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real*
Exelon Corporation 02 Annual Report

Table of contents

  • Page 1
    real* Exelon Corporation 02 Annual Report

  • Page 2
    Contents Introduction 1 / Letter to Shareholders 3 / Real Customers 8 / Real Assets 11 Real Work 12 / Real Power 15 / Real Results 16 / Exelon at a Glance 18 Management Team 20 / Board of Directors 21 / Financial Section 22

  • Page 3
    Exelon is a real company We are a group of United States electric and gas, generation and delivery companies. We offer no mysteries and make no pretenses. We make commitments to customers, investors and employees and work very hard to keep them. We deliver real earnings and we face real risks. We'd ...

  • Page 4
    real simple 5.1 Million Retail Electric Customers 43,000 MW Generation Supply Portfolio 16,000 MWs of Nuclear Capacity $14,955 Million 2002 Revenue $1,440 Million 2002 Net Income * 2

  • Page 5
    ... depressed stock market, falling wholesale power prices and energy trading scandals in other energy companies. Exelon met its operating earnings goals and continued to improve its performance. Early in the year, Business Week selected us as the nation's outstanding performer among electric companies...

  • Page 6
    ... of 2003, the Board of Directors declared a quarterly common dividend of $0.46 per share resulting in a current annual rate of $1.84 per share, an increase of 4.5 percent. Exelon's reported earnings for 2002 were $4.44 per share. Our operating earnings of $4.83 per share exclude several one-time...

  • Page 7
    ... rapidly to changing markets, politics, economics and technology to meet our customers'needs. • Maximize the earnings and cash flow from our assets and businesses and sell those that do not meet our goals. Invest in our consolidating industry • Develop strategies based on learning from past...

  • Page 8
    ... businesses working together. The way our Generation, Power Team and Energy Delivery groups worked together on revising our power purchase agreement with Midwest Generation, LLC reflected this kind of work in 2002. Promote and implement policies that build effective markets. Exelon's ultimate value...

  • Page 9
    ..., markets and regulation. We are committed to working skillfully and passionately with these fundamentals. And our ends are constant. We are committed to building the value of your shares and the service we provide to our customers. John W. Rowe Chairman, President and Chief Executive Officer March...

  • Page 10
    ... Illinois and 1.5 million in southeastern Pennsylvania - and approximately 450,000 gas customers in the Philadelphia area. From ethnically diverse urban neighborhoods within both Chicago and Philadelphia, to the ever-expanding suburbs that surround these great cities, Exelon has a unique mix of real...

  • Page 11

  • Page 12

  • Page 13
    ...gas gate stations, and transmission and distribution systems that deliver energy to millions of consumers. To keep energy flowing, Exelon owns and maintains 100,000 circuit miles of overhead and underground lines, hundreds of substations and valuable generation assets. Exelon has a generation supply...

  • Page 14
    ... the need to observe ethical standards and to earn and maintain the trust of our customers, shareholders, regulators, government officials and the communities we serve. Exelon's Board of Directors and employees abide by a corporate code of conduct that requires them to act with integrity and obey...

  • Page 15

  • Page 16

  • Page 17
    ... and markets real power, not virtual power - in 2002, Exelon Generation produced 129,000 gigawatt-hours. Whether it's by way of nuclear-, fossil-, hydro-, solar- or wind-generated power, we've promised our customers that we'll "keep the lights on." Exelon has pledged to support renewable energy use...

  • Page 18
    ... PECO Energy merged to become Exelon Corporation, it resulted in the successful creation of one of America's largest utilities. In 2002, Exelon reported consolidated earnings of $1,440 million. Exelon's stock price increased by 10 percent during 2002, which coupled with the dividend provided a total...

  • Page 19

  • Page 20
    ... Company (BSC) is a direct, wholly owned subsidiary of Exelon Corporation.With nearly 800 employees located in Chicago and Philadelphia, BSC provides Exelon's businesses with services in the areas of information technology, finance, corporate governance, human resources, legal, supply management...

  • Page 21
    ... 900, manages, operates and maintains the company's fossil (coal, oil and natural gas), landfill gas and hydroelectric fleet of generating assets. With the recent acquisition of stations in Texas and in New England and the completion of the Southeast Chicago Energy Project, Exelon Power more than...

  • Page 22
    Management Team pictured left to right 1 2 3 4 John W. Rowe Chairman, President and CEO Ian P. McLean Executive Vice President Katherine K. Combs Vice President, Corporate Secretary and Deputy General Counsel 7 Frank M. Clark Senior Vice President 5 6 8 Randall E. Mehrberg Executive Vice ...

  • Page 23
    ..., LLP 3 John W. Rowe Chairman, President and CEO Exelon Corporation 4 Carlos H. Cantu Senior Chairman The ServiceMaster Company Sue L. Gin Chairman and Chief Executive Officer Flying Food Group, Inc. 5 Ronald Rubin Chairman and Chief Executive Officer Pennsylvania Real Estate Investment Trust...

  • Page 24
    ... 23 Management's Discussion and Analysis of Financial Condition and Results of Operations 24 Report of Independent Accountants 76 / Consolidated Statements of Income 77 / Consolidated Statements of Cash Flows 78 Consolidated Balance Sheets 79 / Consolidated Statements of Changes in Shareholders...

  • Page 25
    ... 31, 1998 Balance Sheet Data Current Assets Property, Plant and Equipment, net Deferred Debits and Other Assets Total Assets Current Liabilities Long-Term Debt Deferred Credits and Other Liabilities Minority Interest Preferred Securities of Subsidiaries Shareholders' Equity Total Liabilities and...

  • Page 26
    ... program to expand on 2002's Cost Management Initiative. Our process, The Exelon Way, general business On October 20, 2000, Exelon Corporation (Exelon or we) became the parent corporation for PECO Energy Company (PECO) and Commonwealth Edison Company (ComEd) as a result of a merger among PECO...

  • Page 27
    ... Delivery, Generation and Enterprises in different ways. Also, there are several factors that affect our business as a whole, such as environmental compliance and the ability to access capital on a cost-effective basis. Energy Delivery We must comply with numerous regulatory requirements in managing...

  • Page 28
    ... Illinois law, ComEd can be required to pay damages to its customers in the event of extended outages affecting large numbers of its customers. We must manage Energy Delivery's costs due to the rate and equity return limitations imposed on Energy Delivery's revenues. Rate freezes and caps in effect...

  • Page 29
    ... of Operations exelon corporation and subsidiary companies instances, market-derived rates. In addition, customers who choose an alternative generation supplier may later return to ComEd or PECO, provided, however, that under Illinois law ComEd's obligation to provide generation may be eliminated...

  • Page 30
    ... innovative pricing, including performance-based incentives to ComEd. During informal workshops sponsored by a member of the Illinois General Assembly, various market participants and interested parties made proposals which, if adopted, could have the effect of reducing the CTC. In order to address...

  • Page 31
    ... effects on our operations. Economic conditions and activity in Energy Delivery's service territories directly affect the demand for electricity. Higher levels of development and business activity generally increase the number of customers and their use of energy. Sales growth on an annual basis...

  • Page 32
    ... on its plant assets. Energy Delivery's base rate freeze and caps will generally preclude incremental rate recovery on any of these incremental investments prior to January 1, 2007 (see Energy Delivery-Rate and Equity Return Limitations above). Generation Our Generation business operates a fleet of...

  • Page 33
    ... and Analysis of Financial Condition and Results of Operations exelon corporation and subsidiary companies Plant life extensions. In 2001, Generation extended the estimated lives of certain nuclear stations. This change in estimate reflects the current and planned applications to the NRC to...

  • Page 34
    ... the operating abilities of Mystic 8 and Mystic 9. The interaction between our Energy Delivery and Generation businesses provide us a partial hedge. The price of power purchased and sold in the open wholesale energy markets can vary significantly in response to market conditions. Both ComEd and PECO...

  • Page 35
    ... hedge our open energy (power and fossil fuels) positions, - manages commodity and counterparty credit risks through the use of documented risk and credit policies, and 33 - uses its energy market expertise to engage in trading activities for speculative purposes on a limited basis. Power Team has...

  • Page 36
    ... Standard Market Design. Generation is dependent on wholesale energy markets and open transmission access and rights by which we deliver power to our wholesale customers, including ComEd and PECO. We use the wholesale regional energy markets to sell power that we do not need to satisfy our long-term...

  • Page 37
    ...the equity markets on the nuclear decommissioning trust funds and benefit plan assets. Our results of operations can be affected by inflation. Inflation affects us through increased operating costs and increased capital costs for electric plant. As a result of the rate freezes and caps imposed under...

  • Page 38
    ... affect our business operations. We are subject to regulation by the Securities and Exchange Commission (SEC) under the Public Utility Holding Company Act (PUHCA) of 1935 as a result of our ownership of ComEd and PECO. That regulation affects our ability to: - diversify, by generally restricting our...

  • Page 39
    ... depreciation rates at Energy Delivery. The increase was partially offset by lower wholesale energy prices, increased nuclear refueling outage costs, the write-down of certain investments at Enterprises, employee severance costs, and other factors described below. Results of Operations by Business...

  • Page 40
    ... Analysis of Financial Condition and Results of Operations exelon corporation and subsidiary companies Income (Loss) Before Cumulative Effect of Changes in Accounting Principles by Business Segment 2002 2001 Variance % Change Energy Delivery Generation Enterprises Corporate Total Net Income (Loss...

  • Page 41
    Management's Discussion and Analysis of Financial Condition and Results of Operations exelon corporation and subsidiary companies Energy Delivery 2002 2001 Variance % Change Operating Revenues Revenue, net of Purchased Power & Fuel Expense Operating Income Income Before Income Taxes Net Income...

  • Page 42
    Management's Discussion and Analysis of Financial Condition and Results of Operations exelon corporation and subsidiary companies Energy Delivery Operating Statistics and Revenue Detail Energy Delivery's electric sales statistics and revenue detail are as follows: Retail Deliveries-(in ...

  • Page 43
    ... sale of energy but not revenue from the delivery of electricity since ComEd and PECO continue to deliver electricity that is purchased from other suppliers. As of December 31, 2002, 13% of energy delivered to Energy Delivery's customers was provided by alternative electric suppliers. On May 1, 2002...

  • Page 44
    ... nuclear stations with total generation capacity of 2,481 MWs. Generation's wholesale marketing unit, Power Team, a major wholesale marketer of energy, uses Generation's energy generation portfolio, transmission rights and expertise to ensure delivery of energy to Generation's wholesale customers...

  • Page 45
    Management's Discussion and Analysis of Financial Condition and Results of Operations exelon corporation and subsidiary companies Generation 2002 2001 Variance % Change Operating Revenues Revenue, net of Purchased Power & Fuel Expense Operating Income Income Before Income Taxes and Cumulative ...

  • Page 46
    ... of Operations exelon corporation and subsidiary companies Generation's average margin and other operating data for 2002 and 2001 were as follows: ($/MWh) (1) 2002 2001 % Change Average Revenue Energy Delivery Exelon Energy Market Sales Total-excluding the trading portfolio Average Supply Cost...

  • Page 47
    Management's Discussion and Analysis of Financial Condition and Results of Operations exelon corporation and subsidiary companies The changes in Enterprises' operating income (loss) for 2002 compared to 2001, included the following: - lower revenues of $65 million from Exelon Services as a result ...

  • Page 48
    ... transactions. Income (Loss) Before the Cumulative Effect of Changes in Accounting Principles by Business Segment 2001 2000 Variance Components of Variance Merger Normal Variance Operations Energy Delivery Generation Enterprises Corporate Total $ $ 1,022 512 (85) (33) 1,416 $ $ 587...

  • Page 49
    Management's Discussion and Analysis of Financial Condition and Results of Operations exelon corporation and subsidiary companies Energy Delivery's revenue net of purchased power and fuel expense, in 2001 was comparable to that for 2000. The changes in Energy Delivery's operating income for 2001 ...

  • Page 50
    ... the cost of energy and the delivery cost of the transmission and the distribution of the energy. PECO's tariffed rates also include a CTC charge. (3) Unbundled revenue reflects revenue from customers electing to receive electric generation service from an alternative energy supplier or ComEd's PPO...

  • Page 51
    ... 2001 to support the open access program in Illinois, partially offset by increased transmission service revenue and the reversal of a $15 million reserve for revenue refunds to ComEd's municipal customers as a result of a favorable FERC ruling. Energy Delivery's gas sales statistics were as follows...

  • Page 52
    Management's Discussion and Analysis of Financial Condition and Results of Operations exelon corporation and subsidiary companies The changes in Generation's revenue, net of purchased power and fuel expense, for 2001 compared to 2000, included the following: - increases in wholesale market prices ...

  • Page 53
    ... from the sale of electric energy to wholesale customers, including Energy Delivery and Enterprises. Generation's future Energy Delivery Generation Enterprises Corporate and Other Subtotal Acquisition of Generating Plants Total Capital Expenditures and Acquisition of Generating Plants $ 1,041 990...

  • Page 54
    ... Balance Sheets as of December 31, 2002. Credit Issues We meet our short-term liquidity requirements primarily through the issuance of commercial paper by the Exelon corporate holding company (Exelon Corporate) and by ComEd, PECO and Generation. Exelon Corporate participates, along with ComEd, PECO...

  • Page 55
    ... and Analysis of Financial Condition and Results of Operations exelon corporation and subsidiary companies For 2002, the average interest rate on notes payable was approximately 1.88%. Certain of the credit agreements to which Exelon Corporate, ComEd, PECO and Generation are parties require them...

  • Page 56
    Management's Discussion and Analysis of Financial Condition and Results of Operations exelon corporation and subsidiary companies authority. Our request that the short-term debt sub-limit restriction be eliminated is pending with the SEC. The SEC order also authorized us to issue guarantees of up ...

  • Page 57
    ... companies We have a long-term supply agreement through December 2022 with Distrigas to guarantee physical gas supply to our New England generating units. Under the agreement, prices are indexed to New England gas markets. Generation has an obligation to decommission its nuclear power plants...

  • Page 58
    ... Results of Operations exelon corporation and subsidiary companies Sithe Boston Generation Project Debt. We participate in a $1.25 billion credit facility, most of which is available to finance the construction projects of Sithe Boston Generating, LLC (the SBG Facility). The outstanding balance of...

  • Page 59
    Management's Discussion and Analysis of Financial Condition and Results of Operations exelon corporation and subsidiary companies Generation's equity investment in AmerGen was $160 million and $95 million at December 31, 2002 and 2001, respectively. Generation and British Energy plc (British Energy...

  • Page 60
    ... or pay to terminate the contracts at the balance sheet date, thereby taking into account the current unrealized gains or losses of open contracts. Normal Purchases and Normal Sales Exemption. As part of our energy marketing business, we enter into contracts to purchase or sell electricity, gas...

  • Page 61
    ... with the gains and losses recorded in Purchased Power and Fuel expense. Non-trading contracts are subject to stringent risk management limits and policies, as prescribed by the RMC. Although we use derivative instruments to assist in managing commodity price and interest rate risks, we can still...

  • Page 62
    ... recovered through rates. At December 31, 2002 and 2001, we had $248 million and $310 million, respectively, in nuclear decommissioning costs for retired plants recorded in our Consolidated Balance Sheets. These costs will be recovered in rates and amortized on a straight-line basis to earnings...

  • Page 63
    .... For retired units, the current cost decommissioning estimate is recorded in deferred credits and other liabilities and accreted to depreciation expense. Under regulatory accounting principles, gains and losses on marketable securities held in the nuclear decommissioning trust funds are reported in...

  • Page 64
    ... of the credit-adjusted risk-free rate. Under SFAS No. 143, the fair value of the nuclear decommissioning obligation will continue to be adjusted on an ongoing basis as these model input factors change. In accordance with SFAS No. 143, we used a probabilistic cash flow model with multiple...

  • Page 65
    ... a risk-adjusted discount rate and long-term earnings multiples of comparable companies. In addition to the above-noted assumptions, ComEd's model included varying assumptions regarding: - The timing of future rate case filings to establish new rates for bundled service after the then scheduled 2004...

  • Page 66
    ... cap calculation through 2006. Defined Benefit Pension and Other Postretirement Welfare Benefits We sponsor defined benefit pension plans and postretirement welfare benefit plans applicable to essentially all ComEd, PECO, Generation and BSC employees and certain Enterprises employees. The costs...

  • Page 67
    ...levels as the result of the effects of the decline in market value of plan assets in 2002, the decline in discount rate and increases in health care costs. In 2001, we adopted a cash balance pension plan. All management and electing union employees who were hired by us after 2001 became participants...

  • Page 68
    ... exelon corporation and subsidiary companies shares of our common stock and common stock awards. The exercise price of the stock options is equal to the fair market value of the underlying stock on the date of option grant. Options granted under the LTIP and the broad-based incentive program...

  • Page 69
    ... the chief financial officer, general counsel, treasurer, vice president of corporate planning and officers from each of the business units. The RMC reports to the board of directors on the scope of our derivative activities. Commodity Price Risk Commodity price risk is associated with market price...

  • Page 70
    ... are recognized in earnings on a current basis. The following detailed presentation of our trading and non-trading marketing activities at Generation is included to address the recommended disclosures by the energy industry's Committee of Chief Risk Officers. We do not consider our proprietary...

  • Page 71
    Management's Discussion and Analysis of Financial Condition and Results of Operations exelon corporation and subsidiary companies The following table provides detail on changes in Generation's mark-to-market net asset or liability balance sheet position from January 1, 2002 to December 31, 2002. It...

  • Page 72
    ...Condition and Results of Operations exelon corporation and subsidiary companies The following table, which presents maturity and source of fair value of mark-to-market energy contract net assets, provides two fundamental pieces of information. First, the table provides the source of fair value used...

  • Page 73
    ... retail electric revenues. We record a provision for uncollectible accounts, based upon historical experience and third-party studies, to provide for the potential loss from nonpayment by these customers. Generation has credit risk associated with counterparty performance on energy contracts which...

  • Page 74
    ... Financial Condition and Results of Operations exelon corporation and subsidiary companies including leverage, liquidity, profitability, credit ratings and risk management capabilities. Generation has entered into payment netting agreements or enabling agreements that allow for payment netting with...

  • Page 75
    ... value of AmerGen's purchased power arrangement with Illinois Power Company, a subsidiary of Dynegy, could be impacted by events related to Dynegy's financial condition. Generation participates in the following established, realtime energy markets, which are administered by ISOs: PJM, New England...

  • Page 76
    .... Equity Price Risk We maintain trust funds, as required by the NRC, to fund certain costs of decommissioning our nuclear plants. As of December 31, 2002, our decommissioning trust funds are reflected at fair value on our Consolidated Balance Sheets. The mix of securities in the trust funds is...

  • Page 77
    ... Condition and Results of Operations exelon corporation and subsidiary companies As it relates to nuclear decommissioning, the effect of a cumulative adjustment will be to decrease the decommissioning liability to reflect the fair value of the decommissioning obligation at the balance sheet date...

  • Page 78
    Report of Independent Accountants exelon corporation and subsidiary companies To the Shareholders and Board of Directors of Exelon Corporation: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, cash flows and changes in shareholders' ...

  • Page 79
    ... exelon corporation and subsidiary companies in millions, except per share data 2002 For the Years Ended December 31, 2001 2000 Operating Revenues Operating Expenses Purchased Power Purchased Power from Unconsolidated Affiliate Fuel Operating and Maintenance Merger-Related Costs Depreciation...

  • Page 80
    ...of Generating Plants Unicom Merger Consideration Proceeds from Direct Financing Leases Investment in Sithe Energies, Inc. Enterprises Acquisitions, net of cash acquired Proceeds from the Sale of Investments Proceeds from Nuclear Decommissioning Trust Funds Investment in Nuclear Decommissioning Trust...

  • Page 81
    ... Sheets exelon corporation and subsidiary companies in millions 2002 December 31, 2001 Assets Current Assets Cash and Cash Equivalents Restricted Cash Accounts Receivable, net Customer Other Receivable from Unconsolidated Affiliate Inventories, at average cost Fossil Fuel Materials and Supplies...

  • Page 82
    ... exelon corporation and subsidiary companies Dollars in millions, shares in thousands Shares Common Stock Deferred Compensation Retained Earnings Accumulated Other Treasury Comprehensive Shares Income (Loss) Total Shareholders' Equity Balance, December 31, 1999 Net Income Long-Term Incentive...

  • Page 83
    ... the sale of natural gas and distribution services by PECO in the Pennsylvania counties surrounding the City of Philadelphia. The wholesale generation business consists of the electric generating facilities and energy marketing operations of Exelon Generation Company, LLC (Generation) and Generation...

  • Page 84
    ... the effect on net income and earnings per share had Exelon elected to account for its stock-based compensation plans using the fair value method under SFAS No. 123 for the years ended December 31, 2002, 2001 and 2000: 2002 2001 2000 Net income-as reported Deduct: Total stock-based compensation...

  • Page 85
    ...Adoption of New Accounting Pronouncements and Accounting Changes for information on service life extensions for certain nuclear generating stations and Energy Delivery's change in depreciation rates. Asset Category 2002 2001 2000 Electric-Transmission and Distribution Electric-Generation Gas Common...

  • Page 86
    ... former ComEd operating stations is being amortized to depreciation expense on a straight-line basis over the remaining lives of the stations. The current decommissioning cost estimate (adjusted annually to reflect inflation) for the former ComEd retired units recorded in deferred credits and other...

  • Page 87
    ... to limit the market price risk associated with forward energy commodity contracts. Additionally, Exelon enters into certain energy related derivatives for trading or speculative purposes. As part of Exelon's energy marketing business, Exelon enters into contracts to buy and sell energy to...

  • Page 88
    ... the Merger are as follows: Current Assets (including cash of $974) Property, Plant and Equipment Deferred Debits and Other Assets Cost in excess of net assets acquired Current Liabilities Long-Term Debt Deferred Credits and Other Liabilities Preferred Securities of Subsidiaries Total Purchase Price...

  • Page 89
    ... on Generation's balance sheet. A total of 960 PECO positions were expected to be eliminated as a result of the Merger, 274 of which related to generation, 230 of which related to PECO energy delivery and 456 of which related to enterprises and corporate support areas. As of December 31, 2002, 858...

  • Page 90
    ... business plans. note 03 • acquisitions and dispositions Sithe New England Holdings Asset Acquisition On November 1, 2002, Generation purchased the assets of Sithe New England Holdings, LLC (Sithe New England), a subsidiary of Sithe, and related power marketing operations. Sithe New England...

  • Page 91
    ... 25, 2002, Generation acquired two natural-gas and oil-fired plants from TXU Corp. (TXU) for an aggregate purchase price of $443 million. The purchase included the 893-megawatt Mountain Creek Steam Electric Station in Dallas and the 1,441megawatt Handley Steam Electric Station in Fort Worth. The...

  • Page 92
    ... discounted cash flow models reflecting the expected range of future cash flow outcomes related to each of the Enterprises reporting units over the life of the investment. These cash flows were discounted to 2002 using a risk-adjusted discount rate. The impairment was recorded as a cumulative effect...

  • Page 93
    ... and continues to account for its stock-compensation plans under the disclosure only provision of SFAS No. 123. Changes in Accounting Estimates Effective July 1, 2002, ComEd decreased its depreciation rates based on a new depreciation study reflecting its significant construction program in recent...

  • Page 94
    ...profile of Power Team's counterparties. Power Team is the unit within Generation that manages the output of Generation's assets and energy sales to reduce the volatility of Generation's earnings and cash flows. On April 1, 2002, the ICC issued an interim order in ComEd's Delivery Services Rate Case...

  • Page 95
    ... were purchasing generation from an alternative generation supplier. Customers who purchase energy from an EGS continue to pay a delivery charge. In January 2003, PECO submitted to the PUC an MST plan to meet the 50% threshold requirement for its small and large commercial customer classes, which...

  • Page 96
    ...(a) Real estate Payroll Other Total Other, Net Investment income Gain (loss) on disposition of assets, net Write-down of impaired investments AFUDC, equity and borrowed Reserve for potential plant disallowance Settlement of power purchase agreement Other Total Supplemental Balance Sheet Information...

  • Page 97
    ... exercise of stock options outstanding under Exelon's stock option plans considered to be common stock equivalents. The following table shows the effect of these stock options on the weighted average number of shares outstanding used in calculating diluted earnings per share (in millions): 2002 2001...

  • Page 98
    ... and 2001 were as follows: December 31, 2002 Peach Bottom Salem Keystone Conemaugh Production Plant Transmission Quad Cities and Other Plant Operator Participating Interest Exelon's Share: Plant Accumulated Depreciation Construction Work in Progress Generation 50% $ 417 243 52 $ PSE&G 42.59...

  • Page 99
    ... trust funds (based on the market value of the assets on the Merger date, in accordance with purchase accounting) had previously been recorded in accumulated depreciation or regulatory assets. As a result of the transfer of the ComEd nuclear plants to Generation and the ICC order limiting...

  • Page 100
    ... To Consolidated Financial Statements exelon corporation and subsidiary companies DOE one mill ($.001) per kilowatt-hour of net nuclear generation for the cost of nuclear fuel long-term storage and disposal. This fee may be adjusted prospectively in order to ensure full cost recovery. The NWPA and...

  • Page 101
    ...credit facility are based on the London Interbank Offering Rate (LIBOR) as of the date of the advance. note 13 • long-term debt December 31, Rates Maturity Date 2002 2001 Securitized Long-Term Debt ComEd Transitional Trust Notes Series 1998-A: PETT Bonds Series 1999-A: Fixed rates Floating rates...

  • Page 102
    ...Securities Act. The exchange bonds are identical to the outstanding bonds except for the elimination of certain transfer restrictions and registration rights pertaining to the outstanding bonds. ComEd, PECO and Generation did not receive any cash proceeds from issuance of the exchange bonds. In 2002...

  • Page 103
    ... exelon corporation and subsidiary companies with the early retirement of debt in 2002 and 2001, respectively, have been deferred in regulatory assets and will be amortized to interest expense over the life of the related new debt issuance consistent with regulatory recovery. In 2000, PECO...

  • Page 104
    ... employed by Exelon on January 1, 2002 elected to transfer to the cash balance plan. Benefits under Exelon's pension plans generally reflect each employee's compensation, years of service and age at retirement. Funding is based upon actuarially determined contributions that take into account the...

  • Page 105
    ... of employees expected to receive benefits under the plans. Exelon's costs of providing pension and postretirement benefit plans are dependent upon a number of factors, such as the rates of return on pension plan assets, discount rate, and the rate of increase in health care costs. The market value...

  • Page 106
    ... than with 10 years of service and having attained the age of 55. Welfare benefits for active employees are provided by several insurance policies or self-funded plans whose premiums or contributions are based upon the benefits paid during the year. Exelon sponsors savings plans for the majority of...

  • Page 107
    ...PECO trusts represent Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership (COMRPS) having a distribution rate and liquidation value equivalent to the trust securities. The COMRPS are the sole assets of these trusts and represent limited partnership interests of PECO Energy...

  • Page 108
    ... Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2002, 2001 and 2000, respectively: 2002 2001 2000 Dividend yield Expected volatility Risk-free interest rate Expected life (years) At December 31, 2002, the options outstanding, based on ranges of...

  • Page 109
    ...the Board of Directors of Exelon approved the Employee Stock Purchase Plan (ESPP). The purpose of the ESPP is to provide employees of Exelon, and its subsidiary companies the right to purchase shares of Exelon's common stock at belowmarket prices. A total of 3,000,000 shares of Exelon's common stock...

  • Page 110
    ... for decommissioning nuclear plants, long-term debt and preferred securities of subsidiaries are estimated based on quoted market prices for the same or similar issues. The fair value of Exelon's interest rate swaps and power purchase and sale contracts is determined using quoted exchange prices...

  • Page 111
    ... adjustments on non-trading power purchase and sale contracts are reported in fuel and purchased power and markto-market adjustments on trading activities are reported as Operating Revenues in the Consolidated Statements of Income. During 2002 and 2001, Generation recognized net losses aggregating...

  • Page 112
    ... in the trust accounts for decommissioning nuclear plants as available-for-sale. The following tables show the fair values, gross unrealized gains and losses and amortized costs bases for the securities held in these trust accounts. Amortized Cost Gross Unrealized Gains December 31, 2002 Gross...

  • Page 113
    ..., Exelon has committed to provide AmerGen with capital contributions equivalent to 50% of the purchase price of any acquisitions AmerGen makes in 2003. Generation has a 70% interest in the Southeast Chicago Energy Project, LLC (Southeast Chicago), which owns a peaking facility in Chicago. Southeast...

  • Page 114
    ... of Massachusetts, LLC to guarantee physical gas supply to its New England generating units. Under the agreement, prices are indexed to New England gas markets. At December 31, 2002, Exelon had long-term commitments, relating to the purchase and sale of energy, capacity and transmission rights from...

  • Page 115
    ...debt)(b) Letters of Credit (Long-Term Debt)(c) Insured Long-Term Debt(d) Guarantees of Letters of Credit(e) Performance Guarantees(f) Surety Bonds(g) Energy Marketing Contract Guarantees(h) Nuclear Insurance Guarantees(i) Lease Guarantees(j) Preferred Securities(k) Sithe New England Equity Guarantee...

  • Page 116
    ... effects of a 2.5% and 3.0% inflation rate before the effects of discounting were $138 million and $154 million at December 31, 2002 and 2001, respectively. Exelon anticipates that payments related to the discounted environmental investigation and remediation costs, recorded on an undiscounted basis...

  • Page 117
    ... Statements exelon corporation and subsidiary companies Litigation Securities Litigation. Between May 8 and June 14, 2002, several class action lawsuits were filed in the Federal District Court in Chicago asserting nearly identical securities law claims on behalf of purchasers of Exelon securities...

  • Page 118
    ... to have a material adverse effect on its respective financial condition or results of operations. Credit Contingencies Generation is a counterparty to Dynegy in various energy transactions. In early July 2002, the credit ratings of Dynegy were downgraded by two credit rating agencies to below...

  • Page 119
    ... of Exelon's business segment information to the respective information in the consolidated financial statements are as follows: Energy Delivery Generation Enterprises Corporate Intersegment Eliminations Consolidated Total Revenues: 2002 2001 2000 Intersegment Revenues: 2002 2001...

  • Page 120
    ... in Sithe and Exelon's agreement to maintain a positive net worth of Sithe. (4) Under the terms of the agreement to acquire Sithe New England dated November 1, 2002, Generation issued a $534 million note to be paid in full on June 18, 2003 to Sithe. The note bears interest at the rate equal to LIBOR...

  • Page 121
    ...1.70 1.22 $ 1.23 0.97 1.16 1.05 The following table presents the New York Stock Exchange-Composite Common Stock Prices and dividends by quarter on a per share basis: Fourth Quarter Third Quarter Second Quarter 2002 First Quarter Fourth Quarter Third Quarter Second Quarter 2001 First Quarter High...

  • Page 122
    ...an interest rate of 8.48% and had a maturity date of September 30, 2035, are expected to be refinanced with trust preferred securities. On February 20, 2003, ComEd entered into separate agreements with the City of Chicago (City) and with Midwest Generation (Midwest Agreement). Under the terms of the...

  • Page 123
    ... Headquarters Exelon Corporation P.O. Box 805398 Chicago, IL 60680-5398 Independent Public Accountants PricewaterhouseCoopers LLP Website www.exeloncorp.com New York Stock Exchange Listing EXC Shareholder Inquiries EquiServe Trust Company, N.A., is Dividend Disbursing Agent, Dividend Reinvestment...

  • Page 124
    Exelon Corporation P.O. Box 805398 Chicago, IL 60680-5398 www.exeloncorp.com