ComEd 2002 Annual Report Download - page 83

(Dollars in millions, except per share data unless otherwise noted)
note 01 • significant accounting policies
Description of Business
Exelon Corporation (Exelon) is a utility services holding com-
pany formed as a result of the merger of Unicom Corporation
(Unicom), the former parent company of Commonwealth
Edison Company (ComEd), and PECO Energy Company (PECO)
(Merger) (see Note 2—Merger). Exelon is engaged, through its
subsidiaries, in the energy delivery, wholesale generation and
the enterprises businesses discussed below (see Note 20—
Segment Information). The Energy Delivery segment’s busi-
nesses include the sale of electricity and distribution and
transmission services by ComEd in northern Illinois and PECO
in southeastern Pennsylvania and the sale of natural gas
and distribution services by PECO in the Pennsylvania counties
surrounding the City of Philadelphia.The wholesale generation
business consists of the electric generating facilities and energy
marketing operations of Exelon Generation Company, LLC
(Generation) and Generation’s interests in Sithe Energies, Inc.
(Sithe) and AmerGen Energy Company, LLC (AmerGen). Exelon
Enterprises Company, LLC (Enterprises) includes energy and
infrastructure services,competitive retail energy sales,commu-
nications joint ventures and other investments weighted
towards the communications, energy services and retail
services industries.
Basis of Presentation
The consolidated financial statements of Exelon include the
accounts of its majority-owned subsidiaries after the elimina-
tion of intercompany transactions. Investments and joint ven-
tures in which a 20% to 50% interest is owned and a significant
influence is exerted are accounted for under the equity method
of accounting. The proportionate interests in jointly owned
electric utility plants are consolidated. Investments in which
less than a 20% interest is owned are primarily accounted for
under the cost method of accounting. Exelon owns 100% of
all significant consolidated subsidiaries, either directly or
indirectly, except for ComEd of which Exelon owns more than
99%, InfraSource Inc. (InfraSource) of which Exelon owns 95%
and Southeast Chicago Energy Project, LLC of which Exelon
owns 70% through Generation. Exelon has reflected the third-
party interests in the above majority owned investments as
minority interests in its Consolidated Statements of Cash
Flows, Consolidated Balance Sheets and in Other, Net on the
Consolidated Statements of Income. Accounting policies for
regulated operations are in accordance with those prescribed
by the regulatory authorities having jurisdiction, principally
the Illinois Commerce Commission (ICC), 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).
On October 20, 2000, Exelon became the parent of PECO
through a share exchange and Unicom was merged into Exelon.
As a result of these transactions, Unicom ceased to exist and
Exelon became the parent of ComEd and PECO (see Note 2—
Merger). For accounting purposes, PECO was deemed the
acquiror in the Merger. Accordingly, the financial statements of
Exelon for the periods presented prior to October 20,2000 rep-
resent the historical financial statements of PECO and for the
periods from October 20, 2000 include the operations acquired
from Unicom.
Accounting for the Effects of Regulation
Exelon accounts for all of its regulated electric and gas opera-
tions in accordance with the Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 71, “Accounting for the Effects of Certain Types of
Regulation,”(SFAS No.71) requiring Exelon to record in its finan-
cial statements the effects of rate regulation. Use of SFAS No. 71
is applicable to the utility operations of Exelon 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. Exelon believes
that it is probable that currently recorded regulatory assets will
be recovered. If a separable portion of Exelon’s business no longer
meets the provisions of SFAS No.71,Exelon is required to eliminate
the financial statement effects of regulation for that portion.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles (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.Areas in which significant estimates have been
made include, but are not limited to, the accounting for deriva-
tives, nuclear decommissioning liabilities, asset impairment
analyses,environmental costs and pension costs.
Revenues
Operating revenues are generally recorded as service is rendered
or energy is delivered to customers. At the end of each month,
Exelon accrues an estimate for the unbilled amount of energy
delivered or services provided to its electric and gas customers
Notes To Consolidated Financial Statements
exelon corporation and subsidiary companies
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