ComEd 2006 Annual Report Download - page 297

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)
Exelon expects this matter to be favorably resolved during 2007; however, pending FERC
approval of the proposed settlement agreement, as well as resolution of any third-party interventions,
Exelon, Generation and PECO have not recorded any receivables associated with this matter.
Real Estate Tax Appeals. PECO and Generation each have been challenging real estate taxes
assessed on certain nuclear plants. PECO is involved in litigation in which it is contesting taxes
assessed in 1997 under the Pennsylvania Public Utility Realty Tax Act of March 4, 1971, as amended
(PURTA), and has appealed local real estate assessments for 1998 and 1999 on the Peach Bottom
Atomic Power Station (York County, PA) (Peach Bottom). Generation is involved in real estate tax
appeals for 2000 through 2004 regarding the valuation of its Peach Bottom plant and is in the process
of evaluating appraisals and preparing for negotiations. Generation was also previously involved in an
appeal regarding the valuation of its LaSalle Nuclear plant. On March 9, 2006, the Illinois Circuit Court
for LaSalle County approved the property tax settlement agreement agreed upon in late 2005 between
all taxing bodies with jurisdiction over the plant and Generation. The settlement agreement resolved all
pending litigation concerning assessments on the property and sets the assessments for the tax years
2005 through 2008. The ultimate outcome of such matters, however, remains uncertain and could
result in unfavorable or favorable impacts to the consolidated financial statements of Exelon, PECO
and Generation. PECO and Generation believe their reserve balances for exposures associated with
real estate taxes as of December 31, 2006 and 2005 reflect the probable expected outcome of the
litigation and appeals proceedings in accordance with SFAS No. 5.
Exelon and Generation
Asbestos Personal Injury Claims. In the second quarter of 2005, Generation engaged
independent actuaries to determine if, based on historical claims data and other available information,
a reasonable estimate of future losses could be calculated associated with asbestos-related personal
injury actions in certain facilities that are currently owned by Generation or were previously owned by
ComEd and PECO. Based on the actuaries’ analyses, management’s review of current and expected
losses, and the view of counsel regarding the assumptions used in estimating the future losses,
Generation recorded an undiscounted $43 million pre-tax charge for its estimated portion of all
estimated future asbestos-related personal injury claims estimated to be presented through 2030. This
amount did not include estimated legal costs associated with handling these matters, which could be
material. Generation’s management determined that it was not reasonable to estimate future asbestos-
related personal injury claims past 2030 based on only three years of historical claims data and the
significant amount of judgment required to estimate this liability. The $43 million pre-tax charge was
recorded as part of operating and maintenance expense in Generation’s Consolidated Statements of
Operations and Comprehensive Income in 2005 and reduced net income by $27 million after tax.
During 2006, Generation performed a periodic update to this reserve, which did not result in a material
adjustment.
At December 31, 2006 and 2005, Generation had reserved approximately $48 million in total for
asbestos-related bodily injury claims. As of December 31, 2006, approximately $10 million of this
amount relates to 131 open claims presented to Generation, while the remaining $38 million of the
reserve is for estimated future asbestos-related bodily injury claims anticipated to arise through 2030
based on actuarial assumptions and analysis. Generation plans to obtain annual updates of the
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