ComEd 2006 Annual Report Download - page 50

When purchased gas cost charges increase substantially reflecting higher gas procurement costs
incurred by PECO, customer usage may decrease, resulting in lower distribution charges and lower
profit margins for PECO. In addition, increased purchased gas cost charges to customers also may
result in increased bad debt expense from an increase in the number of uncollectible customer
balances.
The effects of weather and the related impact on electricity and gas usage may decrease
ComEd’s and PECO’s results of operations.
Temperatures above normal levels in the summer tend to increase summer cooling electricity
demand and revenues, and temperatures below normal levels in the winter tend to increase winter
heating electricity and gas demand and revenues. Moderate temperatures adversely affect the usage
of energy and resulting revenues. Because of seasonal pricing differentials, coupled with higher
consumption levels, ComEd and PECO typically report higher revenues in the third quarter of the fiscal
year. However, extreme weather conditions or storms may stress ComEd’s and PECO’s transmission
and distribution systems, resulting in increased maintenance and capital costs and limiting each
company’s ability to meet peak customer demand. These extreme conditions may have detrimental
effects on ComEd’s and PECO’s operations.
ComEd’s and PECO’s businesses are capital intensive and the costs of capital projects may be
significant.
ComEd’s and PECO’s businesses are capital intensive and require significant investments in
internal infrastructure projects. ComEd’s and PECO’s results of operations and financial condition
could be adversely affected if they are unable to effectively manage their own respective capital
projects or if they do not receive full recovery of their own respective capital costs through future
regulatory proceedings.
Other
Exelon’s and ComEd’s goodwill may become impaired, which would result in write-offs of the
impaired amounts.
Exelon and ComEd had approximately $2.7 billion of goodwill recorded at December 31, 2006 in
connection with the PECO/Unicom merger. Under accounting principles generally accepted in the
United States (GAAP), goodwill will remain at its recorded amount unless it is determined to be
impaired, which is based upon an annual analysis prescribed by SFAS No. 142, “Goodwill and Other
Intangible Assets” (SFAS No. 142) that compares the implied fair value of the goodwill to its carrying
value. If an impairment occurs, such as the impairments recorded during 2006 and 2005, the amount
of the impaired goodwill will be written off and expensed, reducing equity.
There is a possibility that additional goodwill may be impaired at ComEd, and at Exelon, in 2007 or
later periods. The actual timing and amounts of any goodwill impairments in future years will depend
on many sensitive, interrelated and uncertain variables, including changing interest rates, utility sector
market performance, ComEd’s capital structure, market prices for power, results of ComEd’s post-2006
rate proceedings, operating and capital expenditure requirements and other factors, some not yet
known. Such a potential impairment charge could have a material impact on Exelon’s and ComEd’s
operating results.
See ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operation—Critical Accounting Policies and Estimates for further discussion on goodwill impairments.
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