ComEd 2006 Annual Report Download - page 137

of the approval of the refund claim, Exelon and PECO recorded a consulting expense of $3 million
(after tax) in 2006. The net after-tax result of this settlement and consulting fees was $6 million, $16
million and $(10) million for Exelon, PECO and Generation, respectively.
During 2006, the IRS indicated to PECO that it agreed with a substantial portion of a research and
development refund claim. This refund claim was subject to the approval of the Joint Committee. In
2006, the Joint Committee completed its review and granted approval of the research and
development claim. A majority of the refund claim also related to PECO’s formerly owned generation
property. Consistent with the investment tax credit refund claims, pursuant to the asset transfer
agreement between PECO and Generation, PECO recorded the current tax and interest benefits and
Generation recorded the future deferred tax effects. As a result, a research and development credit
and the associated interest refund of $20 million (after tax) have been recorded as a credit in Exelon’s
and PECO’s Consolidated Statements of Operations in 2006. Exelon and Generation recorded the
future deferred tax impact of $11 million as a charge to their Consolidated Statements of Operations. In
addition, based on the IRS’ indication of its agreement with a portion of the refund claim, PECO
recorded an estimated tax consulting contingent fee of $2 million (after tax) during 2006. The net
after-tax result of this settlement and consulting fees was $7 million, $18 million, and $(11) million for
Exelon, PECO, and Generation respectively.
Variable Interest Entities
Sithe. As of December 31, 2004, Generation was a 50% owner of Sithe. In accordance with FIN
46-R, Generation consolidated Sithe within its financial statements as of March 31, 2004. The
determination that Sithe qualified as a variable interest entity and that Generation was the primary
beneficiary under FIN 46-R required analysis of the economic benefits accruing to all parties pursuant
to their ownership interests supplemented by management’s judgment. See Note 2 of the Combined
Notes to Consolidated Financial Statements for a discussion of the sale of Generation’s entire interest
in Sithe that was completed on January 31, 2005.
Financing Trusts of ComEd and PECO. During June 2003, PECO issued $103 million of
subordinated debentures to PECO Trust IV in connection with the issuance by PECO Trust IV of $100
million of preferred securities. Effective July 1, 2003, PECO Trust IV was deconsolidated from the
financial statements of PECO in conjunction with FIN 46. The $103 million of subordinated debentures
issued by PECO to PECO Trust IV was recorded 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 PETT were deconsolidated from the financial
statements of Exelon in conjunction with the adoption of FIN 46-R. Amounts of $1.0 billion and $2.5
billion, respectively, owed by ComEd and PECO to these financing trusts were recorded as long-term
debt to ComEd Transitional Funding Trust and PETT and long-term debt to financing trusts within the
Consolidated Balance Sheets as of December 31, 2006.
Nuclear Insurance Coverage
Generation carries property damage, decontamination and premature decommissioning insurance
for each station loss resulting from damage to Generation’s nuclear plants, subject to certain
exceptions. Additionally, Generation carries business interruption insurance in the event of a major
accidental outage at a nuclear station. Finally, Generation participates in the American Nuclear
Insurers (ANI) Master Worker Program, which provides coverage for worker tort claims filed for bodily
injury caused by a nuclear energy accident. See Note 18 of the Combined Notes to Consolidated
Financial Statements for further discussion of nuclear insurance. For its types of insured losses,
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