Exelon 2003 Annual Report Download - page 109

107Notes to Consolidated Financial Statements
EXELON CORPORATION AND SUBSIDIARY COMPANIES
earnings thereon, and $29 million of annual collections from
PECO ratepayers, which will increase to approximately $33
million beginning in 2004, will be used to decommission the
former PECO plants. Exelon also expects the regulatory li-
ability will be reduced to zero at the conclusion of the
decommissioning of the former PECO plants. See Note 4 –
Regulatory Issues for more information regarding the
annual collections from PECO.
At December 31, 2002, prior to the adoption of SFAS No.
143, Exelon’s accumulated depreciation included $2,845 mil-
lion for decommissioning liabilities related to active nuclear
plants. This amount was reclassified to an ARO upon the
adoption of SFAS No. 143. Exelon also recorded an asset
retirement cost (ARC) of $172 million related to the
establishment of the ARO related to former PECO plants in
accordance with SFAS No. 143. The ARC is being amortized
over the remaining lives of the plants.
As discussed above, Exelon re-measured its 2001
decommissioning-related balances associated with the
Merger purchase price allocation at ComEd and the January
2001 corporate restructuring as if SFAS No. 143 had been in
effect at the Merger date. Exelon concluded that had SFAS
No. 143 been in effect, ComEd would not have recorded an
impairment of a previously established regulatory asset for
decommissioning of its retired nuclear plants as a purchase
price allocation adjustment in 2001 as a result of the De-
cember 2000 ICC order. As a result, increased net assets
would have been transferred to Generation by ComEd in the
corporate restructuring. Accordingly, Exelon recorded a re-
duction of goodwill of approximately $210 million, with a
corresponding reduction in its overall decommissioning
obligation in connection with the implementation of SFAS
No. 143 on January 1, 2003. In addition, Exelon and ComEd
recorded a cumulative effect of a change in accounting prin-
ciple of $5 million to reverse goodwill amortization that had
been recorded in 2001. Exelon and ComEd also reclassified a
regulatory asset related to nuclear decommissioning costs
for retired units of $248 million to regulatory liabilities.
In accordance with the provisions of SFAS No. 143 and
regulatory accounting guidance, Exelon recorded a SFAS No.
143 transition adjustment to accumulated other compre-
hensive income to reclassify $168 million, net of tax, of
accumulated net unrealized losses on the nuclear decom-
missioning trust funds to regulatory assets and liabilities.
Accounting Methodology Under SFAS No. 143
Realized gains and losses on decommissioning trust funds
for nuclear generating stations transferred to Generation
from ComEd are reflected in other income and deductions in
Exelon’s Consolidated Statements of Income, while the
unrealized gains and losses on marketable securities held in
the trust funds adjust the regulatory liability on Exelon’s
Consolidated Balance Sheets. The increases in the ARO are
recorded in operating and maintenance expense as accre-
tion expense. If the trust assets plus future collections per-
mitted by the ICC order are exceeded by the ARO, Exelon is
responsible for any shortfall in funding and at that point
unrealized gains and losses will be recorded as other
comprehensive income. The result of the above accounting is
that no 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 Gen-
eration from PECO as a result of the Exelon corporate re-
structuring on January 1, 2001. Additionally, depreciation
expense is recognized on the ARC established upon the
adoption of SFAS No. 143. However, as Exelon has the
expectation of full recovery from ratepayers of decom-
missioning costs of PECO’s former nuclear generating sta-
tions, the result of the above accounting has no earnings
impact to Exelon. Therefore, to the extent that the net of
decommissioning revenues collected and realized invest-
ment income differs from the accretion expense to the ARO
and the related depreciation of the ARC, an adjustment to
net the amounts to zero is recorded by Exelon for that period
with the offset to Exelon’s regulatory liability balance.
Prior to Exelon’s acquisition of British Energy’s 50% inter-
est in AmerGen in December 2003, Exelon accounted for the
costs of decommissioning the AmerGen plants through its
equity in earnings of AmerGen. In addition, Exelon’s propor-
tionate share of other gains and losses on AmerGen’s
decommissioning trust funds were reflected in Generation’s
other comprehensive income. Beginning January 2004, real-
ized gains and losses on decommissioning trust funds for
AmerGen plants will be reflected in other income and de-
ductions in Exelon’s Consolidated Statements of Income,
while unrealized gains and losses on marketable securities
held in the trust funds will be recorded to accumulated other
comprehensive income. The increases in the ARO will be re-
corded in operating and maintenance expense as accretion
expense. At December 31, 2003, trust fund assets available to
decommission AmerGen plants totaled $1.1 billion while the
ARO totaled $487 million.
Accounting Prior to the Adoption of SFAS No. 143
Prior to January 1, 2003, Exelon accounted for the current
period’s cost of decommissioning related to generating
plants previously owned by PECO following common regu-
latory accounting practices by recording a charge to
depreciation expense and a corresponding liability in
accumulated depreciation concurrently with recognizing
decommissioning collections. Financial activity of the
decommissioning trust (e.g., investment income and realized
and unrealized gains and losses on trust investments) was
reflected in nuclear decommissioning trust funds in Exelon’s