UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
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, 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
Number Principal Executive Offices; and Telephone Number Identification Number
- --------------------- --------------------------------------------------------- -------------------------
1-16169 EXELON CORPORATION 23-2990190
(a Pennsylvania corporation)
10 South Dearborn Street - 37th Floor
P.O. Box 805379
Chicago, Illinois 60680-5379
(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)
10 South Dearborn Street - 37th Floor
P.O. Box 805379
Chicago, Illinois 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 pursuant to Section 12(g) of the Act:
PECO ENERGY COMPANY:
Cumulative Preferred Stock, without par value: $7.48 Series and $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] 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. [ ]
The estimated aggregate market value of the voting and non-voting
common equity held by nonaffiliates of the registrants as of March 1, 2001, was
as follows:
Exelon Corporation Common Stock, without par value $20,986,864,596
PECO Energy Company Common Stock, without par value None
Commonwealth Edison Company 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 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 Exelon Corporation's Current Report on Form 8-K dated March
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 this Annual Report on Form 10-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, 2001, relating to its annual meeting of
shareholders, are incorporated by reference into Part III of this Annual Report
on Form 10-K.
This combined Form 10-K is separately filed by Exelon Corporation, PECO
Energy Company and Commonwealth Edison Company. Information contained herein
relating to any individual registrant is filed by such registrant in its own
behalf. Each registrant makes no representation as to information relating to
the other registrants.
TABLE OF CONTENTS
PART 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 PECO......25
ITEM 2. PROPERTIES..................................................28
ITEM 3. LEGAL PROCEEDINGS...........................................30
ITEM 4. SUBMISSION OF MATTERS 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 8-K.....................................111
SIGNATURES...............................................................125
PART I
ITEM 1. BUSINESS.
General
Exelon Corporation, a Pennsylvania corporation (Exelon), was
incorporated in February 1999. On October 20, 2000, Exelon became the parent
corporation for each of PECO Energy Company (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, among PECO, Unicom
Corporation (Unicom) and Exelon. PECO and ComEd, which was a subsidiary of
Unicom, became the principal utility subsidiaries of Exelon through a mandatory
exchange of each share of outstanding common stock of PECO for one share of
common stock of Exelon and a merger of Unicom into Exelon. In the merger,
holders of Unicom common stock received 0.875 shares of Exelon common stock plus
$3.00 in cash for each of their shares of Unicom common stock. The merger
transaction was accounted for as a purchase of Unicom by PECO.
Exelon, 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 restructuring, 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 of
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 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 restrictions 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 some
circumstances in the case of ComEd and PECO, the ICC or the PUC, respectively.
Exelon currently has SEC approval to issue up to an aggregate of $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 Exelon may make. With limited
exceptions, Exelon may only engage in traditional electric and gas utility
businesses and other businesses that are reasonably incidental or economically
necessary or appropriate to the operations of the utility business. The
exceptions 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 in the aggregate), in
energy-related companies (as defined in SEC rules, and subject to a cap on these
investments of 15% of Exelon's consolidated capitalization), and in other
businesses, subject to SEC approval. In addition, PUHCA requires that all 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 engaged principally in the purchase, 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 Code. 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
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 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 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
1,475 square mile area in southeastern Pennsylvania adjacent to Philadelphia,
with a population of 1.9 million.
PECO has the necessary franchise rights to furnish electric and gas
service in the various municipalities or territories in which it now supplies
such services. PECO's franchise rights, which are generally nonexclusive rights,
consist of charter rights and certificates of public convenience issued by the
PUC and/or "grandfather rights". Such franchise rights are generally unlimited
as to 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
case of ComEd, the assets and liabilities 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 generation service provided by ComEd and PECO are
subject to rate caps during the transition 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 allows
the purchase of electric energy from ComEd at market-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 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 an alternative supplier or
elect the power purchase option during a transition period that extends through
2006. The CTC, which was established as of October 1, 1999 and is applied on a
cents per kWh basis, considers the revenue that 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 that might otherwise be unrecoverable
under market-based rates.
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 result in defined transmission and distribution
expenditures by ComEd to improve electric service in Chicago. The Illinois
legislation also committed ComEd to spend at least $2 billion during the period
1999 through 2004 on transmission and distribution facilities outside of
Chicago. In addition, ComEd conducted an extensive evaluation of the reliability
of its transmission and distribution systems in response to several outages in
the summer of 1999. As a result of the 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 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 base
rate freeze will generally preclude rate recovery on and of such investments
prior to January 1, 2005. Unless ComEd can offset the additional carrying costs
against cost savings, its return on investment will be reduced during the period
of the rate freeze and 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 seek relief from these provisions from the ICC where the
utility can show that the cause of the outage was unpreventable damage due to
weather events or conditions, customer tampering or third party causes.
The Illinois 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 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 issued $3.4
billion of notes. For additional information, see Related Entities below and
ITEM 8. Financial Statements and Supplementary Data - Exelon, Note 15 of Notes
to Consolidated Financial Statements.
PECO. Retail competition for electric generation services began in
Pennsylvania on January 1, 1999, and 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 $1 billion of its 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 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
extended the rate cap on distribution rates through December 31, 2006.
PECO has been authorized to recover stranded costs of $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 the 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 recover their allowed stranded costs,
the Competition Act provides for the imposition 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 utility's transmission and distribution system, they will be
assessed regardless of whether such customer purchases electricity from the
utility or an alternate electric generation supplier. The Competition Act
provides, however, that the utility's right to collect CTCs is contingent on the
continued operation at reasonable availability levels of the assets for which
the stranded costs were awarded, except where continued operation is no longer
cost efficient because of the transition to a competitive market.
The following table shows the estimated average levels of stranded cost
recovery and the amortization of the remaining portion of PECO's authorized
stranded cost recovery ($5.2 billion at December 31, 2000) for the years 2001
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
- ----------------------------------
<FN>
(1) Subject to reconciliation of actual sales and collections.
(2) Subject to periodic adjustments for over- or under- recovery.
</FN>
Under the Competition Act, licensed entities, including alternate
electric generation suppliers, may act as agents to provide a single bill and
provide associated billing and collection services to retail customers located
in PECO's retail electric service territory. In that event, the alternative
supplier or other third party replaces the customer as the obligor 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 transition bonds through a special purpose financing
entity. In 2000, PECO securitized an additional $1 billion of its 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 generally
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 power 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 PJM 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 other transmission
owners in PJM have turned over control of their transmission facilities to the
ISO. The PJM ISO and the transmission owners who are members of PJM, 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
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 Pennsylvania 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
largest wholesale power marketers in North America. Power Team manages the
output of Generation's resources to meet the load requirements of ComEd and 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 "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
Midwest (approximately 45% of capacity) and the Mid Atlantic regions
(approximately 55% of capacity). AmerGen's generating resources are also in the
Midwest 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 16 units with 13,949 MW of capacity (Exelon share). For
additional information, see ITEM 2. Properties. All of the nuclear generating
stations are operated by Generation, with the exception of Salem Generating
Station (Salem), which is operated by PSE&G Nuclear, LLC. In addition, AmerGen
owns and operates three nuclear generating stations, consisting of three units
with 2,378 MW of capacity.
In 2000, approximately 59% of Exelon's electric output (including
output of ComEd prior to the merger) 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 94% and 89%,
respectively.
11
Generation is in the process of increasing the capacity of its nuclear
fleet 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 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 purchase of Atlantic City Electric Company's
ownership interest is still pending regulatory approval, which is expected in
2001.
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 Waste Disposal. There are no commercial facilities for the
reprocessing of spent nuclear fuel (SNF) currently in operation in the United
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 provide for disposal 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 nuclear
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 possibility of continuing 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 utilities with nuclear reactors pay for the decommissioning and
decontamination of the DOE nuclear fuel enrichment facilities. The total costs
to domestic utilities are estimated to be $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 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 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 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. 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 nuclear
generating facilities demonstrate reasonable assurance that funds will be
available in certain minimum amounts at the end of the life of the facility to
decommission the facility. 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 meet 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 25% 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
normally 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 remaining months inventory
levels are managed to take advantage of favorable market pricing. Generation
obtains natural gas for electric generation through a combination of long-term
and short-term contracts and spot purchases as well as through PECO's own retail
gas tariff.
Power Team
Generation competes in the wholesale 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 purchase, 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 generating stations in the United
States. Generation and British 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 net growth rate of 2% in
18
accordance with NRC regulations. AmerGen believes that the amount of the trust
funds and investment earnings thereon will be sufficient to meet its
decommissioning obligations.
Enterprises
Enterprises combines the competitive businesses formerly held by PECO
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, Massachusetts, 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 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 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, 2001, Exelon and its subsidiaries had approximately
29,000 employees, including 2,700 employees at PECO and 8,000 employees at
ComEd. The number of employees does not 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 collective bargaining agreement with Local 15 expires on
March 31, 2001. Negotiations are ongoing 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 International Brotherhood of Electrical Workers. The
remaining union employees are members of a number of different local unions,
including laborers, welders, operators, plumbers and machinists.
Environmental Regulation
General
Specific operations of Exelon, primarily those of Generation, 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 Exelon operates its facilities. The Illinois Pollution
Control Board (IPCB) has jurisdiction over environmental control in the State of
Illinois, together with the Illinois Environmental Protection Agency, which
enforces regulations of the IPCB and issues permits in connection with
environmental control. The Pennsylvania 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 Federal statutes relating to such
matters.
Water
Under the Federal Clean Water Act, National Pollutant Discharge
Elimination System (NPDES) permits for discharges into waterways are required to
be obtained from the EPA or from the state environmental agency to which the
permit program has been delegated. Those permits must be renewed periodically.
Generation either has NPDES permits for all of its generating stations or has
pending applications for such permits. Generation is also subject to the
jurisdiction of certain other 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 1980, as amended (CERCLA), provides for immediate response and removal
actions coordinated by the EPA in 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 strictly, jointly and
severally liable for the cleanup costs of waste at sites, most of which are
listed by the EPA on the National Priorities List (NPL). These potentially
responsible parties (PRPs) can be ordered to perform a cleanup, can be sued for
costs associated with a EPA-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. Various states, including Illinois, have enacted statutes
that 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 their subsidiaries are or are likely to
become parties to proceedings initiated by the EPA, state agencies and/or other
responsible parties under CERCLA and RCRA with respect to a number of sites,
including manufactured gas plant (MGP) sites, or may voluntarily undertake to
investigate and remediate sites for which they may be liable.
By notice issued in November 1986, the EPA notified over 800 entities,
including PECO and ComEd, that they may be PRPs under 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 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.
Similarly, 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 existence and nature of the contamination, detailed
evaluation to determine the extent of the contamination and the necessity and
possible methods of remediation, 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 litigation at the D.C. Circuit
Court of Appeals, 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 the 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 costs that can be reasonably estimated, including
approximately $140 million for investigation and remediation of former MGP sites
as described above. Exelon cannot currently predict whether it will incur other
significant 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 issuing 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 of 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 Transition Bonds, sold by
PECO to PETT.
PECO Energy Capital Corp., a wholly owned subsidiary of PECO, is the
sole general partner of PECO Energy Capital, L.P., a Delaware limited
partnership (Partnership). The Partnership was created solely for the purpose of
issuing preferred securities, representing limited partnership interests and
lending 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 the Partnership. The
only revenues of the Partnership are interest on the Subordinated Debentures.
All of the operating expenses of the Partnership are paid by PECO Energy Capital
Corp. As of December 31, 2000, the Partnership held $128.1 million aggregate
principal amount of the Subordinated 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 aggregate amount of $4 million.
Expenses of Trust 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 are
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 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.
Executive Officers of the Registrants at December 31, 2000
Exelon
Age at
Name Dec. 31, 2000 Position
- ---- ------------- --------
McNeill, Jr., Corbin A................61 Co-Chief Executive Officer and Chairman
Rowe, John W..........................55 Co-Chief Executive Officer and President
Egan, Michael J.......................47 Executive Vice President
Kingsley Jr., Oliver D................58 Executive Vice President
Strobel, Pamela B.....................48 Executive Vice President
Gillis, Ruth Ann M....................46 Senior Vice President and Chief Financial Officer
McLean, Ian P.........................51 Senior Vice President
Mehrberg, Randall E...................45 Senior Vice President and General Counsel
Moler, Elizabeth A....................51 Senior Vice President, Government Affairs-Federal
Padron, Honorio J.....................48 Senior Vice President
Snodgrass, S. Gary....................49 Senior Vice President and Chief Human Resources Officer
Gibson, Jean..........................44 Vice President and Corporate Controller
ComEd
Age 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, Exelon
Kingsley Jr., Oliver D. ..............58 Executive Vice President, Nuclear and Chief Nuclear Officer, ComEd
Strobel, Pamela B. ...................48 Executive Vice President, Energy Delivery, Exelon and Vice Chairman, ComEd
Clark, Frank M. ......................55 Senior Vice President, Distribution Customer and Marketing Services and External
Affairs, ComEd
Gillis, Ruth Ann M....................46 Senior Vice President, Finance and Chief Financial Officer, Exelon
Helwig, David R.......................50 Senior Vice President, Operations, ComEd
McLean, Ian P.........................51 Senior Vice President, Power Team, ComEd
Mehrberg, Randall E...................45 Senior Vice President and 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 Controller, Exelon
25
PECO
Age at
Name Dec. 31, 2000 Position
- ---- ------------- --------
McNeill, Jr., Corbin A. ..............61 President, Co-Chief Executive Officer and Chairman, 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, Exelon
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 Controller, Exelon
Each of the above executive officers was elected to such office
effective October 20, 2000, the closing date of the merger, except for Randall
E. Mehrberg, who was elected effective December 1, 2000.
Each of the above executive officers holds such office at the
discretion of the respective companys' board of directors until his or her
replacement or earlier resignation, retirement or death.
Prior to his election to his current position, Mr. McNeill was Chairman
of the Board, President and Chief 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 his election to his current position, Mr. Rowe was Chairman,
President and Chief 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
Tennessee Valley Authority.
Prior to her election to her current position, Ms. Strobel was
Executive Vice President and General Counsel of ComEd and Unicom; 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 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 substations and a portion of the transmission rights of
way of ComEd and PECO 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
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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.
The principal plants and properties of PECO are subject to the lien of
PECO's Mortgage dated May 1, 1923, as amended and supplemented, under which
PECO's first mortgage bonds are issued.
29
Generation
The following table sets forth Generation's owned net electric
generating capacity by station at January 1, 2001:
Net Generating Capacity
(1) (Kilowatts) Estimated
Station Location Retirement Year
- --------------------------- -------------------------------- --------------------------- --------------------
Nuclear(2)
Braidwood Braidwood, IL 2,308,000 2026, 2027
Byron Byron, IL 2,304,000 2024, 2026
Dresden Morris, IL 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 Cordova, IL 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
============
<FN>
(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 and
Salem which are pressurized water reactors.
(3) Generation's portion.
(4) Retirement dates are under on-going review. Current plans call for the
continued operation of these units beyond 2001.
</FN>
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.
Exelon and its subsidiaries maintain property insurance against loss or
damage to its principal plants and properties by fire or other perils, subject
to certain exceptions. For information regarding nuclear insurance, see ITEM 1.
Business - Generation. Exelon and its subsidiaries are 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 consolidated financial
condition and 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 Chapter 11 Trustee for the Cajun
Electric Power Cooperative Inc. 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 purchase Cajun's
interest in the River Bend nuclear power plant. In the complaint, RUS seeks the
full purchase price of the 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 termination. On February
24, 2000, PECO and the plaintiffs filed 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 tax appeals regarding two of its nuclear
facilities, Limerick Generating Station (Montgomery County, PA) and Peach Bottom
(York County, PA). The Board of Assessment Appeals of Montgomery County has
reduced the assessment of Limerick from $939 million to $912 million. Assessors
in York County have valued Peach Bottom at $303 million. Primarily because of
decommissioning costs inherent in the property 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
Montgomery County taxing authorities entered into a stipulation and interim
settlement agreement providing for partial payment of taxes pending the
determination of the appeal. Generation and the York County taxing authorities
are negotiating a stipulation and interim settlement agreement. Generation does
not believe the outcome of these matters will have a material adverse effect on
Generation's results of operations or financial condition.
ComEd
Three of ComEd's wholesale municipal customers filed a complaint and
request for refund with FERC alleging that ComEd failed to properly adjust its
rates, as provided for under the terms of the electric 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 rehearing. On January 11, 2001, FERC issued its Order on
Rehearing Requesting Submission of Additional Information. Responsive pleadings
have been filed by all parties and final FERC action is still pending. ComEd's
management believes an adequate reserve has been established in connection with
the case.
In August 1999, three class action lawsuits were filed, and
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 that occurred in the summer of
1999. The combined effect of these interruptions resulted in over 168,000
customers losing service for more than four hours. Conditional class
certification has been approved by the Court for the sole purpose of exploring
settlement talks. A hearing on a motion filed by ComEd to dismiss the complaints
is scheduled for April 2001. A portion of any settlement or verdict may be
covered by insurance and discussions with the carrier are ongoing. ComEd's
management believes adequate reserves have been established in connection with
these cases.
In 1999, the ICC opened an investigation regarding the design and
reliability of ComEd's transmission and distribution system, 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 summer 1999 outages as well as the transmission and
distribution 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
early 2001, and the investigation is expected to conclude 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 remote.
The Illinois Department of Revenue (Department) has issued Notices of
Tax Liability to ComEd alleging deficiencies in Illinois invested capital tax
for the years 1988 through 1997. The alleged deficiencies including interest and
penalties totaled approximately $54 million as of December 31, 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
Department's Office of Administrative Hearings. Interest will continue to accrue
on the alleged tax deficiencies.
In 1996, several developers of non-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 constitutions, 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 difference between the state-subsidized rate and the amount
(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 they
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 this Item with respect to market
information relating to Exelon's common stock is incorporated herein by
reference to "Market for Registrant's Common Equity and Related Stockholder
Matters" 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 Retained 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 common 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
PECO and ComEd during 2000 and 1999:
- ---------------------------------------------------------- ---------------------------------------------
2000 1999
- ---------------------------------------------------------- ---------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ----------------------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
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
- ----------------------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
32
Exelon did not pay any cash dividends. The Board of Directors of Exelon
has announced its intention, subject to approval and declaration by the Board of
Directors each quarter, to declare annual dividends on its common stock of $1.69
per share.
ITEM 6. SELECTED FINANCIAL DATA.
Exelon
The information required by this Item 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 audited financial statements of PECO. This data is qualified in
its entirety by reference to, and should be read in conjunction with PECO's
Consolidated Financial Statements and Management's Discussion and Analysis of
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 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 1. Business and
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation - 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 non-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 non-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 lower margins due to the unplanned return of
certain 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 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 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
million, net of tax) related to prepayment premiums and the write-off of
unamortized 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 the write-off of
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
June 2, 1999, and through December 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 revenues 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
the Transition 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 information for the period
after the merger has a different cost basis than that of previous periods.
Management has based its discussion and analysis of results of operations for
2000 as compared to 1999 on 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 other competitive
businesses from its regulated energy delivery business. As part of the
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 power purchase option allows the purchase of
electric energy from ComEd at market-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, elected to receive their electric energy
from an alternative electric supplier or chose the power purchase option. For
additional information, see ITEM 1. Business - Energy Delivery and ITEM 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation - Exelon.
Significant Operating Trends
Percentage of Total Operating Revenue Percentage Dollar Changes
- -------------------------------------- ---------------------------
2000 1999 1998 2000 vs.1999 1999 vs.1998
---- ---- ---- ------------ ------------
100% 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%
=== ==== -===
N.M. - not meaningful
45
Results of Operations
Year Ended December 31, 2000 Compared To Year Ended December 31, 1999
Net Income
Net Income increased $128 million, or 20% in 2000, before giving effect
to extraordinary items and non-recurring items. Net income, inclusive of the $4
million and $28 million extraordinary items for 2000 and 1999, respectively, and
non-recurring items relating to merger-related costs of $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
2000 1999 $ Variance % Variance
---- ---- ---------- ----------
(in millions, except percentage data)
Generation Stations $ 738 $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)%
====== ====== =====
The decrease in operating and maintenance (O&M) expenses related to the
generation stations was primarily attributable to a $220 million reduction in
expenses as a result of the sale of the fossil generation stations in December
1999 and a $46 million reduction in expenses associated with shorter refueling
outages and fewer forced outages at nuclear generation stations.
The increase in O&M expenses associated with the transmission and
distribution system was primarily attributable to ComEd's increased efforts to
improve the reliability of its transmission and distribution system.
The decrease in O&M expenses associated with customer-related
activities was primarily attributable to non-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 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.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $162 million, or 19%,
to $998 million in 2000. The increase was primarily attributable to a $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 station 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 decrease in operating revenue was primarily
attributable to the impact of the 15% residential base rate reduction, which
took effect on August 1, 1998, of $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 primarily due to a 59% increase in
sales for resale which reflects increased availability of lower cost nuclear
generation.
Fuel and Purchased Power Expense
Fuel and purchased power expense was $1,549 million for 1999, a
decrease of $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 need 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 O&M expenses associated with the 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 and fewer forced outages at the
nuclear generation stations.
The increase in O&M expenses associated with ComEd's transmission and
distribution system was primarily attributable to ComEd's system improvement
initiatives in response to outages that occurred during the summer of 1999. The
increase also reflects service restoration and other outage-related costs
associated with the summer of 1999 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 collection problems encountered following the
implementation of a new customer information and billing system in July 1998.
The increase in other O&M expenses was primarily attributable to an
increase of $68 million in ComEd's estimated environmental liability for the
remediation of former manufactured gas plant sites, and a $25 million charge
resulting from the settlement of issues associated with the franchise agreement
between ComEd and the City of Chicago.
48
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $102 million, or 11% to
$836 million in 1999. The decrease was primarily attributable to the fossil
station sale. Consistent with the provisions of Illinois legislation, the
pre-tax gain on the fossil station sale of $2,587 million resulted in a
regulatory liability, which was used to recover regulatory assets. Therefore,
the gain on the sale, net of $43 million of amortization of investment tax
credits, was recorded as a regulatory liability in the amount of $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 million are
reflected in depreciation and amortization expense on ComEd's Consolidated
Statements of Income and resulted in a net reduction to depreciation and
amortization expense of $88 million.
Taxes 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 issuance of the transitional trust 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 forward share repurchase agreement in 1999, and
a $34 million decrease in gains on the disposal of assets, partially offset by
the $45 million increase 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
Cash flows provided by operations were $1,574 million, $1,245 million,
and $1,552 million in 2000, 1999, and 1998 respectively. The increase in cash
flows in 2000 was primarily attributable to an increase in cash generated from
operations and a non-recurring $250 million contribution to an environmental
trust in 1999.
49
Cash flows used in investing activities were $1,603 million in 2000
compared to cash flows provided by investing activities of $1,144 million in
1999 and cash flows used by investing activities of $1,135 million in 1998. The
decrease in cash flows in 2000 was primarily attributable to proceeds received
in connection with the sale of ComEd's fossil generation stations of $4,886
million in 1999, partially offset by $2,209 million of affiliate 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 forward repurchases in 1999 utilizing the proceeds from the issuance of
the transitional trust notes in 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 primarily to fund ComEd's capital
requirements, including construction, repayments of maturing debt and preferred
securities and the payment of dividends.
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, and 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
issuance of commercial paper and borrowings under bank credit facilities. ComEd,
along with Exelon and PECO, entered into a $2 billion unsecured revolving credit
facility with a group of banks. ComEd has a $200 million sublimit under this
364-day credit facility and expects to use the credit facility principally to
support its $200 million commercial paper program. This credit facility requires
ComEd to maintain a debt to total capitalization ratio of 65% or less (excluding
transitional trust notes). At December 31, 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, 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, 2000, 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 market rates at December 31, 2000.
The aggregate fair value of the 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 terminated at December 31, 2000, this estimated fair value
represents the amount to be paid by PECO to the counterparties.
The aggregate fair value of the Transition Bond derivative instruments
that would have resulted from a hypothetical 50 basis point increase in the spot
yield at December 31, 2000 is estimated to be $59 million. If the derivative
instruments had been terminated at December 31, 2000, this estimated fair value
represents the amount to be paid by the counterparties to PECO.
In February 2000, PECO entered into forward starting interest rate
swaps for a notional amount of $1 billion in anticipation of the issuance of $1
billion of Transition Bonds in the second quarter of 2000. In May 2000, PECO
settled these forward starting interest rate swaps and paid the counterparties
$13 million which was deferred and is being amortized over the life of the
Transition Bonds as an increase in 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 is in
relation to revenues 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. ComEd has
performed a sensitivity analysis to determine the net impact of a 10% decrease
in the average around-the-clock market price of electricity. Because the
decrease in revenues from customers electing the power purchase option is
significantly offset by increased CTC revenues, ComEd does not believe that its
exposure to such a market price decrease would be material.
Credit Risk
ComEd 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 its retail electric revenues. ComEd manages credit risk using credit and
collection policies which are regulated by the ICC.
Interest Rate 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 information required by this Item is incorporated herein by
reference to the 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; 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
For 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 Companies
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income
Year Ended December 31, 2000 1999 1998
- ----------------------- ---- ---- ----
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
(dollars in millions and shares in thousands)
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 End of Year 1,375 $137 1,375 $137 1,375 $137
Deferred Compensation
Balance at Beginning of Year $(3) $-- $--
Amortization 5 2 --
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
========== ========== ==========
See 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 supply 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 the 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
electric 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 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 preparation 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 delivered 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 a 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 equity during a period
except those resulting from investments by and distributions 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 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, PECO utilizes contracts for the
forward sale and purchase of energy to manage the utilization of its available
generating capability and provision of wholesale energy to its retail
affiliates. PECO also utilizes energy option contracts and energy financial swap
arrangements to limit the market price risk associated with the forward energy
commodity contracts. Through December 31, 2000, 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 derivative. In June 1999, the
FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective 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
other comprehensive income of $21 million. The adoption 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
current 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, the effects of the implementation
of SFAS No. 133 may differ from the amounts disclosed above.
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. 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 price 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 stock or assets of seven utility service contracting companies for
an aggregate purchase price of approximately $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 purchase method of accounting. The initial estimate
of the excess of purchase 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
========= ========= === ===
<FN>
(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.
</FN>
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 the 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 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 accident, insurance proceeds must first be
used for reactor stabilization and site decontamination. If the decision is made
to decommission the facility, a portion of the 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 be assessed up to $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 PECO's financial condition
and results of operations.
74
Additionally, 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 recoverable 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 depreciation 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, PECO held $440 million and $408 million,
respectively, in trust accounts which are included 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
$14 million were also recognized in accumulated depreciation in PECO's
Consolidated Balance Sheets at December 31, 2000 and 1999, respectively. PECO
believes that the amounts being recovered from customers through regulated rates
and earnings on nuclear decommissioning trust funds will be sufficient to fully
fund the unrecorded portion of its decommissioning obligation.
Under the Nuclear Waste Policy Act of 1982 (NWPA), the U.S. Department
of Energy (DOE) is responsible for the selection and development of repositories
for, and the disposal of, spent nuclear fuel and high-level radioactive waste
(SNF). PECO, as required by the NWPA, signed a contract with the DOE (Standard
Contract) to provide for disposal of SNF from their respective nuclear
generating stations. In accordance with the NWPA and the Standard Contract, PECO
pays the DOE one mill ($.001) per kilowatt-hour 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 the 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. The DOE's current estimate for opening an SNF facility is 2010.
This extended delay in SNF acceptance by the DOE 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 January 1998 as required by the Standard Contract. Under
that agreement, the DOE agrees to provide PECO with credits against PECO's
future contributions to the nuclear waste fund over the next ten years to
compensate PECO for SNF storage costs incurred as a result of the DOE's breach
of the contract. The agreement also provides that, upon PECO's 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 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 physical 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 use 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 generating units for a fixed 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 millions 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 the 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 the
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 deposited and
may be subject to additional 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 these 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 December 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 1,157 employees. The estimated cost of separation benefits was
77
approximately $47 million. Retirement benefits of approximately $78 million are
being paid to the retirees over their lives. All cash payments related to the
Early Retirement and Separation Program were funded through the assets of PECO's
Service Annuity Plan. The Early Retirement and Separation Program terminated on
June 30, 2000.
Litigation
Cajun Electric Power Cooperative, Inc. On May 27, 1998, the United States
Department of Justice, on behalf of the Rural Utilities Service and the Chapter
11 Trustee for the Cajun 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 purchase Cajun's interest in the River Bend nuclear power plant.
This action seeks the full purchase price of the 30% interest in the River Bend
nuclear plant, $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 material adverse
effect on PECO's results of operations or financial 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 performance of its business segments based on
Earnings Before Interest Expense and Income Taxes (EBIT). PECO's general
corporate expenses and certain non-recurring expenses are excluded from the
internal evaluation of reportable segment performance. General corporate
expenses include the cost of executive management, corporate accounting and
finance, information technology, risk management, human resources and legal
functions and employee benefits.
Energy Delivery consists of the retail electricity distribution and
transmission business in southeastern Pennsylvania and the natural gas
distribution business. Generation consists of electric generating facilities,
power marketing operations, and PECO's interests in Sithe and AmerGen.
Enterprises consists of competitive retail energy sales, energy and
infrastructure services, communications and related investments. An analysis and
reconciliation of PECO's business segment information to the respective
information in the consolidated financial statements are as follows:
78
Energy Intersegment
Delivery Generation Enterprises Corporate Revenues Consolidated
-------- ---------- ----------- ----------- --------- ------------
Revenues:
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
<FN>
(a) Includes non-recurring items of $248 million for merger-related expenses in
2000 and $125 million in 1998 for the Early Retirement and Separation Program.
</FN>
Equity in losses of communications investments of $45 million, $38
million, and $54 million for 2000, 1999, and 1998, respectively, are included in
the Enterprises business unit's EBIT. Equity in earnings (losses) of AmerGen of
$4 million and $(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 average 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
current liabilities in PECO's Consolidated Balance Sheets. The average annual
interest rate on this note for the period was 6.5%.
PECO incurred $45 million of merger costs that were directly associated
with the acquisition of Unicom on behalf of Exelon prior to the Share Exchange.
These costs consisted principally of investment banker, legal and 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 PECO considers
necessary for a fair presentation of 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 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----- ---- ----
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
<FN>
(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.
</FN>
22. 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 sources.
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 the risks
associated with nuclear insurance, decommissioning, spent fuel disposal and
energy 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 index
appearing under Item 14(a)(3)(i) present fairly, in all material respects, the
financial position of Commonwealth Edison Company and Subsidiary Companies
(ComEd) at December 31, 2000, and the results 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 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)(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 responsibility 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 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 audit provides a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, effective
October 20, 2000, Exelon Corporation acquired Unicom Corporation, the parent
company of ComEd, in a business combination accounted for as a purchase. As a
result of the acquisition, the consolidated financial information for the period
after the acquisition is presented on a different cost basis than that for the
periods before the acquisition and therefore, is not comparable.
PricewaterhouseCoopers LLP
Chicago, Illinois
January 30, 2001
81
Report Of Independent Public Accountants
To the Shareholders of Commonwealth Edison Company:
We have audited the accompanying consolidated balance sheet of
Commonwealth Edison Company (an Illinois corporation) and Subsidiary Companies
as of December 31, 1999, and the related consolidated statements of income, cash
flows, and changes in shareholders' equity and comprehensive income for each of
the two 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 financial statements referred to above present
fairly, in all material respects, the financial position of Commonwealth Edison
Company and Subsidiary Companies as of December 31, 1999, and the results of
their operations and their cash flows for each of the two 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)(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
82
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
------- | ------- ------- -------
| (In Millions)
|
|
Operating Revenues $ 1,310 | $ 5,702 $ 6,793 $ 7,150
Operating Expenses |
Fuel and Purchased Power 322 | 1,655 1,549 1,853
Operating and Maintenance 423 | 1,653 2,352 2,274
Merger-Related Costs 14 | 53 -- --
Depreciation and Amortization 130 | 868 836 938
Taxes Other Than Income 83 | 425 507 698
------- | ------- ------- -------
|
Total Operating Expenses 972 | 4,654 5,244 5,763
| ------- ------- -------
Operating Income 338 | 1,048 1,549 1,387
| ------- ------- -------
Other Income and Deductions |
Interest Expense (127) | (469) (602) (502)
Provision for Dividends on Company-Obligated |
Mandatorily Redeemable Preferred Securities of |
Subsidiary Trusts Holding Solely the Company's |
Subordinated Debt 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 $ 133 | $ 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, 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 $ 201 | $ 656 $ 1,540 $ 3,090
======= | ======= ======= =======
See Notes to Consolidated Financial Statements
84
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
- ----------------------- ---- ---- ----
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
(dollars in millions and shares in thousands)
Common Stock
Balance at Beginning of Year 214,238 $ 2,678 214,236 $ 2,678 214,228 $ 2,678
Conversion of $1.425 Preferred Stock 4 -- 2 -- 8 --
-------- -------- -------- -------- -------- --------
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
(from October 20, 2000 to December 31, 2000) 133
-------- -------- --------
Balance at End of Year $ 133 $ 433 $ 177
Treasury Shares
Balance at Beginning of Year 264 $ (27) 179 $ (7) -- $ --
Capital Stock Activity:
Repurchase of Common Stock 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 $ (27) 179 $ (7)
Accumulated Other Comprehensive Income
Balance at Beginning of Year $ 8 $ -- $ --
Unrealized Gain(Loss) on Marketable Securities,
net of income tax of $0 and $5, respectively (2) 8 --
------------
Balance at October 19, 2000 6
- -----------------------------------------------------------------------------
Merger Fair Value Adjustment (6)
-------- -------- --------
Balance at End of Year $ -- $ 8 $ --
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
86
Commonwealth Edison Company and Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
1. Significant Accounting Policies
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
The consolidated financial statements of ComEd include the accounts of
ComEd, Commonwealth Edison Company of Indiana, Inc. , Edison Development Canada
Inc. , ComEd Financing I and ComEd Financing II , ComEd Funding LLC (ComEd
Funding), and ComEd Transitional Funding Trust (ComEd Funding Trust). All
significant intercompany transactions have been eliminated. Although the
accounts of ComEd Funding and ComEd Funding Trust, which are Special Purpose
Entities (SPEs), are included in the consolidated financial statements, as
required by generally accepted accounting principles (GAAP), ComEd Funding and
ComEd Funding Trust are separate legal entities from ComEd. The assets of the
SPEs are not available to creditors of 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 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 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.
87
Revenues
Operating revenues are generally recorded as service is rendered or
energy is delivered to customers. At the end of each month, ComEd accrues an
estimate for the unbilled amount of energy delivered or services provided to its
customers.
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 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 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 and retired plants. ComEd accounts for the
current period's cost of decommissioning by recording a charge to depreciation
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 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.
Capitalized Interest
ComEd uses SFAS No. 34, Capitalizing Interest Costs, to calculate the
costs during construction of debt funds used to finance its non-regulated
construction projects. ComEd recorded capitalized interest of $5 million, $22
million and $28 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 used for
income tax purposes have been deferred on ComEd's Consolidated Balance Sheets
and are recognized in book income over the life of the related property. ComEd
files a consolidated Federal and state 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 ComEd 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 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 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 projects when they become operational, not to exceed
10 years. Certain capitalized software is being amortized over 15 years pursuant
to regulatory approval.
Retail and Wholesale Energy Commitments
In the normal course of business, ComEd utilizes contracts for the
forward sale and purchase of energy to manage the utilization of its available
generating capability and provision of wholesale energy to its retail
affiliates. ComEd also utilizes energy option contracts and energy financial
swap arrangements to limit the market price risk associated with the forward
energy commodity contracts. Through December 31, 2000, ComEd generally
recognized any gains or losses on forward commodity contracts when the
underlying transactions affected earnings. Revenues and expenses associated with
market price risk management contracts are amortized over the terms of such
contracts.
89
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 derivative. In June 1999, the
FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective 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
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. 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, 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 for comparative
purposes. These reclassifications had no effect on net income.
2. Merger
On October 20, 2000, Exelon became the parent corporation of PECO
Energy Company (PECO) and 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, Unicom merged with and into Exelon (Merger).
In the Merger, 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. As a
result of the Merger, Unicom ceased to exist and its 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 purchased assets and liabilities. Thus, the purchase
price has been allocated to the underlying assets purchased and liabilities
assumed based on their estimated fair values at the acquisition date. As a
result of the application of the purchase method of accounting, the following
fair value adjustments, including the elimination of accumulated depreciation,
retained earnings and other 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
Reductions to the carrying value of property, plant and equipment balances
primarily reflect the fair value of the nuclear generating assets based on
discounted cash flow analyses and independent appraisals. Adjustments to
deferred income taxes, long-term debt and preferred securities, and other assets
and liabilities were recorded 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
purchase price allocation. Reductions to pension and postretirement benefit
obligations primarily reflect elimination of unrecognized net actuarial gains,
prior service costs and transition obligations.
Goodwill represents the purchase price allocation to ComEd of the cost in excess
of net 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 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
employee costs include employee severance, actuarially determined pension and
postretirement costs, and relocation and other benefits of $128 million, $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 the Merger but who are not eligible for the MSP.
Adjustments to the liability to reflect final determination of benefit levels
will be recorded as an adjustment to goodwill.
Approximately 2,300 positions have been identified to be eliminated as
a result of the Merger. 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 employee severance, relocation and other benefits was $144
million, which is reflected in other current liabilities in ComEd's Consolidated
Balance Sheets, and is expected to be expended by October 2002.
3. Fossil Plant Sale
In December 1999, ComEd completed the sale of its fossil generating
assets to Edison Mission Energy, an Edison International subsidiary (EME), for a
cash purchase price of $4.8 billion. The fossil generating assets represented 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, Inc. (Unicom
Investment). In consideration for the transferred assets, Unicom Investment paid
ComEd consideration totaling 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
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 demand note in full. Unicom Investment used 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 was
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 Illinois legislation. The remainder of the demand note proceeds
was 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 of $350
million, employee-related costs of $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 postretirement 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. The employees whose positions were eliminated have been terminated.
Consistent with the provisions of Illinois legislation, the pre-tax gain on the
sale of $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 million and amortized in the fourth quarter of
1999. The amortization of the regulatory liability and additional regulatory
asset amortization of $2,456 million are reflected in depreciation and
amortization expense on ComEd's Consolidated Statements of Income.
4. Regulatory Issues
In 2000, the phased process to implement competition into the electric
industry continued as mandated by the requirements of Illinois legislation.
Customer Choice
As of December 31, 2000, all non-residential customers were eligible to
choose a new electric supplier or elect the power purchase option which allows
the purchase of electric energy from ComEd at market-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 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 Caps
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 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 is based on the 30-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 Illinois legislation, at December 31, 2000, ComEd had a
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
two-year average basis. The earnings sharing provision is applicable only to
ComEd's earnings. ComEd did not trigger the earnings sharing provision in 2000
and does not currently expect to trigger the earnings sharing provisions in the
years 2001 through 2004.
5. Supplemental Financial Information
Supplemental Income Statement Information
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
------- | ------- ------- -------
|
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 portion of the receivables that are not expected to be
recoverable. Such provisions increased O&M expenses by $35 million in 1999
compared to normally expected levels. The allowance for uncollectible accounts
at December 31, 2000 and 1999 was $60 million and $49 million, respectively.
Receivables 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 customers subsequent to the normal
billing date and prior to the end of the reporting period.
7. 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 $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 has a 75% undivided ownership interest in the Quad Cities nuclear
generating station. ComEd's net plant investment of $120 million at December 31,
2000, reflects $38 million in construction in progress and $2 million in
accumulated depreciation. ComEd's undivided ownership interest is financed with
its funds, and is accounted for as if such participating interest was a wholly
owned facility.
94
9. Notes Payable - Banks
2000 1999 1998
---- ---- ----
Average borrowings $214 $7 $ 32
Average interest rates, computed on daily basis 6.56% 7.75% 7.82%
Maximum borrowings 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, ComEd incurred extraordinary charges aggregating $6
million ($4 million, net of tax), and $46 million ($28 million, net of tax),
respectively, consisting of prepayment premiums and the write-offs of
unamortized deferred financing costs associated with the early retirement of
debt.
11. Income Taxes
Income tax expense (benefit) is comprised of the following 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 Federal 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 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 net deferred tax
liability as of December 31, 2000 and 1999 is as follows:
For the Period
-----------------------
2000 | 1999
------- | -------
|
Nature of temporary difference: |
Plant basis difference $ 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
======= | =======
The Internal Revenue Service is currently auditing ComEd's Federal tax
returns for 1996 through 1999. The current audits are not expected to have an
adverse impact on the financial condition or results of operations of ComEd.
12. Retirement Benefits
ComEd have defined benefit pension plans and postretirement benefit
plans applicable to its regular 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.
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 life 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 benefits paid during the year.
Additionally, ComEd maintains a nonqualified supplemental retirement
plan that 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. The fair value of plan assets excludes $24 million held in grantor trust
as of December 31, 2000 for the payment of benefits under the supplemental plan
and $9 million held in a grantor trust as of December 31, 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 cost of
ComEd's matching contribution to the savings plans totaled $31 million, $32
million, and $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
$1.425 convertible preferred stock, respectively, 6,810,451 and 7,510,451
authorized shares of preference stock, respectively, and 850,000 and 850,000
authorized shares of prior preferred stock, respectively.
At December 31,
----------------------------------------
Current Shares Outstanding Amount
Redemption ------------------ -------
Price 2000 1999 2000 1999
--------- ---- ---- ---- ----
Without mandatory redemption
$1.425 convertible preferred stock,
cumulative, without par value $42.00 -- 56,291 $-- $ 2
Preference stock, non-cumulative,
without par value 1,120 1,120 7 7
----- ------- --- ---
1,120 57,411 $ 7 $ 9
===== ====== === ===
With mandatory redemption
Series $6.875 preference stock, cumulative,
without par value -- 700,000 -- $69
----- ------- --- ---
Total preferred and preference stock 1,120 757,411 $ 7 $78
===== ======= === ===
Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts Holding Solely the Company's Subordinated Debt Securities
At December 31, 2000 and 1999, subsidiary trusts of ComEd had outstanding the
following securities:
At December 31,
--------------------------------------------
Mandatory Trust Receipts Outstanding Amount
Redemption Distribution Liquidation -------------------------- ------
Series Date Rate Value 2000 1999 2000 1999
- ------ ---- ---- ----- ---- ---- ---- ----
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 sole 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 31, 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
holders to convert such warrants into common stock of 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 conversion of warrants.
Forward Purchase Agreements
In the fourth 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 forward 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 arrangements. The
settlement of the arrangements in January 2000 resulted in a gain of $113
million (after-tax), which was recorded in the first quarter of 2000. The
settlement of the arrangements resulted in a reduction in ComEd's outstanding
common shares and common stock equity, effective January 2000.
Stock Repurchases
During the first quarter of 2000, ComEd repurchased four million of its
common shares from Unicom for $153 million using proceeds from the 1998 issuance
of transitional trust notes.
In the fourth quarter of 2000, ComEd repurchased 19.9 million of its
common 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 same or similar issues. The carrying amounts and
fair values of ComEd'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, cash equivalents and |
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 | $-- $--
Financial instruments which potentially subject ComEd to concentrations
of credit risk consist principally of cash equivalents and customer 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 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. ComEd carried 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.
ComEd carried property damage, decontamination and premature
decommissioning insurance for each station loss resulting from damage to its
nuclear plants. In the event of an accident, insurance proceeds must first be
used for reactor stabilization and site decontamination. If the decision 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 up
to $49 million for losses incurred at any plant insured by the insurance
companies. ComEd was self-insured to the extent that any losses might have
102
exceeded the amount of insurance maintained. Such losses could have had a
material adverse effect on ComEd's financial condition and results of
operations.
ComEd was a member of an industry 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. ComEd's maximum share of any assessment was $10 million
per year.
In addition, ComEd participated in the American Nuclear Insurers Master
Worker Program, which provides coverage for worker tort claims filed for bodily
injury caused by the 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. ComEd 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 $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 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 a request for rehearing. On January 11, 2001, FERC issued its Order on
Rehearing Requesting Submission of Additional Information. Responsive pleadings
have been filed by all parties and final FERC action is still pending. ComEd's
management believes an adequate reserve has been established in connection with
the case.
Service Interruptions. In August 1999, three class action lawsuits were
filed, and 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 that occurred in
the summer 1999. The combined effect of these interruptions resulted in over
168,000 customers losing service for more than 4 hours. Conditional class
certification has been approved by the Court for the sole purpose of exploring
settlement talks. A hearing on a motion filed by ComEd to dismiss the complaints
is expected in the second quarter of 2001. A portion of any settlement or
verdict may be covered by insurance and discussions with the carrier are
ongoing. ComEd's management believes adequate reserves have been established in
connection with these cases.
Reliability Investigation. In 1999, the ICC opened an investigation
regarding the design and reliability of ComEd's transmission and distribution
system, 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 summer 1999 outages as well as the
transmission and distribution 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 early 2001, and the investigation is expected to conclude 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 remote.
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
state constitutions, 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
106
repeating their allegations that ComEd breached the contracts in question, and
requesting damages for such breach, in the amount of the difference between the
state-subsidized rate and the amount ComEd was willing to pay for the
electricity. ComEd intends to vigorously contest this matter.
Chicago Franchise. In March 1999, ComEd reached a settlement agreement
with the City of Chicago to end the arbitration proceeding between ComEd and
Chicago regarding the January 1, 1992 franchise agreement. As part of the
settlement agreement, ComEd and Chicago 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 services in Chicago. The settlement agreement provided that ComEd be
subject to liquidation damages if the projects were not completed by various
dates, unless it was prevented from doing so by events beyond its reasonable
control. In addition, ComEd and Chicago established an Energy Reliability and
Capacity Account, into which ComEd deposited $25 million during 1999 and 2000
and has conditionally agreed to deposit $25 million at the end of the years 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 years 1988-1997. The alleged 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 accumulate on the alleged tax deficiencies.
General. ComEd 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 ComEd's financial condition or results of operations.
17. Related-Party Transactions
ComEd has a $400 million intercompany receivable from PECO, which is
reflected in current assets in ComEd's Consolidated Balance Sheets at December
31, 2000. ComEd also has notes receivable with affiliates of $1.3 billion and
$2.5 billion respectively, at December 31, 2000 and 1999 primarily relating to
the fossil plant sale, and included in 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 years ended December 31, 2000
and 1999. Both receivables are under terms comparable to those that would be
available from unaffiliated parties.
18. Quarterly Data (Unaudited)
The data shown below include all adjustments which ComEd considers necessary for
a fair presentation of such amounts:
Operating Operating Income Before Net
Revenue Income Extraordinary Items Income
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
Quarter ended
March 31 $1,661 $1,539 $ 266 $ 309 $ 195 $ 97 $ 192 $ 69
June 30 $1,816 $1,696 $ 351 $ 278 $ 148 $ 119 $ 146 $ 119
September 30 $2,092 $2,071 $ 365 $ 613 $ 196 $ 287 $ 197 $ 287
December 31 $1,443 $1,487 $ 404 $ 349 $ 197 $ 148 $ 197 $ 148
19. Subsequent 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 connection with the transfer, ComEd entered into a power purchase
agreement (PPA) with Generation. 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 full term of the 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 merger, 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 engage PwC.
The reports of Arthur Andersen on the financial 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 not 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 Current Report on Form 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 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
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 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 $ 87 $ 59(a) $ 58(b) $200
===== ===== ===== ==== ====
Reserve for:
Merger-Related Costs $ -- $ -- $ 149(c) $ 5 $144
===== ===== ===== ==== ====
Injuries and Damages $ 23 $ 9 $ 48(d) $ 11(e) $ 69
===== ===== ===== ==== ====
Environmental Investigation and
Remediation $ 57 $ 26 $ 98(c) $ 10(f) $171
===== ===== ===== ==== ====
Obsolete Materials $ -- $ 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
===== ===== ===== ==== ====
<FN>
(a) 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.
</FN>
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
==== ====== ====== ==== ====
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 Uncollectible Accounts $122 $ 59 $ -- $ 69(a) $112
==== ====== ====== ==== ====
Reserve for:
Injuries and Damages $ 27 $ 7 $ -- $ 11(b) $ 23
==== ====== ====== ==== ====
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
==== ====== ====== ==== ====
<FN>
(a) Write-off of individual accounts receivable.
(b) Payments of claims and related costs.
(c) Expenditures for site investigation and remediation.
</FN>
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
===== ===== ===== ==== ====
<FN>
(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.
</FN>
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 SEC 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 generating stations to a
new subsidiary of Exelon and the continual
recovery of 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
- ----------------------- (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