Exelon 2003 Annual Report Download - page 41

39Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXELON CORPORATION AND SUBSIDIARY COMPANIES
ment of new, more efficient, electric generating facilities and
distribution methodologies may exceed increases in demand
in some regional electric markets. The introduction of new
technologies could increase competition, which could lower
prices and have an adverse effect on our results of oper-
ations or financial condition.
We may make acquisitions that do not achieve the intended
financial results.
We continue to opportunistically pursue investments that fit
our strategic objectives and improve our financial perform-
ance. Our future performance will depend in part upon a
variety of factors related to these investments, including our
ability to successfully integrate them into existing oper-
ations. These new investments, as well as our existing
investments, may not achieve the financial performance
that we anticipate.
RESULTS OF OPERATIONS
Year Ended December 31, 2003 Compared To Year Ended December 31, 2002
Exelon Corporation 2003 2002 Variance % Change
Operating revenues $15,812 $14,955 $ 857 5.7%
Purchased power and fuel expense 6,375 5,262 1,113 21.2%
Operating and maintenance expense 5,532 4,345 1,187 27.3%
Operating income 2,198 3,299 (1,101) (33.4%)
Other income and deductions (1,074) (631) (443) 70.2%
Income before income taxes and cumulative effect of changes in accounting
principles 1,124 2,668 (1,544) (57.9%)
Income before cumulative effect of changes in accounting principles 793 1,670 (877) (52.5%)
Net income 905 1,440 (535) (37.2%)
Diluted earnings per share 2.75 4.44 (1.69) (38.1%)
Net Income. Net income for 2003 reflects income of $112 mil-
lion, net of income taxes, for the adoption of SFAS No. 143,
“Asset Retirement Obligations” (SFAS No. 143), while net in-
come for 2002 reflects a $230 million charge, net of income
taxes, as a result of the adoption of SFAS No. 142. See Note 1
of the Notes to Consolidated Financial Statements for fur-
ther information regarding the adoptions of SFAS No. 143
and SFAS No. 142.
Operating Revenues. Operating revenues increased in 2003
primarily due to increased market sales at Generation due to
generating assets acquired in 2002 and higher wholesale
market prices in 2003. Total market sales at Generation, ex-
cluding the trading portfolio, increased from 83,565 GWhs in
2002 to 107,267 GWhs in 2003, and the average revenue per
MWh on Generation’s market sales, excluding the trading
portfolio, increased from $31.01 in 2002 to $35.99 in 2003.
This increase was partially offset by a decrease in Energy De-
livery’s revenues of $255 million primarily due to unfavorable
weather impacts and an increase in customers selecting an
alternative retail electric supplier (ARES) or ComEd’s PPO.
Enterprises also experienced a $276 million reduction in
operating revenues from 2002 to 2003, primarily due to the
sale of InfraSource during the third quarter of 2003. See fur-
ther discussion of operating revenues by segment below.
Purchased Power and Fuel Expense. Purchased power and
fuel expense increased in 2003 primarily due to generating
assets acquired in 2002 and higher market prices for pur-
chased power in 2003. The average cost per MWh supplied
by Generation, excluding the trading portfolio, increased
from $20.49 in 2002 to $22.79 in 2003 due to increased fossil
generation and increased purchased power at higher market
prices. Fossil and hydroelectric generation represented 11% of
Generation’s total supply in 2003 compared to 6% in 2002.
See further discussion of purchased power and fuel expense
by segment below.
Operating and Maintenance Expense. Operating and main-
tenance expense increased in 2003 primarily due to a
change in the accounting methodology for nuclear decom-
missioning, severance and severance-related costs asso-
ciated with The Exelon Way, and increased costs at
Generation associated with generating assets acquired in
2002. Partially offsetting these increases was an overall re-
duction in operating and maintenance expenses at Enter-
prises, primarily due to the sale of InfraSource during the
third quarter of 2003. See further discussion of operating
and maintenance expenses by segment below.
Operating Income. The decrease in operating income, ex-
clusive of the changes in operating revenues, purchased
power and fuel expense and operating and maintenance
expense discussed above, was primarily due to an impair-
ment charge of $945 million before income taxes recorded by
Generation related to the long-lived assets of Boston
Generating. Operating income was favorably affected by a
decrease of $214 million in depreciation and amortization