Exelon 2003 Annual Report Download - page 35

33Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXELON CORPORATION AND SUBSIDIARY COMPANIES
are affected. Existing commercial generating facilities, such
as those owned and operated by Generation, remain subject
to the provisions of the Price-Anderson Act and are un-
affected by its expiration.
Decommissioning. Generation has an obligation to decom-
mission its nuclear power plants. Based on estimates of de-
commissioning 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 funds maintained by Gen-
eration amounts which, together with earnings thereon, will
be used to decommission such nuclear facilities. The ICC
permitted ComEd to recover $73 million per year from retail
customers for decommissioning for the years 2001 through
2004, and, depending upon the portion of the output of cer-
tain generating stations taken by ComEd, up to $73 million
annually in 2005 and 2006. Subsequent to 2006, there will
be no further recoveries of decommissioning costs from
ComEd’s customers. Effective January 1, 2004, PECO will be
permitted to recover $33 million annually for nuclear
decommissioning. We expect that these collections will con-
tinue through the operating license life of each of the former
PECO units, with adjustments every five years to reflect
changes in cost estimates and decommissioning trust fund
performance. Decommissioning expenditures are expected
to occur primarily after the plants are retired and are cur-
rently estimated to begin in 2029 for plants currently in
operation. To fund future decommissioning costs, Gen-
eration held $4.7 billion of investments in trust funds,
including net unrealized gains and losses, at December 31,
2003.
NRC regulations require that licensees of nuclear generat-
ing facilities demonstrate reasonable assurance that funds
will be available in certain minimum amounts at the end of
the life of the facility to decommission the facility. Gen-
eration is required to provide to the NRC a biennial report by
unit (annually for Generation’s four retired units) addressing
Generation’s ability to meet the NRC estimated funding lev-
els (NRC Funding Levels) with scheduled contributions to and
earnings on the decommissioning trust funds. As of De-
cember 31, 2003, Generation had a number of units, which, at
current market levels, are being funded at a rate less than
anticipated with respect to the NRC’s Funding Levels. Gen-
eration will submit its next biennial report to the NRC at the
end of March 2005. At that time, Generation will address
potential actions, in accordance with NRC requirements, to
assure that Generation will remain adequately funded com-
pared to the NRC Funding Levels.
In 2003, the General Accounting Office (GAO) published a
study on the NRC’s need for more effective analyses to en-
sure the adequate accumulation of funds to decommission
nuclear power plants in the United States. As it has in the
past, the GAO concluded that accumulated and future pro-
posed funding was inadequate to achieve NRC Funding Lev-
els at a number of U.S. nuclear plants, including a number of
Generation’s plants. Generation has reviewed the GAO’s re-
port and believes that, in reaching its conclusions, the GAO
did not consider all aspects of Generation’s decommission-
ing strategy, such as fund growth during the decommission-
ing period. The inclusion of estimated earnings growth on
Generation’s nuclear trust funds during the decommission-
ing period virtually eliminates any funding shortfalls identi-
fied in the GAO report.
In spite of any temporary shortfall in NRC Funding Levels,
Generation currently believes that the amounts in nuclear
decommissioning trust funds and future collections from
ratepayers, together with earnings thereon, will provide
adequate funding to decommission its nuclear facilities in
accordance with regulatory requirements. Forecasting
investment earnings and costs to decommission nuclear
generating stations requires significant judgment, and ac-
tual results may differ significantly from our current esti-
mates. Ultimately, when decommissioning activities are
initiated, if the investments held by Generation’s nuclear
decommissioning trusts are not sufficient to fund the
decommissioning of Generation’s nuclear plants, Generation
may be required to identify other means of funding its de-
commissioning obligations.
Generation relies on electric transmission facilities that it
does not own or control. If operations at these facilities are
disrupted or do not provide Generation with adequate
transmission capacity, it may not be able to deliver its whole-
sale electric power to the purchasers of the power.
Generation depends on transmission facilities owned and
operated by other companies, including ComEd and PECO, to
deliver the power that it sells at wholesale. If transmission at
these facilities is disrupted, or transmission capacity is in-
adequate, Generation may not be able to sell and deliver its
wholesale power. While Generation was not significantly
affected by the failure in the transmission grid that served a
large portion of the Northeastern United States and Canada
during the August Blackout, the North American trans-
mission grid is highly interconnected and, in extraordinary
circumstances, disruptions at a point within the grid can
cause a systemic response that results in an extensive power
outage. If a region’s power transmission infrastructure is
inadequate, our recovery of wholesale costs and profits may
be limited. In addition, if restrictive transmission price regu-
lation is imposed, the transmission companies may not have
sufficient incentive to invest in expansion of transmission
infrastructure.