ComEd 2002 Annual Report Download - page 117

Litigation
Securities Litigation. Between May 8 and June 14, 2002, several
class action lawsuits were filed in the Federal District Court in
Chicago asserting nearly identical securities law claims on
behalf of purchasers of Exelon securities between April 24, 2001
and September 27, 2001 (Class Period). The complaints allege
that Exelon violated Federal securities laws by issuing a series of
materially false and misleading statements relating to its 2001
earnings expectations during the Class Period. The court con-
solidated the pending cases into one lawsuit and has appointed
two lead plaintiffs as well as lead counsel.
On October 1, 2002, the plaintiffs filed a consolidated
amended complaint. In addition to the original claims, this
complaint contains allegations of new facts and contains
several new theories of liability. Exelon believes the lawsuit is
without merit and is vigorously contesting this matter.
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 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, FERC granted the
complaint and directed that refunds be made,with interest.On
April 30,2001,FERC issued an order granting rehearing in which
it determined that its 1998 order had been erroneous and that
no refunds were due from ComEd to the municipal customers.
In August 2001, each of the three wholesale municipal
customers appealed the April 30, 2001 FERC order to the Federal
circuit court, which consolidated the appeals for the purposes
of briefing and decision.The Federal circuit court has stayed the
proceedings pending settlementnegotiations among the parties.
Retail Rate Law. In 1996, several developers of non-utility gener-
ating 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. The developers also filed suit
against ComEd for a declaratory judgment that their rights
under their contracts with ComEd were not affected by the
amendment. On November 25, 2002, the court granted devel-
opers’ motions for summary judgment. The judge also entered
a permanent injunction enjoining ComEd from refusing to pay
the retail rate on the grounds of the amendment, and Illinois
from denying ComEd a tax credit on account of such purchases.
ComEd and Illinois have each appealed the ruling. ComEd
believes that it did not breach the contracts in question and
that the damages claimed far exceed any loss that any project
incurred by reason of its ineligibility for the subsidized rate.
ComEd intends to prosecute its appeal and defend each case
vigorously.
Cotter Corporation Litigation. During 1989 and 1991, actions
were brought in Federal and state courts in Colorado against
ComEd and its subsidiary, Cotter Corporation (Cotter), seeking
unspecified damages and injunctive relief based on allegations
that Cotter permitted radioactive and other hazardous material
to be released from its mill into areas owned or occupied by the
plaintiffs, resulting in property damage and potential adverse
health effects. In 1994, a Federal jury returned nominal dollar
verdicts against Cotter on eight plaintiffs’ claims in the 1989
cases, which verdicts were upheld on appeal. The remaining
claims in the 1989 actions were settled or dismissed. In 1998, a
jury verdict was rendered against Cotter in favor of 14 of the
plaintiffs in the 1991 cases, totaling approximately $6 million in
compensatory and punitive damages, interest and medical
monitoring. On appeal, the Tenth Circuit Court of Appeals
reversed the jury verdict, and remanded the case for new trial.
These plaintiffs’cases were consolidated with the remaining 26
plaintiffs’cases,which had not been tried.The consolidated trial
was completed on June 28, 2001. The jury returned a verdict
against Cotter and awarded $16 million in various damages.
On November 20, 2001, the District Court entered an amended
final judgment that included an award of both pre-judgment
and post-judgment interests, costs, and medical monitoring
expenses that total $43 million.In November 2000,another trial
involving a separate sub-group of 13 plaintiffs, seeking $19 mil-
lion in damages plus interest was completed in Federal District
Court in Denver.The jury awarded nominal damages of $42,500
to 11 of 13 plaintiffs, but awarded no damages for any personal
injury or health claims, other than requiring Cotter to perform
periodic medical monitoring at minimal cost. Cotter appealed
these judgments to the Tenth Circuit Court of Appeals. Cotter is
vigorously contesting the award.
On February 18, 2000, ComEd sold Cotter to an unaffiliated
third party. As part of the sale, ComEd agreed to indemnify
Cotter for any liability incurred by Cotter as a result of these
actions, as well as any liability arising in connection with the
West Lake Landfill discussed in the next paragraph. In connec-
tion with Exelon’s 2001 corporate restructuring, the responsibil-
ity to indemnify Cotter for any liability related to these matters
was transferred by ComEd to Generation.
Notes To Consolidated Financial Statements
exelon corporation and subsidiary companies
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