Exelon 2003 Annual Report Download - page 47

45Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXELON CORPORATION AND SUBSIDIARY COMPANIES
Energy Delivery and Exelon Energy Company. Sales to affili-
ates decreased primarily due to lower volume sales to
ComEd, offset by slightly higher prices. Sales to PECO were
lower, primarily due to lower prices, offset slightly by higher
volumes. Sales to Exelon Energy Company decreased primar-
ily due to the discontinuance of Exelon Energy Company
operations in the PJM region.
Other. Revenues also increased in 2003 as compared to 2002,
as a result of a $76 million increase in sales of excess fossil
fuel. The increased excess fossil fuel is a result of generating
plants in the Texas and New England regions operating at
less than projected levels. Also, revenue increased by $62 mil-
lion due to higher decommissioning revenue received from
ComEd in 2003 compared to 2002.
Purchased Power and Fuel Expense. The changes in Gen-
eration’s purchased power and fuel expense for 2003 com-
pared to 2002 consisted of the following:
Generation Variance
Exelon New England $429
Prices 350
Volume 46
Hedging activity 22
Other 20
Increase in purchased power and fuel expense $867
Exelon New England. Generation acquired Exelon New Eng-
land in November 2002 and Mystic units 8 and 9 began
commercial operations during the second quarter of 2003,
and Fore River began commercial operations during the
third quarter of 2003.
Prices. The increase reflects higher market prices in 2003.
Volume. Purchased power increased in 2003 due to an in-
crease in purchased power from AmerGen under a June
2003 PPA to purchase 100% of the output of Oyster Creek.
Prior to the June 2003 PPA, Generation did not purchase
power from Oyster Creek. Fuel expense increased due to in-
creases in fossil fuel generation required to meet the in-
creased market demand for energy and the acquisition of
generating plants in Texas in April 2002.
Hedging Activity. Mark-to-market losses on hedging activities
were $16 million in 2003 compared to a gain of $6 million
in 2002.
Other. Other increases in purchased power and fuel were
primarily due to additional nuclear fuel amortization of $16
million in 2003 resulting from under-performing fuel which
was completely replaced in May 2003, at the Quad Cities
Unit 1, and $10 million due to the writedown of coal in-
ventory in 2003 as a result of a fuel burn analysis.
Operating and Maintenance Expense. The changes in operat-
ing and maintenance expense for 2003 compared to 2002
consisted of the following:
Generation Variance
2003 asset impairment charge related to long-lived assets of
Boston Generating $ 945
Adoption of SFAS No. 143(a) 197
Increased costs due to generating asset acquisitions made
in 2002 78
Severance, pension and postretirement benefit costs
associated with The Exelon Way 60
Increased employee fringe benefits primarily due to
increased health care costs 54
Decreased refueling outage costs(b) (49)
2002 executive severance (19)
Other (32)
Increase in operating and maintenance expense $1,234
(a) Due to a reclassification of decommissioning-related expenses upon the adoption
of SFAS No. 143.
(b) Includes cost savings of $19 million related to one of Generation’s co-owned facili-
ties. Refueling outage days, not including Generation’s co-owned facilities, de-
creased from 202 in 2002 to 157 in 2003.
Depreciation and Amortization. The decrease in depreciation
and amortization expense in 2003 as compared to 2002 was
primarily attributable to a $130 million reduction in decom-
missioning expense net of ARC depreciation, as these costs
are included in operating and maintenance expense after
the adoption of SFAS No. 143 and a $12 million decrease due
to life extensions of assets acquired in 2002. The decrease
was partially offset by $65 million of additional depreciation
expense on capital additions placed in service in 2002, of
which $18 million of expense is related to plant acquisitions
made after the third quarter of 2002.
Effective Income Tax Rate. The effective income tax rate was
42.6% for 2003 compared to 35.9% for 2002. This increase was
primarily attributable to the impairments recorded in 2003
related to the long-lived assets of Boston Generating and Gen-
eration’s investment in Sithe which resulted in a pre-tax loss.
Other adjustments that affected income taxes include a de-
crease in tax-exempt interest recorded in 2003 and an increase
in nuclear decommissioning investment income for 2003.
Generation Operating Statistics
Generation’s sales and the supply of these sales, excluding
the trading portfolio, were as follows:
Sales (in GWhs) 2003 2002 % Change
Energy Delivery and Exelon
Energy Company 117,405 123,975 (5.3%)
Market sales 107,267 83,565 28.4%
Total sales 224,672 207,540 8.3%
Supply of Sales (in GWhs) 2003 2002 % Change
Nuclear generation(a) 117,502 115,854 1.4%
Purchases–non-trading
portfolio(b) 82,860 78,710 5.3%
Fossil and hydroelectric
generation 24,310 12,976 87.3%
Total supply 224,672 207,540 8.3%
(a) Excluding AmerGen.
(b) Including purchased power agreements with AmerGen.