Exelon 2003 Annual Report Download - page 79

77Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXELON CORPORATION AND SUBSIDIARY COMPANIES
ferences between the contract and market rates at De-
cember 31, 2003.
The aggregate fair value exposure of our interest-rate
swaps designated as cash-flow hedges that would have re-
sulted from a hypothetical 50 basis point decrease in the
spot yield at December 31, 2003 is estimated to be $89 mil-
lion. If the derivative instruments had been terminated at
December 31, 2003, this estimated fair value represents the
amount we would pay to the counterparties.
The aggregate fair value exposure of our interest-rate
swaps designated as cash-flow hedges that would have re-
sulted from a hypothetical 50 basis point increase in the spot
yield at December 31, 2003 is estimated to be $65 million. If
the derivative instruments had been terminated at De-
cember 31, 2003, this estimated fair value represents the
amount we would pay to the counterparties.
In January 2004, the counterparties terminated the
interest-rate swaps with Boston Generating. The total net
value of these swaps as of the respective termination dates
was $82 million, which is a net payable to the counterparties.
In 2003, Generation entered into forward-starting
interest-rate swaps in the aggregate notional amount of
$500 million to lock in interest-rate levels in anticipation of
future financings. The debt issuances that these swaps are
hedging were considered probable; therefore, Generation
accounted for these interest-rate swap transactions as
hedges. In connection with Generation’s 2003 issuance of
Senior Notes, Generation settled swaps with an aggregate
notional amount of $500 million for net cash proceeds of $1
million, which was recorded in other comprehensive income
and is being amortized over the life of the debt issuance.
Equity Price Risk
We maintain trust funds, as required by the NRC, to fund
certain costs of decommissioning our nuclear plants. As of
December 31, 2003, our decommissioning trust funds are re-
flected at fair value on our Consolidated Balance Sheets. The
mix of securities in the trust funds is designed to provide
returns to be used to fund decommissioning and to
compensate us for inflationary increases in decommission-
ing costs. However, the equity securities in the trust funds
are exposed to price fluctuations in equity markets, and the
value of fixed-rate, fixed-income securities are exposed to
changes in interest rates. We actively monitor the invest-
ment performance of the trust funds and periodically review
asset allocation in accordance with our nuclear decom-
missioning trust fund investment policy. A hypothetical 10%
increase in interest rates and decrease in equity prices would
result in a $303 million reduction in the fair value of the trust
assets. See Defined Benefit Pension and Other Postretire-
ment Welfare Benefits in the Critical Accounting Estimates
section for information regarding the pension and other
postretirement benefit trust assets.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 of the Notes to Consolidated Financial Statements
for information regarding new accounting pronouncements.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained in this report,
certain of the matters discussed in this Report are forward-
looking statements that are subject to risks and un-
certainties. The factors that could cause actual results to dif-
fer materially include those we have discussed in this report
as well as those listed in Note 19 of the Notes to Consolidated
Financial Statements and other factors discussed in our fil-
ings with the SEC. Readers should not place undue reliance
on these forward-looking statements, which speak only as of
the date of this Report. We undertake no obligation to pub-
licly release any revision to these forward-looking state-
ments to reflect events or circumstances after the date of
this Report.