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The ExelonWay
Exelon Corporation 03 Annual Report

Table of contents

  • Page 1
    The Exelon Way Exelon Corporation 03 Annual Report

  • Page 2
    ...strong positions in the Midwest and Mid-Atlantic. The Company also has holdings in such competitive businesses as energy and energy services. Exelon's market capitalization at the end of 2003 was $21.8 billion. Headquartered in Chicago, Exelon trades on the NYSE under the ticker EXC. The Exelon Way...

  • Page 3
    ... expectations 10 Centralize adopting a single model 12 Optimize working better and smarter 14 Emphasize committing to reliability, safety and the environment 16 Maximize growing our earnings and cash flow 18 20 21 23 Exelon at a Glance Management Team Board of Directors Financial Section

  • Page 4
    ...an ongoing, across-the-board effort to energize our workforce; centralize key functions; optimize the work we do and the way we do it; emphasize our basic commitments to our customers, our employees and the communities we serve; and ultimately maximize our competitive position and shareholder value.

  • Page 5
    .... Both the increased dividend level and the proposed stock split should make our shares more attractive to retail investors. * For a reconciliation of adjusted (non-GAAP) operating earnings to GAAP (accounting principles generally accepted in the United States) earnings, see Exelon's fourth quarter...

  • Page 6
    ... roles. Annual net generation increased to 142,000 gigawatt-hours, and revenues net of purchased power and fuel expense increased $410 million from 2002 to 2003. - Jack Skolds, Chris Crane and their team worked to bring all-in nuclear costs to an all time low, 1.97 cents per kilowatthour, consistent...

  • Page 7
    ...and reduce costs, while maintaining our primary focus on customer service, reliability and safety. leading the way forward The Exelon Way is not an end unto itself. Our Vision Statement speaks to more than operational prowess. It urges us to confront the future, to adapt to rapid changes in markets...

  • Page 8
    6 Letter to Shareholders Exelon also believes that our energy delivery companies, ComEd and PECO, must be ready, willing and able to meet the needs of all of our customers, whether they require only delivery service, or whether, like most small customers, they require delivery service and a great ...

  • Page 9
    ... Energy Company, LLC, thereby giving us sole ownership of AmerGen and its three nuclear units. Unlike the situation in New England, the AmerGen acquisition involved plants with operating histories well known to us, plants located in and around our retail service territories. I am pleased to report...

  • Page 10

  • Page 11
    ...The Exelon Way, we are redefining performance expectations at all levels, and reinforcing those expectations through leadership by example. We strive to create a high-performance, diverse culture where all of our employees focus on results and embrace continuous improvement in their daily work lives...

  • Page 12
    ... company, with one vision. We have adopted a single model for all of our business units, a single source for each of our support functions, and a single approach to our operating procedures. In areas such as Information Technology and Supply, which provide services to each of Exelon's business units...

  • Page 13

  • Page 14

  • Page 15
    ...people with the right skills in the right places, and providing them with the training and resources they require, is critical to our success. By optimizing our work and workforce, we realize the benefits of a common business model, common operating procedures, and best practices across our company.

  • Page 16
    ... do. Ensuring the safety of our customers and employees is equally fundamental. Preserving the environment requires that we do more than merely comply with rules and regulations; we must seek continuous improvement here as well. By emphasizing these core values, we live up to our commitments to keep...

  • Page 17

  • Page 18

  • Page 19
    ... annually by 2006. We are well on the way to achieving that goal. By year-end 2003, we already realized $170 million in savings from The Exelon Way - savings not originally anticipated until 2004. By maximizing our earnings and cash flow, we build value through disciplined financial management...

  • Page 20
    ...-priced market alternatives. During late 2003, Power Team reorganized to increase its focus on asset value optimization. As part of the changes, Exelon Generation created a separate Business Development & Marketing division to manage longer-term commercial strategy, planning and business development...

  • Page 21
    ... long term. During 2003, Exelon's supply and IT functions were centralized within BSC. Through the ongoing supply chain reorganization, Exelon has improved processes and leveraged its purchasing power, leading to significant cost reductions. By centralizing the IT function, Exelon has standardized...

  • Page 22
    20 Management Team John F. Young Senior Vice President pictured left to right John W. Rowe Chairman and Chief Executive Officer Oliver D. Kingsley, Jr. President and Chief Operating Officer David W. Woods Senior Vice President Pamela B. Strobel Executive Vice President and Chief ...

  • Page 23
    ... Admiral (Retired), United States Navy G. Fred DiBona, Jr. President and Chief Executive Officer, Independence Blue Cross Sue L. Gin Chairman and Chief Executive Officer, Flying Food Group, LLC Richard L. Thomas Retired Chairman, First Chicago NBD Corporation Edward A. Brennan Executive Chairman...

  • Page 24
    ... Accountants Consolidated Statements of Income Consolidated Statements of Cash Flows Consolidated Balance Sheets Consolidated Statements of Changes in Shareholders' Equity Consolidated Statements of Comprehensive Income Notes to Consolidated Financial Statements Investor and General Information...

  • Page 25
    ... its regulated energy delivery business at Commonwealth Edison Company and PECO Energy Company. (b) Reflects the effects of the merger of Exelon Corporation, Unicom Corporation and PECO Energy Company on October 20, 2000 (Merger). The Merger was accounted for using the purchase method of accounting...

  • Page 26
    ... Team, a major wholesale marketer of energy, uses Generation's energy generation portfolio, transmission rights and expertise to ensure delivery of energy to Generation's wholesale customers under long-term and short-term contracts, including the energy, or "load," requirements of ComEd and PECO...

  • Page 27
    Management's Discussion and Analysis of Financial Condition and Results of Operations EXELON CORPORATION AND SUBSIDIARY COMPANIES 25 Power Team markets any remaining energy in the wholesale bilateral and spot markets. Enterprises Our enterprise business consists primarily of the energy services ...

  • Page 28
    ...), some states are adjusting current transition plans (like New Jersey and Ohio), and the states of Illinois (by 2007) and Pennsylvania (by 2011) are considering options to preserve choice for large customers and rate stability for mass market customers, while ensuring the financial returns needed...

  • Page 29
    ...-requirements, power supply agreements with Generation which reduce exposure to the volatility of customer demand and market prices through 2006 for ComEd and through 2010 for PECO. Market prices relative to Energy Delivery's regulated rates still influence switching behavior among retail customers...

  • Page 30
    ... generation service at market-based prices and the regulated price of energy delivery) and recoveries under historical bundled rates, reduced by a mitigation factor. The CTC charges are updated annually. Over time, to facilitate the transition to a competitive market, the mitigation factor increases...

  • Page 31
    ... liability protections of utilities in providing regulated service. In addition, under Illinois law, ComEd can be required to pay damages to its customers in the event of extended outages affecting large numbers of its customers. Energy Delivery has lost and may continue to lose energy customers to...

  • Page 32
    ... the load served by others. We manage our POLR obligation through full-requirements contracts with Generation, under which Generation supplies the power requirements of ComEd and PECO. ComEd has received ICC approval to phase out its obligation to provide fixed-price energy under bundled rates to...

  • Page 33
    ... can be realized. Generation must effectively manage its power portfolio to meet its contractual commitments and to handle changes in the wholesale power markets. The majority of Generation's portfolio is used to provide power under long-term purchased power agreements with ComEd and PECO. To the...

  • Page 34
    ...A change in the Atomic Energy Act or the applicable regulations or licenses may require a substantial increase in capital expenditures or may result in increased operating or decommissioning costs and significantly affect our results of operation or financial position. Events at nuclear plants owned...

  • Page 35
    ... nuclear power plants. Based on estimates of decommissioning costs for each of the nuclear facilities in which Generation has an ownership interest, other than AmerGen facilities, the ICC permits ComEd, and the PUC permits PECO, to collect from their customers and deposit in nuclear decommissioning...

  • Page 36
    ...in 2000, could adversely affect our business. Hedging. The Power Team buys and sells energy and other products in the wholesale markets and enters into financial contracts to manage risk and hedge various positions in Generation's power generation portfolios. This activity, along with the effects of...

  • Page 37
    ... our results from operations. In 2002, Generation purchased the assets of Sithe New England Holdings, LLC (now known as Exelon New England), a subsidiary of Sithe, and related power marketing operations. Due to the reduction in power prices and delays in construction completion, in July 2003, we...

  • Page 38
    ... Operations EXELON CORPORATION AND SUBSIDIARY COMPANIES to ComEd and PECO vary from month to month; however, delivery requirements are generally highest in the summer when wholesale power prices are also generally highest. Therefore, energy committed by Generation to serve ComEd and PECO customers...

  • Page 39
    ... the rate freezes and caps under which our Energy Delivery businesses operate and price pressures due to competition, we may not be able to pass the costs of inflation through to our customers. Market performance affects our decommissioning trust funds and benefit plan asset values. The performance...

  • Page 40
    ... our state income tax expense and could have a negative impact on our results of operations and cash flows. The introduction of new technologies could increase competition within our markets. While demand for electricity is generally increasing throughout the United States, the rate of construction...

  • Page 41
    ...power in 2003. The average cost per MWh supplied by Generation, excluding the trading portfolio, increased from $20.49 in 2002 to $22.79 in 2003 due to increased fossil generation and increased purchased power at higher market prices. Fossil and hydroelectric generation represented 11% of Generation...

  • Page 42
    ... cumulative effect of a change in accounting principle Net income Net Income. Energy Delivery's net income in 2003 decreased primarily due to increased operating and maintenance expense resulting from severance and curtailment charges associated with The Exelon Way, a charge at ComEd associated with...

  • Page 43
    ... wholesale market prices. Electric revenues decreased $25 million at PECO as a result of rate mix due to changes in monthly usage patterns in all customer classes during 2003 as compared to 2002. Energy Delivery's gas revenues increased due to increases in rates through the purchased gas adjustment...

  • Page 44
    ... tax accruals recorded by PECO. Interest Expense. The reduction in interest expense was primarily due to refinancing existing debt at lower rates and the pay down of transitional trust notes. Severance, pension and postretirement benefit costs associated with The Exelon Way Charge recorded at ComEd...

  • Page 45
    ... rates. (c) Unbundled service reflects customers electing to receive electric generation service from an alternative energy supplier or ComEd's PPO. See Note 4 of the Notes to Consolidated Financial Statements for further discussion of ComEd's PPO. Electric Revenue 2003 2002 Variance % Change...

  • Page 46
    ... New England in November 2002 and the commencement of commercial operations in 2003 of the Boston Generating facilities, Mystic 8 and 9 and Fore River. In addition, average market prices were $5/MWh higher than 2002. Trading Margins. Trading activity increased revenue by $1 million in 2003 compared...

  • Page 47
    ... and an increase in nuclear decommissioning investment income for 2003. Generation Operating Statistics Generation's sales and the supply of these sales, excluding the trading portfolio, were as follows: Sales (in GWhs) 2003 2002 % Change Energy Delivery and Exelon Energy Company Market sales Total...

  • Page 48
    ... and 2002 included 30 and 26 unplanned outages, respectively, resulting in a $2 million increase in non-refueling outage costs in 2003 as compared to 2002. Average revenue Energy Delivery and Exelon Energy Company Market sales Total-excluding the trading portfolio $34.38 35.99 35.15 $33.98 31.01...

  • Page 49
    .... Purchased power and fuel expense increased primarily due to increased fuel costs at Exelon Energy Company due to higher gas prices and increased customer volume. Higher gas prices accounted for $92 million of the overall increase and increases in customer growth in the gas and electric markets...

  • Page 50
    48 Management's Discussion and Analysis of Financial Condition and Results of Operations EXELON CORPORATION AND SUBSIDIARY COMPANIES Year Ended December 31, 2002 Compared To Year Ended December 31, 2001 Exelon Corporation 2002 2001 Variance % Change Operating revenues Purchased power and fuel ...

  • Page 51
    ... 24.1% Operating Revenues. The changes in Energy Delivery's operating revenues for 2002 compared to 2001 consisted of the following: Total Variance Energy Delivery Electric Gas Volume Weather Customer choice Rate changes Resales and other Other effects Increase (decrease) in operating revenues...

  • Page 52
    ... from alternative energy suppliers or electing ComEd's PPO. Volume. Energy Delivery's purchased power and fuel expense increased due to increases, exclusive of weather impacts, in the number of customers and additional average usage per customer, primarily in the residential customer class. Prices...

  • Page 53
    ...Bundled service reflects deliveries to customers taking electric service under tariffed rates. (c) Unbundled service reflects customers electing to receive electric generation service from an alternative energy supplier or ComEd's PPO. See Note 4 of the Notes to Consolidated Financial Statements for...

  • Page 54
    ... delivery cost of the transmission and the distribution of the energy. PECO's tariffed rates also include a CTC charge. See Note 4 of the Notes to Consolidated Financial Statements for a discussion of CTC. (b) Unbundled revenue reflects revenue from customers electing to receive electric generation...

  • Page 55
    ... wholesale market prices and reduced transmission costs. Energy Delivery and Exelon Energy Company Market sales Total sales Supply of Sales (in GWhs) 123,975 83,565 207,540 2002 123,793 72,333 196,126 2001 0.1% 15.5% 5.8% % Change Nuclear generation(a) Purchases-non-trading portfolio(b) Fossil...

  • Page 56
    ... to Exelon Energy Company, Enterprises' retail energy unit, due to lower demand in the eastern energy markets. Generation's supply mix changed due to: - increased purchases resulting from the supply agreement with AmerGen's Unit No. 1 at Three Mile Island Nuclear Station facility which was new in...

  • Page 57
    ... revolving credit facilities that we currently utilize to support our commercial paper programs. See the Credit Issues section of Liquidity and Capital Resources for further discussion. We primarily use our capital resources to fund capital requirements, including construction, to invest in new and...

  • Page 58
    ... in the period in which the costs can be reasonably estimated. Cash Flows from Operating Activities Energy Delivery's cash flows from operating activities primarily result from sales of electricity and gas to a stable and diverse base of retail customers at fixed prices and are weighted toward the...

  • Page 59
    ... of cash acquired of $36 million. The acquisition was funded with cash provided by operations. In April 2002, Generation purchased two natural-gas and oil-fired generating plants from TXU for $443 million. The purchase was funded with commercial paper, which Exelon issued and Generation repaid with...

  • Page 60
    ... threeyear unsecured revolving credit agreement with a group of banks. Both revolving credit agreements are used principally to support the commercial paper programs at Exelon, ComEd, PECO and Generation and to issue letters of credit. The 364-day agreement includes a term-out option provision...

  • Page 61
    ... million credit agreements and certain other credit facilities. The following table shows our securities ratings at December 31, 2003: Moody's Investors Service Standard & Poors Corporation Fitch Investors Service, Inc. Securities Exelon ComEd PECO Generation Senior unsecured debt Commercial...

  • Page 62
    ... three months of future payments should be sufficient. Shelf Registration On September 25, 2003, we filed a shelf registration statement, to register the sale by Exelon of $2.0 billion of unsecured senior debt securities; common stock; stock purchase contracts; stock purchase units; preferred stock...

  • Page 63
    ...Financial Statements Two affiliates of Exelon New England have long-term supply agreements through December 2022 with Distrigas of Massachusetts, LLC (Distrigas) for gas supply, primarily for the Boston Generating units. Under the agreements, prices are indexed to New England gas markets. Exelon New...

  • Page 64
    ... Notes to Consolidated Financial Statements for discussion of Exelon's commercial commitments as of December 31, 2003. IRS Refund Claims ComEd and PECO have entered into several agreements with a tax consultant related to the filing of refund claims with the Internal Revenue Service (IRS) and have...

  • Page 65
    ... as long-term debt to financing trusts within the Consolidated Balance Sheets. Effective December 31, 2003, ComEd Financing II, ComEd Financing III, ComEd Funding, LLC, ComEd Transitional Funding Trust, PECO Trust III and PECO Energy Transition Trust were deconsolidated from the financial statements...

  • Page 66
    ... from customers through rates. As of December 31, 2003, we have concluded that the operations of ComEd and PECO meet the criteria. If we conclude in a future period that a separable portion of our business no longer meets the criteria, we are required to eliminate the financial statement effects...

  • Page 67
    ... of current license lives and life extensions and the timing of Department of Energy (DOE) acceptance for disposal of spent nuclear fuel. Discount Rates. The estimated probability-weighted cash flows using these various scenarios were discounted using credit-adjusted, risk-free rates applicable to...

  • Page 68
    ... sector market performance, ComEd's capital structure, market power prices, post-2006 rate regulatory structures, operating and capital expenditure requirements and other factors. Changes in these variables or in how they interrelate could result in a future impairment of goodwill at Energy Delivery...

  • Page 69
    ...increase in health care costs. The selection of key actuarial assumptions utilized in the measurement of the plan obligations and costs drives the results of the analysis and the resulting charges. The longterm expected rate of return on plan assets (EROA) assumption used in calculating 2003 pension...

  • Page 70
    ... planning, vice president of strategy, vice president of audit services and officers from each of the business units. The RMC reports to the Exelon Board of Directors on the scope of our derivative and risk management activities. Commodity Price Risk Commodity price risk is associated with market...

  • Page 71
    ... Energy Delivery. Market price risk exposure is the risk of a change in the value of unhedged positions. Absent any opportunistic efforts to mitigate market price exposure, the estimated market price exposure for our non-trading portfolio associated with a ten percent reduction in the annual average...

  • Page 72
    ... assets as well as Enterprises' derivative contracts. (b) Total gross margin represents revenue, net of purchased power and fuel expense for Generation. This excludes a minimal amount of activity at Enterprises. See Note 15 of the Notes to Consolidated Financial Statements for further information.

  • Page 73
    Management's Discussion and Analysis of Financial Condition and Results of Operations EXELON CORPORATION AND SUBSIDIARY COMPANIES 71 The following table provides detail on changes in Generation's mark-to-market net asset or liability balance sheet position from January 1, 2002 to December 31, 2003...

  • Page 74
    ... portfolio measures the average time to collect value for that portfolio. We measure the tenor by separating positive and negative mark-to-market values in our proprietary trading portfolio, estimating the mid-point in years for each and then reporting the highest of the two mid-points calculated...

  • Page 75
    ... to purchase energy from an ARES or the ComEd PPO. Revenues collected from customers electing the PPO include commodity charges at market-based prices and CTC revenues which are calculated to provide the customer with a credit for the market price for electricity. Because the change in revenues from...

  • Page 76
    ... performance on energy contracts which includes, but is not limited to, the risk of financial default or slow payment. Generation manages counterparty credit risk through established policies, including counterparty credit limits, and in some cases, requiring deposits and letters of credit to be...

  • Page 77
    ... Sithe. Sithe is a 60% owner of the Independence generating station, a 1,028-MW gas-fired facility that has an energy-only long-term tolling agreement with Dynegy, with a related financial swap arrangement. Sithe has entered into a contract to purchase the remaining 40% interest of the Independence...

  • Page 78
    ... statements of PECO. Under the terms of the Boston Generating Facility, Boston Generating is required to effectively fix the interest rate on 50% of borrowings under the facility through its maturity in 2007. As of December 31, 2003, Boston Generating had entered into interest-rate swap agreements...

  • Page 79
    Management's Discussion and Analysis of Financial Condition and Results of Operations EXELON CORPORATION AND SUBSIDIARY COMPANIES 77 ferences between the contract and market rates at December 31, 2003. The aggregate fair value exposure of our interest-rate swaps designated as cash-flow hedges that...

  • Page 80
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  • Page 81
    ... 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...

  • Page 82
    ... Income EXELON CORPORATION AND SUBSIDIARY COMPANIES For the Years Ended December 31, in millions, except per share data 2003 2002 2001 Operating revenues Operating expenses Purchased power Purchased power from AmerGen Energy Company, LLC Fuel Impairment of Boston Generating, LLC long-lived assets...

  • Page 83
    ... Net realized losses on nuclear decommissioning trust funds Other operating activities Changes in assets and liabilities: Accounts receivable Inventories Other current assets Accounts payable, accrued expenses and other current liabilities Pension and non-pension postretirement benefits obligations...

  • Page 84
    ... Accounts receivable, net Customer Other Inventories, at average cost Fossil fuel Materials and supplies Notes receivable from affiliate Deferred income taxes Assets held for sale Other Total current assets Property, plant and equipment, net Deferred debits and other assets Regulatory assets Nuclear...

  • Page 85
    ...debt due to ComEd Transitional Funding Trust and PECO Energy Transitional Trust Long-term debt to financing trusts Deferred credits and other liabilities Deferred income taxes Unamortized investment tax credits Nuclear decommissioning liability for retired plants Asset retirement obligations Pension...

  • Page 86
    ... 2002 Net income Long-term incentive plan activity Employee stock purchase plan issuances Amortization of deferred compensation Common stock dividends declared Redemption premium on PECO preferred stock Other comprehensive income, net of income taxes of $217 Balance, December 31, 2003 319,005 1,864...

  • Page 87
    ... Information). The Energy Delivery segment's businesses include the purchase and sale of electricity and distribution and transmission services by Commonwealth Edison Company (ComEd) in northern Illinois and PECO Energy Company (PECO) in southeastern Pennsylvania and the sale of natural gas and...

  • Page 88
    ...the end of each month, Exelon accrues an estimate for the unbilled amount of energy delivered or services provided to its customers (see Note 5 - Accounts Receivable). Long-Term Contract Accounting. Enterprises recognizes contract revenue and profits on certain long-term fixed-price contracts by the...

  • Page 89
    ... value. Unrealized gains and losses, net of tax, on nuclear decommissioning trust funds transferred to Generation from PECO and ComEd are reflected in regulatory assets and liabilities on Exelon's Consolidated Balance Sheets. Unrealized gains and losses on Net income-as reported Deduct: Total stock...

  • Page 90
    ... for operating units transferred to Generation from PECO and as other comprehensive income for operating and retired units transferred to Generation from ComEd. At December 31, 2003 and 2002, Exelon had no held-to-maturity securities. Purchased Gas Adjustment Clause PECO's natural gas rates are...

  • Page 91
    ...part of Exelon's energy marketing business, Exelon enters into contracts to buy and sell energy to meet the requirements of its customers. These contracts include short-term and long-term commitments to purchase and sell energy and energy-related products in the retail and wholesale markets with the...

  • Page 92
    ...in the financial statements at the lower of cost or market using the accrual method of accounting. Under these contracts, Exelon recognizes any gains or losses when the underlying physical transaction affects earnings. Revenues and expenses associated with market price risk management contracts are...

  • Page 93
    ... New England Holdings, LLC (now known as Exelon New England), a subsidiary of Sithe, and related power marketing operations with a total of 4,066 megawatts of capacity. Exelon New England's primary assets were gas-fired generating facilities under construction. The purchase price for the Exelon New...

  • Page 94
    ... by the purchased power agreement, TXU makes fixed capacity payments, variable expense payments, and provides fuel to Exelon in return for exclusive rights to the energy and capacity of the generation plants. Substantially the entire purchase price was allocated to property, plant and equipment...

  • Page 95
    .... The major classes of assets and liabilities classified as held for sale as of December 31, 2003 consist of the following (in millions): Generation Thermal Exelon Services Total Cash Accounts receivable, net Other current assets Property, plant and equipment, net Other long-term assets Total...

  • Page 96
    94 Notes to Consolidated Financial Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES these facilities. The notes payable recorded for the purchase of the facilities was $238 million. Exelon's right to acquire its share of tax credits generated by the facilities was recorded as an intangible ...

  • Page 97
    ... ComEd's residential customers. As of December 31, 2003, about 20,300 non-residential customers, or 31% of ComEd's annual retail kilowatthour sales, had elected either the PPO or an ARES. Customers who receive energy from an alternative supplier continue to pay a delivery charge. Customer Service...

  • Page 98
    ... and liabilities of ComEd and PECO. NOTE 05 ‰ ACCOUNTS RECEIVABLE Customer accounts receivable at December 31, 2003 and 2002 included unbilled operating revenues related to unread meters at Energy Delivery and Exelon Energy Company, the competitive retail energy sales business of Enterprises, of...

  • Page 99
    ... Note 20-Supplemental Financial Information. In July 2002, ComEd decreased its depreciation rates based on a new depreciation study reflecting its significant construction program in recent years, changes in and development of new technologies, and changes in estimated plant service lives since the...

  • Page 100
    ... step compares the carrying amount of the goodwill to the estimated fair value of the goodwill. If the fair value of goodwill is less than the carrying amount, an impairment loss is reported as a reduction to goodwill and a charge to operating expense. As of December 31, 2001, Exelon's Consolidated...

  • Page 101
    ..., ComEd's capital structure, market power prices, post-2006 rate regulatory structures, operating and capital expenditure requirements and other factors. Current negotiations regarding the sale of Exelon Services served as the basis for the fair value of the Exelon Services reporting unit used in...

  • Page 102
    ...before income taxes) in 2003 associated with The Exelon Way. See Note 14 - Retirement Benefits for a description of the curtailment charges related to the pension and postretirement benefit plans. Exelon based its estimate of the number of positions to be eliminated on management's current plans and...

  • Page 103
    ... three-year unsecured revolving credit agreement with a group of banks. Both revolving credit agreements are used principally to support the commercial paper programs at Exelon, ComEd, PECO and Generation and to issue letters of credit. The 364-day agreement also includes a term-out option provision...

  • Page 104
    ... Boston Generating Facility Pollution control notes: Fixed rates Floating rates Notes payable-accounts receivable agreement Sinking fund debentures Commercial paper(e) Total long-term debt(f) Unamortized debt discount and premium, net Fair-value hedge carrying value adjustment, net Long-term debt...

  • Page 105
    ...revenue bonds in January 2004. The proceeds are included in restricted cash in Exelon's Consolidated Balance Sheets. During 2003, the following long-term debt was retired or redeemed: Company Type Rate Maturity Amount ComEd ComEd ComEd ComEd ComEd ComEd ComEd ComEd PECO PECO PECO Total retirements...

  • Page 106
    ... Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES NOTE 12 ‰ INCOME TAXES Income tax expense (benefit) is comprised of the following components: For the Years Ended December 31, 2003 2002 2001 Included in operations: Federal Current Deferred Investment tax credit amortization State Current...

  • Page 107
    ... its nuclear generating stations, excluding the AmerGen stations, through regulated rates. See further discussion of AmerGen below. The amounts recovered from customers are deposited in trust accounts and invested for funding of future decommissioning costs of nuclear generating stations. Exelon had...

  • Page 108
    ... owned by ComEd were acquired by Exelon on October 20, 2000 as a result of the Merger, Exelon's historical accounting for its ARO associated with those plants has been revised as if SFAS No. 143 had been in effect at the Merger date. In the case of the former ComEd plants, the calculation of the...

  • Page 109
    ... for investment gains and losses for as long as the trust assets exceed the ARO for the former ComEd plants. The above accounting practices are also applicable for nuclear generating stations that were transferred to Generation from PECO as a result of the Exelon corporate restructuring on January...

  • Page 110
    ... 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 kilowatt-hour of net nuclear generation for the cost of nuclear fuel long-term storage and disposal. This fee may be adjusted prospectively in...

  • Page 111
    ...one-time fee, were transferred to Generation as part of the corporate restructuring. NOTE 14 ‰ RETIREMENT BENEFITS Exelon sponsors defined benefit pension plans and postretirement welfare benefit plans applicable to essentially all ComEd, PECO, Generation and Exelon Business Services Company (BSC...

  • Page 112
    ... 2003 2002 Other Postretirement Benefits 2003 2002 Fair value of plan assets at end of year Benefit obligations at end of year Funding status (plan assets less than plan obligations) Amounts not recognized: Miscellaneous adjustment Unrecognized net actuarial loss Unrecognized prior service cost...

  • Page 113
    ... 48 - $ 26 $(1,007) $ $ - Exelon's costs of providing pension and postretirement benefit plans are dependent upon a number of factors, such as the rates of return on pension plan assets, discount rate, and the rate of increase in health care costs. The market value of plan assets was affected by...

  • Page 114
    ...Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES The following weighted average assumptions were used to determine the benefit obligations at December 31: Pension Benefits 2003 2002 2001 2003 Other Postretirement Benefits 2002 2001 Discount rate Rate of compensation increase Health care cost...

  • Page 115
    ... Financial Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES 113 Exelon's pension plans and postretirement welfare benefit plans do not directly hold shares of Exelon common stock. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans...

  • Page 116
    114 Notes to Consolidated Financial Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES Derivative Instruments The fair values of Exelon's interest-rate swaps and power purchase and sale contracts are determined using quoted exchange prices, external dealer prices or internal valuation models ...

  • Page 117
    ... of de- rivatives contracts is represented by the fair value of contracts at the reporting date. Exelon'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...

  • Page 118
    ... a plant is retired, and Generation estimates that decommissioning expenditures funded by the trust assets will begin in 2029. Exelon evaluates the historical performance, cost basis, and market value of its securities in unrealized loss positions in comparison to related market indices to assess...

  • Page 119
    ... the consolidated financial statements of Exelon as follows: Mandatory Redemption Date Distribution Rate Liquidation Value Trust Securities Outstanding Dollar Amount PECO Energy Capital Trust II PECO Energy Capital Trust III Total ComEd Financing I ComEd Financing II Unamortized discount Total...

  • Page 120
    ... Plans Exelon maintains Long-Term Incentive Plans (LTIPs) for certain full-time salaried employees. The types of long-term incentive awards that have been granted under the LTIPs are non-qualified options to purchase shares of Exelon's common stock and common stock awards. At December 31, 2003...

  • Page 121
    ..., but not borrow, from Exelon's intercompany money pool. Additionally, under applicable Federal law, Exelon, ComEd, PECO and Generation can pay dividends only from retained, undistributed or current earnings. Under Illinois law, ComEd may not pay any dividend on its stock unless "its earnings and...

  • Page 122
    ...) increased from $89 million to $101 million, 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. The Price...

  • Page 123
    ... long-, intermediate- and short-term contracts. Exelon 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...

  • Page 124
    ... beyond Letters of credit (non-debt) (a) Letters of credit (long-term debt) - interest coverage (b) Surety bonds (c) Performance guarantees (d) Energy marketing contract guarantees (e) Nuclear insurance guarantees (f) Lease guarantees (g) Midwest Generation Capacity Reservation Agreement guarantee...

  • Page 125
    ... expense under operating leases totaled $57 million, $85 million, and $75 million in 2003, 2002, and 2001, respectively. Litigation Retail Rate Law. In 1996, several developers of non-utility generating facilities filed litigation against various Illinois officials claiming that the enforcement...

  • Page 126
    ... filed an action in the New York Supreme Court against Fore River Development, LLC and Mystic Development, LLC (collectively, the Project Companies) seeking to enjoin these indirect subsidiaries of Generation from drawing upon letters of credit posted to guarantee MHI's performance under certain gas...

  • Page 127
    ... rating agencies to below investment grade. As of December 31, 2003, Exelon has credit risk associated with Dynegy through Generation's investment in Sithe. Sithe is a 60% owner of the Independence generating station, a 1,028-MW gas-fired facility that has an energy-only long-term tolling agreement...

  • Page 128
    ... potential tax benefits and associated fees could be material to the financial position, results of operations and cash flows of Exelon. ComEd's tax benefits for periods prior to the Merger would be recorded as a reduction of goodwill pursuant to a reallocation of the Merger purchase price. Exelon...

  • Page 129
    ... Municipal and state utility taxes are also recorded in revenues on Exelon's Consolidated Statements of Income. (b) Includes a credit of $25 million in 2003 due to a favorable settlement of coal use tax issues at ComEd related to periods prior to the Merger. Supplemental Cash Flow Information For...

  • Page 130
    128 Notes to Consolidated Financial Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES Supplemental Balance Sheet Information December 31, December 31, 2003 2002 ComEd 2003 2002 Investments Direct financing leases Energy services and other ventures Affordable housing projects Investment in ...

  • Page 131
    ... purchase gas adjustment clause. December 31, 2003 2002 Accrued expenses Taxes accrued Interest accrued Other accrued expenses Total $ 304 247 677 $1,228 $ 420 307 627 $1,354 NOTE 21 • SEGMENT INFORMATION Exelon operates in three business segments: Energy Delivery (ComEd and PECO), Generation...

  • Page 132
    ... SUBSIDIARY COMPANIES An analysis and reconciliation of Exelon's business segment information to the respective information in the consolidated financial statements were as follows: Energy Delivery Intersegment Eliminations Generation Enterprises Corporate Consolidated Total revenues(1): 2003...

  • Page 133
    ... III PECO Energy Capital Corp PECO Energy Capital Trust IV Receivable from affiliates (noncurrent) ComEd Transitional Funding Trust PECO Energy Transition Trust Payables to affiliates (current) ComEd Financing II ComEd Financing III PECO Energy Capital Corp PECO Energy Capital Trust III Long-term...

  • Page 134
    ... plus 0.875%. (5) Effective July 1, 2003, PECO Energy Capital Trust IV was deconsolidated from the financial statements of Exelon in conjunction with FIN No. 46. (6) Under a service agreement dated March 1, 1999, Generation provides AmerGen with certain operation and support services to the nuclear...

  • Page 135
    ... Consolidated Financial Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES 133 Average Diluted Shares Outstanding (in millions) 2003 2002 Earnings (Loss) per Diluted Share Before the Cumulative Effect of Changes in Accounting Principles 2003 2002 Net Income (Loss) per Diluted Share 2003 2002...

  • Page 136
    ...Consolidated Financial Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES The following table presents average shares of common stock outstanding (basic and diluted), earnings per average common share (basic and diluted) and dividends per common share for the years ended December 31, 2003, 2002...

  • Page 137
    ... a telephone information service, which enables shareholders to obtain currently available information on financial performance, company news and shareholder services. To use this service, please call our toll-free number, 1.866.530.8108. Forward Looking Statements Exelon's 2003 Annual Report to...

  • Page 138
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