30/00
--------- --------
Depreciation for nuclear generating plants
prior to fair market adjustment $ (379) $ (286)
Reduction to depreciation related to fair
market adjustment: 215 161
------ ------
Depreciation for nuclear generating plants
after fair market value adjustment $ (164) $ (125)
====== ======
Taxes Other Than Income Taxes:
Reflects the elimination of real estate and payroll taxes related to the
nuclear generation and wholesale power marketing businesses.
Interest Expense:
Reflects interest on spent nuclear fuel disposal fee less capitalized
interest.
5. Reflects the transfer of net utility plant at fair value as follows (in
millions):
Nuclear generating plant (net) $(2,146)
Accumulated provision for decommissioning 2,197
Nuclear fuel (net) (682)
-------
$ (631)
=======
6. Reflects an estimate of cash requirements at September 30, 2000. The actual
cash transfer will be determined based on available cash and cash
requirements at the transfer date.
7. Reflects the estimated off-system sales receivables transferred.
8. Reflects the estimated materials and supplies associated with the nuclear
generating stations and emission allowances inventories transferred.
9. Reflects the estimated amount of miscellaneous current assets transferred.
10. Reflects the estimated nuclear decommissioning trust funds transferred.
11. Reflects the estimated amount of miscellaneous investments transferred.
12. Reflects the estimated amount of deferred debits transferred.
13. Reflects the estimated amount of ComEd common stock owned by Exelon
exchanged for ComEd's investment in Exelon Generation.
14. Reflects the estimated accounts payable transferred, including purchased
power, materials and supplies, contractor costs and employee payroll costs.
15. Reflects estimated amount of ComEd's accounts payable for compensation of
ComEd's current liabilities assigned to Exelon Generation.
16. Reflects the estimated amount of miscellaneous current and accrued
liabilities transferred.
17. Reflects the estimated accumulated deferred income taxes associated with
the nuclear generating plants and employee related obligations transferred.
18. Reflects the transfer of the estimated nuclear decommissioning liability
for retired plants.
19. Reflects ComEd's estimated obligation for compensation of ComEd's
decommissioning obligations assigned to Exelon Generation.
20. Reflects estimated amount of deferred credits including obligations for the
spent nuclear fuel disposal fee and the assessment for decontamination and
decommissioning of DOE enrichment facilities transferred.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Commonwealth Edison Company
/S/ Robert E. Berdelle
-----------------------------
Robert E. Berdelle
Vice President and
Chief Financial Officer
January 29, 2001