Exelon 2003 Annual Report Download - page 55

53Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXELON CORPORATION AND SUBSIDIARY COMPANIES
Net Income. The decrease in Generation’s net income was
primarily due to a decrease in operating revenues net of
purchased power and fuel expense and an increase in
operating and maintenance expense, partially offset by an
increase in income on its nuclear decommissioning trust
fund investments.
Cumulative effect of changes in accounting principles
recorded in 2002 and 2001 included income of $13 million,
net of income taxes, recorded in 2002 related to the adop-
tion of SFAS No. 142, and income of $12 million, net of income
taxes, recorded in 2001 related to the adoption of SFAS No.
133. See Note 1 of the Notes to Consolidated Financial State-
ments for further discussion of these effects.
Operating Revenues. The changes in Generation’s operating
revenues for 2002 compared to 2001 consisted of the
following:
Generation Variance
Energy Delivery and Exelon Energy Company $ 124
Market sales (85)
Trading margins (36)
Other 29
Increase in operating revenues $ 32
Energy Delivery and Exelon Energy Company. Sales to affili-
ates increased primarily due to higher prices. In addition, the
increase was a result of higher volume sales to ComEd, offset
by lower volume sales to PECO and Exelon Energy Company.
Market Sales. Revenue from market sales decreased primarily
due to a $6/MWh decrease in average market prices in 2002
compared to 2001. The decrease was partially offset by an
increase in market sales volume.
Trading Margins. Trading margins decreased $36 million, re-
flecting a $29 million loss for the year ended December 31,
2002 compared to a $7 million gain in the same period in
2001. The increase is primarily related to an increase in gas
prices in April 2002, which negatively affected Generation’s
trading positions.
Other. Revenues also increased $29 million in 2002 com-
pared to the same period in 2001, primarily as a result of in-
creased gas sales resulting from the Texas asset acquisition
in April 2002.
Purchased Power and Fuel Expense. Purchased power and
fuel expense increased $258 million, or 6% in 2002. The in-
crease is primarily due to increased purchased power and
fossil fuel volume. The increase in purchased power and fuel
was partially offset by a decrease in the average purchased
cost attributed to lower wholesale market prices and re-
duced transmission costs.
Operating and Maintenance Expense. The changes in operat-
ing and maintenance expense for 2002 compared to 2001
consisted of the following:
Generation Variance
Increased refueling outage costs(a) $80
Increased costs due to asset acquisitions made in 2002 21
2002 executive severance 19
Decreased payroll expense due to fewer number of
employees (8)
Other 16
Increase in operating and maintenance expense $128
(a) Refueling outage days, not including co-owned facilities, increased from 95 in 2001
to 202 in 2002.
Depreciation and Amortization. The decrease in depreciation
and amortization expense in 2002 as compared to 2001 was
due to a $42 million reduction in depreciation expense aris-
ing from the extension of the useful lives on certain gen-
eration facilities in 2001, partially offset by $32 million of
additional depreciation expense on capital additions placed
in service, including the Southeast Chicago Energy Project in
July 2002, and two generating plants acquired in April 2002.
Effective Income Tax Rate. Generation’s effective income
tax rate was 35.9% for 2002 compared to 39.0% for 2001.
This decrease was primarily attributable to an increase in
tax-exempt interest in 2002 and other tax benefits recorded
in 2002.
Generation Operating Statistics
Generation’s sales and the supply of these sales, excluding
the trading portfolio, were as follows:
Sales (in GWhs) 2002 2001 % Change
Energy Delivery and Exelon
Energy Company 123,975 123,793 0.1%
Market sales 83,565 72,333 15.5%
Total sales 207,540 196,126 5.8%
Supply of Sales (in GWhs) 2002 2001 % Change
Nuclear generation(a) 115,854 116,839 (0.8%)
Purchases—non-trading
portfolio(b) 78,710 67,942 15.8%
Fossil and hydroelectric
generation 12,976 11,345 14.4%
Total supply 207,540 196,126 5.8%
(a) Excluding AmerGen.
(b) Including purchased power agreements with AmerGen.
Trading volumes of 69,933 GWhs and 5,754 GWhs for 2002
and 2001, respectively, are not included in the table above.