ComEd 2003 Annual Report Download - page 125

123Notes to Consolidated Financial Statements
EXELON CORPORATION AND SUBSIDIARY COMPANIES
Environmental Issues
Exelon’s operations have in the past and may in the future
require substantial expenditures in order to comply with
environmental laws. Additionally, under Federal and state
environmental laws, Exelon, through its subsidiaries, is gen-
erally liable for the costs of remediating environmental con-
tamination of property now or formerly owned by Exelon
and of property contaminated by hazardous substances
generated by Exelon. Exelon 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 that are considered hazardous under
environmental laws. Exelon has identified 66 sites where
former manufactured gas plant (MGP) activities have or may
have resulted in actual site contamination. Of these 66 sites,
the Illinois Environmental Protection Agency and the
Pennsylvania Department of Environmental Protection have
approved the cleanup of 9 sites, and of the remaining sites,
57 are currently under some degree of active study and/or
remediation. Exelon is currently involved in a number of
proceedings relating to sites where hazardous substances
have been deposited and may be subject to additional pro-
ceedings in the future.
As of December 31, 2003 and 2002, Exelon had accrued
$129 million and $156 million, respectively, for environmental
investigation and remediation costs, including $105 million
and $125 million, respectively, for MGP investigation and
remediation that currently can be reasonably estimated. In-
cluded in the environmental investigation and remediation
cost obligations as of December 31, 2003 and 2002 are $105
million and $97 million, respectively, that have been re-
corded on a discounted basis (reflecting discount rates of
5.0% in 2003 and from 5.0% to 4.6% in 2002). Such estimates
before the effects of discounting were $138 million and $138
million at December 31, 2003 and 2002, respectively
(reflecting inflation rates of 2.5% in 2003 and from 1.6% to
2.5% in 2002). Exelon cannot reasonably estimate whether it
will incur other significant liabilities for additional inves-
tigation and remediation costs at these or additional sites
identified by Exelon, environmental agencies or others, or
whether such costs will be recoverable from third parties in-
cluding ratepayers.
As of December 31, 2003, Exelon anticipates that pay-
ments related to the discounted environmental inves-
tigation and remediation costs, recorded on an
undiscounted basis were:
2004 $ 19
2005 23
2006 20
2007 9
2008 6
Remaining years 61
Total payments $138
In December 2003, PECO updated its accounting estimate
related to the reserve for environmental remediation. Based
on an update of an independently prepared environmental
remediation study on 27 MGP sites, PECO increased the envi-
ronmental reserve by $18 million, with an offsetting increase
to the MGP regulatory asset. See Note 20—Supplemental
Financial Information for further discussion of the MGP
regulatory asset.
Leases
Minimum future operating lease payments, including lease
payments for vehicles, real estate, computers, rail cars and
office equipment, as of December 31, 2003 were:
2004 $ 49
2005 49
2006 47
2007 43
2008 43
Remaining years 512
Total minimum future lease payments(a) $743
(a) Generation’s tolling agreements are accounted for as operating leases and are re-
flected as net capacity purchases in the energy commitments table above.
Rental 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 against those facili-
ties of an amendment to Illinois law removing the entitle-
ment 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 devel-
opers also filed suit against ComEd for a declaratory judg-
ment that their rights under their contracts with ComEd
were not affected by the amendment and for breach of con-
tract. On November 25, 2002, the court granted the devel-
opers’ motions for summary judgment. The judge also
entered a permanent injunction enjoining ComEd from re-
fusing to pay the retail rate on the grounds of the amend-
ment 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 in-
eligibility for the subsidized rate. ComEd intends to prose-
cute its appeal and defend each case vigorously. While
ComEd cannot currently predict the outcome of this action,
Exelon does not believe that it will have a material adverse
impact on its results of operations.