[LOGO FOR EXELON]
Exelon Corporation
Robert S. Shapard
Executive Vice President
Edison Electric Institute Financial Conference
October 22, 2002
[LOGO FOR EXELON]
Forward Looking Statements
This presentation contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
based on management's current expectations and are subject to uncertainty and
changes in circumstances. Actual results may vary materially from the
expectations contained herein. The forward-looking statements herein include
statements about future financial and operating results of Exelon. Economic,
business, competitive and/or regulatory factors affecting Exelon's businesses
generally could cause actual results to differ materially from those described
herein. For a discussion of the factors that could cause actual results to
differ materially, please see Exelon's filings with the Securities and Exchange
Commission, particularly those discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Outlook" in
Exelon's 2001 Annual Report and those discussed in "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Exelon Generation Company, LLC's Registration Statement on Form
S-4, Reg. No. 333-85496. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
presentation. Exelon does not undertake any obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this presentation.
[LOGO FOR EXELON]
What is Exelon?
- -----------------------------------------------------------------------------------------------------
US Electric US
Companies Companies
- -----------------------------------------------------------------------------------------------------
Retail Electric Customers 5.1 Million 1st -
Nuclear Capacity 15K MWs* 1st -
US Generating Capacity 41K MWs** 1st -
2001 Revenue $15.1 Billion 9th 135th
2001 Net Income $1.4 Billion 2nd 53rd
Market Cap $15.2 Billion (10/15/02) 3rd (10/15/02) 112th (10/15/02)
- -----------------------------------------------------------------------------------------------------
<FN>
* Includes AmerGen investment
** Includes AmerGen and Sithe investments
</FN>
[LOGO FOR EXELON]
Strategic Initiatives Update
-Cost Management Initiative
-Sithe Energies investment
-Midwest Generation contract
[LOGO FOR EXELON]
Cost Management Initiative Success
- CMI is ongoing initiative, not a one-shot austerity
program
- Results to date - better than plan
- Target for 2002: $200 million
- Actual through August: $168 million
- Commitment for 2003
- Savings targets included in 2003 planning; 2002
base built in
- Continued focus on sustainable savings
- CMI teams are still active
[LOGO FOR EXELON]
Sithe Portfolio
- Sithe New England assets
- Operating, merchant plants - 1,644 MWs
- Under construction - 2,421 MWs
- Other Sithe assets
- Operating, merchant plants - 344 MWs
- Operating, qualifying facilities - 977 MWs
- Under construction - 230 MWs
- Under advanced development - 1,600 MWs
[LOGO FOR EXELON]
Midwest Gen Contract Provides Flexibility
- Exelon/Midwest Generation contract runs through 2004
- Includes options for supply choices
- July 1 - decision on option coal generation
- Turned back 2,684 MWs
- Retained 1,265 MWs
- Assured adequate supply, reliability of T&D system
- October 2 - decision on options for Collins and peakers
- Turned back 1,727 MWs
- Retained 1,778 MWs
- Midwestern area has seen active development of new
peaker capacity
- Opportunity for Exelon to restructure its portfolio
[LOGO FOR EXELON]
Upcoming Events in 2002
- Q3 earnings results - October 30
- Additional Sithe-related transactions
- Illinois Commerce Commission decision on ComEd Provider
of Last Resort (POLR) filing
[LOGO FOR EXELON]
Adoption of FAS 143
Asset Retirement Obligations
Joseph Trpik
Director of Corporate Accounting
Edison Electric Institute Financial Conference
October 22, 2002
[LOGO FOR EXELON]
Key Points of FAS 143
- FAS 143 has no impact on the cash flows related to
decommissioning
- FAS 143 has no impact on the treatment of the nuclear
decommissioning trust fund investments
- FAS 143 has no impact on NRC minimum funding
requirements
[LOGO FOR EXELON]
Basics of FAS 143
- - Requires all legal, contractual or promissory estoppel obligations to be
recorded at fair value
- Obligation grows at credit-adjusted, risk-free rate over time,
described as accretion expense
- - Requires recognition of a corresponding "retirement asset" for each
obligation
- Retirement asset is depreciated over the life of the obligation
- Vehicle by which the base costs at the date the asset retirement
obligation is incurred are recorded to the income statement
- - Changes in the obligation due to a change in estimate are recorded to the
balance sheet
- Changes will impact future periods of expense after the change
[LOGO FOR EXELON]
Basics of FAS 143 (cont.)
- - Requires detailed analyses, costs studies and cost escalation studies
related to nuclear decommissioning and other obligations
- Costs used are based on third-party costs even if work is planned to
be completed internally
- - Requires preparation of probabilistic cash flow models for all obligations
individually
- Requires determination of multiple scenarios and probability
assessments for each obligation
- Calculation of amounts must be by individual obligation
[LOGO FOR EXELON]
Adoption of FAS 143
- - Apply standard as if obligation had existed from the date incurred
- - Net amount of the asset created and the change in the liability on the date
of adoption is recorded through the income statement as a cumulative effect
charge
- - Both accretion of liability and depreciation of created asset will be shown
as operating expenses going forward
[LOGO FOR EXELON]
Current Analysis
Multiple cash flow scenarios to reflect range of possible outcomes were
prepared:
- - For nuclear decommissioning
- 18 scenarios per unit and 23 units result in 414 scenario models
- Timing scenarios
- Current license and license renewal
- Delayed decommissioning
- "Total cost of decommissioning" scenarios
- Base, low and high variances
- - For other asset retirement obligations
- Analysis and scenarios vary by type of obligation
[LOGO FOR EXELON]
2003 Adoption Calculation
- - Calculation impacted by:
- Changes in the credit-adjusted, risk-free rate
- Changes to the interpretation of FAS 143 by the industry
- - Base assumptions:
- Entity-specific, obligation specific calculations
- Third-party cost escalation study results used in the models
[LOGO FOR EXELON]
2003 Adoption Calculation - Results
Estimated impact includes ComEd units and Exelon's portion of AmerGen nuclear
units:
- - 2003 adoption impact: non-cash, one-time gain recorded as a cumulative
effect in excess of $1.5 billion, after tax
- - 2003-2007 after-tax expense: increase in non-cash expense from previous
method
- - Up to a $0.10 per share increase in non-cash expense in 2003 compared to
the prior method
Note: Estimates based on current information and assumptions.
[LOGO FOR EXELON]
FAS 143 Required Disclosures
- - Pro forma income statement and balance sheet disclosures in year of
adoption
- - General description of asset retirement obligation (ARO) and related
long-lived assets
- - Fair value of assets that are legally restricted for purposes of settling
ARO
- - Roll-forward of ARO liability showing the changes attributable to:
- Liabilities incurred during the current period
- Liabilities settled during the current period
- Accretion expense
- Revisions in estimated cash flows
- - Disclose if the fair value of an ARO cannot be reasonably estimated,
including reasons
[LOGO FOR EXELON]
Other Potential AROs
- Collection of removal costs in regulated rates
- Coal pads
- Ash ponds
- Lease contract terms
- State permits and licenses
- Regulatory agreements
- Hydro facility agreements/licenses
- Disposal costs for other hazardous materials (PCBs)
- Environmental agreements
- Thermal agreements
[LOGO FOR EXELON]
Previous Decommissioning Method
- - Decommissioning expense recognition differed based on the nature of the
units
- Initially owned by ComEd, PECO or AmerGen purchased units
- Different treatment for PECO plants will continue (FAS 71)
- - For ComEd units, amounts were recorded to expense based on an escalating
method, with expense reflecting both an inflation component and a use
component
- - For AmerGen units, expense is recorded based on inflation only
- - For PECO units, amounts were recorded to expense in connection with the
regulated recovery and changes in the decommissioning trust fund investment
account
- - Decommissioning of approx. $2.6 billion is recorded on the balance sheet in
accumulated depreciation at 12/31/01 for active units
- - Decommissioning of approx. $1.3 billion is recorded as a liability on the
balance sheet at 12/31/01 for retired units
[LOGO FOR EXELON]
Summary
- FAS 143 has no impact on the cash flows related to
decommissioning or other Exelon obligations
- FAS 143 has no impact on the treatment of the nuclear
decommissioning trust fund investments
- FAS 143 has no impact on NRC minimum funding
requirements
[LOGO FOR EXELON]
Summary
Q & A
[LOGO FOR EXELON]
FAS 143 Example
- ----------------------------------------------------------------------------------------------------------
: Asset 12/31/2002 $ - Interest Rate 7.50% :
: :
: Liability 12/31/2002 $10,000 Life of Asset 20 years :
: :
: Discounted Cash Flows $ 5,000 Remaining Life 10 years :
- ----------------------------------------------------------------------------------------------------------
Asset created $ 2,500 ($5,000 liability *(10 years remaining/20 years total asset life)
Liability at 1/1/2003 $ 5,000 (Equal discounted cash flows)
Cumulative effect - Gain
------------------------
Change in liability $ 5,000 ($10,000 12/31/02 liability - $5,000 1/1/2003 liability)
Asset Created $ 2,500
-------
Total $ 7,500
2003 Expense
------------
Asset Depreciation $ 250 ($2,500 asset over 10 years)
Liability Accretion $ 375 ($5,000 * 7.5%)
-------
Total $ 625