ComEd 2006 Annual Report Download - page 146

accounts receivable balances in 2006 resulting from increased revenues, changes in PAPUC-
approved regulations related to customer payment terms and an increase in the number of low-income
customers participating in customer assistance programs, which allow for the forgiveness of certain
receivables. PECO’s provision for uncollectible accounts will continue to be affected by changes in
prices as well as changes in PAPUC regulations. For the year ended December 31, 2006, ComEd’s
ten largest customers represented approximately 3.5% of its electric revenues and PECO's ten largest
customers represented approximately 5.9% of its retail electric and gas revenues.
Under Pennsylvania’s Competition Act, licensed entities, including competitive electric generation
suppliers, may act as agents to provide a single bill and provide associated billing and collection
services to retail customers located in PECO’s retail electric service territory. Currently, there are no
third parties providing billing of PECO’s charges to customers or advanced metering; however, if this
occurs, PECO would be subject to credit risk related to the ability of the third parties to collect such
receivables from the customers.
Exelon
Exelon’s consolidated balance sheets included a $529 million net investment in direct financing
leases as of December 31, 2006. The investment in direct financing leases represents future minimum
lease payments due at the end of the thirty-year lives of the leases of $1.5 billion, less unearned
income of $963 million. The future minimum lease payments are supported by collateral and credit
enhancement measures including letters of credit, surety bonds and credit swaps issued by high credit
quality financial institutions. Management regularly evaluates the credit worthiness of Exelon’s
counterparties to these direct financing leases.
Interest-Rate Risk (Exelon, Generation, ComEd and PECO)
Variable Rate Debt. The Registrants use a combination of fixed-rate and variable-rate debt to
reduce interest-rate exposure. The Registrants may also use interest-rate swaps when deemed
appropriate to adjust exposure based upon market conditions. Additionally, the Registrants may use
forward-starting interest-rate swaps and treasury rate locks to lock in interest-rate levels in anticipation
of future financings. These strategies are employed to achieve a lower cost of capital. At December 31,
2006, the Registrants did not have any material fair-value or cash-flow interest-rate hedges
outstanding. As of December 31, 2006, a hypothetical 10% increase in the interest rates associated
with variable-rate debt would result in a $4 million, $2 million, $1 million and $1 million decrease in
Exelon’s, Generation’s, ComEd’s and PECO’s, respectively, pre-tax earnings.
Fair-Value Hedges. During 2006, ComEd settled its interest-rate swaps designated as fair-value
hedges in the aggregate notional amount of $240 million for a cash payment of approximately $1
million.
Cash-Flow Hedges. In 2005, ComEd settled its interest-rate swaps designated as cash-flow
hedges in the aggregate notional amount of $325 million due to the underlying transaction for which
these interest-rate swaps were entered into was no longer probable of occurring. As a result, Exelon
and ComEd recognized a pre-tax loss of $15 million which was included in other, net within the
Consolidated Statements of Operations and within Cash Flows From Investing Activities on the
Consolidated Statements of Cash Flows. In addition, during 2005, Exelon settled interest-rate swaps in
the aggregate notional amount of $1.5 billion and recorded pre-tax losses of $39 million which will be
recorded as additional interest expense over the remaining life of the related debt.
Equity Price Risk (Exelon and Generation)
Exelon and Generation maintain trust funds, as required by the NRC, to fund certain costs of
decommissioning Generation’s nuclear plants. As of December 31, 2006, Generation’s
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