Exelon 2001 Annual Report Download - page 51

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The results of InfraSource’s infrastructure services business and Exelon Services’ energy services business are dependent
on demand for outsourced construction and maintenance services. That demand has been driven in the past by the
restructuring of the electric utility industry and growth of the communications, cable and internet industries. Slowdown in
that restructuring and the current condition of the communications, cable and internet industries means that results will be
driven by efforts to manage costs and achieve synergies.
Exelon Energy’s competitive retail energy sales business is dependent upon continued deregulation of retail electric and gas
markets and its ability to obtain supplies of electricity and gas at competitive prices in the wholesale market. The low margin
nature of the business makes it important to achieve concentrations of customers with higher volumes so as to manage costs.
Enterprises’investments are weighted toward the communications industry, but also include companies in energy services
and retail services, including e-commerce. Investments in the communications industries have included joint ventures with
established companies. Investments in other areas have generally been in new entrepreneurial companies with technologies
and applications for the deregulating energy marketplace. Enterprises continually monitors the performance and potential of
its investments and evaluates opportunities to sell existing investments and to make new investments. In the past, Exelon has
been required to write-off or write-down certain investments. The sale, write-down, or write-off of investments may increase
the volatility of earnings.The adoption of SFAS No.142 is expected to result in an impairment of Enterprises’goodwill which will
be recorded in the first quarter of 2002. See New Accounting Pronouncements.
Other Factors
Inflation affects Exelon through increased operating costs and increased capital costs for electric plant. As a result of the rate
caps imposed under the legislation in Illinois and Pennsylvania and price pressures due to competition, Exelon may not be able
to pass the costs of inflation through to customers.
In 2001, Exelon made several changes to its pension plans and postretirement benefit plans including consolidating the
former Unicom and PECO plans into Exelon plans. Also, a cash balance pension plan was adopted to cover essentially all
management and electing union employees hired on or after January 1, 2001. Management employees who were active
participants in the former Unicom and PECO pension plans on December 31, 2000 and remain employed by Exelon on
January 1, 2002, will have the opportunity to continue to participate in the pension plan or to transfer to the cash balance
plan. Exelon also adopted an amendment to the former Unicom postretirement medical benefit plan that changed the
eligibility requirement of the plan to cover employees taking their pensions with ten years of service after age 45 rather
than ten years of service and having attained the age of 55.
Exelon’s costs of providing pension and postretirement benefits to its retirees is dependent upon a number of factors,
such as the discount rate, rates of return on plan assets , and the assumed rate of increase in health care costs. Although
Exelon’s pension and postretirement expense is determined using three-year averaging and is not as vulnerable to a single
year’s change in rates, these costs are expected to increase in 2002 and beyond as the result of the above noted plan
changes along with the affects of the decline in market value of plan assets, changes in appropriate assumed rates of return
on plan assets and discount rates, and increases in health care costs.For a discussion of Exelon’s pension and postretirement
benefit plans, see Note 16 of the Notes to Consolidated Financial Statements.
Environmental Exelon’s operations have in the past and may in the future require substantial capital expenditures in order to
comply with environmental laws. Additionally,under Federal and state environmental laws,Exelon is generally liable for the costs
of remediating environmental contamination of property now or formerly owned by Exelon and of property contaminated by
hazardous substances generated by Exelon. Exelon owns or leases a number of real estate parcels, including parcels on which its
operations or the operations of others may have resulted in contamination by substances that are considered hazardous under
environmental laws. Exelon has identified 72 sites where former manufactured gas plant (MGP) activities have or may have
resulted in actual site contamination. Exelon is currently involved in a number of proceedings relating to sites where hazardous
substances have been deposited and may be subject to additional proceedings in the future.
As of December 31, 2001 and 2000, Exelon had accrued $156 million and $172 million, respectively, for environmental
investigation and remediation costs, including $127 million and $140 million, respectively, for MGP investigation and
remediation that currently can be reasonably estimated.Exelon expects to expend $35 million for environmental remediation