ComEd 2006 Annual Report Download - page 186

Exelon Corporation and Subsidiary Companies
Exelon Generation Company, LLC and Subsidiary Companies
Commonwealth Edison Company and Subsidiary Companies
PECO Energy Company and Subsidiary Companies
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
Securities and Exchange Commission (SEC) under the Public Utility Holding Company Act of 1935
(PUHCA) prior to its repeal effective February 8, 2006, and ComEd and PECO apply Statement of
Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of
Regulation,” (SFAS No. 71). SFAS No. 71 requires ComEd and PECO to record in their financial
statements the effects of rate regulation for utility operations that meet the following criteria: (1) third-
party regulation of rates; (2) cost-based rates; and (3) a reasonable assumption that all costs will be
recoverable from customers through rates. Exelon believes that it is probable that its currently recorded
regulatory assets and liabilities will be recovered in future rates. However, Exelon, ComEd and PECO
continue to evaluate their abilities to apply SFAS No. 71, including, in the case of ComEd,
incorporating the current events related to the regulatory and political environment in Illinois. If a
separable portion of ComEd’s or PECO’s business was no longer able to meet the provisions of SFAS
No. 71, Exelon, ComEd and PECO would be required to eliminate from their financial statements the
effects of regulation for that portion, which could have a material impact on their financial condition and
results of operations. See Note 4—Regulatory Issues for further information regarding the repeal of
PUHCA effective February 8, 2006 and the regulatory and political environment in Illinois.
Segment Information (Generation, ComEd and PECO)
Generation, ComEd and PECO each constitute one operating segment. See Note 20 – Segment
Information for information regarding Exelon’s operating segments.
Variable Interest Entities (Exelon, Generation, ComEd and PECO)
FIN 46 and its revision FIN 46-R addressed the requirements for consolidating certain variable
interest entities. FIN 46 was effective for the Registrants’ variable interest entities created after
January 31, 2003. FIN 46-R was effective December 31, 2003 for the Registrants’ variable interest
entities that were considered to be special-purpose entities and as of March 31, 2004 for all other
variable interest entities.
Exelon and Generation consolidated Sithe, 50% owned through a wholly owned subsidiary of
Generation, as of March 31, 2004 pursuant to the provisions of FIN 46-R and recorded income of $32
million (net of income taxes) as a result of the reversal of guarantees of Sithe’s commitments
previously recorded by Generation. This income was reported as a cumulative effect of a change in
accounting principle in the first quarter of 2004. As of March 31, 2004, Generation was a 50% owner of
Sithe, and Exelon had accounted for Sithe as an unconsolidated equity method investment prior to
March 31, 2004. Sithe owned and operated power-generating facilities and was sold by Generation on
January 31, 2005. See Note 2—Acquisitions and Dispositions for additional information regarding the
sale of Sithe in 2005.
PECO Trust IV, a financing subsidiary of PECO created in May 2003, was deconsolidated from
the financial statements of Exelon pursuant to the provisions of FIN 46 as of July 1, 2003. Pursuant to
the provisions of FIN 46-R, as of December 31, 2003, the financing trusts formed prior to
December 31, 2003 of ComEd, namely ComEd Financing II, ComEd Financing III, ComEd Funding
LLC and ComEd Transitional Funding Trust, and the other financing trusts of PECO, namely PECO
Trust III and PECO Energy Transition Trust (PETT), were deconsolidated from Exelon’s, ComEd’s and
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