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Discussion฀of฀Financial฀Results฀-฀Generation
Results฀of฀Operations฀–฀Generation
฀฀Favorable
(Unfavorable)
(Dollars฀in฀millions)฀ ฀ 2008฀ ฀ 2007฀฀ Variance
Operating฀revenues฀ $฀ 10,754฀ $฀ 10,749฀ $฀ 5
Operating฀expenses฀฀
฀ Purchased฀power฀and฀fuel฀ ฀ 3,572฀ ฀ 4,451฀ ฀ 879
฀ Operating฀and฀maintenance฀ ฀ 2,717฀ ฀ 2,454฀ ฀ (263)
฀ Depreciation฀and฀amortization฀ ฀ 274฀ ฀ 267฀ ฀ (7)
฀ Taxes฀other฀than฀income฀ ฀ 197฀ ฀ 185฀ ฀ (12)
฀ Total฀operating฀expenses฀ ฀ 6,760฀ ฀ 7,357฀ ฀ 597
Operating฀income฀ ฀ 3,994฀ ฀ 3,392฀ ฀ 602
Other฀income฀and฀deductions฀ ฀฀ ฀฀ ฀
฀ Interest฀expense฀ ฀ (136)฀ ฀ (161)฀ ฀ 25
฀ Equity฀in฀losses฀of฀unconsolidated฀afliates฀ ฀ (1)฀ ฀ 1฀ ฀ (2)
฀ Other,฀net฀ ฀ (469)฀ ฀ 155฀ ฀ (624)
฀ Total฀other฀income฀and฀deductions฀ ฀ (606)฀ ฀ (5)฀ ฀ (601)
Income฀from฀continuing฀operations฀before฀income฀taxes฀฀ ฀ 3,388฀ ฀ 3,387฀ ฀ 1
Income฀taxes฀ ฀ 1,130฀ ฀ 1,362฀ ฀ 232
Income฀from฀continuing฀operations฀ ฀ 2,258฀ ฀ 2,025฀ ฀ 233
Discontinued฀operations฀ ฀฀ ฀฀ ฀
฀ Gain฀on฀disposal฀of฀discontinued฀operations฀ ฀ 20฀ ฀ 4฀ ฀ 16
Income฀from฀discontinued฀operations฀ ฀ 20฀ ฀ 4฀ ฀ 16
Net฀income฀ $฀ 2,278฀ $฀ 2,029฀ $฀ 249
Generation’s฀ net฀ income฀ increased฀ primarily฀ due฀ to฀ higher฀ operating฀ revenues,฀ net฀ of฀ purchased฀ power฀ and฀ fuel฀ expense,฀ partially฀ offset฀ by฀ higher฀ operating฀ and฀
maintenance฀ expenses฀ and฀ unrealized฀ and฀ realized฀ losses฀ in฀ 2008฀ and฀ realized฀ gains฀ in฀ 2007฀ related฀ to฀ nuclear฀ decommissioning฀ trust฀ funds฀ associated฀ with฀ the฀
Unregulated฀Units.฀Higher฀net฀operating฀revenues,฀net฀of฀purchased฀power฀and฀fuel฀expense,฀reected฀higher฀average฀realized฀margins,฀higher฀net฀mark-to-market฀gains฀
on฀economic฀hedging฀activities,฀lower฀costs฀incurred฀in฀conjunction฀with฀the฀Illinois฀Settlement,฀a฀2007฀loss฀associated฀with฀the฀tolling฀agreement฀with฀Georgia฀Power฀
related฀to฀the฀contract฀with฀Tenaska,฀increased฀revenue฀from฀certain฀long฀options฀in฀the฀proprietary฀trading฀portfolio฀and฀gains฀related฀to฀the฀settlement฀of฀uranium฀
supply฀agreements฀in฀2008,฀partially฀offset฀by฀increased฀nuclear฀fuel฀costs,฀lower฀nuclear฀output฀reecting฀a฀higher฀number฀of฀scheduled฀refueling฀and฀non-refueling฀
outage฀days,฀the฀gain฀on฀the฀termination฀of฀the฀State฀Line฀PPA฀in฀2007,฀a฀favorable฀PJM฀billing฀settlement฀with฀PPL฀in฀2007฀and฀impairments฀of฀stored฀oil฀and฀gas฀inventory฀
in฀2008.฀Higher฀operating฀and฀maintenance฀expenses฀included฀increased฀wages,฀salaries฀and฀benets฀(excluding฀stock-based฀compensation),฀nuclear฀refueling฀outage฀
costs฀associated฀with฀a฀higher฀number฀of฀planned฀refueling฀outages,฀higher฀costs฀associated฀with฀nuclear฀decommissioning-related฀activities฀and฀the฀establishment฀
of฀a฀reserve฀related฀to฀counterparty฀exposure฀to฀Lehman,฀partially฀offset฀by฀decreases฀in฀contractor฀expenses,฀stock-based฀compensation฀and฀costs฀associated฀with฀the฀
possible฀construction฀of฀a฀nuclear฀power฀plant฀in฀Texas.฀Additional฀offsets฀to฀increased฀net฀income฀in฀2008฀included฀decommissioning฀trust฀fund฀activity฀associated฀
with฀the฀Unregulated฀Units฀which฀reected฀unrealized฀losses฀in฀2008,฀realized฀losses฀related฀to฀a฀tax฀planning฀strategy฀in฀2008฀and฀the฀impact฀of฀realized฀gains฀in฀2007฀
associated฀with฀changes฀in฀Generation’s฀investment฀strategy. 31