ComEd 2006 Annual Report Download - page 113

Effective December 1, 2004, PJM became obligated to pay SECA collections to ComEd and
ComEd became obligated to pay SECA charges. During 2005, ComEd recorded SECA collections net
of SECA charges of $29 million. See Note 4 of the Combined Notes to Consolidated Financial
Statements for more information on T&O /SECA rates.
Operating and Maintenance Expense. The changes in operating and maintenance expense for
2005 compared to 2004 consisted of the following:
Increase
(decrease)
Severance-related expenses (a) .................................................. $(47)
Employee fringe benefits (b) ..................................................... (18)
Pension expense and deferred compensation (c) .................................... (15)
Allowance for uncollectible accounts ............................................. (13)
Injuries and damages .......................................................... (2)
Corporate allocations (b) ........................................................ 15
Storm costs .................................................................. 14
Contractors .................................................................. 12
PSEG merger integration costs .................................................. 8
Other ....................................................................... (18)
Decrease in operating and maintenance expense ................................... $(64)
(a) Consists of salary continuance severance costs, curtailment charges for pension and other postretirement benefits, and
special termination benefit charges related to other postretirement benefits. The decrease reflects reduced severance-
related activity in 2005 as compared to 2004.
(b) Excludes severance-related expenses and pension expense. Reflects fewer employees compared to prior year and a
reduction in 2005 related to estimated medical plan fees. A portion of the employee reduction is offset by an increase in
corporate allocations.
(c) Pension expense in 2005 is lower than in 2004 due in large part to significant pension plan contributions made in the first
quarter of 2005. See Note 14 of the Combined Notes to Consolidated Financial Statements for additional information.
Impairment of Goodwill. During the fourth quarter of 2005, ComEd completed the annually
required assessment of goodwill for impairment purposes. The 2005 test indicated that ComEd’s
goodwill was impaired and a charge of $1.2 billion was recorded. The 2005 impairment was driven by
changes in the fair value of ComEd’s PPA with Generation, the upcoming end of ComEd’s transition
period and related transition revenues, regulatory uncertainty in Illinois as of November 1, 2005,
anticipated increases in capital expenditures in future years and decreases in market valuations of
comparable companies that are utilized to estimate the fair value of ComEd. After reflecting the
impairment, ComEd has approximately $3.5 billion of remaining goodwill as of December 31, 2005.
Depreciation and Amortization Expense. The changes in depreciation and amortization
expense for 2005 compared to 2004 consisted of the following:
Increase
(decrease)
Depreciation expense ......................................................... $17
Other amortization expense ..................................................... (14)
Increase in depreciation and amortization expense .................................. $ 3
The increase in depreciation expense is primarily due to capital additions.
The decrease in other amortization expense was primarily due to completing the amortization of
one of ComEd’s software packages in 2004.
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