ComEd 2006 Annual Report Download - page 51

General Business
The following risk factors may adversely impact several or all of the Registrants’ results of
operations and cash flows.
Exelon’s generation and energy delivery businesses may be negatively affected by possible
state legislative or regulatory actions that could limit the retail price of electricity or place
burdens on its generation business.
Criticism of restructured electricity markets in public forums escalated during 2006 as retail rate
freezes expired in a number of states as fuel prices increased, thereby driving up retail prices for
electricity. ComEd’s customers are experiencing increases in their costs for electric service beginning
in 2007, and PECO’s customers could expect to see increases in their electric bills after 2010.
Consumers in other states are also experiencing significant rate increases. In Illinois, Pennsylvania
and other states, there is growing pressure for state regulatory and political processes to take steps to
reduce the impact of price increases on retail customers. The political pressure for states to retreat
from allowing competitively-priced supplies to serve retail load and to return to cost-based regulation of
generation resources or take other actions directed at generators of electricity creates heightened risk
of limitations on the retail price of electricity, which could significantly affect the results of operations of
ComEd and PECO, and a heightened risk of imposition of restrictions and other burdens on Exelon’s
generation business, which could significantly affect Generation’s results of operations.
Generation may be negatively affected by possible Federal legislative or regulatory actions that
could weaken competition in the wholesale markets or affect pricing rules in the RTO markets.
The criticism of restructured electricity markets, which escalated during 2006 as retail rate freezes
expired and prices for electricity increased with rising fuel prices, is expected to continue in 2007. A
number of advocacy groups have urged FERC to reconsider its support for competitive wholesale
electricity markets, and to require the RTOs to revise the rules governing the RTO-administered markets.
In particular, the advocacy groups oppose the RTOs’ use of a “single clearing price” for electricity sold in
the RTO markets. FERC has announced that it will convene a series of public conferences during 2007
to address the issues surrounding electric competition. While FERC has not proposed to revise its pricing
rules, these events create heightened risk of changes in FERC’s rules governing wholesale electricity
markets, which in turn could significantly affect Generation’s results of operations.
In addition, FERC has proposed to revise the tests that market participants must satisfy to be
entitled to market-based rates. The actual impacts of any new rules that are approved as a result of
FERC’s future ruling related to market-based rates could significantly affect Generation’s results of
operations.
Results of operations may be negatively affected by increasing costs.
Inflation affects the Registrants through increased operating costs and increased capital costs for
plant and equipment. As a result of the regulatory recovery process for ComEd and PECO, rate caps
for PECO and price pressures due to competition, ComEd and PECO may not be able to recover the
costs of inflation from their customers on a timely basis.
In addition, the Registrants face rising medical benefit costs, including the current costs for active
and retired employees. These medical benefit costs are increasing at a rate that is significantly greater
than the rate of general inflation. Additionally, it is possible that these costs may increase at a rate
which is higher than anticipated by the Registrants. If the Registrants are unable to successfully
manage their medical benefit costs or other increasing costs, their results of operations could be
negatively affected.
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