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The ExelonWay
Exelon Corporation 03 Annual Report

Table of contents

  • Page 1
    The Exelon Way Exelon Corporation 03 Annual Report

  • Page 2
    ...-Atlantic. The Company also has holdings in such competitive businesses as energy and energy services. Exelon's market capitalization at the end of 2003 was $21.8 billion. Headquartered in Chicago, Exelon trades on the NYSE under the ticker EXC. The Exelon Way: Our ongoing, company-wide effort to...

  • Page 3
    ... expectations 10 Centralize adopting a single model 12 Optimize working better and smarter 14 Emphasize committing to reliability, safety and the environment 16 Maximize growing our earnings and cash flow 18 20 21 23 Exelon at a Glance Management Team Board of Directors Financial Section

  • Page 4
    ...an ongoing, across-the-board effort to energize our workforce; centralize key functions; optimize the work we do and the way we do it; emphasize our basic commitments to our customers, our employees and the communities we serve; and ultimately maximize our competitive position and shareholder value.

  • Page 5
    ... and increased shareholder value. Despite all this turmoil, even chaos, recent experience only confirms that this is a business about real service, with real assets and real customers. The old-fashioned virtues of reliability, safety, integrity, operating know-how and cost containment are even...

  • Page 6
    ... with Ian McLean and John Young in key leadership roles. Annual net generation increased to 142,000 gigawatt-hours, and revenues net of purchased power and fuel expense increased $410 million from 2002 to 2003. - Jack Skolds, Chris Crane and their team worked to bring all-in nuclear costs to an all...

  • Page 7
    ... to deep, liquid, competitive wholesale markets. Under the leadership of Betsy Moler, our Executive Vice President of Government Affairs, Exelon has worked tirelessly to promote wholesale competition both before Congress and the Federal Energy Regulatory Commission (FERC). Among our more challenging...

  • Page 8
    6 Letter to Shareholders Exelon also believes that our energy delivery companies, ComEd and PECO, must be ready, willing and able to meet the needs of all of our customers, whether they require only delivery service, or whether, like most small customers, they require delivery service and a great ...

  • Page 9
    ... Energy Company, LLC, thereby giving us sole ownership of AmerGen and its three nuclear units. Unlike the situation in New England, the AmerGen acquisition involved plants with operating histories well known to us, plants located in and around our retail service territories. I am pleased to report...

  • Page 10

  • Page 11
    ... work lives. We are energizing our employees by asking them to be the best at everything they do. Exelon people have the talent, and we are calling upon that talent, and their commitment, so that we may relentlessly pursue top quartile performance levels in productivity, quality, safety and customer...

  • Page 12
    ... one company, with one vision. We have adopted a single model for all of our business units, a single source for each of our support functions, and a single approach to our operating procedures. In areas such as Information Technology and Supply, which provide services to each of Exelon's business...

  • Page 13

  • Page 14

  • Page 15
    ...people with the right skills in the right places, and providing them with the training and resources they require, is critical to our success. By optimizing our work and workforce, we realize the benefits of a common business model, common operating procedures, and best practices across our company.

  • Page 16
    14 Emphasize: Through The Exelon Way, we are emphasizing our commitment to reliability, safety and the environment. Providing reliable service is central to who we are and what we do. Ensuring the safety of our customers and employees is equally fundamental. Preserving the environment requires that...

  • Page 17

  • Page 18

  • Page 19
    ... annually by 2006. We are well on the way to achieving that goal. By year-end 2003, we already realized $170 million in savings from The Exelon Way - savings not originally anticipated until 2004. By maximizing our earnings and cash flow, we build value through disciplined financial management...

  • Page 20
    ...'s ComEd and PECO Energy operating companies in the Chicago and Philadelphia metropolitan areas. For its part of The Exelon Way, Power Team realized significant cost savings by exercising Exelon's rights to release expensive supply contracts and taking advantage of lower-priced market alternatives...

  • Page 21
    ...Company (BSC) is a direct, wholly owned subsidiary of Exelon Corporation. With approximately 1,900 employees, BSC provides Exelon's businesses with information technology, supply management, legal, finance, human resources, and audio/visual services. As a central service provider, BSC delivers value...

  • Page 22
    ... John W. Rowe Chairman and Chief Executive Officer Oliver D. Kingsley, Jr. President and Chief Operating Officer David W. Woods Senior Vice President Pamela B. Strobel Executive Vice President and Chief Administrative Officer S. Gary Snodgrass Senior Vice President and Chief Human Resources...

  • Page 23
    ..., Pennsylvania Real Estate Investment Trust Edgar D. Jannotta Chairman, William Blair & Company, LLC John W. Rowe Chairman and Chief Executive Officer, Exelon Corporation Nicholas DeBenedictis Chairman and Chief Executive Officer, Philadelphia Suburban Corporation Bruce DeMars Admiral (Retired...

  • Page 24
    ... Earnings and Financial Condition Management's Discussion and Analysis of Financial Condition Report of Independent Accountants Consolidated Statements of Income Consolidated Statements of Cash Flows Consolidated Balance Sheets Consolidated Statements of Changes in Shareholders' Equity Consolidated...

  • Page 25
    ... other competitive businesses from its regulated energy delivery business at Commonwealth Edison Company and PECO Energy Company. (b) Reflects the effects of the merger of Exelon Corporation, Unicom Corporation and PECO Energy Company on October 20, 2000 (Merger). The Merger was accounted for using...

  • Page 26
    ... resource, legal, information technology, supply management and corporate governance services. Energy Delivery Our energy delivery business consists of the regulated sale of electricity and distribution and transmission services by Commonwealth Edison Company (ComEd) in northern Illinois and by PECO...

  • Page 27
    ... Energy Company, LLC (AmerGen) in December 2003. AmerGen, which owns the Clinton Power Station, Three Mile Island Nuclear Station Unit 1 and the Oyster Creek Generating Station representing about 2,500 megawatts of capacity, is now our wholly owned subsidiary. - We attempted to purchase Illinois...

  • Page 28
    ... and Capital Resources section. Energy Delivery Our energy delivery business is comprised of two utility transmission and distribution companies, ComEd and PECO, which provide electricity and, in the case of PECO, natural gas to customers in Illinois and Pennsylvania, respectively. Energy Delivery...

  • Page 29
    ...costs. We must manage Energy Delivery's costs due to the rate and equity return limitations imposed on its revenues. Rate freezes or caps in effect at ComEd and PECO currently limit our ability to recover increased expenses and the costs of investments in new transmission and distribution facilities...

  • Page 30
    ... Operations EXELON CORPORATION AND SUBSIDIARY COMPANIES Effective management of capital projects is important to our business. Energy Delivery's business is capital intensive and requires significant investments in energy transmission and distribution facilities and in other internal infrastructure...

  • Page 31
    ... in Illinois and Pennsylvania, all of Energy Delivery's retail electric customers may purchase their generation supply from alternative electric generation suppliers. In addition, since market share thresholds (MST) for customers taking service from alternative generation suppliers agreed to by PECO...

  • Page 32
    ...Results of Operations EXELON CORPORATION AND SUBSIDIARY COMPANIES service to customers in their service territories at fixed rates, or in some instances, market-derived rates. In addition, customers who take service from an alternative generation supplier may later return to ComEd or PECO, provided...

  • Page 33
    ... 2003. As the largest generator of nuclear power in the United States, Generation can take advantage of its scale and scope to negotiate favorable terms for the materials and services that our business requires. Generation's nuclear plants benefit from stable fuel costs, minimal environmental impact...

  • Page 34
    ... or purchase additional energy in the spot or forward markets in order to satisfy Generation's obligations to ComEd and PECO and other committed thirdparty sales. These sources generally are at a higher cost than Generation otherwise would have to incur to generate energy from its nuclear stations...

  • Page 35
    ... power plants. Based on estimates of decommissioning costs for each of the nuclear facilities in which Generation has an ownership interest, other than AmerGen facilities, the ICC permits ComEd, and the PUC permits PECO, to collect from their customers and deposit in nuclear decommissioning trust...

  • Page 36
    ...hour is generally determined by the cost of supplying the next unit of electricity to the market during that hour. Many times, the next unit of electricity supplied would be supplied from generating stations fueled by fossil fuels, primarily natural gas. Consequently, the open-market wholesale price...

  • Page 37
    ... infrastructure projects. The inability of Generation to effectively manage its capital projects could adversely affect our results from operations. In 2002, Generation purchased the assets of Sithe New England Holdings, LLC (now known as Exelon New England), a subsidiary of Sithe, and related power...

  • Page 38
    ... Operations EXELON CORPORATION AND SUBSIDIARY COMPANIES to ComEd and PECO vary from month to month; however, delivery requirements are generally highest in the summer when wholesale power prices are also generally highest. Therefore, energy committed by Generation to serve ComEd and PECO customers...

  • Page 39
    ...caps under which our Energy Delivery businesses operate and price pressures due to competition, we may not be able to pass the costs of inflation through to our customers. Market performance affects our decommissioning trust funds and benefit plan asset values. The performance of the capital markets...

  • Page 40
    ... tax expense and could have a negative impact on our results of operations and cash flows. The introduction of new technologies could increase competition within our markets. While demand for electricity is generally increasing throughout the United States, the rate of construction and develop-

  • Page 41
    ... Expense. Operating and maintenance expense increased in 2003 primarily due to a change in the accounting methodology for nuclear decommissioning, severance and severance-related costs associated with The Exelon Way, and increased costs at Generation associated with generating assets acquired in...

  • Page 42
    ... of existing debt at lower interest rates at Energy Delivery partially offset by increased interest expense at Generation due to debt related to 2002 acquisitions and reduced capitalized interest in 2003. In 2002, Enterprises recorded a gain on the sale of its investment in AT&T Wireless of $198...

  • Page 43
    ... gas prices. Volume. Energy Delivery's purchased power and fuel expense increased due to increases, exclusive of the effect of weather, in the number of customers and average usage per customer, primarily large and small commercial and industrial customers at ComEd and PECO. Decommissioning. ComEd...

  • Page 44
    ...pay down of transitional trust notes. Severance, pension and postretirement benefit costs associated with The Exelon Way Charge recorded at ComEd in 2003 associated with a regulatory settlement (a) Increased storm costs Increased employee fringe benefits primarily due to increased health care costs...

  • Page 45
    ...to receive electric generation service from an alternative energy supplier or ComEd's PPO. Revenue from customers choosing an alternative energy supplier includes a distribution charge and a CTC. Revenues from customers choosing ComEd's PPO includes an energy charge at market rates, transmission and...

  • Page 46
    ...taxes recorded in 2003 related to Generation's investment in Sithe, and increased operating and maintenance expenses, partially offset by an increase in operating revenues net of purchased power and fuel expense. Generation also experienced an increase in its effective tax rate. Cumulative effect of...

  • Page 47
    ... of generating plants in the Texas and New England regions operating at less than projected levels. Also, revenue increased by $62 million due to higher decommissioning revenue received from ComEd in 2003 compared to 2002. Purchased Power and Fuel Expense. The changes in Generation's purchased power...

  • Page 48
    ... Salem, which is operated by Public Service Enterprise Group Incorporated (PSE&G). (b) Including PPAs with AmerGen. Results of Operations-Enterprises Enterprises 2003 2002 Variance % Change Operating revenues Purchased power and fuel expense Operating and maintenance expense Operating income (loss...

  • Page 49
    ... 2003, Enterprises recorded a net charge to operating and maintenance expense of $4 million (before income taxes and minority interest) associated with the sale of the majority of the InfraSource businesses. Pursuant to the sales agreement, certain working capital adjustments to the purchase price...

  • Page 50
    ...on the sale of Enterprises' investment in AT&T Wireless of $198 million recorded in 2002, an increase in income on Generation's nuclear decommissioning trust funds and a reduction in interest expense at Energy Delivery due to less debt outstanding and the refinancing of existing debt at lower rates.

  • Page 51
    ..., which are eliminated in our consolidated financial statements. 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) by Business Segment $1,268...

  • Page 52
    ... the residential customer class. Prices. Fuel expense for gas decreased due to PECO's higher gas prices, which was partially offset by increases in the weighted average on-peak/off-peak cost of electricity at ComEd. Operating and Maintenance Expense. The changes in operating and maintenance expense...

  • Page 53
    ... is the equivalent of one million kilowatthours (kWh). (b) Bundled service reflects deliveries to customers taking electric service under tariffed rates. (c) Unbundled service reflects customers electing to receive electric generation service from an alternative energy supplier or ComEd's PPO. See...

  • Page 54
    ... purposes, energy costs related to energy trading have been reclassified as revenue for prior periods to conform to the net basis of presentation required by EITF 02-3. Generation 2002 2001 Variance % Change Operating revenues Purchased power and fuel expense Operating and maintenance expense...

  • Page 55
    ... payroll expense due to fewer number of employees Other Increase in operating and maintenance expense $ 80 21 19 (8) 16 $128 (a) Refueling outage days, not including co-owned facilities, increased from 95 in 2001 to 202 in 2002. Energy Delivery and Exelon Energy Company Market sales Trading...

  • Page 56
    ... sales to Exelon Energy Company, Enterprises' retail energy unit, due to lower demand in the eastern energy markets. Generation's supply mix changed due to: - increased purchases resulting from the supply agreement with AmerGen's Unit No. 1 at Three Mile Island Nuclear Station facility which was new...

  • Page 57
    ... offset by higher infrastructure and construction services of $97 million from an increase in the electric line of business. Purchased Power and Fuel Expense. Purchased power and fuel expense at Exelon Energy Company decreased due to reduced costs from the discontinuance of retail sales in the PJM...

  • Page 58
    .... Capital expenditures by business segment for 2003 and projected amounts for 2004 are as follows: 2003 2004 Energy Delivery Generation Enterprises Corporate and other Total capital expenditures Acquisition of businesses, net of cash acquired Total capital expenditures and acquisition of businesses...

  • Page 59
    ... expenditures will be used for additions and upgrades to existing facilities, nuclear fuel and increases in capacity at existing plants. Generation is planning on ten nuclear refueling outages in 2004, compared to eight during 2003. However, we project that the total capital expenditures for nuclear...

  • Page 60
    ... Exelon Corporate and PECO, respectively. ComEd and Generation did not have any commercial paper outstanding at December 31, 2003. Interest rates on the advances under the credit facility are based on either the London Interbank Offering Rate (LIBOR) or prime plus an adder based on the credit rating...

  • Page 61
    ... our two $750 million credit agreements and certain other credit facilities. The following table shows our securities ratings at December 31, 2003: Moody's Investors Service Standard & Poors Corporation Fitch Investors Service, Inc. Securities Exelon ComEd PECO Generation Senior unsecured debt...

  • Page 62
    ...2003, Exelon's common equity ratio was 35%. Exelon expects that it will maintain a common equity ratio of at least 30%. Under applicable law, Exelon, ComEd, PECO and Generation can pay dividends only from retained, undistributed or current earnings. Under Illinois law, ComEd may not pay any dividend...

  • Page 63
    ... the sale of ComEd's fossil stations in 1999, to build a 500-MW generation facility. (b) Represents the present value of our obligation to decommission nuclear plants. For additional information about: - long-term debt, see Note 11 of the Notes to Consolidated Financial Statements - notes payable...

  • Page 64
    ... Balance Sheet was $3.0 billion. Decommissioning expenditures are expected to occur primarily after the plants are retired and are currently estimated to begin in 2029 for plants currently in operation. To fund future decommissioning costs, Generation held $4.7 billion of investments in trust...

  • Page 65
    ... decommissioning, depreciable lives of property, plant and equipment, impairment of assets including goodwill, severance accounting, defined benefit pension and other postretirement welfare benefits, taxation, unbilled energy revenues and environmental costs. Further discussion of the application...

  • Page 66
    ... of Operations EXELON CORPORATION AND SUBSIDIARY COMPANIES supply. These models include assumptions regarding customer load growth rates, which are influenced by the economy, weather and the impact of customer choice, and generating unit availability, particularly nuclear generating unit capability...

  • Page 67
    ... were discounted using credit-adjusted, risk-free rates applicable to the various businesses. Changes in the assumptions underlying the items discussed above could have materially affected the decommissioning obligation recorded upon the adoption of SFAS No. 143 and could affect future costs related...

  • Page 68
    66 Management's Discussion and Analysis of Financial Condition and Results of Operations EXELON CORPORATION AND SUBSIDIARY COMPANIES subject to change at the time the impairment charge was recorded. We utilized a discount rate based upon valuations of the business developed at the purchase date. A...

  • Page 69
    ...is used in the calculation of other postretirement benefit costs, as the other postretirement benefit trust activity is partially taxable while the pension trust activity is non-taxable. The Moody's Aa Corporate Bond Index was used as the basis in selecting the discount rate for determining the plan...

  • Page 70
    ...general counsel, treasurer, vice president of corporate planning, vice president of strategy, vice president of audit services and officers from each of the business units. The RMC reports to the Exelon Board of Directors on the scope of our derivative and risk management activities. Commodity Price...

  • Page 71
    ...to CTC revenues we collect from ComEd customers. Normal Operations and Hedging Activities. Electricity available from our owned or contracted generation supply in excess of our obligations to customers, including Energy Delivery's retail load, is sold into the wholesale markets. To reduce price risk...

  • Page 72
    ... contracts Power Team enters into to hedge anticipated exposures related to our owned and contracted generation supply, but excludes our owned and contracted generating assets as well as Enterprises' derivative contracts. (b) Total gross margin represents revenue, net of purchased power and fuel...

  • Page 73
    ... from OCI Effective portion of changes in fair value-recorded in OCI Purchase/sale of existing contracts or portfolios subject to mark-to-market Total mark-to-market energy contract net assets (liabilities) at December 31, 2002 Total change in fair value during 2003 of contracts recorded in earnings...

  • Page 74
    ... factors including closing exchange and over-the-counter price quotations, time value, volatility factors and credit exposure. It is possible, however, that future market prices could vary from those used in recording assets and liabilities from energy marketing and trading activities and such...

  • Page 75
    ... (new hedges entered into during the period and changes in the value of existing hedges). Information related to energy merchant activities is presented separately from interest-rate hedging activities. Total Cash-Flow Hedge Other Comprehensive Income Activity, Net of Income Tax Power Team Normal...

  • Page 76
    ... customers represented approximately 7% of its retail electric and gas 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...

  • Page 77
    ... Thus, Exelon's credit contingency risk associated with Midwest Generation has decreased during the fourth quarter of 2003. Collateral. As part of the normal course of business, we routinely enter into physical or financially settled contracts for the purchase and sale of capacity, energy, fuels and...

  • Page 78
    ... material adverse impact on our financial condition, results of operations or net cash flows. Direct Financing Leases. Our consolidated balance sheet included a $465 million net investment in direct financing leases as of December 31, 2003. The investment in direct financing leases represents future...

  • Page 79
    ... in accordance with our nuclear decommissioning trust fund investment policy. A hypothetical 10% increase in interest rates and decrease in equity prices would result in a $303 million reduction in the fair value of the trust assets. See Defined Benefit Pension and Other Postretirement Welfare...

  • Page 80
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  • Page 81
    ... consolidated balance sheets and the related consolidated statements of income, cash flows and changes in shareholders' equity and comprehensive income present fairly, in all material respects, the financial position of Exelon Corporation and Subsidiary Companies (Exelon) at December 31, 2003 and...

  • Page 82
    ... December 31, in millions, except per share data 2003 2002 2001 Operating revenues Operating expenses Purchased power Purchased power from AmerGen Energy Company, LLC Fuel Impairment of Boston Generating, LLC long-lived assets Operating and maintenance Depreciation and amortization Taxes other than...

  • Page 83
    ...securities Payment on acquisition note payable to Sithe Energies, Inc. Retirement of preferred stock Dividends paid on common stock Proceeds from employee stock plans Contribution from minority interest of consolidated subsidiary Other financing activities Net cash flows used in financing activities...

  • Page 84
    82 Consolidated Balance Sheets EXELON CORPORATION AND SUBSIDIARY COMPANIES December 31, in millions 2003 2002 Assets Current assets Cash and cash equivalents Restricted cash Accounts receivable, net Customer Other Inventories, at average cost Fossil fuel Materials and supplies Notes receivable ...

  • Page 85
    ... Balance Sheets EXELON CORPORATION AND SUBSIDIARY COMPANIES 83 December 31, in millions 2003 2002 Liabilities and shareholders' equity Current liabilities Commercial paper Note payable to Sithe Energies, Inc. Long-term debt due within one year Long-term debt to ComEd Transitional Funding Trust...

  • Page 86
    ... CORPORATION AND SUBSIDIARY COMPANIES Dollars in millions, shares in thousands Shares Common Deferred Stock Compensation Accumulated Other Retained Comprehensive Earnings Income (Loss) Total Shareholders' Equity Balance, December 31, 2000 Net income Long-term incentive plan activity Employee...

  • Page 87
    ...Pennsylvania and 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...

  • Page 88
    ...at December 31, 2003. This change in presentation had no impact on net income of Exelon. In accordance with FIN No. 46-R, prior periods have not been represented. Revenues Operating Revenues. Operating revenues are generally recorded as service is rendered or energy is delivered to customers. At the...

  • Page 89
    ... Securities Marketable securities are classified as available-for-sale securities and are reported at fair value. Unrealized gains and losses, net of tax, on nuclear decommissioning trust funds transferred to Generation from PECO and ComEd are reflected in regulatory assets and liabilities on Exelon...

  • Page 90
    ... Note 6 - Property, Plant and Equipment for information on service life extensions for certain nuclear generating stations and a change in Energy Delivery's depreciation rates. Asset Category 2003 2002 2001 Electric - transmission and distribution Electric - generation Gas Common - gas and electric...

  • Page 91
    ... health of and business outlook for the investee. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis is established. See Note 3 - Sithe for a description of the impairments recorded in 2003 related to Generation's investment...

  • Page 92
    ... expenses associated with market price risk management contracts are amortized over the terms of such contracts. Commitments under these contracts are discussed in Note 19-Commitments and Contingencies. Exelon enters into contracts to buy and sell energy for trading purposes subject to limits. These...

  • Page 93
    ...to Sithe, $14 million of direct acquisition costs and a $208 million adjustment to Generation's previously existing investment in Sithe related to Exelon New England. AmerGen Energy Company, LLC On December 22, 2003, Generation purchased British Energy plc's (British Energy) 50% interest in AmerGen...

  • Page 94
    ... Financial Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES The allocation of the purchase price to the fair value of assets acquired and liabilities assumed in the acquisition was as follows: Current assets (including $12 million of cash acquired) Property, plant and equipment Deferred...

  • Page 95
    ... the goodwill impairment charge recorded in 2003 related to Exelon Services. Generation classified three gas turbines with a book value of $36 million as held for sale as of December 31, 2003 in anticipation of their sale in 2004. These turbines had been classified as other long-term assets as they...

  • Page 96
    ...investment, including management's negotiations to sell its interest in Sithe. The discussions surrounding the sale indicated that the fair value of the Sithe investment was below its book value and, as such, impairment charges were required. On November 25, 2003, Generation, Reservoir Capital Group...

  • Page 97
    ... energy from an alternative supplier continue to pay a delivery charge. Customer Service Declarations. On November 14, 2002, the ICC allowed ComEd, by operation of law, to revise its provider of last resort obligation to be the back-up energy supplier at market-based rates for customers with energy...

  • Page 98
    ... liabilities of ComEd and PECO. NOTE 05 ‰ ACCOUNTS RECEIVABLE Customer accounts receivable at December 31, 2003 and 2002 included unbilled operating revenues related to unread meters at Energy Delivery and Exelon Energy Company, the competitive retail energy sales business of Enterprises, of $452...

  • Page 99
    ... 20 years for the remainder of Exelon's operating nuclear stations. These changes were based on engineering and economic feasibility studies performed by Generation considering, among other things, future capital and maintenance expenditures at the plants. The service life extensions are subject to...

  • Page 100
    ... 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 components of the net transitional impairment loss recognized in the first quarter of 2002 as a cumulative effect...

  • Page 101
    ..., ComEd's capital structure, market power prices, post-2006 rate regulatory structures, operating and capital expenditure requirements and other factors. Current negotiations regarding the sale of Exelon Services served as the basis for the fair value of the Exelon Services reporting unit used in...

  • Page 102
    ... related to the pension and postretirement benefit plans. Exelon based its estimate of the number of positions to be eliminated on management's current plans and its ability to determine the appropriate staffing levels to effectively operate the businesses. Exelon may incur further severance costs...

  • Page 103
    ... Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES 101 NOTE 10 ‰ N OTES PA Y A B L E A N D SH ORT- TE RM DE B T Commercial Paper and Credit Facility 2003 2002 2001 Average borrowings Maximum borrowings outstanding Average interest rates, computed on daily basis Average interest rates, at...

  • Page 104
    ... payable and other Boston Generating Facility Pollution control notes: Fixed rates Floating rates Notes payable-accounts receivable agreement Sinking fund debentures Commercial paper(e) Total long-term debt(f) Unamortized debt discount and premium, net Fair-value hedge carrying value adjustment, net...

  • Page 105
    ...revenue bonds in January 2004. The proceeds are included in restricted cash in Exelon's Consolidated Balance Sheets. During 2003, the following long-term debt was retired or redeemed: Company Type Rate Maturity Amount ComEd ComEd ComEd ComEd ComEd ComEd ComEd ComEd PECO PECO PECO Total retirements...

  • Page 106
    ... rate Increase (decrease) due to: Synthetic fuel producing facilities credit Low income housing credit Plant basis differences Amortization of investment tax credit Tax exempt income State income taxes, net of Federal income tax benefit Amortization of goodwill Other, net Effective income tax rate...

  • Page 107
    ... power plants. Based on the extended license lives of the nuclear plants, expenditures are expected to occur primarily during the period 2029 through 2056. Exelon currently recovers costs for decommissioning its nuclear generating stations, excluding the AmerGen stations, through regulated rates...

  • Page 108
    ... 143 had been in effect at the Merger date. In the case of the former ComEd plants, the calculation of the SFAS No. 143 ARO yielded decommissioning obligations lower than the value of the corresponding trust assets at January 1, 2003. ComEd has previously collected amounts from customers (which were...

  • Page 109
    ... net earnings are recorded for investment gains and losses for as long as the trust assets exceed the ARO for the former ComEd plants. The above accounting practices are also applicable for nuclear generating stations that were transferred to Generation from PECO as a result of the Exelon corporate...

  • Page 110
    ... cost estimate (adjusted annually to reflect inflation) for the former ComEd retired units recorded in deferred credits and other liabilities was accreted to depreciation expense. Financial activity of the decommissioning trust related to Exelon's nuclear generating stations no longer accounted...

  • Page 111
    ...part of the corporate restructuring. NOTE 14 ‰ RETIREMENT BENEFITS Exelon sponsors defined benefit pension plans and postretirement welfare benefit plans applicable to essentially all ComEd, PECO, Generation and Exelon Business Services Company (BSC) employees and certain employees of Enterprises...

  • Page 112
    ... to Consolidated Financial Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES below as an acquisition. The net benefit obligations related to AmerGen's pension plans and postretirement benefit plans were $67 million and $80 million, respectively, as of December 31, 2003. The following tables...

  • Page 113
    ..., shareholders' equity increased by $26 million (net of income taxes) as a result of accounting associated with Exelon's pension plans. Special accounting costs of $48 million in 2003 represent special health and welfare severance benefits offered through The Exelon Way. These costs were recorded...

  • Page 114
    ...Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES The following weighted average assumptions were used to determine the benefit obligations at December 31: Pension Benefits 2003 2002 2001 2003 Other Postretirement Benefits 2002 2001 Discount rate Rate of compensation increase Health care cost...

  • Page 115
    ... Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES 113 Exelon's pension plans and postretirement welfare benefit plans do not directly hold shares of Exelon common stock. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one...

  • Page 116
    ... COMPANIES Derivative Instruments The fair values of Exelon's interest-rate swaps and power purchase and sale contracts are determined using quoted exchange prices, external dealer prices or internal valuation models which utilize assumptions of future energy prices and available market pricing...

  • Page 117
    ...-Sale Securities Exelon classifies investments 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 cost bases for the securities held in these trust accounts as of December 31, 2003...

  • Page 118
    ... after a plant is retired, and Generation estimates that decommissioning expenditures funded by the trust assets will begin in 2029. Exelon evaluates the historical performance, cost basis, and market value of its securities in unrealized loss positions in comparison to related market indices to...

  • Page 119
    ... represent Company-Obligated Mandatorily Redeemable Preferred Securities of a Partnership (COMPrS) having a distribution rate and liquidation value equivalent to the trust securities. The COMPrS are the sole assets of these trusts and represent limited partnership interests of PECO Energy Capital...

  • Page 120
    ...a proposed stock split. Stock-Based Compensation Plans Exelon maintains Long-Term Incentive Plans (LTIPs) for certain full-time salaried employees. The types of long-term incentive awards that have been granted under the LTIPs are non-qualified options to purchase shares of Exelon's common stock and...

  • Page 121
    ... Financial Statements EXELON CORPORATION AND SUBSIDIARY COMPANIES 119 The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2003, 2002 and 2001, respectively: 2003 2002 2001...

  • Page 122
    ... 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): 2003 2002 2001 Average...

  • Page 123
    ... EXELON CORPORATION AND SUBSIDIARY COMPANIES 121 Energy Commitments Exelon's wholesale operations include the physical delivery and marketing of power obtained through its generation capacity, and long-, intermediate- and short-term contracts. Exelon maintains a net positive supply of energy...

  • Page 124
    ... technology services. Two affiliates of Exelon New England have long-term supply agreements through December 2022 with Distrigas of Massachusetts, LLC (Distrigas) for gas supply, primarily for the Boston Generating units. Under the agreements, prices are indexed to New England gas markets. Exelon...

  • Page 125
    ...the discounted environmental investigation and remediation costs, recorded on an undiscounted basis were: 2004 2005 2006 2007 2008 Remaining years Total payments $ 19 23 20 9 6 61 $138 In December 2003, PECO updated its accounting estimate related to the reserve for environmental remediation. Based...

  • Page 126
    ... the New York Supreme Court against Fore River Development, LLC and Mystic Development, LLC (collectively, the Project Companies) seeking to enjoin these indirect subsidiaries of Generation from drawing upon letters of credit posted to guarantee MHI's performance under certain gas turbine contracts...

  • Page 127
    ... County, PA) (Limerick) and Peach Bottom Atomic Power Station (York County, PA) (Peach Bottom) plants. Generation is involved in real estate tax appeals for 2000 through 2003, also regarding the valuation of its Limerick and Peach Bottom plants, its Quad Cities Station (Rock Island County, IL) and...

  • Page 128
    ... FIN No. 45 related to its obligation to reimburse Chicago for any nonperformance by Midwest Generation. The value of this guarantee liability was $3 million as of December 31, 2003. The net effect of the settlement to ComEd will be amortized on a straight-line basis over the remaining life of the...

  • Page 129
    ...Capital lease obligations Issuance of InfraSource stock Contribution of land from minority interest of consolidated subsidiary Note received in connection with the sale of Sithe to Reservoir Note issued to Sithe in the Exelon New England acquisition Issuance of note payable to acquire synthetic fuel...

  • Page 130
    ... EXELON CORPORATION AND SUBSIDIARY COMPANIES Supplemental Balance Sheet Information December 31, December 31, 2003 2002 ComEd 2003 2002 Investments Direct financing leases Energy services and other ventures Affordable housing projects Investment in subsidiaries and joint ventures (a) Investment...

  • Page 131
    ... transmission businesses of ComEd in northern Illinois and PECO in southeastern Pennsylvania and the natural gas distribution business of PECO located in the Pennsylvania counties surrounding the City of Philadelphia. Generation consists of electric generating facilities, energy marketing operations...

  • Page 132
    ... SUBSIDIARY COMPANIES An analysis and reconciliation of Exelon's business segment information to the respective information in the consolidated financial statements were as follows: Energy Delivery Intersegment Eliminations Generation Enterprises Corporate Consolidated Total revenues(1): 2003...

  • Page 133
    ... Balance Sheets as of December 31, 2003. Prior periods were not restated. December 31, 2003 2002 Receivables from affiliates (current) ComEd Transitional Funding Trust Investment in subsidiaries ComEd Funding LLC ComEd Financing II ComEd Financing III PECO Energy Capital Corp PECO Energy Capital...

  • Page 134
    ... note bears interest at the rate equal to LIBOR plus 0.875%. (5) Effective July 1, 2003, PECO Energy Capital Trust IV was deconsolidated from the financial statements of Exelon in conjunction with FIN No. 46. (6) Under a service agreement dated March 1, 1999, Generation provides AmerGen with certain...

  • Page 135
    ... articles of incorporation with the Commonwealth of Pennsylvania and notification to the New York Stock Exchange. No record date for the stock split has been set. As the stock split is not effective, the share and per-share amounts included in Exelon's consolidated financial statements have not been...

  • Page 136
    ... EXELON CORPORATION AND SUBSIDIARY COMPANIES The following table presents average shares of common stock outstanding (basic and diluted), earnings per average common share (basic and diluted) and dividends per common share for the years ended December 31, 2003, 2002 and 2001 on a pro forma basis...

  • Page 137
    ... 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 138
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