Exelon 2002 Annual Report Download - page 38

disposal and are an important aspect of Generation’s opera-
tions.In addition,we are subject to liability under these laws for
the costs of remediating environmental contamination of prop-
erty now or formerly owned by us and of property contami-
nated by hazardous substances we generate. We believe that
we have a responsible environmental management and com-
pliance program;however,we have incurred and expect to incur
significant costs related to environmental compliance and site
remediation and clean-up. Remediation activities associated
with manufactured gas plant operations conducted by prede-
cessor companies will be one source of such costs. Also, we are
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, 2002, our reserve for environmental
investigation and remediation costs was $156 million, exclusive
of decommissioning liabilities. We have accrued and will con-
tinue to accrue amounts that we believe are prudent to cover
these environmental liabilities, but we cannot predict with any
certainty whether these amounts will be sufficient to cover our
environmental liabilities. We cannot predict whether we will
incur other significant liabilities for any additional investiga-
tion and remediation costs at additional sites not currently
identified by us, environmental agencies or others, or whether
such costs will be recoverable from third parties.
Regulations imposed by the Securities and Exchange Commission
under the Public Utility Holding Company Act of 1935 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 investments to traditional
electric and gas utility businesses and related businesses;
– issue securities, by requiring the prior approval of the SEC or
for ComEd and PECO, requiring the approval of state regula-
tory commissions; and
– engage in transactions among our affiliates without the SEC’s
prior approval and, then, only at cost, since the PUHCA regu-
lates business between affiliates in a utility holding company
system; and make dividend payments in specified situations.
Our financial performance is affected by our ability to manage
costs for security and liability insurance.
Security. We do not fully know the impact that future terrorist
attacks or threats of terrorism may have on our industry in gen-
eral and on us in particular. The events of September 11, 2001
have affected our operating procedures and costs. We have
initiated security measures to safeguard our employees and
critical operations and are actively participating in industry
initiatives to identify methods to maintain the reliability of
our energy production and delivery systems. We have met
or exceeded all security measures mandated by the NRC for
nuclear plants after the September 11, 2001 terrorist attacks.
These security measures resulted in increased costs in 2002 of
$19 million,of which approximately $10 million was capitalized.
On a continuing basis, we are evaluating enhanced security
measures at certain critical locations, enhanced response and
recovery plans and assessing long-term design changes and
redundancy measures. Additionally, the energy industry is
working with governmental authorities to ensure that emer-
gency plans are in place and critical infrastructure vulnerabili-
ties are addressed in order to maintain the reliability of the
country’s energy systems. These measures will involve addi-
tional expense to develop and implement, but will provide
increased assurances as to our ability to continue to operate
under difficult times.
In connection with the events of September 11,2001, the elec-
tric and gas industries have also developed additional security
guidelines. The electric industry, through the North American
Electric Reliability Council (NERC), developed physical security
guidelines, which were accepted by the U.S. Department of
Energy. In 2003, FERC is expected to issue minimum standards
to safeguard the electric grid system control. These standards
are expected to be effective in 2004 and fully implemented by
January 2005. The gas industry, through the American Gas
Association, developed physical security guidelines that were
accepted by the U.S. Department of Transportation. We partici-
pated in the development of these guidelines and are using
them as a model for our security program.
Nuclear liability insurance. The Price-Anderson Act limits the
liability of nuclear reactor owners for claims that could arise
from a single incident. The current limit is $9.5 billion and is
subject to change to account for the effects of inflation and
changes in the number of licensed reactors. As required by the
Price-Anderson Act, we carry nuclear liability insurance in the
maximum available amount (currently $300 million per site).
Claims exceeding that amount are covered through mandatory
participation in a financial protection pool. The Price-Anderson
Act expired on August 1, 2002,but existing facilities, such as those
owned and operated by Generation, remain covered. The U.S.
Congress has extended the provisions of the Price-Anderson Act
related to commercial facilities through 2003.The extension was
passed as part of the Consolidated Appropriations Resolution,
2003, which will be presented to the President of the United
Management’s Discussion and Analysis of Financial Condition and Results of Operations
exelon corporation and subsidiary companies
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